Recession predictions

Wanderer78

Timing belt wrote: »

Regardless of the debt being public or private the man on the street repays it whether directly or via taxes.

true, but the facts are, rising private debt has in fact caused far more crashes than rising public debt!

Timing belt

Wanderer78 wrote: »

true, but the facts are, rising private debt has in fact caused far more crashes than rising public debt!

How many crashes and recessions has it caused? You say facts so back it up. Also have a look at all the sovereign debt crises over the years. Yes most in emerging economies but still caused crashes and global shocks to the market.

Wanderer78

Timing belt wrote: »

How many crashes and recessions has it caused? You say facts so back it up. Also have a look at all the sovereign debt crises over the years. Yes most in emerging economies but still caused crashes and global shocks to the market.

facts, sure thing

.....enjoy!

Timing belt

Wanderer78 wrote: »

ah come on now, even well respected commentators such as i posted, have been shouting and screaming about this for years, get over it now, theres something fundamentally wrong deep within our financial systems, which lead to previous crashes, and have not been resolved yet, and activities such as derivatives trading is more than likely playing a critical role in these issues

You say more than likely playing a critical role... but yet again where are the facts. What specific type of derivative?

If derivatives are used right they help with financial stability.

You keep saying the system is broken but not explaining how it’s broken or where and what can be done to improve the system.

Wanderer78

Timing belt wrote: »

You say more than likely playing a critical role... but yet again where are the facts. What specific type of derivative?

If derivatives are used right they help with financial stability.

You keep saying the system is broken but not explaining how it’s broken or where and what can be done to improve the system.

heres a mad idea, maybe nobody truly knows the exact issues, due to the complexity of the systems and processes we have created, i have heard ha-joon chang mention this, while regularly interacting with financiers. i will go with bill blacks opinion on this one, yes, i suspect some derivatives are beneficial to society, but some are lethal, i reckon black is spot on here

Timing belt

Wanderer78 wrote: »

heres a mad idea, maybe nobody truly knows the exact issues, due to the complexity of the systems and processes we have created, i have heard ha-joon chang mention this, while regularly interacting with financiers. i will go with bill blacks opinion on this one, yes, i suspect some derivatives are beneficial to society, but some are lethal, i reckon black is spot on here

My point is that saying derivatives are dangerous is like saying banking is dangerous it’s a wide sweeping statement. 99% of it is not dangerous and you will find the danger in one or two specific derivatives that have more than likely been used for a different purpose to why they were created or because people think something can never happen and dismiss the risk

Wanderer78

Timing belt wrote: »

My point is that saying derivatives are dangerous is like saying banking is dangerous it’s a wide sweeping statement. 99% of it is not dangerous and you will find the danger in one or two specific derivatives that have more than likely been used for a different purpose to why they were created or because people think something can never happen and dismiss the risk

im sorry, i ll stick with the views of the folks ive mentioned, i suspect with such complex systems, even one or two bad derivatives going tits up, could potentially crash the whole system

Timing belt

Wanderer78 wrote: »

facts, sure thing

.....enjoy!

Have you looked at the impact on public debt on the economy? Remember the 80’s and the pain that was felt then and the total lack of opportunities or when the IMF insisted on cuts to public spending at the last crisis.

Wanderer78

Timing belt wrote: »

Have you looked at the impact on public debt on the economy? Remember the 80’s and the pain that was felt then and the total lack of opportunities or when the IMF insisted on cuts to public spending at the last crisis.

of course, but we live in a very different world now, very different, our economy is much more open now, again, the facts are......

interesting statement, has austerity actually worked, at addressing the financial element of the previous crash, which was largely based in private sector financial institution's?

Timing belt

Wanderer78 wrote: »

of course, but we live in a very different world now, very different, our economy is much more open now, again, the facts are......

interesting statement, has austerity actually worked, at addressing the financial element of the previous crash, which was largely based in private sector financial institution's?

Yes our economy is more open and as a result more exposed to economic shocks in other countries that are as not well regulated as ours.

Timing belt

https://www.businesspost.ie/financial-services/analysis-society-cannot-function-with-a-zombie-financial-system-701b7e54

Wanderer78

Timing belt wrote:

Yes our economy is more open and as a result more exposed to economic shocks in other countries that are as not well regulated as ours.

Well regulated! are we sure of this?

Interesting article above, what sector is corporate debt a part of?

Timing belt

Wanderer78 wrote: »

Well regulated! are we sure of this?

Interesting article above, what sector is corporate debt a part of?

CLO’s are the CDO’s of the corporate world and as I highlighted previously are at risk from the covid impact. The only bit the article does not mention is the fed are buying these but dispute this the rating agencies are downgrading some CLO’s. The longer Covid goes on the greater the risk of trouble in this area

Wanderer78

Timing belt wrote:

CLO’s are the CDO’s of the corporate world and as I highlighted previously are at risk from the covid impact. The only bit the article does not mention is the fed are buying these but dispute this the rating agencies are downgrading some CLO’s. The longer Covid goes on the greater the risk of trouble in this area

Would you consider corporate debt, a part of the private sector or public sector?

Sorolla

Timing belt wrote: »

Yes our economy is more open and as a result more exposed to economic shocks in other countries that are as not well regulated as ours.

And due to our open economy we are very well equipped to act and adapt very quickly to any upturn in the economy.

Our greatest weakness is also our greatest strength

We recover from economic shocks very quickly

Wanderer78

Sorolla wrote: »

And due to our open economy we are very well equipped to act and adapt very quickly to any upturn in the economy.

Our greatest weakness is also our greatest strength

We recover from economic shocks very quickly

do we really, explain how we did the last time?

brisan

Sorolla wrote: »

And due to our open economy we are very well equipped to act and adapt very quickly to any upturn in the economy.

Our greatest weakness is also our greatest strength

We recover from economic shocks very quickly

Brexit may prove this statement to be over optimistic .
I reckon a no deal Brexit will tear the heart out of our economy

Wanderer78

brisan wrote: »

Brexit may prove this statement to be over optimistic .
I reckon a no deal Brexit will tear the heart out of our economy

it could, what just happened in regards negations there, just got a notification?

brisan

Wanderer78 wrote: »

it could, what just happened in regards negations there, just got a notification?

I just checked mine ,nothing that I could see

Timing belt

Wanderer78 wrote: »

it could, what just happened in regards negations there, just got a notification?

not a lot based on the movement in the FTSE

KyussB

Timing belt wrote: »

Regardless of the debt being public or private the man on the street repays it whether directly or via taxes.

They don't - public debt is effectively rolled over forever, being eroded away by GDP growth - it's always misleading to make any comparisons between government finances and personal/household finances (in this case in terms of debt repayments), as they don't function the same.

The way that government bond financing works, coupled with how central banking is configured, is largely an anachronism from the Gold Standard era - and so is much of the thinking surrounding that.

KyussB

Timing belt wrote: »

Have you looked at the impact on public debt on the economy? Remember the 80’s and the pain that was felt then and the total lack of opportunities or when the IMF insisted on cuts to public spending at the last crisis.

None of those instances are a problem with Public Debt - they are a problem with the political ideology of austerity. In all cases, trashing the economy was a political decision - with no economic justification.

Timing belt

KyussB wrote: »

They don't - public debt is effectively rolled over forever, being eroded away by GDP growth - it's always misleading to make any comparisons between government finances and personal/household finances (in this case in terms of debt repayments), as they don't function the same.

The way that government bond financing works, coupled with how central banking is configured, is largely an anachronism from the Gold Standard era - and so is much of the thinking surrounding that.

If that was the case then there would never be a sovereign debt crisis and no credit risk involved in government debt.

The larger the public debt the more funds that are needed to finance it and pay the coupon on the bonds. This money comes from taxes that the man on the street pay. Just because it is cheap to issue debt at the moment does not mean it will be so cheap when it comes to be rolled over.

KyussB

Sovereign Debt Crises are caused by debts denominated in currencies that are not under control of the country in question - usually foreign denominated debt, but also applying to Euro-denominated debt (similar to foreign denominated debt, due to the ECB).

You'll never seen an involuntary sovereign debt crisis, from countries like the US, UK, Japan - or any other country with their own currency.

Anyone with even the most basic understanding of government bonds, knows that the total stock/value of the bonds does not determine the cost/sustainability of them - it is the interest payments, which are at times negative - i.e. getting paid to take on debt.

Even quasi-foreign-denominated debt like in the Euro, can't involuntarily be defaulted on when hovering at zero interest rates. The ECB interest rates are also intrinsically linked to Euro-area economic activity - and will not rise until full economic recovery is achieved i.e. until GDP is maximized across the Eurozone - which is the perfect condition for debt sustainability.

Timing belt

KyussB wrote: »

Sovereign Debt Crises are caused by debts denominated in currencies that are not under control of the country in question - usually foreign denominated debt, but also applying to Euro-denominated debt (similar to foreign denominated debt, due to the ECB).

You'll never seen an involuntary sovereign debt crisis, from countries like the US, UK, Japan - or any other country with their own currency.

Yes because they have the ability to devalue there currency.

KyussB wrote: »

Anyone with even the most basic understanding of government bonds, knows that the total stock/value of the bonds does not determine the cost/sustainability of them - it is the interest payments, which are at times negative - i.e. getting paid to take on debt.

Yes I understand the Bond market and I think you are missing the point that I was making. The greater the debt means there are more bonds in circulation and a coupon will need to be paid on. So the larger the debt the higher the financing cost. (no of bonds x coupon)

Yes rates or low or negative due to Irelands credit rating and the QE undertaken by ECB and its current monetary policy however this may not be the case when the debt gets rolled over in 30 years time.

A change to global tax laws or US dividend policy for example could have a an impact on Irish economy and impact its credit rating.

KyussB wrote: »

Even quasi-foreign-denominated debt like in the Euro, can't involuntarily be defaulted on when hovering at zero interest rates. The ECB interest rates are also intrinsically linked to Euro-area economic activity - and will not rise until full economic recovery is achieved i.e. until GDP is maximized across the Eurozone - which is the perfect condition for debt sustainability.

If GDP growth is uneven in the Eurozone you could have a situation where where ECB is raising rates due to the larger economies of France, Germany, NL etc... even if smaller countries are not experiencing the same growth.

KyussB

Timing belt wrote: »

Yes because they have the ability to devalue there currency.

That is wrong - countries with sovereign currencies always have the ability to repay debts denominated in their own currency, devaluation doesn't come into it.

Timing belt wrote: »

Yes I understand the Bond market and I think you are missing the point that I was making. The greater the debt means there are more bonds in circulation and a coupon will need to be paid on. So the larger the debt the higher the financing cost. (no of bonds x coupon)

Yes rates or low or negative due to Irelands credit rating and the QE undertaken by ECB and its current monetary policy however this may not be the case when the debt gets rolled over in 30 years time.

A change to global tax laws or US dividend policy for example could have a an impact on Irish economy and impact its credit rating.




If GDP growth is uneven in the Eurozone you could have a situation where where ECB is raising rates due to the larger economies of France, Germany, NL etc... even if smaller countries are not experiencing the same growth.

No, the larger the debt does not mean the larger the cost - negative interest bonds have been available in recent times - making it not only so that there is no cost, but it's actually profitable for the state to take out a greater amount of debt...

Public debt should never be discussed in terms of the stock of overall debt - as, especially in times of zero and negative interest rates, it means absolutely nothing in terms of debt sustainability - and the stock of debt is never made up of a single type/issue of bond, because new debt on different terms is constantly issued.

In 30 years at average 2.4% GDP growth (that's a lowball figure...), Public Debt vs GDP is half of what it previously was - and that's not even factoring in inflation.


Due to the structural imbalances in the Eurozone (central currency without a central EU government doing fiscal transfers), the ECB is never significantly raising rates until the whole Eurozone recovers - because it would force peripheral countries out of the Euro. Low/negative interest rates are the only thing holding the Euro/Eurozone together.

Timing belt

KyussB wrote: »

That is wrong - countries with sovereign currencies always have the ability to repay debts denominated in their own currency, devaluation doesn't come into it.


No, the larger the debt does not mean the larger the cost - negative interest bonds have been available in recent times - making it not only so that there is no cost, but it's actually profitable for the state to take out a greater amount of debt...

The government's last issuance on the 10/09/2020 for 30 year bonds had a coupon of 1.5% and a yield of 0.52% unless I am mistaken there is a cost to the Irish government on servicing this debt!!!!

KyussB

The government also issued bonds at -0.43% yield back in May - being paid to take on that debt. Not all of the bonds are negative yield - but anything 10 year and under at the moment, is currently negative yield.

0.52% yield over 30 years is absolutely tiny...the benefits of utilizing low-and-negative-interest debt to maximize GDP/employment, massively outweigh the miniscule costs (and in some cases profits...).

The main cost to an economy is remaining below maximum GDP/employment - as that is economic potential that is never recovered - so it is costing us far more by letting the economy remain below potential, by not issuing far more bonds at low/negative rates.

Geuze

2020 recession in GDP will not be as bad as expected, but the drop in employment is savage.

https://www.gov.ie/en/press-release/4b5e5-minister-donohoe-publishes-economic-forecasts-that-will-underpin-budget-2021/

The Department of Finance’s Budget 2021 forecasts show that both Covid-19 and a disorderly end to the ‘transition period’ will have a significant impact on the Irish economy;

Modified domestic demand – proxy for domestic economy to fall by -6.5 per cent this year;

GDP is projected to fall by -2.5 per cent in 2020 and to grow by only 1.4 per cent in 2021;

Impact of Covid-19 on GDP is less than previously expected, mainly due to the resilience of Multi-National Company (MNC)-dominated exports, however the hit to the domestic economy has been severe;

Employment set to fall by 13.8 per cent this year this with an annual average unemployment rate of just under 16 per cent this year, and 10.7 per cent in 2021;
Economic forecasts have been endorsed by the Irish Fiscal Advisory Council.

Geuze

As is well known, GDP and employment have de-coupled.