Recession predictions

Wanderer78 · 28-09-2020 8:20pm

Timing belt wrote:

Also lending restrictions did change quite a lot since the last crash and banks should have sufficient capital and liquidity as a result.

I disagree here, it just managed to lock a whole pile of people out of the property market, and just forced it up the chain, towards individuals and investors that can get access to the credit

Timing belt wrote:

The only other thing to add is there is no immediate sign of any trouble with any of the banks even in America as the fed have stepped in and is willing to buy everything.

I'm not convinced of this at all, and a lot of folks are starting to panic over the likelihood of defaults and non performing loans, this is gonna be one rough winter. it wouldn't surprise me if the government will have to step in to garantee the banks again, due to this, I just can't see the private sector rebounding quick enough, to keep the show on the road. confidence is collapsing quickly in the private sector, I've no idea where the demand is gonna come from, particularly for private sector credit. This is very worrying stuff, and I think the government is pulling the reins in too quickly, I understand they can't keep borrowing indefinitely, but.....

Timing belt · 28-09-2020 8:39pm

Wanderer78 wrote: »

I disagree here, it just managed to lock a whole pile of people out of the property market, and just forced it up the chain, towards individuals and investors that can get access to the credit

Totally disagree with this statement one of the best rules that was adopted by Ireland was linking mortgages to a multiple of salary. This had the effect of insuring that we would not see another property bubble. The only time we saw an increase in property prices was when the government introduced changes for first time buyers which ripples through the whole market unintentionally because it was not thought thru enough.

The problem is with supply and the fact that there is not enough profit to be made from building new houses so they don’t get built and a government who won’t adequately address the issue.

Wanderer78 · 28-09-2020 9:39pm

Timing belt wrote:

Totally disagree with this statement one of the best rules that was adopted by Ireland was linking mortgages to a multiple of salary. This had the effect of insuring that we would not see another property bubble. The only time we saw an increase in property prices was when the government introduced changes for first time buyers which ripples through the whole market unintentionally because it was not thought thru enough.

But it hasn't done anything with one of the main causes of rising house prices, the availability of credit!

Timing belt wrote:

The problem is with supply and the fact that there is not enough profit to be made from building new houses so they donâ€™t get built and a government who wonâ€™t adequately address the issue.

There's definitely a shortage of supply, but we ve known this since about 08

Timing belt · 28-09-2020 10:19pm

Wanderer78 wrote: »

But it hasn't done anything with one of the main causes of rising house prices, the availability of credit!

The central bank rules on multiplier of income has definitely slowed down house prices. I think you will also find that the rise in house prices is not due to availability of credit from banks etc but from the bank of Mum & Dad.

Wanderer78 wrote: »

There's definitely a shortage of supply, but we ve known this since about 08

Yes and still 12 years on noting meaningful done to address it. That is the biggest scandal of all.

Going back to printing money just came across this article in todays FT:

https://www.ft.com/content/8ef4792c-9ef1-4b4e-a296-73895034124f

Wanderer78 · 28-09-2020 10:39pm

Timing belt wrote:

The central bank rules on multiplier of income has definitely slowed down house prices. I think you will also find that the rise in house prices is not due to availability of credit from banks etc but from the bank of Mum & Dad.

So people are rocking up with larger deposits than loans, buying property? There's still an availability of credit, to those that can offered it, including investment groups!

Timing belt wrote:

Yes and still 12 years on noting meaningful done to address it. That is the biggest scandal of all.

Sure if you have a large cohort of folks that are potentially stuck in the house of mum dad, or stuck in the rental sector, being unable to save enough, and get access to sufficient credit, who's fault is this? Have these measures truly worked, or put a block in place, preventing social mobility?

Wanderer78 · 28-09-2020 10:46pm

Wouldn't be overly concerned about rising public debt, particularly in the developed world, we have better abilities to service our debts. It's looking likely our private debt issues are resurfacing again, rising private debt has caused far more serious issues, globally and historically, than rising public debt, as we discovered yet again in 08. And again, a similar set of issues are arising again

the goon · 28-09-2020 10:50pm

Timing belt wrote: »

The workers that kept working from home have an increased disposable income as they no longer have transport costs, lunches, coffees etc. On top of this there is a saving on childcare costs. Bank deposits grew during the same period which suggests not all disposable income was spent.

People that were luck enough not to be directly impacted financially by covid did well during this period but over the next few months may be impacted as businesses tighten there belt. It takes up to 1 year for the effect of covid to be felt fully by the wider economy as it takes time to build new business cases, work with unions etc. Before a restructuring can take place.

I reckon the last recession which started in 2007 didn't hit bottom until 2013 and the recovery thereafter wasn't particularly strong until 2016.So just looking at that I don't see this hitting fully for another couple of years.

Timing belt · 28-09-2020 11:08pm

Wanderer78 wrote: »

So people are rocking up with larger deposits than loans, buying property? There's still an availability of credit, to those that can offered it, including investment groups!

Define investment groups ? The reason for asking is that lending to the BTL market has dried up since the last recession. If you are taking about institutional investors then yes they have access to credit but are not heavily invested in domestic property and are more focused on the CRE market.
See Chart 3 on page 4
https://centralbank.ie/docs/default-source/publications/financial-stability-notes/no-6-who-invests-in-the-irish-commercial-real-estate-market-an-overview-of-non-bank-institutional-ownership-of-irish-cre.pdf

Wanderer78 wrote: »

Sure if you have a large cohort of folks that are potentially stuck in the house of mum dad, or stuck in the rental sector, being unable to save enough, and get access to sufficient credit, who's fault is this? Have these measures truly worked, or put a block in place, preventing social mobility?

This is firmly the governments fault as there is no supply and there is a lot that they can do but they do not want to interfere with the market.

Its not like there is no land to build on in Ireland. They just don't want to rezone as it will lower the existing's holdings of land banks.

They could cut vat rates on new builds in designated areas making houses cheaper as long as this was passed on to the consumer.

They could introduce tax rebates for investors which would provide the capital to build.

They could build themselves (personally I think this is what should be done and any profit should be then used for the next development etc.)

For fear of this turning into a thread about Irish property I would also add that yes there are wider problem that would need to be addressed such as infrastructure, schools etc but I'm sure these could be overcome.

Also just to be clear I think all the political parties are to blame because at a local council level they will deliberately delay if the idea has not come from there party. They are all a joke and are never held accountable.

Timing belt · 28-09-2020 11:14pm

Wanderer78 wrote: »

Wouldn't be overly concerned about rising public debt, particularly in the developed world, we have better abilities to service our debts. It's looking likely our private debt issues are resurfacing again, rising private debt has caused far more serious issues, globally and historically, than rising public debt, as we discovered yet again in 08. And again, a similar set of issues are arising again

Unless I am mistaken the IMF Loan in the last crisis was because of public debt.

yes the public debt existed because the government gave a guarantee for all deposits which in turn saw a run on banks in other countries as investors moved there deposits to Ireland. But never the less it was still public debt.

Timing belt · 28-09-2020 11:17pm

the goon wrote: »

I reckon the last recession which started in 2007 didn't hit bottom until 2013 and the recovery thereafter wasn't particularly strong until 2016.So just looking at that I don't see this hitting fully for another couple of years.

Hopefully not but you could be right. I think the length of any recession in Ireland it will be determined on what happens in the US and UK.

Geuze · 29-09-2020 12:28am

wassie wrote: »

So if printing money leads to hyper inflation, like Zimbabwe (and Nazi Germany, the other often quoted example) why has inflation in the US never risen above 4% yet they have performed QE four times since 2008?

Just to be clear, the QE done by the Fed and ECB did not involve any "printing".

It is nothing to do with cash currency.

The extra money is all electronic, and is created and used to buy financial assets.

KyussB · 29-09-2020 5:01am

Timing belt wrote: »

There is a cost associated with printing money so it’s not free money and when used needs to be done in a targeted way. The point that I am making is covid is going to be around for a long time and I don’t think it’s the best use of money. It’s not conservative rubbish as you call it.

Let’s say that the country continue borrowing from the ECB who have created an extra 1.2tn in cash how will that be repaid in the future if covid is still around. At some point it will lead to a sovereign crisis which will lead to tax rises, job cuts and the government not having a say on how to implement it.

The other point that is worth noting is that Ireland is more dependent on the global economy than other countries so if they don’t pick up Ireland is in trouble regardless of gov spending.

The difficult part is how you target the cash. For example if you said tourist industry needs to be targeted where do you draw the line Hotels, Restraunt’s, pubs. What about the small business supplying these. This is the same problem being experienced by every country.

The economy can afford any level of spending up to the point of reaching maximum GDP/employment (*). That's just how macroeconomics works.

Anyone denying this is a fiscal conservative bent on holding down public spending for political reasons.

* This is talking about general spending in the economy - not ridiculous hypothetical scenarios like spending chasing a single good of limited supply.

KyussB · 29-09-2020 5:15am

Richard571 wrote: »

This is just rubbish. Sure central banks can print money, but you will then see hyper inflation where currency would become devalued like Zimbabwe. Also being part of the EU would prohibit this as it would undermine the EURO.

Someone always pays - either we face up to it now or let our children Pay our bills.

The people who are first to scaremonger about 'hyperinflation!' always have no idea about how it works. There are several main triggers of hyperinflation:
1: Economic collapse, 2: Foreign Denominated Debt, 3: Economic Sanctions, 4: Limited Exports and Foreign-Exchange collapse, 5: Deliberate devaluation/printing.

'5' is almost never the trigger. Hyperinflation almost always occurs through economic collapse (as it did in Zimbabwe, due to agricultural collapse), foreign denominated debt (one of the most common triggers - a large number of countries denominate debt in US dollars), Limited Exports e.g. oil (Venezuela being a prime example - screwed when oil prices dropped), and Economic Sanctions.

Printing may follow these, but it's almost never the main trigger.

The archetypal example of deliberate money printing, is Weimar Germany - and they did that to default on war debts. You know what Germany did shortly after that? They printed money again to fund rearmament for WWII using MEFO bills, as a means to get around the Versailles Treaty restrictions - and they used money printing all the way through WWII - funding one of the most successful economic recoveries in European history, followed by one of the most destructive militaries in European history.

The people who spout 'but hyperinflation' to everything - know nothing about the history of money printing or hyperinflation.

bobbyy gee · 29-09-2020 5:23am

European governments are pumping money into economy this can last year then they stop collecting as much taxes people have stopped spending on eating out shopping etc
If deaths go down the ressesion will not be as bad some site has prediction of 19000 irish deaths

Wanderer78 · 29-09-2020 5:46am

Timing belt wrote:

They could build themselves (personally I think this is what should be done and any profit should be then used for the next development etc.)

Agree with a lot of those statements, but would slightly disagree with the above, the state doesn't truly have the capabilities to build, as we ve more or less dismantled that, over the last few decades, but as you said, there's plenty of land available and the state has abilities to create the funding, as discussed, but our governments are obsessed with leaving it to the market, including financially, funnily enough, this was one of the main causes of the previous boom and bust! We should publically fund some of our housing and accommodation needs, but allow the private sector to actually do it, as that's who normally does it.

Timing belt wrote:

Unless I am mistaken the IMF Loan in the last crisis was because of public debt.

Twas indeed, but why did that occur?

Wanderer78 · 29-09-2020 5:48am

Timing belt wrote:

Hopefully not but you could be right. I think the length of any recession in Ireland it will be determined on what happens in the US and UK.

This will indeed play a critical role, and at the moment, things don't look too healthy!

Wanderer78 · 29-09-2020 5:50am

Timing belt wrote:

yes the public debt existed because the government gave a guarantee for all deposits which in turn saw a run on banks in other countries as investors moved there deposits to Ireland. But never the less it was still public debt.

Apologies for all the single posts, where did all this extra public debt come from?

Wanderer78 · 29-09-2020 9:21am

an interesting tweet on derivatives, plain vanilla, my hole!

https://twitter.com/Halsrethink/status/1310501736818319366

wassie · 29-09-2020 10:26am

Geuze wrote: »

Just to be clear, the QE done by the Fed and ECB did not involve any "printing".

It is nothing to do with cash currency.

The extra money is all electronic, and is created and used to buy financial assets.

Correct - I was trying to counter this commonly held misconception of QE.

This article from Positive Money puts it far more eloquently than I ever could.

Throughout history, governments have used their ability to create money to fund public spending. While none of these policies were called, “People’s QE”, “Strategic QE”, “Sovereign “Money Creation”, or “Helicopter Money” (what Positive Money collectively refers to as Public Money Creation), they shared the common trait of using newly created state money to finance government spending, rather than relying on commercial banks to create new money through lending.

The common response to the idea of allowing the state to issue money and spend it into the economy is that such an approach would be highly inflationary... ....In this post, we will show that misleading conclusions have been drawn from the case studies of state-led money creation in Zimbabwe and the Weimar Republic.

The empirical reality, both when looking at quantitative data and qualitative descriptions of what actually happens in hyperinflations shows that they are not the results of well-governed states abusing the money creation process.

Rather, hyperinflation is typically a symptom of some underlying economic collapse, as happened in Zimbabwe and Weimar Republic Germany.

Wanderer78 · 29-09-2020 10:30am

wassie wrote: »

Correct - I was trying to counter this commonly held misconception of QE.

perfectly put, hyperinflation has occurred in the past due to a couple of economic conditions occurring together, not solely due to increasing the money supply, generally with supply side issues, as was the case in relation to Zimbabwe's problems

Timing belt · 29-09-2020 12:53pm

Geuze wrote: »

Just to be clear, the QE done by the Fed and ECB did not involve any "printing".

It is nothing to do with cash currency.

The extra money is all electronic, and is created and used to buy financial assets.

Electronic money is still money and QE is the same as printing money as it increases the cash in circulation.

The ECB buy a gov bond and pay cash (electronic) to the financial institution that pledged/delivered the bond. And as a result there is an increase in the money supply in the market.

Just look at the irish banks balance sheets and you will see the increase in central bank placements as a result of QE and negative rates.

I am not saying QE is wrong the opposite it is needed at the moment to keep rates low so governments can borrow cheaply. The government can not borrow forever so need to be wise with how they use the funds as a point comes when the country gets crippled by debt repayments. We are not near that stage yet but it needs to be kept in check.

There is also a risk that when it comes to roll the debt that rates will not be so low and create problems down the line.

Wanderer78 · 29-09-2020 12:56pm

Timing belt wrote: »

Electronic money is still money and QE is the same as printing money as it increases the cash in circulation.

The ECB buy a gov bond and pay cash (electronic) to the financial institution that pledged/delivered the bond. And as a result there is an increase in the money supply in the market.

Just look at the irish banks balance sheets and you will see the increase in central bank placements as a result of QE and negative rates.

I am not saying QE is wrong the opposite it is needed at the moment to keep rates low so governments can borrow cheaply. The government can not borrow forever so need to be wise with how they use the funds as a point comes when the country gets crippled by debt repayments. We are not near that stage yet but it needs to be kept in check.

There is also a risk that when it comes to roll the debt that rates will not be so low and create problems down the line.

...again, rising public debt has caused far less problems, than rising private debt

Timing belt · 29-09-2020 1:08pm

Wanderer78 wrote: »

an interesting tweet on derivatives, plain vanilla, my hole!

https://twitter.com/Halsrethink/status/1310501736818319366

Not sure what you mean ‘plain vanilla my hole’. If you think retail banks have undertaken all these transactions then you are mistaken as the majority will be undertaken by investment banks, funds, insurance companies etc.

Derivatives are not bad if used right and the risks are understood by the investors.

Derivatives got a bad name at the last banking crash as they were sold to retail investors who did not understand what they were buying when they were sold a cap or a floor along with a fixed term loan. The famous CDO’s that caused so much trouble were flawed as the ratings agency’s did not do there job correctly and they included rubbish due to fraud on the underlying mortgage applications.

Timing belt · 29-09-2020 1:11pm

Wanderer78 wrote: »

...again, rising public debt has caused far less problems, than rising private debt

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

Wanderer78 · 29-09-2020 1:12pm

Timing belt wrote: »

Not sure what you mean ‘plain vanilla my hole’. If you think retail banks have undertaken all these transactions then you are mistaken as the majority will be undertaken by investment banks, funds, insurance companies etc.

Derivatives are not bad if used right and the risks are understood by the investors.

Derivatives got a bad name at the last banking crash as they were sold to retail investors who did not understand what they were buying when they were sold a cap or a floor along with a fixed term loan. The famous CDO’s that caused so much trouble were flawed as the ratings agency’s did not do there job correctly and they included rubbish due to fraud on the underlying mortgage applications.

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

Wanderer78 · 29-09-2020 1:13pm

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 · 29-09-2020 1:23pm

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 · 29-09-2020 1:26pm

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 · 29-09-2020 1:32pm

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 · 29-09-2020 1:36pm

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 · 29-09-2020 2:07pm

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 · 29-09-2020 2:09pm

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 · 29-09-2020 2:13pm

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 · 29-09-2020 2:16pm

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 · 29-09-2020 2:28pm

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 · 29-09-2020 3:33pm

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

Wanderer78 · 29-09-2020 3:47pm

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 · 29-09-2020 3:52pm

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 · 29-09-2020 3:53pm

Timing belt wrote:

CLOâ€™s are the CDOâ€™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 CLOâ€™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 · 29-09-2020 3:56pm

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 · 29-09-2020 3:57pm

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 · 29-09-2020 4:20pm

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 · 29-09-2020 4:21pm

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 · 29-09-2020 4:28pm

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 · 29-09-2020 4:32pm

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 · 29-09-2020 8:37pm

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 · 29-09-2020 8:42pm

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 · 29-09-2020 9:04pm

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 · 29-09-2020 10:56pm

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 · 29-09-2020 11:26pm

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.

Recession predictions

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