Recession predictions

coolshannagh28 wrote:

You correctly point out that foreign ownership is one of our biggest problems; Ireland is a tiny market being monopolised by institutions mainly US based interestingly at the behest of and incentivised by our government.

Do we have absolute certainty that most of these institutions are American, a major Saudi investor is just entering my local markets, but it looks like backed by American money?

KyussB wrote: »

We have the funding, we have the labour, we have the training capacity, we have the physical resources and industry needed - the private sector won't do it, so the government has to.

We have the finance, yes, but do we have enough skilled construction labour to build 50,000 houses per annum?

I hope we do, but I don't think so.

Geuze wrote:

I hope we do, but I don't think so.

Not a chance we have them right now, so we better get cracking training people, it's a very worrying time in regards this critical need

European Commission Spring 2021 forecasts

https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-forecasts/spring-2021-economic-forecast-rolling-sleeves_en

Geuze wrote:

Given the scale of unemployment here, there is no justification for any non-EU labour immigration.

Many jobs are of low pay and poor conditions, of which many of us are unwilling or able to do, we need a steady flow of immigration to fulfill these roles, as theyre critical to our economy and society

Wanderer78 wrote: »

Many jobs are of low pay and poor conditions, of which many of us are unwilling or able to do, we need a steady flow of immigration to fulfill these roles, as theyre critical to our economy and society

No we don't as that then puts pressure on housing and other services. And is causing an upheaval in society as will be seen in politics for example over the next number of years.

We need to get Irish people out working by reforming the welfare system and stop with this ponzi scheme of constantly importing the next batch of cheap labour from a different part of the world every 10 years.

Wanderer78 wrote: »

.... it's virtually impossible to live off the standard of 200 a week, even 350 must have been difficult for some.

So where do you think it should be set?

Above 350 per week? If you do that, it will only mean the wages will have to rise to make it worthwhile to go out to work.

Wanderer78 wrote: »

We need to look at this, more money in people's hands, will more than likely mean more money in circulation, increasing the velocity of the supply



Sounds like a plan then!

Joan Burton played that tune a few years ago...increase the dole and sure they spend it all every week anyways, so it benefits the economy and pays for itself!
I heard one of the Soc Dem's come out with the same line on the radio a few weeks ago.

The magic money tree school of economic thought

No, lets keep borrowing and pass the debts on to our grandkids. Great legacy.

Prior to Feb 2020 and the Covid impact, there were plenty of jobs and not enough people to fill them. What was the excuse then?

KyussB wrote: »

We don't use gold standard era countercyclical policies, where there is a real scarcity of money. With a fiat currency, money scarcity is only ever artificial.

aka The Money Tree

Borrowing to spend on infrastructure, yes a case can be made for that.

Borrowing to pay increased welfare payments is never good financial management in my book. Especially when you have a world record debt and talking about it 'just rolling over so it doesn't really matter' is crazy stuff. It's passing an horrendous legacy to those that come after us

KyussB wrote: »

Do you think the central bank digs money up from deep in the ground, like gold nuggets or something?

Yes, the central bank is effectively a 'money tree' - did you not know this? Regular banks also are 'money trees' - creating money when they give out loans (it is not loaned out from deposits).

Money scarcity is always artificial with a fiat currency. Money should be made artificially scarce when the economy is at Full Output, to prevent excessive inflation - all that means is the limit to government spending is not money or an arbitrary government fiscal/debt balance - the limit to spending is Full Output and associated inflation.

Rolling over the stock of government debt forever, letting GDP growth erode it away, is how all countries on earth have worked for centuries, it is normal.

The reason it sounds scary to you, is because you are talking about government finances as if they work like personal finances, when they work nothing like personal finances.

We put a burden on our grandchildren by not spending using negative-interest debt today, to build infrastructure and to boost the private sector by giving generous social supports - because not doing that leaves GDP, the size of the overall economy, smaller than it would have been - meaning our kids inherit a smaller economy, with less material wealth in terms of infrastructure and privately as well.

Don't treat government finances like they are the same as personal finances - they are nothing alike.

Why pay taxes then? If we can just print it and roll it over, why not let workers keep their earnings? That would allow companies to reduce their cost base, as I would be happy with a lower salary if no taxes.
I mean govts have decided that some of the largest companies like Amazon, Apple, FB should not pay tax, so why not pass that on to the worker as well.
We will have faster economic growth and we can just roll it over, simples

KyussB wrote: »

No it's no theoretical, it's how banking operations work:
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
https://www.bundesbank.de/en/tasks/topics/how-money-is-created-667392

Banks don't lend out from deposits, they create money when they make loans. Banks are constrained in their lending by capital requirements.

Reserve requirements exist (in some countries they don't), but because banks give out loans first and fix up their reserves later, and the central bank is guaranteed to help banks shore up their reserves - that means reserve requirements don't actually constrain lending, they only create a small penalty to profits from loans when the central bank has to shore up reserves - and so the whole idea of there being a fractional reserve 'money multiplier' is false.

As long as banks can expand capital, staying within capital requirements, they can expand loans as needed - creating money in the process.

Banks are constraint by capital requirements, liquidity requirements, risk appetite. At the moment banks are awash with cash and have capital to lend but they are unable to find sufficient customers with their risk appetite to lend to.

You are incorrect when you say a bank can give out loans first and fix up their reserves later. If what you were saying was correct then the banking crash in 08 would never have happened as central banks would have just provided the liquidity to the banks with no need for any collateral.

• There would have been no need for the bank of England to introduce the DWF or for the ECB to introduce there equivalent.
• There would be no need for central banks to have operating standing facilities for the event that a bank brings its reserve account overdrawn.
• There would be no need for banks to have contingent liquidity pools with the central banks for instances where reserve accounts are brought overdrawn due to payments flowing through a clearing bank.

Even with Central banks stepping in following the 08 crash they still charge one rate for a Deposit and another for lending..... As part of there Operating standing facilities they provide a deposit facility rate (ECB rate -50bps) and a marginal lending rate (ECB Rate +25Bps). The cost to bank of being short as opposed to long on there reserve account is 0.75% which in todays terms is a significant cost.

So no bank lends first and then fix up there reserves afterwards. If bank has to use the marginal lending facility to often the central bank will demand a meeting with the bank to see what they are doing to rectify the situation.

Banks are also constraint with the amount of lending they can undertake by the leverage ratio and NSFR These requirements were introduced to prevent a crash like in 08 when banks were issuing loans without having stable funding to support them so it's not as simple as a bank just needs to lend more to create more cash.

KyussB wrote: »

No it's no theoretical, it's how banking operations work:
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
https://www.bundesbank.de/en/tasks/topics/how-money-is-created-667392

Banks don't lend out from deposits, they create money when they make loans. Banks are constrained in their lending by capital requirements.

Reserve requirements exist (in some countries they don't), but because banks give out loans first and fix up their reserves later, and the central bank is guaranteed to help banks shore up their reserves - that means reserve requirements don't actually constrain lending, they only create a small penalty to profits from loans when the central bank has to shore up reserves - and so the whole idea of there being a fractional reserve 'money multiplier' is false.

As long as banks can expand capital, staying within capital requirements, they can expand loans as needed - creating money in the process.

KyussB wrote: »

Incorrect, banks make loans first and then shore up reserves afterwards - and the first link there from the BoE states this:

...
In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available. As with the relationship between deposits and loans, the relationship between reserves and loans typically operates in the reverse way to that described in some economics textbooks.

Banks first decide how much to lend depending on the profitable lending opportunities available to them — which will, crucially, depend on the interest rate set by the Bank of England. It is these lending decisions that determine how many bank deposits are created by the banking system. The amount of bank deposits in turn influences how much central bank money banks want to hold in reserve (to meet withdrawals by the public, make payments to other banks, or meet regulatory liquidity requirements), which is then, in normal times, supplied on demand by the Bank of England.
...

A central bank will never refuse to shore up a banks reserves. That implicitly would mean collapsing the banking system - which is the opposite of the central banks mandate.

What you have just quoted confirms that a bank lends based on it's customer deposits. A bank first decides how much to lend based on profitability, lending opportunities and risk appetite. The bank will then offer a better deposit rate to attract deposits to fund this lending (Assuming it is not availing of TILRO or some other source of funding) This is why Irish banks source of funding is 80%+ customer deposits.

As for a central bank never refusing to shore up a banks reserves this is also false. Unless the bank is a G-SIB the central bank will let the bank fail and this is why they have issued banking resolution regulations which require banks to have process in place for such and event and require them to issue MREL which in the event of resolution will recapitalise the bank to allow to be wound down in an orderly fashion.

The only banks that central banks would not allow fail are G-SIB's and because of this these banks have stricter reg requirements than other banks.

https://youtu.be/f3erJNklEEI

KyussB wrote: »

What I quoted says the exact opposite of that. Here is another quote from the same BoE document:

... Saving does not by itself increase the deposits or ‘funds available’ for banks to lend. Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money. This article explains how, rather than banks lending out deposits that are placed with them, the act of lending creates deposits — the reverse of the sequence typically described in textbooks.
...

That is the exact opposite of what you're claiming.

You do understand the difference between a central bank guaranteeing reserve requirements, and how that is not the same as bailing out a bank, right?

If a bank fails to shore up reserves on the interbank market the central bank will never refuse to shore that up - and I don't know why you are mixing that up with a bank collapse, because that is a different thing altogether - capital requirements, MREL etc. have nothing to do with shoring up reserves on the interbank market.

Explain what you mean my shoring up reserves on the interbank market.

I am interested as the 99% of all interbank transactions are Repo's these days the days of banks lending each other money with no collateral disappeared after 08. The central bank has very little to do with such transactions.

The reason I mentioned MREL etc is because you said that central banks won't let banks fail.... which is not true.

KyussB wrote: »

You are wrong, everything I've quoted explicitly says banks can lend without funding already being in place. Here is the Bundesbank, saying the same thing:

...
In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers.
Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer's bank account in return.
This means that banks can create book money just by making an accounting entry: according to the Bundesbank's economists, "this refutes a popular misconception that banks act simply as intermediaries at the time of lending – ie that banks can only grant credit using funds placed with them previously as deposits by other customers".
By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).
...

https://www.bundesbank.de/en/tasks/topics/how-money-is-created-667392

That absolutely is the exact opposite of what you're claiming. The very act of lending creates deposits as well, adding new deposits to the banking system - providing all the deposits the banking system needs in aggregate, to meet its various regulatory requirements.


On the interbank market: When a bank is running short of its reserve requirements (which need to be settled once every couple of weeks or so, depending on the country), then it goes to the interbank market and seeks a loan from another bank - if no other bank is able to facilitate this, then the central bank will in practice, never refuse to facilitate this - because it is impossible to refuse that without collapsing part of the economy, as to meet reserve requirements, the bank have to recall loans, cancel contracts already made etc. etc. - there is simply no precedent of a loan recall like that ever being attempted.

The reserve requirements that a bank needs x amount of cash with the central bank on a specific reserve account during the reserve period is easily meet by every bank at the moment as they are awash with excess liquidity that they can’t lend without increasing their risk appetite.

Most central banks have separate accounts for reserve requirements and their main RTGS account with the central bank. The requirement in most countries is that an average of X amount is required over the reserve period..so in theory a bank could fail to meet its reserve requirements for 30+ days and on the last day of the reserve period place a few billion so that the average is meet. If the bank did this and did not have sufficient cash on the RTGS account to move to the reserve account then the bank would avail of the Operating standing facilities of the central bank but to do so the bank would need to post collateral which would be exchanged for a cash credit to bank the RTGS account.

If the bank didn’t have eligible collateral available on its balance sheet it would undertake a reverse repo with another bank to get it so they could post the collateral to the central bank. The days of unsecured interbank lending is all but disappear since 08.

In practice banks would like to place more than their reserve requirements on this account as it attracts a zero rate for deposits as opposed to the RTGS account with the central bank that currently gets charged a negative rate.


With regards a loan creating a deposit I never argued against that what I said is that a bank can not undertake lending without adequate funding in place.

- If the customer doesn’t use the loan and instead leaves the cash on deposit it in a account with the same bank the entry is
dr customer loan and cr customer deposit . As we know this is not what normally happens as the customer has drawn down a loan for a specific purpose.

- if the customer draws down the loan and uses it to pay mr X for xyz and mr X also banks with the same bank then the entry still remains DR customer loan and Cr deposit.

- if the customer doesn’t bank with the same bank for the example call it bank ‘A.
then the entry is
dr customer loan. Cr bank ‘A’ RTGS account with central bank
Dr. Bank ‘b’ RTGS account with the central bank
Cr customer deposit

If this transaction brought the rtgs account with the central bank overdrawn at the end of the day then as I described above the bank would need to avail of the central banks OSF and as a result post collateral instead of cash to square up at the end of the day.

These examples all relate to the day to day operation and have nothing to do with the funding the loan book that I am referring to (Which in Ireland is mainly provided via customer deposits)

The bank needs funding in place in order to be able to lend and meet its reg requirements. If the bank is constrained by liquidity which you seem to imply in your example then the bank needs to get this liquidity in place before it can lend. And just to be clear I am not saying they need 100 customer deposits to lend 100 as the type and term of the customer deposits is important to provide the funding. If the bank received a deposit of 100 from a fund overnight it would be practically useless under LCR from a funding point of view. If the same fund deposited this 100 on a term greater than the LCR window or put in a notice account greater than the LCR window then yes it would provide funding that a bank could use for lending. As I have said previously this is not a constraint for most banks to lend at the moment as they are awash with liquidity and have adequate capital to enable them to lend but can’t find enough customer within their risk appetite to lend to.

coolshannagh28 wrote: »

Very learned contributions yes but the whole thing is based on confidence; the confidence other countries or unions have in your ability to back up your printing with growth in output . We may test these limits .

Correct as if investors loose confidence they yield will rise on the government debt and it becomes more expensive to rollover the debt.