Repaying Irish bonds

realitykeeper

The Irish government is no stranger to loan sharks who then come looking for their money back from the Irish people. Since the Irish government seems incapable of refraining from borrowing, would it not be wise to use the borrowings in such a way as to ensure they are invested profitably?

Specifically, should the borrowed money be invested in a country that can compete economically because it has no minimum wage or silly regulations to hamper businesses. Indeed, should Ireland use its borrowings to invest in a country whose inhabitants are not in denial about the amount of alcohol they consume and whose people are used to a bit of hardship and backbreaking work and where the trade union movement is prevented from holding the entire nation to ransom.

In short, since Ireland is not a good investment for so many reasons, should the Irish government use the ECB QE money to invest in Africa instead of using it for buying Irish bonds. The profits would not only repay the ECB loans but could also help clear the existing Irish national debt.

By doing this, Ireland and other peripheral European countries could help stem the influx of immigrants by providing opportunities in their own countries. A win-win for both Europe and Africa.

Mongfinder General

realitykeeper wrote: »

The Irish government is no stranger to loan sharks who then come looking for their money back from the Irish people. Since the Irish government seems incapable of refraining from borrowing, would it not be wise to use the borrowings in such a way as to ensure they are invested profitably?

Specifically, should the borrowed money be invested in a country that can compete economically because it has no minimum wage or silly regulations to hamper businesses. Indeed, should Ireland use its borrowings to invest in a country whose inhabitants are not in denial about the amount of alcohol they consume and whose people are used to a bit of hardship and backbreaking work and where the trade union movement is prevented from holding the entire nation to ransom.

In short, since Ireland is not a good investment for so many reasons, should the Irish government use the ECB QE money to invest in Africa instead of using it for buying Irish bonds. The profits would not only repay the ECB loans but could also help clear the existing Irish national debt.

By doing this, Ireland and other peripheral European countries could help stem the influx of immigrants by providing opportunities in their own countries. A win-win for both Europe and Africa.

You're about 300 years too late. Unfortunately for you the slave trade is no longer an option.

Dohnjoe

Emerging markets (such as Africa) are riskier. Ireland is far more stable than most African countries and is seen as a much safer investment.

RichardAnd

No government in the world refrains from borrowing. A loan from a bank is not the bank's giving someone a sum from their existing deposits. A loan is the creation of new money and an expansion of the money supply.

Government borrowing is not something unusual. It's part and parcel of the economic model. Without borrowing, no new money can be created, and no growth can be generated.

The joys of Fiat money....

johnnyskeleton

Mongfinder General wrote: »

You're about 300 years too late. Unfortunately for you the slave trade is no longer an option.

MOD: How is that even remotely on topic or connected to what he said? People can discuss investing in African countries in this forum without being accused of supporting the slave trade. Now if you wanted to discuss contemporary problems with African investments then fire away

Geuze

realitykeeper wrote: »

T

In short, since Ireland is not a good investment for so many reasons, should the Irish government use the ECB QE money to invest in Africa instead of using it for buying Irish bonds. The profits would not only repay the ECB loans but could also help clear the existing Irish national debt.

You seem to suggest that the ECB lends to the Irish Govt.

They don't. That's illegal, against the ECB rules.


You also seem to suggest that the Iris Govt have a lot of choice as to how they spend what they have borrowed.

They don't.

They don't to fund social welfare, public services and capital investment.

Geuze

RichardAnd wrote: »

No government in the world refrains from borrowing. A loan from a bank is not the bank's giving someone a sum from their existing deposits. A loan is the creation of new money and an expansion of the money supply.

Government borrowing is not something unusual. It's part and parcel of the economic model. Without borrowing, no new money can be created, and no growth can be generated.

The joys of Fiat money....

Note that some Govts run budget surpluses. Ireland has run them in the past, and may have surpluses in the future.

Note that a budget surplus does not mean that the money creation process will end.

Dohnjoe

Geuze wrote: »

Note that some Govts run budget surpluses. Ireland has run them in the past, and may have surpluses in the future.

Note that a budget surplus does not mean that the money creation process will end.

Governments (e.g. Norway) still have to borrow during a surplus

jimmycrackcorm

The NTMA have been very successful in their investments with the PRF. So does that not answer the ops question?

realitykeeper

jimmycrackcorm wrote: »

The NTMA have been very successful in their investments with the PRF. So does that not answer the ops question?

The NTMA manages assets accrued as part of the deal in bailing out the banks such as Anglo Irish. In other words the state got some performing loans in return for rescuing or nationalizing the banks with their tens of billions in non performing loans.

The net result will therefore cost the Irish taxpayer tens of billions. They should have let the banks go bust and taken the consequences. The soft option of bank bailouts may have prevented an immediate catastrophe but the consequences will be far worse in the long term. The next recession will prove this and the Icelandic economy will be in a much stronger position than Ireland`s.

Dohnjoe

realitykeeper wrote: »

They should have let the banks go bust and taken the consequences. The soft option of bank bailouts may have prevented an immediate catastrophe but the consequences will be far worse in the long term. The next recession will prove this and the Icelandic economy will be in a much stronger position than Ireland`s.

It must be emphasised that Iceland only has a population of only 300,000 people - a larger country would have experienced much more difficulty being locked out of the currency markets, lack of foreign investment and so on

Ireland is currently performing relatively well (we're rating A+ and Iceland is BBB-) and apart from a Grexit there are no warning signs of a strong future recession. The forecast for our economy and banks is stable.

realitykeeper

realitykeeper wrote: »

In short, since Ireland is not a good investment for so many reasons, should the Irish government use the ECB QE money to invest in Africa instead of using it for buying Irish bonds. The profits would not only repay the ECB loans but could also help clear the existing Irish national debt.

Not sure where to begin. Firstly, the Minister for Finance doesn't get to dictate the ECB and CBI asset purchases.

Second, Ireland is subject to an Excessive Deficit Procedure, and is effectively obliged to reduce its borrowings. Indeed, for decades to come, Ireland will be obliged to reduce its debt to GDP ratio every year it falls below 60% (it is currently estimated at 105%).

There's also the Expenditure Benchmark rule, which limits the growth rate of expenditure below the national medium-term potential growth rate.

Perhaps more fundamentally to those points, Ireland is not a commercial organisation whose primary objective is to return a profit, or to prefer high-yielding investments even if it means pulling out of Ireland.

Moreover even if Ireland were to invest in Africa, it would hardly seek to do so on government debt. Clearly any sovereign wealth fund investing in risky, non-investment grade assets, unlike say the ISIF (formerly NPRF) should not be doing so under the aegis of the Minister for Finance and public money.

I'm not opposed to sovereign wealth funds, but at the same time I don't agree with betting the family silver on risky bets in Nigerian oil-fields and Tanzanian coal-mines, with no meaningful economic impact in Ireland.

realitykeeper

A Tyrant Named Miltiades! wrote: »

Not sure where to begin. Firstly, the Minister for Finance doesn't get to dictate the ECB and CBI asset purchases.

The intention of ECB QE is to stimulate the European economy using newly created digital money. The various national central banks (eg the Irish Central Bank,) borrow this money at low cost from the ECB and buy Irish or other eurozone bonds. These Irish bonds could include things like non performing loans from the former Anglo Irish Bank or just used as liquidity for the government to pay their advisers a fine fat bonus (the purpose of the bond is never identified, it is defined solely by its expiry date).

The problem with this unconventional economics is that it will eventually undermine the integrity of the Euro. No such risk would occur if the newly created currency were used for real tangible investments such as the East African northern corridor railway or geothermal energy projects in Kenya or Africa bonds which are designated for specific projects such as developing agricultural co-ops.

What tangible results can come from buying some toxic Irish Ex Anglo derivative disguised as a bond. Even if it is not within the gift of the Irish Central bank to invest in anything other than eurozone bonds, surely they can at least choose not to borrow from the ECB.

The risks are very real, why else would the German`s have insisted on limiting the risk sharing to 20% of the bond assets purchased. Needless to say they would have preferred not to share any of the risk.

A Tyrant Named Miltiades! wrote: »

Perhaps more fundamentally to those points, Ireland is not a commercial organisation whose primary objective is to return a profit, or to prefer high-yielding investments even if it means pulling out of Ireland.

Neither is North Korea but it that does not mean it has to be that way. Ireland could be run like a business, just like the country Rwanda where the President likens the people to shareholders and himself to a CEO. Perhaps that is why their economy is growing at 7%, a growth rate they are achieving without borrowing money and despite the massive adversity and disadvantages that country has to contend with.

realitykeeper

Dohnjoe wrote: »

Ireland is currently performing relatively well (we're rating A+ and Iceland is BBB-)

In 2008, Ireland was rated AAA+ just before the economy imploded. In 2009, the USA lost its AAA+ rating but that decision by the ratings agency was quickly reversed when the screws were tightened.

The rating agencies, ECB, IMF etc are all delighted with Ireland for bailing out the banks whereas Iceland must be punished for not doing so. In other words the ratings are political and do not reflect the true state of the economy of a country. Only a recession will show which economies are strong and which ones are not.

Recessions are always a shock to those who are not expecting them. To those people, recessions come suddenly and without warning.

Geuze

realitykeeper wrote: »

The intention of ECB QE is to stimulate the European economy using newly created digital money. The various national central banks (eg the Irish Central Bank,) borrow this money at low cost from the ECB and buy Irish or other eurozone bonds. These Irish bonds could include things like non performing loans from the former Anglo Irish Bank or just used as liquidity for the government to pay their advisers a fine fat bonus (the purpose of the bond is never identified, it is defined solely by its expiry date).

You seem to be suggesting that the ECB / ICB is buying assets other than sovereign public debt as part of QE.

Am I reading you correctly?

AFAIK, all the ECB / ICB purchase is regular Govt debt.

They do not buy bank loans.

Dohnjoe

realitykeeper wrote: »

In other words the ratings are political and do not reflect the true state of the economy of a country.

Ratings are based on pure financial analysis, and they are generally very accurate. Not so much in 2006/2007 with sub-prime mortage instruments which resulted in S&P having to pay a very hefty fine to the US justice dept.

realitykeeper

Dohnjoe wrote: »

Ratings are based on pure financial analysis, and they are generally very accurate. Not so much in 2006/2007 with sub-prime mortage instruments which resulted in S&P having to pay a very hefty fine to the US justice dept.

We will have to agree to disagree on this. Ratings are notoriously inaccurate and tend to be based on what they are told by politicians and large financials. They are also paid and (as you pointed out yourself) fined by the very entities they are rating. Recessions are a great way of telling what is financially strong and what is truly junk.

Very often the truth is the opposite to what the rating agencies purport.

realitykeeper

Geuze wrote: »

You seem to be suggesting that the ECB / ICB is buying assets other than sovereign public debt as part of QE.

I know ECB QE is intended for buying public debt only, in Ireland`s case that includes the debt of nationalized banks. However, the Irish government did not have to nationalize the banks. The ECB QE program should not be availed of. Instead, a process should be put in place to reverse the nationalization of the banks and to relaunch the failed Anglo Irish Bank, etc complete with debts they owe.

If the Irish government has tens of billions to play with then they should invest the money wisely, not in failed banks. The consequences of Irish banks defaulting on their debt would be less devastating than the state defaulting with bank debts on its balance sheet. That is precisely what will happen when the next recession comes. If Ireland had simply let the banks fail like Iceland, the worst would be over by the time the next recession comes.

Dohnjoe

realitykeeper wrote: »

Ratings are notoriously inaccurate and tend to be based on what they are told by politicians and large financials.

It's not a matter of personal opinion, it's fact. The rating agencies are independent. Thousands of banks and financial institutions, small and large, around the world rely on those ratings, which is why when there was an instance where certain ratings on particular instruments were misjudged, the rating agency in question was heavily fined. It was pretty harsh considering practically the entire industry collectively misunderstood the risks associated with those types of paper (CDO's, mortgage backed securities) under that climate.

realitykeeper

realitykeeper wrote: »

These Irish bonds could include things like non performing loans from the former Anglo Irish Bank

Are you aware that IBRC is in liquidation? They cannot issue any securities for the ECB or NCB to puchase, nor create an SPV which would do so on their behalf.

You've made a sequence of odd statements in this thread. But to clarify, the governments don't control QE, the ECB is not puchasing IBRC securities because IBRC is in liquidation, and finally, the NCBI is not "borrowing" from the ECB for the purposes of QE.

Geuze wrote: »

AFAIK, all the ECB / ICB purchase is regular Govt debt.

They do not buy bank loans.

They can buy asset-backed securities and covered bonds issued by (solvent!) banks, but not their corporate issues.

Dohnjoe wrote: »

Ratings are based on pure financial analysis

As much as I disagree with realitykeeper, I think that's a bit optimistic. CRAs use objective and subjective components, the latter with little or no empirical foundation (from what we can actually know, as outsiders looking in). CRAs are dificult to justify in their present incarnation, but perhaps that's off-topic... depending on what the topic of this thread actually is...

Dohnjoe

A Tyrant Named Miltiades! wrote: »

As much as I disagree with realitykeeper, I think that's a bit optimistic. CRAs use objective and subjective components, the latter with little or no empirical foundation (from what we can actually know, as outsiders looking in). CRAs are dificult to justify in their present incarnation, but perhaps that's off-topic... depending on what the topic of this thread actually is...

I mean it as opposed to any "outside interference" which is being inferred

jimmycrackcorm

realitykeeper wrote:

The NTMA manages assets accrued as part of the deal in bailing out the banks such as Anglo Irish. In other words the state got some performing loans in return for rescuing or nationalizing the banks with their tens of billions in non performing loans.

I think you're confusing the NTMA and NAMA, an expensive mistake if it was true.

realitykeeper

jimmycrackcorm wrote: »

I think you're confusing the NTMA and NAMA, an expensive mistake if it was true.

Semantics aside, the Irish government rescued the banks by taking on tens of billions in non performing loans in return for a few billion in performing loans. Stupidity is stupidity no mater what you call it.