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How much can we borrow?

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  • #2


    mcsean2163 wrote: »
    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.

    I was asking in the context of Eurozone countries since that's what your previous post seemed to be on about.

    If you want to focus only on Ireland - well here were the budget deficits for the past 25 years.

    ireland-government-budget.png?s=wbbgirel&v=202012042300V20200908&d1=19951213

    After the crash the governments, with the help of the Troika got the public finances back in order gradually over a number of years until eventually the budget was balanced again for the past few years. Seems like the opposite of reckless to me.

    The Celtic Tiger era spending - yes, absolutely that was reckless. The scenario that we are in this year is more akin to where we were in 2010 though. The financial disaster has happened and now we need to ease our way out of it.

    It's not possible to get out of this hole without borrowing more money. Trying to do that would do catastrophic harm to the country. It would be similar to a boxer cutting of his leg in order to make weight for a fight.


  • #2


    Addiction


  • #2


    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.

    Out of interest can you explain 'this time we owe ourselves' piece vs owing other people post 2008?


  • #2


    ice.cube wrote: »
    Out of interest can you explain 'this time we owe ourselves' piece vs owing other people post 2008?

    Sloppy language on my part, but essentially we the public as collective are not much endebted, whereas we certainly were in 2008. The state has its debt but they can borrow for literally nothing and strink debt through growth.


  • #2


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

    sadly , while you are right, we have the greens . The Dublin outer ring road to ease m50 traffic and better motorway infrastructure in the north west would be ideal. Extending the luas to the airport - ideal.
    One of the few times id support government spending. But not a hope Eamo will allow it. he'd waste it all on cycle lanes to serve people who already have many bus services, the luas and the dart.


  • #2


    Sloppy language on my part, but essentially we the public as collective are not much endebted, whereas we certainly were in 2008. The state has its debt but they can borrow for literally nothing and strink debt through growth.

    Fair enough point!

    We have seen a huge improvement in this area following the last crisis however still work to be done IMO. We were the 5th most indebted EU country in Q1 2019 in terms of household debt. I would also have some concerns over the people's rainy day fund or the lack thereof. This year was a huge eye-opener for many people regarding savings.


  • #2


    I was asking in the context of Eurozone countries since that's what your previous post seemed to be on about.

    If you want to focus only on Ireland - well here were the budget deficits for the past 25 years.

    ireland-government-budget.png?s=wbbgirel&v=202012042300V20200908&d1=19951213

    After the crash the governments, with the help of the Troika got the public finances back in order gradually over a number of years until eventually the budget was balanced again for the past few years. Seems like the opposite of reckless to me.

    The Celtic Tiger era spending - yes, absolutely that was reckless. The scenario that we are in this year is more akin to where we were in 2010 though. The financial disaster has happened and now we need to ease our way out of it.

    It's not possible to get out of this hole without borrowing more money. Trying to do that would do catastrophic harm to the country. It would be similar to a boxer cutting of his leg in order to make weight for a fight.

    Great graphic, I would argue the seeds were sown in 2004/2005. Unlike a lot of people i kept getting made redundant in the early noughties (electronics). The boom came from electronic manufacturing and fairly awful jobs that were unfit for adult humans. When wages went up and tax breaks ran out the majority of that work left Ireland, China, eastern Europe etc The government wasted that money. We were lucky to keep pharma, intel and automotive.

    I never got the easy money like those in construction. I thought €32 billion was a lot of debt.

    I agree re spending now but you ignored my last points, no more level 4/5 lockdown. Get to a surplus position and 60% haircut on bondholders.

    We're hiding from a problem that's likely a lot worse than coronavirus. If tax harmonisation comes in, we're goosed


  • #2


    mcsean2163 wrote: »
    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

    This is "man in the pub" logic which doesn't work in reality.

    Firing people and threatening their successors with "criminal prosecution" will only result in an increase in risk aversion, the end result of which is, perversely, less productivity, more arse covering and greater expense, because procurement will shift towards "derisked" contracts which are always more expensive.


  • #2


    Lumen wrote: »
    This is "man in the pub" logic which doesn't work in reality.

    Firing people and threatening their successors with "criminal prosecution" will only result in an increase in risk aversion, the end result of which is, perversely, less productivity, more arse covering and greater expense, because procurement will shift towards "derisked" contracts which are always more expensive.

    As many have pointed out, the position of always selecting cheapest has failed massively. I'd call it emperor's New clothes logic. Those people were criminally negligent. It's blatantly obvious what should be done to everyone in the private sector and many in the public sector.


  • #2


    mcsean2163 wrote: »
    As many have pointed out, the position of always selecting cheapest has failed massively. I'd call it emperor's New clothes logic. Those people were criminally negligent. It's blatantly obvious what should be done to everyone in the private sector and many in the public sector.
    If they were criminally negligent as you say, what crimes did they commit?


  • #2


    mcsean2163 wrote: »
    I agree re spending now but you ignored my last points, no more level 4/5 lockdown. Get to a surplus position and 60% haircut on bondholders.

    The bondholder idea is a complete non-runner. Over 40% of Irish government bonds are owned by residents of the country (mostly the Central Bank). Another third of it is owned by the ECB. There isn't some large collection of 38 year old American Hedge Fund managers who own our debt anymore. All of that debt was refinanced at lower rates which is how the ECB and Central Bank own most of it now.

    As for the no more lockdown idea - well we can see the finish line of the Pandemic at this stage so it's kind of a moot point. I suspect that we will have one more lockdown period around February. If it's a choice between taking on additional debt to allow that to happen or to run the risk of overwhelming our health service and having thousands of additional deaths on our hands (in the way that USA and many European countries currently are experiencing) then I think it's a no-brainer. No country with our age profile was successfully able to stay open but isolate their older citizens from younger people, so I fail to see the relevance of your comment about under 45s not dying from the virus.


  • #2


    If they were criminally negligent as you say, what crimes did they commit?

    The crime of losing hundreds of millions through incompetence. People die young and old because the financial cost to save their lives is too much. Literally those decisions are made in hospitals.


    A lot of lives could have been saved or houses bought if not for the incompetence in children's hospital project. That's criminal negligence IMHO.


  • #2


    The bondholder idea is a complete non-runner. Over 40% of Irish government bonds are owned by residents of the country (mostly the Central Bank). Another third of it is owned by the ECB. There isn't some large collection of 38 year old American Hedge Fund managers who own our debt anymore. All of that debt was refinanced at lower rates which is how the ECB and Central Bank own most of it now.

    As for the no more lockdown idea - well we can see the finish line of the Pandemic at this stage so it's kind of a moot point. I suspect that we will have one more lockdown period around February. If it's a choice between taking on additional debt to allow that to happen or to run the risk of overwhelming our health service and having thousands of additional deaths on our hands (in the way that USA and many European countries currently are experiencing) then I think it's a no-brainer. No country with our age profile was successfully able to stay open but isolate their older citizens from younger people, so I fail to see the relevance of your comment about under 45s not dying from the virus.

    Apologies, forget about the virus, that's a whole other thing.

    Everything else the same. I've been a shareholder in many companies and have suffered massive losses and sometimes made decent gains. Bondholders are in the casino and as soon as a surplus is generated they should be burnt or it's our children that will be getting burnt instead. Pain now not later.


    That's my solution.

    Anyway this has gone off topic.

    How much is too much, when will the lenders stop lending?


  • #2


    Philosophically, they will never stop lending.


  • #2
  • #2


    mcsean2163 wrote: »
    The crime of losing hundreds of millions through incompetence. People die young and old because the financial cost to save their lives is too much. Literally those decisions are made in hospitals.


    A lot of lives could have been saved or houses bought if not for the incompetence in children's hospital project. That's criminal negligence IMHO.
    So you're confirming that they're not criminally negligent. :rolleyes:


  • #2


    mcsean2163 wrote:
    What's the the figure that causes us to go bust?

    Countries rarely go bust, as central banks can never run out of money, private debt is the far more dangerous of the two, as we learned the hard way in 08


  • #2


    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?
    Please stop thinking about national debt like you think about personal debt. This populist approach to government expenditure is why we have such awful infrastructure.

    There is no such thing as too much debt as long as we can service it.
    ice.cube wrote: »
    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.

    Why? IMF already has multi-currency reserve. The USD has historically been one of the most stable currencies and nothing has changed there. US debt is largely short-term, so we'd need to see a massive depression in the US which didn't materially impact other countries to see a realistic reason to move away from the USD as the main currency reserve; but as I said, there are already other reserve currencies.

    If we're talking hypothetical in the longer term, maybe crypto could potentially be a new reserve... that's about as realistic as a massive move away from USD in the foreseeable future.


  • #2


    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.

    Except, not.

    https://en.wikipedia.org/wiki/List_of_countries_by_public_debt

    Debt:GDP is more important than Debt per capita.

    https://en.wikipedia.org/wiki/List_of_countries_by_external_debt


  • #2


    There is no such thing as too much debt as long as we can service it.

    There is nothing wrong with my bottle of whiskey a day, so long as the old liver can hold up. Well, so far so good :cool:


  • #2


    There is nothing wrong with my bottle of whiskey a day, so long as the old liver can hold up.

    ive no idea what your drinking habits have to do about debt, but the poster is absolutely spot on, growing public debt is absolutely fine, provided your economy can indeed continue to service these debts. its common practice globally to continually roll public debts over for extended periods, provided these debts are regularly serviced, without it causing any major negative effects


  • #2


    Wanderer78 wrote: »
    ive no idea what your drinking habits have to do about debt, but the poster is absolutely spot on, growing public debt is absolutely fine, provided your economy can indeed continue to service these debts. its common practice globally to continually roll public debts over for extended periods, provided these debts are regularly serviced, without it causing any major negative effects

    You know what gets me about all these discussions about debt is that it's a conversation without the creditors ever really playing a part in it. It is like a conversation in the front seats of a car, with the creditors sitting in the back, arms folded while it's decided what to do about the problem child.

    According to a post several posts up, the creditors are largely the Irish citizens, and then various European citizens via the ECB.

    In particular the creditors are future pensioners, who keep seeing the state default, yes default, on their pensions by pushing the pension age out. Continually pushing the pension age out because you cannot honour your commitments because you've taken on too much debt and too many commitments is a fairly major negative effect to us pensioners.


  • #2


    Wanderer78 wrote: »
    Countries rarely go bust, as central banks can never run out of money, private debt is the far more dangerous of the two, as we learned the hard way in 08


    Central banks can run out of money especially in the Eurozone.


    '08-'09 was subprime private debt - which is always problematic if left unchecked. Thankfully the subprime mortgage regime is better regulated now.


    Plenty of countries have gone bust including some multiple times. The more common practice is to borrow at low interest rates and roll it over ad nauseum until inflation does its job. I believe some WW1 debts were only recently repaid.


    Now is a good time to borrow, as long as we can afford to service the debt, as interest rates are at historic lows. The only catch to this is that the bond markets must believe in your nation's solvency.


  • #2


    You know what gets me about all these discussions about debt is that it's a conversation without the creditors ever really playing a part in it.

    According to a post several posts up, the creditors are largely the Irish citizens, and then various European citizens via the ECB.

    In particular the creditors are future pensioners, who keep seeing the state default, yes default, on their pensions by pushing the pension age out. Continually pushing the pension age out because you cannot honour your commitments because you've taken on too much debt and too many commitments is a fairly major negative effect to us pensioners.

    the main creditors of our economies are in fact private sector financial institutions which we normally call banks, banks create the majority of our money supply in the form of credit, hence the term, 'credit crisis' in relation to the previous crash. you are indeed correct though, the main creditors, the banks, are rarely talked about, in relation to money, and its creation, which is rather disturbing when you think about it.

    oh and central banks only create the minor part of the money supply

    ...again, banks create the majority of our credit(money) when a loan is taken out, again, this has nothing to do with public debt


  • #2


    ELM327 wrote: »
    Central banks can run out of money especially in the Eurozone.


    '08-'09 was subprime private debt - which is always problematic if left unchecked. Thankfully the subprime mortgage regime is better regulated now.


    Plenty of countries have gone bust including some multiple times. The more common practice is to borrow at low interest rates and roll it over ad nauseum until inflation does its job. I believe some WW1 debts were only recently repaid.


    Now is a good time to borrow, as long as we can afford to service the debt, as interest rates are at historic lows. The only catch to this is that the bond markets must believe in your nation's solvency.

    you may need to discuss this further with mr draghi and mr greenspan then! once again, and according to these folks, central banks can never run out of money, please take it up with these folks if you have an issue with this!

    ha! you d be naïve to think we ve solved the issues within out financial sector, my own region is just entering another credit fueled building boom, what could possibly go wrong!

    again, history shows, private debt has in fact caused far more frequent and far more serious economic crashes, so, plough on lads with the public borrowing, be grand!


  • #2


    Ok that is interesting. So the main buyers of Government bonds are private (or supposedly private) banks. And they buy this government debt at near zero coupon for what purpose? I mean what is in it for the Banks to keep buying more and more Government debt that doesn't yield much, or anything at all? Also, are these banks in this trade for the long haul. I'm trying to understand why private banks get involved in this, how it generates return to their business. It seems that growing your balance sheet with billions of government debt, with little or no return, is a policy with a finite timeframe from the banks point of view. (A bit like my bottle of whiskey a day analogy earlier)


  • #2


    Ok that is interesting. So the main buyers of Government bonds are private (or supposedly private) banks. And they buy this government debt at near zero coupon for what purpose? I mean what is in it for the Banks to keep buying more and more Government debt that doesn't yield much, or anything at all? Also, are these banks in this trade for the long haul. I'm trying to understand why private banks get involved in this, how it generates return to their business. It seems that growing your balance sheet with billions of government debt with little or no return has a finite timeframe from the banks point of view.

    ive a vague understanding of the bond markets, and im up to my eyeballs at the moment, so cant go any further, but we re not talking about how the majority of the money supply actually comes from private sector banks in the form of credit, i suspect most politicians dont understand this, or their advisors for that matter, i certainly dont see much evidence of that, but i could be wrong


  • #2


    Wanderer78 wrote: »
    ive no idea what your drinking habits have to do about debt, but the poster is absolutely spot on, growing public debt is absolutely fine, provided your economy can indeed continue to service these debts. its common practice globally to continually roll public debts over for extended periods, provided these debts are regularly serviced, without it causing any major negative effects

    This is true, but the problem is you never know when the situation will change.

    Greece ran large fiscal deficits, and all looked ok, until it was too late.


    Yes, it is true that continued deficits are possible **if**:

    (1) annual deficits are small
    (2) interest rates stay low
    (3) economic growth exceeds the interest rate

    There is a formula.



    Also, not that we already have a large stock of public debt, so bear that in mind when anybody calls for even more borrowing.


  • #2


    Ok that is interesting. So the main buyers of Government bonds are private (or supposedly private) banks. And they buy this government debt at near zero coupon for what purpose? I mean what is in it for the Banks to keep buying more and more Government debt that doesn't yield much, or anything at all? Also, are these banks in this trade for the long haul. I'm trying to understand why private banks get involved in this, how it generates return to their business. It seems that growing your balance sheet with billions of government debt, with little or no return, is a policy with a finite timeframe from the banks point of view. (A bit like my bottle of whiskey a day analogy earlier)

    First, are you sure banks are the main buyers?

    Read this:

    https://www.ntma.ie/uploads/general/Investor-Presentation-November.pdf

    see slide 30.


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