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How much can we borrow?

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  • Moderators, Business & Finance Moderators, Motoring & Transport Moderators, Society & Culture Moderators Posts: 68,040 Mod ✭✭✭✭L1011


    There is no figure if the ECB continues its support programmes.


  • Closed Accounts Posts: 40,061 ✭✭✭✭Harry Palmr


    One million dollars.

    Money is cheap, the policy is one that makes monitorists wince. Policy is to print in a world that is effectively on top of inflation due to economies of scale and endless technological development which means a piece of produce will be continue to be cheaper and better in a year, every year in a Moore's Law sort of way.

    People need to stop worrying about borrowing.


  • Registered Users Posts: 6,729 ✭✭✭Brussels Sprout


    There is a big difference between now and 10 years ago. If you recall in 2010 the critical factor in meaning that we needed to go to the IMF is that it was becoming impossible for us as a country to borrow money in the usual way - via the bond markets. The yield required on Irish bonds back then was hitting 10% which would have overwhelmed us.

    The big change began in 2012 when the ECB, under Mario Draghi started to purchase government bonds directly - quantitative easing. That propped up the entire market. The ECB have the power to create currency so they could essentially create it and transfer it to EuroZone countries in exchange for government bonds. Greek bonds alone dropped from over 30% in 2012 to 6% in 2014 and 1% a year ago.

    There was a further development this year after Covid hit. Up until that point each government issued their own bonds but after many negotiations a new mutual Corona bond was created.
    The EU met with huge demand for an issue of new coronavirus-related bonds on Tuesday, with bankers saying the sale had received the largest ever order book in global bond markets.

    The deal forms the start of a borrowing binge that will make Brussels one of the region’s biggest debt issuers. Investors placed bids for more than €233bn, far exceeding the €17bn of bonds on offer, according to one of the banks arranging the deal. Buyers were drawn by the relatively high yields on the bonds, which came with 10-year and 20-year maturities, and offered more income for investors than the eurozone’s safest government debt.

    The sale is the first under the EU’s €100bn SURE programme, which will provide loans to support member states’ efforts to keep workers in jobs during the pandemic. Brussels will ramp up its debt issuance next year as it funds the larger €750bn coronavirus recovery package agreed in July.

    link


  • Registered Users Posts: 11,342 ✭✭✭✭rossie1977


    Well we paid roughly €4 billion last year on debt servicing and government received roughly €90 billion in revenue


  • Registered Users Posts: 81,733 ✭✭✭✭Atlantic Dawn
    M


    They should borrow €50billion more and use it exclusively for majoy infrastucture projects.


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  • Registered Users Posts: 1,839 ✭✭✭mcsean2163


    We're already the third most indebted nation per capita in the world.

    Any thoughts to what would happen if when the debt has to be paid, the interest rates were higher, e.g. 5%. and government revenues were lower.


  • Registered Users Posts: 13,160 ✭✭✭✭Geuze


    They should borrow €50billion more and use it exclusively for majoy infrastucture projects.

    Where would we find the builders?

    The problem isn't really a lack of finance, it's a lack of skilled staff.


  • Registered Users Posts: 4,459 ✭✭✭Arthur Daley


    'This time it's different......'


  • Registered Users Posts: 16,625 ✭✭✭✭Leg End Reject


    Any mention of a soft landing yet?


  • Registered Users Posts: 103 ✭✭ice.cube


    Agreed that there is no figure while the ECB keeps the printers firing. Looks like the the "whatever it takes" plan will be in place for the foreseeable future across the EU & US.

    While 'cheap' money will be around for some time to come, I would want the government to be quite prudent and get control of the national debt long term. Kicking the can down the road will only get us so far.


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  • Closed Accounts Posts: 40,061 ✭✭✭✭Harry Palmr


    If money is for growth and not current spending (thought it is right now obviously) then it's not a problem, an economy that's well run and invests well in education and future tech infrastructure will easily be able to keep up the payments.


  • Registered Users Posts: 6,729 ✭✭✭Brussels Sprout


    mcsean2163 wrote: »
    We're already the third most indebted nation per capita in the world.

    Any thoughts to what would happen if when the debt has to be paid, the interest rates were higher, e.g. 5%. and government revenues were lower.

    Well you have to ask yourself the question, why would the interest rates be higher? Typically Central Banks increase interest rates in order to make borrowing money more expensive which in turn is to take the heat out of a rapidly growing economy. This is to protect against the effects of inflation.

    By all accounts the bigger concern right now is actually the polar opposite problem - deflation. Think about that. in 2008 inflation was at the target rate of 2% and the ECB base interest rate was at 4%. Inflation hasn't hit 2% since.

    At first they dropped the base rate to 1% and eventually 0%. That didn't make inflation hit 2%. In addition to that they've literally been pumping money into the system for the last 8 years and the current rate of inflation in the Eurozone is actually negative.

    I guess what I'm saying is that there is no pathway to the exact scenario that you have outlined above from where we are at presently, which is precisely why the likes of Philip Lane at the ECB are more concerned about deflation right now.
    "Inflation remains far below the aim and there has been only partial progress in combating the negative impact of the pandemic on projected inflation dynamics," Professor Lane said in a blog post.

    "It should be abundantly clear that there is no room for complacency," he stated.

    Translation: "We're not stopping the printing presses anytime soon"

    link


  • Registered Users Posts: 81,733 ✭✭✭✭Atlantic Dawn
    M


    Geuze wrote: »
    Where would we find the builders?

    The problem isn't really a lack of finance, it's a lack of skilled staff.


    Plenty of large multinational building companies would be available for large contracts.


  • Registered Users Posts: 5,546 ✭✭✭Charles Babbage


    Specifically, with vaccines on the way and a realistic prospect of the economy recovering by the end of 2021 then there is no problem borrowing for that period. The Irish economy can grow and will recover. Now if the government finances did not largely balance up after that then you might have a problem.


  • Registered Users Posts: 103 ✭✭ice.cube


    If money is for growth and not current spending (thought it is right now obviously) then it's not a problem, an economy that's well run and invests well in education and future tech infrastructure will easily be able to keep up the payments.

    Within reason IMO. An Oireachtas report from April of this year highlights that while interest rates are unusually low by history standards, the effect of rising interest rates would be quite significant. Any large investments will need to be well thought out and generate a measurable ROI. Of course if you can grow the economy, not only your ability to pay increases but also the % of debt reduces. I am all for investing but investing prudently.

    Again no sign of interest rates increasing anytime soon, however I would like the country to be in a good position to react should it happen.


    https://data.oireachtas.ie/ie/oireachtas/parliamentaryBudgetOffice/2020/2020-04-21_national-debt-an-overview_en.pdf


  • Registered Users Posts: 2,337 ✭✭✭beachhead


    mcsean2163 wrote: »
    Just heard Stephen Donnelly saying we're going to keep spending as long as it takes.

    Gross national debt at €223 billion now.

    https://www.ntma.ie/business-areas/funding-and-debt-management/statistics

    What's the the figure that causes us to go bust?

    Irish National Debt is 203,323,506,700 according to worldebtclocks.com


  • Registered Users Posts: 2,337 ✭✭✭beachhead


    20 billion offloaded for now to some sucker


  • Registered Users Posts: 6,729 ✭✭✭Brussels Sprout


    'This time it's different......'

    Ask yourself the question - What finally ended the EuroZone crisis?

    Or how about - How was it that post-crash unemployment peaked in the USA in 2010 but it didn't peak in Greece, Spain, Portugal, Ireland or Italy until 2014?

    The answer to the first question is not Austerity.

    The answer to the second question is that the Fed starting buying bonds in November 2008. The ECB didn't start until 2012.


    Are people advocating that we go on a suicide mission of trying to balance our massive current account shortfall through austerity for fear of taking on additional debt at this time? I'd argue that that would be a deliberate act of self-harm made all the more futile by the record low cost of borrowing money.

    This time it's not different. We all need to learn from the mistakes of the last recovery and not try and pull ourselves up by our bootstraps needlessly deepening and extending a recession.


  • Registered Users Posts: 13,160 ✭✭✭✭Geuze


    beachhead wrote: »
    Irish National Debt is 203,323,506,700 according to worldebtclocks.com

    I suggest ignoring random websites like that, and using official data from the NTMA and CSO.


  • Registered Users Posts: 11,342 ✭✭✭✭rossie1977


    If you were making €90k a year a €200k mortgage wouldn't be that excessive.

    The US brings in about $3.5 trillion a year and their national debt is $27 trillion


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  • Registered Users Posts: 103 ✭✭ice.cube


    rossie1977 wrote: »
    If you were making €90k a year a €200k mortgage wouldn't be that excessive.

    The US brings in about $3.5 trillion a year and their national debt is $27 trillion

    Which will eventually see the dollar being removed as the world reserve currency once a suitable alternative comes along.

    For 2020, yes they brought in around $3.3 trillion but spent $6.6 trillion! The Fed are unable to take their foot of the pedal.

    Interesting times ahead.


  • Registered Users Posts: 1,839 ✭✭✭mcsean2163


    Well you have to ask yourself the question, why would the interest rates be higher? Typically Central Banks increase interest rates in order to make borrowing money more expensive which in turn is to take the heat out of a rapidly growing economy. This is to protect against the effects of inflation.

    By all accounts the bigger concern right now is actually the polar opposite problem - deflation. Think about that. in 2008 inflation was at the target rate of 2% and the ECB base interest rate was at 4%. Inflation hasn't hit 2% since.

    At first they dropped the base rate to 1% and eventually 0%. That didn't make inflation hit 2%. In addition to that they've literally been pumping money into the system for the last 8 years and the current rate of inflation in the Eurozone is actually negative.

    I guess what I'm saying is that there is no pathway to the exact scenario that you have outlined above from where we are at presently, which is precisely why the likes of Philip Lane at the ECB are more concerned about deflation right now.



    Translation: "We're not stopping the printing presses anytime soon"

    link

    I was reading a while back that the fiscally conservative more Eastern eu countries will not tolerate the current circumstances forever.

    Not to mention that rewarding reckless spending and punishing nations with balanced budgets sounds crazy. Imagine if you work hard and pay your bills while your neighbour sits around doing nothing borrowing borrowing year after year. You say stuff like hard work is its own reward and someday they'll have to pay but they never pay. There's either justice or a corruption of the industrious. If justice, then we're in for a serious reckoning, if the later the EU as a whole is in big trouble.


  • Registered Users Posts: 6,729 ✭✭✭Brussels Sprout


    mcsean2163 wrote: »
    I was reading a while back that the fiscally conservative more Eastern eu countries will not tolerate the current circumstances forever.

    Not to mention that rewarding reckless spending and punishing nations with balanced budgets sounds crazy. Imagine if you work hard and pay your bills while your neighbour sits around doing nothing borrowing borrowing year after year. You say stuff like hard work is its own reward and someday they'll have to pay but they never pay. There's either justice or a corruption of the industrious. If justice, then we're in for a serious reckoning, if the later the EU as a whole is in big trouble.

    I have 3 question for you:
    1. Who has been spending recklessly?
    2. Who's going to balance their budget this year?
    3. What's your alternative solution?


  • Banned (with Prison Access) Posts: 253 ✭✭Xtrail14


    Borrow away let the next generation pay for it. Money is cheap.


  • Registered Users Posts: 4,459 ✭✭✭Arthur Daley


    Ask yourself the question - What finally ended the EuroZone crisis?

    Or how about - How was it that post-crash unemployment peaked in the USA in 2010 but it didn't peak in Greece, Spain, Portugal, Ireland or Italy until 2014?

    The answer to the first question is not Austerity.

    The answer to the second question is that the Fed starting buying bonds in November 2008. The ECB didn't start until 2012.


    Are people advocating that we go on a suicide mission of trying to balance our massive current account shortfall through austerity for fear of taking on additional debt at this time? I'd argue that that would be a deliberate act of self-harm made all the more futile by the record low cost of borrowing money.

    This time it's not different. We all need to learn from the mistakes of the last recovery and not try and pull ourselves up by our bootstraps needlessly deepening and extending a recession.

    Cutting spending to reflect the lower tax base is not austerity.

    So called right wing or conservative politicians would recognise as Thatcher had to in the late 70s that we can't keep going on like this. Cutting your cloth to suit your purse is called common sense, not austerity.

    Not getting perennial pay rises and cutting your sky sports subscription is not austerity.
    Building up from the second world war with cities flattened and making the sacrifices to generate real wealth for investment, or the hunger and unemployment of the 1930s, that was austerity.


  • Registered Users Posts: 6,729 ✭✭✭Brussels Sprout


    Cutting spending to reflect the lower tax base is not austerity.

    So called right wing or conservative politicians would recognise as Thatcher had to in the late 70s that we can't keep going on like this. Cutting your cloth to suit your purse is called common sense, not austerity.

    Not getting perennial pay rises and cutting your sky sports subscription is not austerity.
    Building up from the second world war with cities flattened and making the sacrifices to generate real wealth for investment, or the hunger and unemployment of the 1930s, that was austerity.

    Ok. What would you cut to make up the (at least) €21 Billion hole in the budget this year?

    Here are sample outlays to put that figure into perspective:
    • Budget of the Department of Education and Skills: €11 Billion
    • Total Public Pension cost €7.7 Billion (2018 figure)
    • Budget of the Department of Transport: €3.5 Billion


  • Registered Users Posts: 4,459 ✭✭✭Arthur Daley


    Ok. What would you cut to make up the (at least) €21 Billion hole in the budget this year?

    Here are sample outlays to put that figure into perspective:
    • Budget of the Department of Education and Skills: €11 Billion
    • Total Public Pension cost €7.7 Billion (2018 figure)
    • Budget of the Department of Transport: €3.5 Billion

    We pay highly paid civil servants and politicians to fullfill this role. Not some random punter on a discussion forum. So I won't be going down this particular cul de sac thanks.

    But there is no doubt wasted expenditure all over the place. it's interesting that the health service budget is not up for discussion. Presumably because it's considered a sacred cow, but I'd say most people if they are honest saw loads of waste in their own limited dealing with the health service, even before Covid 19. With Covid 19 many other health issues were not acted on during this year, which should have lead to lower costs.

    No doubt there is fat within the education budget, and the conservative government is out spending like a drunk on this area again in recent months e.g. various springboard schemes.

    Government (local or central) splurging on high rents and buying up properties in private estates is certainly another.

    What also gets me about the 'austerity' brigade is that 2018 wasn't a time to make inroads to the debt problem, 2019 wasn't either, and now we are were we are. Let's be honest with ourselves here, there never is a good time to make the tough decisions, is there?


  • Registered Users Posts: 6,729 ✭✭✭Brussels Sprout


    We pay highly paid civil servants and politicians to fullfill this role. Not some random punter on a discussion forum. So I won't be going down this particular cul de sac thanks.

    I hope you weren't standing when you posted that because you would surely have fallen over after making that swerve.


  • Registered Users Posts: 1,839 ✭✭✭mcsean2163


    I have 3 question for you:
    1. Who has been spending recklessly?
    2. Who's going to balance their budget this year?
    3. What's your alternative solution?

    1. The Irish government has for at least 15 years, that's why we are the third most indebted nation in the world.
    2. Me.
    3.

    20 people under the age of 45 died from covid19. I would take levels 4 and 5 off the table and remind nphet that the money has to come from somewhere.

    Push to get unemployment down to 5% again and generate a budget surplus.

    Haircut on all national debt of 60%. That'll cause problems for a while but it has to be done or our children will really suffer in the future China/ US dollar crisis.

    Take the fiscal gambling a lot more seriously and get value for money in the future. Set an example by firing the national children's hospital team and then running a criminal investigation of them. Repeat for the housing guy Brendan Kenny. Fire 🔥🔥 and then run the country properly with full accountability and criminal prosecutions for those that cannot do their jobs


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  • Closed Accounts Posts: 40,061 ✭✭✭✭Harry Palmr


    Talking about this on Newstalks Taking Stock finance/economics programme. The guest Chris Johns is very much in my corner (or I'm in his!) and railing against the orthodoxy of central bankers, finance ministers and many economists. "Fiscal vigilantes" which is a good term for them.

    This time it is different, last time we owed other people as we were strung out to the max on "good time borrowing" in a bubble economy. We were doing pretty well before Covid 19 while also saving massive amounts of money (100bn in our clearing banks) this time we owe ourselves, we are on the cusp of a 4th revolution in technology, energy creation & consumption - that's what we build on.


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