What will the economy look like in 6 months time?

hmmm

The_Brood wrote: »

It seems that governments, Ireland included, have indeed engineered magical money trees in that time, or else I am missing something.

It's called debt, it's never been magical - we are borrowing heavily and our kids will have to pay it back. The "magic money tree" is the idea that you can accumulate debt indefinitely and interest rates will never rise, or you will never have to pay it back.

Wanderer78

hmmm wrote: »

It's called debt, it's never been magical - we are borrowing heavily and our kids will have to pay it back. The "magic money tree" is the idea that you can accumulate debt indefinitely and interest rates will never rise, or you will never have to pay it back.

money creation is always been an extremely magical process, created by the accountancy world, yes all money created becomes our debts, with current rates at record lows, borrowing makes perfect sense, its either that, or have us slip further into the abyss. long term bonds can and are being created, to create this new money, this is one of the most sensible ways of approaching this problem. if this money isnt created publicly, it forces the money supply to the only place it can go, the private sector, via credit creation, which generally just pushes up asset prices, particularly the price of housing. this concentrates the load factor of the debt, particularly on the household and on private sector industries and businesses, the load of public sector created money can be more easily spread.

Geuze

caveat emptor wrote: »

What you should be wondering though is , "how come the government can borrow at a negative rate and we pay 3% for our mortgage.?"

That's the crazy fact.

Quick answer:

banks here must hold more capital against mortgage, due to past bad debts, and so to earn the same profits as other banks, they must charge higher rates.

Only solution = reduce the level of required capital to be held against mortgages

Only way that can happen - change the repossession regime

Geuze

is_that_so wrote: »

Tracker mortgages is why! Great for those who have them but costly for banks.

Tracker mortgages are not loss-making.

Wanderer78

Geuze wrote: »

Quick answer:

banks here must hold more capital against mortgage, due to past bad debts, and so to earn the same profits as other banks, they must charge higher rates.

Only solution = reduce the level of required capital to be held against mortgages

Only way that can happen - change the repossession regime

my gut is telling me the banks are slowly losing confidence they have sufficient reserves, hence the higher rates, hopefully im wrong

PommieBast

hmmm wrote: »

It's called debt, it's never been magical - we are borrowing heavily and our kids will have to pay it back. The "magic money tree" is the idea that you can accumulate debt indefinitely and interest rates will never rise, or you will never have to pay it back.

One of the side-effects of record bond issuance at zero/negative rates is pension funds being decimated. If they were not legally required to buy bonds pretty much no-one would.

Geuze

Wanderer78 wrote: »

my gut is telling me the banks are slowly losing confidence they have sufficient reserves, hence the higher rates, hopefully im wrong

Here is the CBI article on RWAs:

https://assets.gov.ie/6836/664f5174ebd34f7e938aea654bed6757.pdf

Jizique

PommieBast wrote: »

One of the side-effects of record bond issuance at zero/negative rates is pension funds being decimated. If they were not legally required to buy bonds pretty much no-one would.

All the politicians and the CB crowd have DB pensions so they don’t give a toss but the rest of us are screwed

Wanderer78

Jizique wrote:

All the politicians and the CB crowd have DB pensions so they don’t give a toss but the rest of us are screwed

I think it's a lot more complicated than that, I'm not sure they know what to do next, economic models and forecasts are notoriously inaccurate, and it doesn't help having highly complex economic and financial systems either, I think everyone's just hoping and praying

Wanderer78

Geuze wrote:

Here si the CBI article on RWAs:

Any idea when this was published, I'm thinking when the stress tests were done post previous crash, the economic forecasts used at the time would be more or less void at this stage, would this cause issues?

is_that_so

Geuze wrote: »

Tracker mortgages are not loss-making.

Some are in terms of costs and banks are limited in what income they can get from them so everyone else has to pay.

Geuze

Wanderer78 wrote: »

Any idea when this was published, I'm thinking when the stress tests were done post previous crash, the economic forecasts used at the time would be more or less void at this stage, would this cause issues?

It was published after Nov 2018, as that date is referred to in the text.

KyussB

It's looking like Europe is fatally bungling the coronavirus rescue package, requiring a greater cost in terms of GDP through conditions and austerity for many countries, than the aid would provide as a boost to GDP.

Countries like Italy are in a particularly precarious situation - they face many years of deep austerity, and their banking system is already teetering.

If (more likely when...) Italy's banking system collapses, it's going to spread financial collapses throughout Europe (Italy is a large economy, there is a lot of exposure) - and we'll once again be at a point where the future of the Euro is in question.

Wanderer78

KyussB wrote:

Countries like Italy are in a particularly precarious situation - they face many years of deep austerity, and their banking system is already teetering.

Unfortunately Italys banks haven't been looking good for a long time now, won't take much to push them over, and off we go again, it's very disturbing that eu institutions haven't figured out, austerity does far more harm than good, if any good at all

brickster69

KyussB wrote: »

It's looking like Europe is fatally bungling the coronavirus rescue package, requiring a greater cost in terms of GDP through conditions and austerity for many countries, than the aid would provide as a boost to GDP.

Countries like Italy are in a particularly precarious situation - they face many years of deep austerity, and their banking system is already teetering.

If (more likely when...) Italy's banking system collapses, it's going to spread financial collapses throughout Europe (Italy is a large economy, there is a lot of exposure) - and we'll once again be at a point where the future of the Euro is in question.

Wait until the German public find out they are owed 1 Trillion ( unsecured ) from Spain & Italy through Target 2.

Italy has the whole EU hostage, too big to bail and too big to fail. No option but to keep pumping Euro's into it forever.

enricoh

Wanderer78 wrote: »

Unfortunately Italys banks haven't been looking good for a long time now, won't take much to push them over, and off we go again, it's very disturbing that eu institutions haven't figured out, austerity does far more harm than good, if any good at all

I read an article a few months ago about Italy and it seemed they weren't too bothered about stuff like balancing the books, getting debt levels manageable in the good times etc.
Sure why bother with any of that nasty stuff when you can just go begging to the EU Everytime! Say no to austerity, give us free money n we promise to behave at some stage in the future, ta!

Atlantic Dawn

Just watching Reeling In The Years on RTE from 1983, the rate of income tax was 65% in the country then.

Wanderer78

enricoh wrote: »

I read an article a few months ago about Italy and it seemed they weren't too bothered about stuff like balancing the books, getting debt levels manageable in the good times etc.
Sure why bother with any of that nasty stuff when you can just go begging to the EU Everytime! Say no to austerity, give us free money n we promise to behave at some stage in the future, ta!

balancing books is largely nonsense anyway, particularly in the public domain, the usual neoclassical nonsense, debt is a critical component of the money supply, as it is the money supply, without debt, we d have no money, we ve just managed to convince ourselves, rising public debt is bad, but rapidly rising private debt is good! we clearly found out the hard way in our own country, rapid rising private debt really is a bad idea, but disturbingly, it seems like very few citizens have figured this out, including probably most of our politicians and their advisers. no money comes freely, whether its publicly or privately created, as it all ends becoming debt anyway.

you ll actually find, Italys economy has been hammered since joining the euro, particularly their manufacturing sector, being simply unable to compete with other major manufacturing countries in the eu, mainly germany, germany being the main country of the eu that has ultimately won from the introduction of the euro, it being effectively the Deutsche Mark in disguise.

enricoh

Hmm pity the lads buying government bonds don't think that balancing the books, debt to gdp etc is nonsense! They charge very nasty interest rates on those that do believe that.
Other than that, sod it - spend, spend , spend!

KyussB

KyussB wrote: »

It's looking like Europe is fatally bungling the coronavirus rescue package, requiring a greater cost in terms of GDP through conditions and austerity for many countries, than the aid would provide as a boost to GDP.

Countries like Italy are in a particularly precarious situation - they face many years of deep austerity, and their banking system is already teetering.

If (more likely when...) Italy's banking system collapses, it's going to spread financial collapses throughout Europe (Italy is a large economy, there is a lot of exposure) - and we'll once again be at a point where the future of the Euro is in question.

Luckily the Italian view is strongest within the ecb right now and they will keep buying bonds

Wanderer78

enricoh wrote:

Hmm pity the lads buying government bonds don't think that balancing the books, debt to gdp etc is nonsense! They charge very nasty interest rates on those that do believe that. Other than that, sod it - spend, spend , spend!

By reducing the ability of the public sector to create money via bonds, forces us into the private sector to do so, this is done via credit creation in financial institutions, I.e. Banks. You will find most entities in the private sector, which includes all citizens, private sector businesses and industries will have limited capacity for the moment to do so, or to personalise it, are you willing to take on more debt, for the team! our politicians will try do this very very soon, good luck with that one!

enricoh

enricoh wrote: »

Hmm pity the lads buying government bonds don't think that balancing the books, debt to gdp etc is nonsense! They charge very nasty interest rates on those that do believe that.
Other than that, sod it - spend, spend , spend!

Italian 10 year bonds pretty low
https://www.marketwatch.com/investing/bond/tmbmkit-10y?countrycode=bx

Nothing near as low as ours, but historically c 1% is virtually free over 10 years

https://www.marketwatch.com/investing/bond/tmbmkie-10y?countrycode=bx

KyussB

Budget balancing i.e. austerity has never made sense anywhere. Europe has unbalanced trade competition, which austerity/budget-balancing actually compounds and makes worse.

It's like Dublin demanding that the rest of Ireland tightens its belt, with Dublin keeping all the revenue it generates - in a Punt era Ireland, where Dublin benefits from the Punt having a lower value than a Dublin-only currency (giving Dublin an advantage in trade competition), and the rest of Ireland has the downside from the Punt having a higher value than a currency excluding Dublin (giving the rest of Ireland a disadvantage in trade competition - with little-to-no fiscal transfers i.e. investment from Dublin to make up for this).

Naturally, that would lead to the gradual economic decline of every part of Ireland other than Dublin. That's pretty much how Europe is, now - except replace the Punt with the Euro, and replace Dublin with Germany.

Europe with the Euro can only work with gigantic fiscal transfers - same way Dublin has fiscal transfers with the rest of Ireland.

Wanderer78

KyussB wrote:

Budget balancing i.e. austerity has never made sense anywhere. Europe has unbalanced trade competition, which austerity/budget-balancing actually compounds and makes worse.

Certainly no evidence that austerity has ever been positive, but plenty to show its a train wreck of an idea

brickster69

Deleted User wrote: »

Italian 10 year bonds pretty low
https://www.marketwatch.com/investing/bond/tmbmkit-10y?countrycode=bx

Nothing near as low as ours, but historically c 1% is virtually free over 10 years

https://www.marketwatch.com/investing/bond/tmbmkie-10y?countrycode=bx

Of course they will be low because the ECB just keep creating money to buy them. Take the ECB away and they would be 8%

Wanderer78

Wanderer78 wrote: »

Certainly no evidence that austerity has ever been positive, but plenty to show its a train wreck of an idea

Where an economy does not have the capacity to absorb capital transfer / debt issuance, Austerity is the only option, as to just make more cash available will only drive inflation and not recovery. Not an issue in the current environment however. At least not in most of Europe anyway. Allow a country such as Moldova to run a massive budget deficit however and you would likely see large inflation, that wealth largely making its way out of the country or both

brickster69

brickster69 wrote: »

Of course they will be low because the ECB just keep creating money to buy them. Take the ECB away and they would be 8%

But the ecb are going to keep buying them. Just like the federal reserve won’t let California go bust no matter who runs the government , similarly the ecb won’t let Italy go bust. The fiscal doves are in the ascendancy on this one right now

Wanderer78

Deleted User wrote:

Where an economy does not have the capacity to absorb capital transfer / debt issuance, Austerity is the only option, as to just make more cash available will only drive inflation and not recovery. Not an issue in the current environment however. At least not in most of Europe anyway. Allow a country such as Moldova to run a massive budget deficit however and you would likely see large inflation, that wealth largely making its way out of the country or both

Austerity has never achieved it's objectives, it's simply doesn't work, it causes more harm than good, forcing the need to increase the money via the private sector will be severally limited for some time, as confidence is collapsing, it's critical this is done in the public sector. This new public debt should be put to good use via methods such as infrastructure spending etc, this in turn will stimulate the private sector, as many public infrastructure projects are in fact conducted by the private sector. This means will might just grow our way out of this downturn, rather than shrink our way into it via austerity etc.

Wanderer78

Wanderer78 wrote: »

Austerity has never achieved it's objectives, it's simply doesn't work, it causes more harm than good, forcing the need to increase the money via the private sector will be severally limited for some time, as confidence is collapsing, it's critical this is done in the public sector. This new public debt should be put to good use via methods such as infrastructure spending etc, this in turn will stimulate the private sector, as many public infrastructure projects are in fact conducted by the private sector. This means will might just grow our way out of this downturn, rather than shrink our way into it via austerity etc.

I don’t argue austerity is the correct course now and agree with a lot of what you say. On the broader point though investing in infrastructure projects is not always the best course. If for example there was only sufficient heavy road building plant within a country for one new motorway already underway, and stimulus was put in place to build another, either the cost of building both motorways will go up as the owners and operators of that equipment make hay, driving inflation and delaying the long term benefit of both projects, or large amounts of capital get transferred out of the country to purchase the equipment/ source overseas contractor, meaning a large amount of the economic stimulus designed to help the local economy actually benefits the overseas economy and leaves all of the debt but few of the benefits locally . This happened in Latin America and Africa for decades

Wanderer78

Deleted User wrote:

I don’t argue austerity is the correct course now and agree with a lot of what you say. On the broader point though investing in infrastructure projects is not always the best course. If for example there was only sufficient heavy road building plant within a country for one new motorway already underway, and stimulus was put in place to build another, either the cost of building both motorways will go up as the owners and operators of that equipment make hay, driving inflation and delaying the long term benefit of both projects, or large amounts of capital get transferred out of the country to purchase the equipment/ source overseas contractor, meaning a large amount of the economic stimulus designed to help the local economy actually benefits the overseas economy and leaves all of the debt but few of the benefits locally . This happened in Latin America and Africa for decades

Some really good points here, but I'd still advocate for an increase in infrastructure spending, I'd also advocate for an increase in grant systems for Sme's, and for covid payments to remain, as it might just keep some businesses open