Why the economic recovery cannot be sustained

realitykeeper

The Irish economy and western economies in general are allegedly recovering from recession. This is true but the recovery is inherently unsustainable and present economic policies will lead to economic catastrophe.

This video confirms what I have suspected for a long time:

http://www.youtube.com/watch?v=K-y2aqYwOQ0

Here is a summary of the video (which I have added to this thread retrospectively):

I think the main point the speaker is getting at is that the global wage differentials are completely inequitable and that will cause things to change in the west. For example a typical Chinese worker gets a tenth of the salary of a worker in the west even if they are doing similar work.

He then systematically dismantles all of the arguments that tend to be proffered by western media and governments with regard to the sustainability of the status quo. He explains how economic activity is moving east beginning with low paid manufacturing in the late eighties and gradually more and more higher paid employment is moving east. He asserts that this trend will continue and as incomes rise in the east they will fall in the west.

Finally he makes the point that Quantitative easing will eventually lead to a run on government bonds which will be catastrophic for the west. (Ireland is particularly vulnerable in this regard).

Comments & opinions for/against welcome. Here is that link again: http://www.youtube.com/watch?v=K-y2aqYwOQ0

Alfasudcrazy

Happy new year to you too. Did not view the vid yet but I like to think and assume that current low cost eastern countries will not remain such as affluence and expectations there rise. So things will balance out over time.

sarumite

The vid definitely on the long side (1hr 20 mins). Any chance of a summary?

golfwallah

realitykeeper wrote: »

The Irish economy and western economies in general are allegedly recovering from recession. This is true but the recovery is inherently unsustainable and present economic policies will lead to economic catastrophe.

This video confirms what I have suspected for a long time:
http://www.youtube.com/watch?v=K-y2aqYwOQ0

Comments & opinions for/against welcome.

Why do you think

the recovery is inherently unsustainable

and could you expand on why you think

present economic policies will lead to economic catastrophe

?

This would help us all to see how you arrived at your long held suspicions and prompt a more rounded debate (perhaps?).

Jawgap

realitykeeper wrote: »

The Irish economy and western economies in general are allegedly recovering from recession. This is true but the recovery is inherently unsustainable and present economic policies will lead to economic catastrophe.

This video confirms what I have suspected for a long time:
http://www.youtube.com/watch?v=K-y2aqYwOQ0

Comments & opinions for/against welcome.

Jon Moynihan is not a person to be ignored lightly - but the video is just his view. It confirms nothing other than he is a good speaker with some interesting views.

Lantus

Good speaker who knows his subject but it was a bit long! (I skipped some bits.)

However, like many other and often quite skilled and intelligent economists the core fundamentals have been overlooked. The fact that the entire world economy is a pyramid scheme (as it is dependant on infinite growth to work), that money is simply created out of thin air by banks and then over and over again through the fractionalised reserve banking system and the fact that the application of compound interest is money that has not yet even been created yet!

There is also the largely ignored issue of the $700 trillion derivatives bubble which is circling the drain.

micosoft

Lantus wrote: »

Good speaker who knows his subject but it was a bit long! (I skipped some bits.)

However, like many other and often quite skilled and intelligent economists the core fundamentals have been overlooked. The fact that the entire world economy is a pyramid scheme (as it is dependant on infinite growth to work), that money is simply created out of thin air by banks and then over and over again through the fractionalised reserve banking system and the fact that the application of compound interest is money that has not yet even been created yet!

There is also the largely ignored issue of the $700 trillion derivatives bubble which is circling the drain.

Barring some plague the population of the world/europe is always growing. Ergo the economy of the world will always grow in the long run as "the world" is one of those places a pyramid scheme actually works as new entrants are always coming along. If you overlook basic facts such as this you will struggle to understand the world. The rest is incoherent but I'm guessing you are one of those people that thinks money supply should be predicated on a countries gold reserves. That was debunked in the thirties.

I'd suggest you go to your local library and read a primar on economics rather then speed-playing a couple of Youtube videos and declared the Sky is about to fall down.

golfwallah

Here’s my take on the lecture by Jon Moynihan (PA Consulting Group), given at the LSE in 2012, in which he paints a detailed backdrop of fundamental decline in job & wages growth in the West (and I’d have to agree that most of what he says makes sense – unfortunately). Against this, he attempts to look at what governments have been doing in response to global economic change taking in trends for last 20 – 50 years. He concludes that government actions in QE, intervening in banks, stimulating the economy through a pyramid of borrowing, etc., are essentially tactical, short-term measures that won’t fix the fundamental causes of why western economies are faltering. Without fixing the underlying causes, it’s inevitable that jobs and wages in the west will continue to fall – catastrophically in the cases of Greece and Spain – unless managed in a much more clever way.

As things stand, he thinks that existing policy decisions are much more likely to move us towards catastrophic events, when policies should be based on getting the permission and understanding of the population about what is going wrong and implement what it will take to turn things around - really hard work to do, requiring at least 10 years before we see light at the end of the tunnel.

He feels that catastrophe, such as job and wage decline in Greece, is now looming for the remaining western economies and points towards things we might be able to do to prevent it – such as switching spending from consumption (e.g. on entitlement groups such as public sector pay and welfare) to investment in future wealth generation (e.g. education and infrastructure). In the final analysis, it’s all about competition between the developed west and the developing economies such as China and India. Most low-skilled and paid jobs have already moved to the developing countries and this trend continues for jobs higher up the know-how / skill chain.

The problems:
– Western politicians have been spending too high a proportion of their countries’ GDPs on consumption in order to “buy” votes from the many and varied interest groups that now dominate society and are now dependent on the continued support of these vested interests to stay in power.
– This is happening at the expense of investment in education and infrastructure needed to drive economies, wages and jobs forward.
– Competing developing countries have and continue to invest in education and infrastructure, which is why they have already attracted the jobs / wages at the lower end of the spectrum and are now doing the same thing for the higher end jobs.

The solutions:
– Re-orient government spending – in favour of education and infrastructure
– Reform the banks (to stop them from earning excess profits and paying themselves too much)
– Tax properly (move from taxing corporations and people towards taxing consumption and property)
– Develop New Technologies (encourage manufacturing with its employment multiplier for service jobs plus concrete government encouragement of new technology development)
– Accept immediate cuts in living standards (increase retirement age, lower entitlements, lower wages, act immediately because delays will mean higher drops in living standards)

Any politicians who puts forward these solutions is never going to get elected. Meanwhile little or no action being taken on the actions required to provide these solutions – particularly in Europe, whereas the US seems to have kicked the can down the road for a bit longer.

Finally he talks about quantitative easing – too much leads to hyperinflation, too little to deflation but the big worry is what happens when the Chinese lose faith in the West and stop buying up government debt in the form of bonds.

But whatever happens, capitalism can’t be kept going by a growing pyramid of debt – it requires a surplus for investment (through managed belt tightening or catastrophically as is happening in Greece and looming in Japan). Lots can be done but it has to start with everyone understanding the fix we’re in and accepting the hard decisions that have to be made to get us out of the mess.

golfwallah

Another manifestation of China's economic power in a changing global economy - expanding naval power evidenced by sea trials of their first aircraft carrier, The Liaoning:
http://www.independent.co.uk/news/world/asia/chinas-liaoning-aircraft-carrier-completes-sea-trials-9034335.html

Note that

China claims virtually the entire South China Sea. A recent expansion of its naval reach has challenged the decades-old American dominance and alarmed its smaller neighbours, particularly the Philippines and Vietnam, which have competing territorial claims with Beijing to a string of islands.

.

Rightwing

I didn't look at the video, but 1 aspect is the rising bond yield. U.S 10 yr is gone over 3%, I can see this go much higher, which will leave an ugly aftermath.

Lantus

micosoft wrote: »

Barring some plague the population of the world/europe is always growing. Ergo the economy of the world will always grow in the long run as "the world" is one of those places a pyramid scheme actually works as new entrants are always coming along. If you overlook basic facts such as this you will struggle to understand the world. The rest is incoherent but I'm guessing you are one of those people that thinks money supply should be predicated on a countries gold reserves. That was debunked in the thirties.

I'd suggest you go to your local library and read a primar on economics rather then speed-playing a couple of Youtube videos and declared the Sky is about to fall down.

Pyramid schemes don't work, they typically require an exponential growth rate on the new entrant bottom layer which would require a world populated by countless trillions of people which is unsustainable.

In terms of the other points fractionalised reserve banking is the method by which banks lend out money multiple times. This is the standard method of banking used by all banks. Basically if I deposit say 10k in a bank they keep 10% as the reserve and then they can lend out the rest as a loan (9k) the recipient of the 9k loan puts it in their bank they lend out 8100, and so on. You can turn 10k into 100k through lending it out multiple times. The same money all in different places. Of course the bank doesn't actually give out the 9k as cash. Its a computer transfer and an accounting entry.

Modern money mechanics by the federal reserve is a good read.

Where we tend to fall down is we take an individual understanding of money in terms of money we get in and what we spend and then we scale this up to the larger economy. This is incorrect.

In terms of interest if there is say 4 trillion in the world today and it has an average of 10% interest owing on it then where does that money come from? All money is created by banks and all banks charge interest. Money quite simply is debt.

People often talk about 'growth' but I have never seen a company print money, they just exchange it and as some companies expand it looks like they are growing. In monopoly there is lots of growth but the total amount of money in the game remains the same. In our real life game the banks create more money to keep the game going and give us the impression that somehow we are all doing something worthwhile.

I wouldn't like to see any monetary system at all. We have the technology to make virtually all menial jobs redundant and undertaken by machines. A system which keeps the majority of the worlds population starving and at war needs to be thrown away. It served its purpose.

Rightwing

Rightwing wrote: »

I didn't look at the video, but 1 aspect is the rising bond yield. U.S 10 yr is gone over 10%, I can see this go much higher, which will leave an ugly aftermath.

What?

U.S. 10 year bond rates have averaged 3.49% over the last decade, and currently stand at 2.99%.

http://www.bloomberg.com/news/2014-01-02/treasury-10-year-notes-fall-as-yield-rises-to-highest-since-2011.html


http://www.bloomberg.com/quote/USGG10YR:IND

Godge

Deleted User wrote: »

What?

U.S. 10 year bond rates have averaged 3.49% over the last decade, and currently stand at 2.99%.

http://www.bloomberg.com/news/2014-01-02/treasury-10-year-notes-fall-as-yield-rises-to-highest-since-2011.html


http://www.bloomberg.com/quote/USGG10YR:IND

Don't expect reality on these boards

realitykeeper

Deleted User wrote: »

What?

U.S. 10 year bond rates have averaged 3.49% over the last decade, and currently stand at 2.99%.

http://www.bloomberg.com/news/2014-01-02/treasury-10-year-notes-fall-as-yield-rises-to-highest-since-2011.html


http://www.bloomberg.com/quote/USGG10YR:IND

In 2008 the crisis was mainly confined to the banks. The next crisis will probably involve government bonds and currencies such as the US dollar, the yen - I`m not sure how it will play out in the Eurozone but I suspect the German`s will protect the Euro from hyperinflation. The government bond yields in countries like Ireland and Greece will go through the roof at which point Ireland, Greece and a few other pigs will default. This may cause a banking crisis in Germany but from a German perspective it would be the lesser of two evils. So the concern is to do with the future not the past.

RichardAnd

micosoft wrote: »

Barring some plague the population of the world/europe is always growing. Ergo the economy of the world will always grow in the long run as "the world" is one of those places a pyramid scheme actually works as new entrants are always coming along. If you overlook basic facts such as this you will struggle to understand the world. The rest is incoherent but I'm guessing you are one of those people that thinks money supply should be predicated on a countries gold reserves. That was debunked in the thirties.

I'd suggest you go to your local library and read a primar on economics rather then speed-playing a couple of Youtube videos and declared the Sky is about to fall down.

It is true that the human population is ever on the rise and has been since the the last great population reduction (a little thing called the Black Death.) However, the fact that some people seem to think that this fact makes a pyramid scheme sustainable is only a symptom of the mentality that allowed such a scheme to be created.

Population growth might be good for the big game of global economics, but it's not good for the very real and very palpable planetary environment. Sure, more people means more consumers and workers, but what are they consuming exactly? Every human is one more life form competing for its place in an already over-populated world. Earth's capacity to produce food, water, living space and all the rest is limited. Already, if all humans gathered in one place, the combined surface area taken up would be the size of Libya. Considering that they all need food, water and shelter, how long do you think that can go on for?

What about all the other species on the planet? Is it right that they loose out just so that human can sustain a system that will, if things carry on as they are, implode?

I'm expecting responses that call me a "tree-hugger" or a "hippie." Please try to be polite everyone

zl1whqvjs75cdy

So what your saying is, we need black death mark II. I'm on it. I'll flog the vaccine 6 months prior to release and be really rich. This economics malark is easy.

gaius c

donkeyoaty0099 wrote: »

So what your saying is, we need black death mark II. I'm on it. I'll flog the vaccine 6 months prior to release and be really rich. This economics malark is easy.

Funny enough, the medieval European economy boomed after the black death and the peasants enjoyed much improved social mobility.

So there you have it, the black death in Ireland would be good for house prices!

Calibos

With declining birth rates even in the developing world we are broadly on track for the population to level off at 10 billion this century

Rightwing

Deleted User wrote: »

What?

U.S. 10 year bond rates have averaged 3.49% over the last decade, and currently stand at 2.99%.

http://www.bloomberg.com/news/2014-01-02/treasury-10-year-notes-fall-as-yield-rises-to-highest-since-2011.html


http://www.bloomberg.com/quote/USGG10YR:IND[/QUOTE]


The key point being, the US has so much debt now it's almost unserviceable. Obama alone has added trillions. When you accumulate so much debt you need bond yields low,,,,just ask Greece/Irl.

golfwallah

Rightwing wrote: »

Deleted User wrote: »

What?

U.S. 10 year bond rates have averaged 3.49% over the last decade, and currently stand at 2.99%.

http://www.bloomberg.com/news/2014-01-02/treasury-10-year-notes-fall-as-yield-rises-to-highest-since-2011.html


http://www.bloomberg.com/quote/USGG10YR:IND[/QUOTE]


The key point being, the US has so much debt now it's almost unserviceable. Obama alone has added trillions. When you accumulate so much debt you need bond yields low,,,,just ask Greece/Irl.

Depending on low bond yields to service a growing debt mountain is a very risky strategy, should any unforeseen major event impact further on the global economy!

Scofflaw

gaius c wrote: »

Funny enough, the medieval European economy boomed after the black death and the peasants enjoyed much improved social mobility.

So there you have it, the black death in Ireland would be good for house prices!

Well, not quite - good for "house ownership", in the sense that house prices would go down, the remaining population would trade up to the better houses left empty, and we could abandon the worst, say, third of Irish properties.

The prosperity after the Black Death was a combination of the release of previously hoarded wealth, the willingness to spend of survivors (because who knew?), the release of scarce resources, and the higher wages attendant on a scarcity of labour.

cordially,
Scofflaw

golfwallah

Jon Moynihan put forward 5 main areas in which solutions are required in order to avoid financial meltdown in Western economies:

– Re-orient government spending – in favour of education and infrastructure
– Reform the banks (to stop them from earning excess profits and paying themselves too much)
– Tax properly (move from taxing corporations and people towards taxing consumption and property)
– Develop New Technologies (encourage manufacturing with its employment multiplier for service jobs plus concrete government encouragement of new technology development)
– Accept immediate cuts in living standards (increase retirement age, lower entitlements, lower wages, act immediately because delays will mean higher drops in living standards)

Each one of these areas is quite large and probably warrants a separate thread. I’ll start one on Reform of the banks. Any takers for the others?

Rightwing

golfwallah wrote: »

Jon Moynihan put forward 5 main areas in which solutions are required in order to avoid financial meltdown in Western economies:


Each one of these areas is quite large and probably warrants a separate thread. I’ll start one on Reform of the banks. Any takers for the others?

I agree with them all apart the 3rd one, but it probably depends on the corporation tax rate, Irl is too low, US too high.

Rightwing

Rightwing wrote: »

The key point being, the US has so much debt now it's almost unserviceable. Obama alone has added trillions. When you accumulate so much debt you need bond yields low,,,,just ask Greece/Irl.

The key point being that you didn't have a clue what the yield on U.S. Government 10-year bonds was, so you overstated it by a factor of more than three.

This was despite the presence on the internet of Google and Bloomberg, which I used to find the correct rates in somewhere between 20 and 30 seconds.

I suppose it's not absolutely essential to know something - anything - about a subject before wading in, but it helps. It really helps. And in this search engine-enabled world, it can also help to know where to look something up.

People who can't manage or don't bother with this bit of basic information management and retrieval shouldn't be surprised if those of us who can and do aren't inclined to give their notions all that much credence.

realitykeeper

golfwallah wrote: »

Jon Moynihan put forward 5 main areas in which solutions are required in order to avoid financial meltdown in Western economies.

His suggestion of taxing consumption and property over people and corporations makes sense. The problem with taxing consumption is that people will shop north or the border. Property is the one thing that cannot be moved so that could be taxed heavily.

gaius c

Scofflaw wrote: »

Well, not quite - good for "house ownership", in the sense that house prices would go down, the remaining population would trade up to the better houses left empty, and we could abandon the worst, say, third of Irish properties.

The prosperity after the Black Death was a combination of the release of previously hoarded wealth, the willingness to spend of survivors (because who knew?), the release of scarce resources, and the higher wages attendant on a scarcity of labour.

cordially,
Scofflaw

Second line was completely tongue-in-cheek.

gaius c

The reason I think we're heading for big trouble.

The music has to stop someday and when it does, the charade of 0% financing for Irish zombie banks is going to become a very minor concern.

Rightwing

Deleted User wrote: »

The key point being that you didn't have a clue what the yield on U.S. Government 10-year bonds was, so you overstated it by a factor of more than three.

This was despite the presence on the internet of Google and Bloomberg, which I used to find the correct rates in somewhere between 20 and 30 seconds.

I suppose it's not absolutely essential to know something - anything - about a subject before wading in, but it helps. It really helps. And in this search engine-enabled world, it can also help to know where to look something up.

People who can't manage or don't bother with this bit of basic information management and retrieval shouldn't be surprised if those of us who can and do aren't inclined to give their notions all that much credence.

I trade in bonds, and have done so for many years. I had to go back and check my original post, and indeed it should have read gone over 3%. If the 10yr bonds went to 10%, the entire financial system as we know it would collapse. The governments don't have the same flexibility as before, because of wreckless policies carried out by central banks. The bond yields are worrying Bernanke & co.

golfwallah

golfwallah wrote: »

Here’s my take on the lecture by Jon Moynihan (PA Consulting Group), given at the LSE in 2012, in which he paints a detailed backdrop of fundamental decline in job & wages growth in the West (and I’d have to agree that most of what he says makes sense – unfortunately). Against this, he attempts to look at what governments have been doing in response to global economic change taking in trends for last 20 – 50 years. He concludes that government actions in QE, intervening in banks, stimulating the economy through a pyramid of borrowing, etc., are essentially tactical, short-term measures that won’t fix the fundamental causes of why western economies are faltering. Without fixing the underlying causes, it’s inevitable that jobs and wages in the west will continue to fall – catastrophically in the cases of Greece and Spain – unless managed in a much more clever way.

As things stand, he thinks that existing policy decisions are much more likely to move us towards catastrophic events, when policies should be based on getting the permission and understanding of the population about what is going wrong and implement what it will take to turn things around - really hard work to do, requiring at least 10 years before we see light at the end of the tunnel.

He feels that catastrophe, such as job and wage decline in Greece, is now looming for the remaining western economies and points towards things we might be able to do to prevent it – such as switching spending from consumption (e.g. on entitlement groups such as public sector pay and welfare) to investment in future wealth generation (e.g. education and infrastructure). In the final analysis, it’s all about competition between the developed west and the developing economies such as China and India. Most low-skilled and paid jobs have already moved to the developing countries and this trend continues for jobs higher up the know-how / skill chain.

The problems:
– Western politicians have been spending too high a proportion of their countries’ GDPs on consumption in order to “buy” votes from the many and varied interest groups that now dominate society and are now dependent on the continued support of these vested interests to stay in power.
– This is happening at the expense of investment in education and infrastructure needed to drive economies, wages and jobs forward.
– Competing developing countries have and continue to invest in education and infrastructure, which is why they have already attracted the jobs / wages at the lower end of the spectrum and are now doing the same thing for the higher end jobs.

The solutions:
– Re-orient government spending – in favour of education and infrastructure
– Reform the banks (to stop them from earning excess profits and paying themselves too much)
– Tax properly (move from taxing corporations and people towards taxing consumption and property)
– Develop New Technologies (encourage manufacturing with its employment multiplier for service jobs plus concrete government encouragement of new technology development)
– Accept immediate cuts in living standards (increase retirement age, lower entitlements, lower wages, act immediately because delays will mean higher drops in living standards)

Any politicians who puts forward these solutions is never going to get elected. Meanwhile little or no action being taken on the actions required to provide these solutions – particularly in Europe, whereas the US seems to have kicked the can down the road for a bit longer.

Finally he talks about quantitative easing – too much leads to hyperinflation, too little to deflation but the big worry is what happens when the Chinese lose faith in the West and stop buying up government debt in the form of bonds.

But whatever happens, capitalism can’t be kept going by a growing pyramid of debt – it requires a surplus for investment (through managed belt tightening or catastrophically as is happening in Greece and looming in Japan). Lots can be done but it has to start with everyone understanding the fix we’re in and accepting the hard decisions that have to be made to get us out of the mess.

Surly if you tax consumption you will end up with the law of diminishing returns plus is the economy not largely based on the consumption of manufactured good such as cars, ipads, medication, etc. So if taxing consumption leads to a fall in consumption will that not ultimately collapse the economy.

Also will it be you family member that ends up in a forty bedded ward of a crumbling hospital or even with out access to any form of health care because government spending has been reoriented or will it be someone else.

Would retreating form the modern social welfare state not cause a collapse of society as we know it or do you think all you plans cans all be achieved smoothly with the acceptance of large amounts of society.

Rightwing

Rightwing wrote: »

I trade in bonds, and have done so for many years. I had to go back and check my original post, and indeed it should have read gone over 3%.

Check again. The story is that the yield on U.S. 10-year bonds recently went under 3% - not over as you incorrectly assert.

In fact, the most recent move has been an increase from 2.98 to 2.99 percent. I don't trade in bonds, and it took me (yet again) about 20 seconds to find that out.

http://www.bloomberg.com/quote/USGG10YR:IND

Rightwing wrote: »

If the 10yr bonds went to 10%, the entire financial system as we know it would collapse.

Ooooh. What would happen if the yield on 10-year bonds went to 20%? Would it be twice as bad?

To introduce some sense of reality and proportion into the discussion, what do you think would the effect be on the cost of servicing the U.S. debt of a straightforward 1% increase in the 10-year bond percentage yield? At today's rates, that would be an increase from 2.99% to 3.99%.

realitykeeper

mariaalice wrote: »

Surly if you tax consumption you will end up with the law of diminishing returns plus is the economy not largely based on the consumption of manufactured good such as cars, ipads, medication, etc. So if taxing consumption leads to a fall in consumption will that not ultimately collapse the economy.

Also will it be you family member that ends up in a forty bedded ward of a crumbling hospital or even with out access to any form of health care because government spending has been reoriented or will it be someone else.

Would retreating form the modern social welfare state not cause a collapse of society as we know it or do you think all you plans cans all be achieved smoothly with the acceptance of large amounts of society.

Internal economic activity in the Irish economy (fueled by government borrowing) gives the illusion of growth but as long as the external deficit exists - the real problem will continue to get bigger until the bubble pops and we get the depression we were supposed to get in 2008, times 10.

The bubble is government debt. It is sustainable only as long as bond interest rates remain low and they will not remain low forever. Given the nature of the markets, when interest rates rise on government debt - they will sky-rocket.

Controlled fiscal rectitude may be unpleasant for your granny in the hospital but the alternative (uncontrolled fiscal rectitude) will be a thousand times worse. The so called "austerity" we have had since 2008 was not austerity - it was the opposite, a massive splurge of borrowing and spending. When the economy will collapse is uncertain, I think it will be in 2015. I know it will be ugly.

realitykeeper

realitykeeper wrote: »

The bubble is government debt. It is sustainable only as long as bond interest rates remain low and they will not remain low forever. Given the nature of the markets, when interest rates rise on government debt - they will sky-rocket.

If yields on Irish government bonds were to rise - let's say significantly, doubling from 3.4% to 6.8% in the case of 10-year bonds - what effect would that have on the cost of servicing Irish government debt?

realitykeeper

Deleted User wrote: »

If yields on Irish government bonds were to rise - let's say significantly, doubling from 3.4% to 6.8% in the case of 10-year bonds - what effect would that have on the cost of servicing Irish government debt?

I think servicing the debt is about 6 billion euro per year at present. Doubling the interest would double the payments. That said, doubling the interest does not really represent what could happen. A tenfold increase is not implausible when you consider a market panic when the herd instinct takes over. Such an event would not be confined to Ireland but to the US, Japan and the pigs. In other words there would be no bailout because the-too-big-to-fail policy was never going to work.

BuilderPlumber

Economic recovery in Ireland cannot be sustained as long as we have hardline buffoons like Kenny and co in power. We need caring, moderate, for the people government that is interested in sharing the wealth and not confiscating it. Ireland has seen increased poverty every year and there is hardly any recovery let alone a sustainable one thus far! And there can't be as long as hardliners remain in power, siphoning our resources to their own mills and dictating 'tough medicine for recovery' lies to the people. As the old IRA would say, 'Tiochfaidh ar La'. And Kenny's day is coming to an end soon.

realitykeeper

realitykeeper wrote: »

I think servicing the debt is about 6 billion euro per year at present. Doubling the interest would double the payments.

You mean the debt servicing cost would increase to €12 billion?

Over what timescale?

If the yield doubled immediately - in other words, by close of business on Monday - how long do you say it would take for the debt servicing cost to increase to €12 billion?

AlmightyCushion

BuilderPlumber wrote: »

Economic recovery in Ireland cannot be sustained as long as we have hardline buffoons like Kenny and co in power. We need caring, moderate, for the people government that is interested in sharing the wealth and not confiscating it. Ireland has seen increased poverty every year and there is hardly any recovery let alone a sustainable one thus far! And there can't be as long as hardliners remain in power, siphoning our resources to their own mills and dictating 'tough medicine for recovery' lies to the people. As the old IRA would say, 'Tiochfaidh ar La'. And Kenny's day is coming to an end soon.

What wealth? The state borrowed €11.5B later year. That can't continue indefinitely.

Chazz Michael Michaels

gaius c wrote: »

The reason I think we're heading for big trouble.

The music has to stop someday and when it does, the charade of 0% financing for Irish zombie banks is going to become a very minor concern.

What???????? There's a cycle????????? What????????? We must name this!!!!!! Ummm. Ummmm. A business cycle!!!!!!!

BuilderPlumber

AlmightyCushion wrote: »

What wealth? The state borrowed €11.5B later year. That can't continue indefinitely.

Look at what the politicians earn for starters? They are just as bad as Kim's of North Korea without the guns. And voted in to distribute equality and wealth and to change things. They are illegitimate. The old IRA have work to do.

I will believe Ireland cannot afford this and that when our greedy politicians (who make drug dealers look like saints) cut their salaries, perks and expenses significantly. That won't happen under Kenny's elitist regime.

AlmightyCushion

BuilderPlumber wrote: »

Look at what the politicians earn for starters? They are just as bad as Kim's of North Korea without the guns. And voted in to distribute equality and wealth and to change things. They are illegitimate. The old IRA have work to do.

They've taken pay cuts since coming in to power (although they still need to sort out expenses, they're beyond ridiculous). Even if they worked for free it would save very little, probably a fraction of a percent of the deficit. Although, you are advocating for the return of the IRA, a bunch of murderers, so there is probably little point in discussing the matter.

BuilderPlumber

AlmightyCushion wrote: »

They've taken pay cuts since coming in to power (although they still need to sort out expenses, they're beyond ridiculous). Even if they worked for free it would save very little, probably a fraction of a percent of the deficit. Although, you are advocating for the return of the IRA, a bunch of murderers, so there is probably little point in discussing the matter.

The ideals of Pearse and Connolly I mean as well as other patriots like Emmett, Wolfe Tone and Parnell. NOT bloody Adams and co's hypocricy. The old IRA and their predecessors had a gallant cause that was then hijacked by terrorists and corrupt politicians ever since. They would turn in their graves. The old values are needed.

Our current useless politicians will do nothing to aid their own communities and haven't a clue even if they wanted to. Kenny is a grandstanding mini Hitler without the violence (Mario Rosenstock was no too far wrong in his sketch!) and the rest are sheep and yesmen. The overpaid topdogs in politics and their expenses would save a fraction, but is is a saving and extend that to other overpaid sectors and you save a tonne. Money can then be spent to employ people and improve the country's services. Taxes are supposed to be to provide services and jobs and not to be banked by some elite. Ireland needs to rid itself of the current politicians for good. None of them deserve anything: Adams is a disgrace to his old IRA ancestors, FF are hypocrites, FG under Kenny broke all their promises and are ruling as a dictatorship as they are doing the direct opposite to what the people demanded. We see no Seanie Fitz in prison or Bertie. Kenny deserves to admit himself into Mountjoy too and it would be a nice gesture. As for Sean Dunne? He will be looked after too! Irish system = sick. Just have Kenny shoot Lucinda Creighton for the complete North Korea in luxury effect!

Rightwing

Deleted User wrote: »

Check again. The story is that the yield on U.S. 10-year bonds recently went under 3% - not over as you incorrectly assert.

In fact, the most recent move has been an increase from 2.98 to 2.99 percent. I don't trade in bonds, and it took me (yet again) about 20 seconds to find that out.

http://www.bloomberg.com/quote/USGG10YR:IND


.

No, the yield went over 3%, the highest since July 2011 when S&P downgraded the U.S. It has been steadily rising since the Fed reserve mentionned tapering. There will be dips along the way but these aren't worth mentioning. It probably takes more than 20 seconds to gain an understanding of it.

gaius c

BuilderPlumber wrote: »

Look at what the politicians earn for starters? They are just as bad as Kim's of North Korea without the guns. And voted in to distribute equality and wealth and to change things. They are illegitimate. The old IRA have work to do.

I will believe Ireland cannot afford this and that when our greedy politicians (who make drug dealers look like saints) cut their salaries, perks and expenses significantly. That won't happen under Kenny's elitist regime.

They are illegitimate.

They are illegitimate.

They are illegitimate.

Mother'o'god...

The old IRA have work to do.

Aye. Tom McFeeley's buddies are exactly the sort of folk we need to pop into Northern Bank and come up with some quick cash to get us out of this mess.

Rightwing

Rightwing wrote: »

No, the yield went over 3%, the highest since July 2011 when S&P downgraded the U.S. It has been steadily rising since the Fed reserve mentionned tapering. There will be dips along the way but these aren't worth mentioning. It probably takes more than 20 seconds to gain an understanding of it.

Of course there will be dips along the way. The point is not that the rate has risen to around 3%. The point is that at around 3% the rate is still below the average over the previous 10 years.

As for the notion that they'd risen to 10%......

Rightwing

Rightwing wrote: »

No, the yield went over 3%, the highest since July 2011 when S&P downgraded the U.S. It has been steadily rising since the Fed reserve mentionned tapering. There will be dips along the way but these aren't worth mentioning. It probably takes more than 20 seconds to gain an understanding of it.

You seem to have missed this:

Deleted User wrote: »

To introduce some sense of reality and proportion into the discussion, what do you think would the effect be on the cost of servicing the U.S. debt of a straightforward 1% increase in the 10-year bond percentage yield? At today's rates, that would be an increase from 2.99% to 3.99%.

At current rates, that would be an increase from 3.01% to 4.01%, but it's still a 1 percentage point increase.

So what do you think?

RichardAnd

Lantus wrote: »

I wouldn't like to see any monetary system at all. We have the technology to make virtually all menial jobs redundant and undertaken by machines. A system which keeps the majority of the worlds population starving and at war needs to be thrown away. It served its purpose.

I agree completely. I mentioned the Black Death in my earlier post. What's often missed about that terrible plague is that it was the major catalyst for the Renaissance. After the Black Death, people began to think more for themselves as opposed to allowing religion to guide their lives.

In the modern world, the shackles of religion have, in my opinion, been replaced by those of money. Everything is geared towards the capitalist economy. Anyone who questions the power of the all-mighty dollar is often treated akin to those brave souls who stood up to the power of religion in the middle ages. Then, as now, there was a system in place that greatly benefited a few at the expense of the many and of the planet. What's changed?

It is my belief that a second Renaissance is needed. I personally think that something will happen at some point in the future to utterly shake the collective belief in the monetary and financial system. I don't know what that will be, and I have no desire for any disaster to come to pass. However, the lingering shred of faith that I have in my own species inspires hope. Perhaps humanity will, someday, become a mature race.

Rightwing

Deleted User wrote: »

Of course there will be dips along the way. The point is not that the rate has risen to around 3%. The point is that at around 3% the rate is still below the average over the previous 10 years.

As for the notion that they'd risen to 10%......

Deleted User wrote: »

You seem to have missed this:



At current rates, that would be an increase from 3.01% to 4.01%, but it's still a 1 percentage point increase.

So what do you think?

Well considering the yield was 1.66% a year ago, I think it's safe to say it has risen to 3%. The Fed Reserve is by far the biggest buyer of these bonds and it has indicated that it will cutback if not cease buying altogether. This is the reason for the rise, and this is what's worrying the Fed, can it extricate itself from this market without panic setting in.

4.01% would not represent a problem, if that's the highest the yield went to.

Scofflaw

gaius c wrote: »

The reason I think we're heading for big trouble.

The music has to stop someday and when it does, the charade of 0% financing for Irish zombie banks is going to become a very minor concern.

I would say the graph illustrates the point that the music only stops briefly. There's a lot of money floating around out there looking for a return, and when one avenue closes, another must be found. And the money doesn't care whether the investment is productive or unproductive in itself, only about the returns.

cordially,
Scofflaw

gaius c

Chazz Michael Michaels wrote: »

What???????? There's a cycle????????? What????????? We must name this!!!!!! Ummm. Ummmm. A business cycle!!!!!!!

Aye and there's only so long we can keep warding off recessions by blowing new bubbles.

Rightwing

Scofflaw wrote: »

I would say the graph illustrates the point that the music only stops briefly. There's a lot of money floating around out there looking for a return, and when one avenue closes, another must be found. And the money doesn't care whether the investment is productive or unproductive in itself, only about the returns.

cordially,
Scofflaw

That's the problem. Too much money, interest rates are at historical lows, the problems will arise when the CBs are forced to up the interest rates.

golfwallah

Rightwing wrote: »

That's the problem. Too much money, interest rates are at historical lows, the problems will arise when the CBs are forced to up the interest rates.

This is most likely a reflection of supply and demand, I would think. There’s lots of money around for investment but too few new business ventures and existing business expansions to invest in.

It’s not as if there are no problems around to be solved in the world. The trick is to identify the specific opportunities and find ways of best harnessing the available money into ventures that will produce future wealth.

The problem is joining the dots so that individuals, companies and government can bring together the investment and know-how (business idea, marketing, technical, finance, etc.) to avail of these opportunities.

For individuals in the West, these days, the opportunities seem to be in creative and new technology areas. For profitable existing businesses there are opportunities in extending proven business models more widely, through take-overs, etc. I’m sure there are lots more areas that people can come up with.

But for government, it has to come down to infrastructure (e.g. broadband, public transportation, etc.) and education (to meet market driven needs), to provide the wherewithal to their populations to solve the real problems of today and tomorrow.

golfwallah

mariaalice wrote: »

Surly if you tax consumption you will end up with the law of diminishing returns plus is the economy not largely based on the consumption of manufactured good such as cars, ipads, medication, etc. So if taxing consumption leads to a fall in consumption will that not ultimately collapse the economy.

Also will it be you family member that ends up in a forty bedded ward of a crumbling hospital or even with out access to any form of health care because government spending has been reoriented or will it be someone else.

Would retreating form the modern social welfare state not cause a collapse of society as we know it or do you think all you plans cans all be achieved smoothly with the acceptance of large amounts of society.

I'm reposting this as it was lost in the weekend maintenance job:

First of all these are not my plans – these are proposed solutions to mounting debt, put forward by Jon Moynihan, as the lesser of two evils (immediate debt reduction / cut backs as opposed to default / catastrophic cut backs). Unpalatable and all as they are, the immediate solutions proposed are preferable to the catastrophic solutions being implemented in countries that can no longer service or increase their debt (such as Greece).

Until recently, Jon Moynihan was Executive Chairman of PA Consulting Group, an employee-owned firm of over 2,000 people, specialising in management and IT consulting, technology and innovation. A quick Google search will show that he has years of experience at high levels in industry and government. Earlier in his career he worked in India and Bangladesh, for War on Want and Save the Children and continues to promote innovation and new technology as long term solutions to peoples’ problems today.

So these are not extreme right wing solutions – they are practical steps that need to be taken to move from living way beyond our means to living within our means. It’s a fact of life that we all have to pay our way and borrowing is just a way of putting off that reality for a while – unfortunately, this can be years when it comes to governments.

It’s up to our elected representatives to bring us back to that reality and offer alternative solutions. Unfortunately, the solution being implemented by our government is to move from a debt level of 124% of annual earnings (GDP) to 93% between now and 2020. During those seven years, we have to grow the economy by 2 – 3.5% annually, reduce unemployment and have to borrow from the international markets, who will only lend us money if they believe they will be paid back. Moreover the rate of interest the markets charge depends on how they view the risk attached to it (and borrowing levels above 90% of GDP are considered risky).

The point being made by Jon Moynihan is that we have to compete with the developing countries, who are up-skilling at a fast rate, and at the same time find politically acceptable ways to reduce government spending.

None of this is going to be easy, but then, that’s what we elect our politicians to do – or maybe we prefer the grubby little illusion that we can reduce our debts without making unpopular changes?