tag:blogger.com,1999:blog-8817171247555815363.post1104535718510018708..comments2024-03-26T05:57:44.937+00:00Comments on True Economics: Economics 16/9/10: Why a rescue package for Ireland might not be a bad ideaTrueEconomicshttp://www.blogger.com/profile/07350536454228478974noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-8817171247555815363.post-63147675662480423762010-09-16T14:09:54.415+01:002010-09-16T14:09:54.415+01:00This comment has been removed by the author.Hughhttps://www.blogger.com/profile/11104801986833575069noreply@blogger.comtag:blogger.com,1999:blog-8817171247555815363.post-78903781643833765772010-09-16T14:09:30.494+01:002010-09-16T14:09:30.494+01:00The Irish government is betting that the underlyin...The Irish government is betting that the underlying viable Irish economy can support the huge burden that is being placed upon it and also that it can continue to borrow huge amounts of money. <br /><br />If this bet succeeds then all we're faced with is long years of sub-par growth and, as the FT called it, "financial oppression" of the economically valuable people and businesses in the country. <br /><br />Eventually, decades from now, the debt being accumulated now might eventually be paid off. Ireland will be much poorer than it would have been, but would appear superficially intact.<br /><br />If the bet fails, then the Irish economy faces total disaster as people with mobile skills leave and as viable businesses die and fail and the ability to borrow enough money fades away - leaving both a dead economy and a catastrophic situation for the funding of civil servant pensions, i.e. no money any more.<br /><br />The only bail out that Ireland needs is replacement of our current gamblers with people prepared to bet that, long term, we need to have viable business to reward hard-working people, and even to allow hard work to result in savings rather than confiscatory taxation. This means no marginal tax increases, means sharp cuts in spending, including ALL areas, and ideally means doing it in one hard and sharp move. <br /><br />This would requires letting the recent economic damage fall on specific groups rather than attempting to spread it onto everyone. The groups would probably include mortgage holders (who are likely to be squeezed for every penny they borrowed on houses which should be let fall further in price), civil servants (whose index linked pensions and high salaries have to go), Judges (ditto), quangos (ditto), creditors and even depositors of Irish banks (oopsie), etc. Doing this would result in financial misery for many people. That's highly unfortunate, particularly if the govt does the usual and cuts things like benefits for truly unfortunate categories like the old and sick rather than cutting pay for civil servants and judges. <br /><br />However, it might allow a clean future for many parts of the economy and for many people like graduates, children, etc..Hughhttps://www.blogger.com/profile/11104801986833575069noreply@blogger.comtag:blogger.com,1999:blog-8817171247555815363.post-30542524177792846762010-09-16T13:54:53.011+01:002010-09-16T13:54:53.011+01:00The Irish government is betting that the underlyin...The Irish government is betting that the underlying viable Irish economy can support the huge burden that is being placed upon it and also that it can continue to borrow huge amounts of money. <br /><br />If this bet succeeds then all we're faced with is long years of sub-par growth and, as the FT called it, "financial oppression" of the economically valuable people and businesses in the country. <br /><br />Eventually, decades from now, the debt being accumulated now might eventually be paid off. Ireland will be much poorer than it would have been, but would appear superficially intact.<br /><br />If the bet fails, then the Irish economy faces total disaster as people with mobile skills leave and as viable businesses die and fail and the ability to borrow enough money fades away - leaving both a dead economy and a catastrophic situation for the funding of civil servant pensions, i.e. no money any more.<br /><br />The only bail out that Ireland needs is replacement of our current gamblers with people prepared to bet that, long term, we need to have viable business to reward hard-working people, and even to allow hard work to result in savings rather than confiscatory taxation. This means no marginal tax increases, means sharp cuts in spending, including ALL areas, and ideally means doing it in one hard and sharp move. <br /><br />This would requires letting the recent economic damage fall on specific groups rather than attempting to spread it onto everyone. The groups would probably include mortgage holders (who are likely to be squeezed for every penny they borrowed on houses which should be let fall further in price), civil servants (whose index linked pensions and high salaries have to go), Judges (ditto), quangos (ditto), creditors and even depositors of Irish banks (oopsie), etc. Doing this would result in financial misery for many people. That's highly unfortunate, particularly if the govt does the usual and cuts things like benefits for truly unfortunate categories like the old and sick rather than cutting pay for civil servants and judges. <br /><br />However, it might allow a clean future for many parts of the economy and for many people like graduates, children, etc.. <br /><br />So, there seem to be three likely scenarios. <br /><br />One is that the government plans hurt everyone in the country a lot, and actually much more than an even share of the already existing damage, since there'll be interest on top. That's their current best case. <br /><br />The second is that everyone in the country ends up entirely broke. That's what'll happen if the current bet fails and the economic curves go bad. <br /><br />The alternate is to recognize that a lot of people have already been made poor by the boom and bust, and to let that sword fall. This MIGHT allow the rest of the population to rebuild something useful. Might. <br /><br />It's what the IMF is likely to aim for if they come in.Hughhttps://www.blogger.com/profile/11104801986833575069noreply@blogger.comtag:blogger.com,1999:blog-8817171247555815363.post-52568697966702144782010-09-16T13:54:31.332+01:002010-09-16T13:54:31.332+01:00The Irish government is betting that the underlyin...The Irish government is betting that the underlying viable Irish economy can support the huge burden that is being placed upon it and also that it can continue to borrow huge amounts of money. <br /><br />If this bet succeeds then all we're faced with is long years of sub-par growth and, as the FT called it, "financial oppression" of the economically valuable people and businesses in the country. <br /><br />Eventually, decades from now, the debt being accumulated now might eventually be paid off. Ireland will be much poorer than it would have been, but would appear superficially intact.<br /><br />If the bet fails, then the Irish economy faces total disaster as people with mobile skills leave and as viable businesses die and fail and the ability to borrow enough money fades away - leaving both a dead economy and a catastrophic situation for the funding of civil servant pensions, i.e. no money any more.<br /><br />The only bail out that Ireland needs is replacement of our current gamblers with people prepared to bet that, long term, we need to have viable business to reward hard-working people, and even to allow hard work to result in savings rather than confiscatory taxation. This means no marginal tax increases, means sharp cuts in spending, including ALL areas, and ideally means doing it in one hard and sharp move. <br /><br />This would requires letting the recent economic damage fall on specific groups rather than attempting to spread it onto everyone. The groups would probably include mortgage holders (who are likely to be squeezed for every penny they borrowed on houses which should be let fall further in price), civil servants (whose index linked pensions and high salaries have to go), Judges (ditto), quangos (ditto), creditors and even depositors of Irish banks (oopsie), etc. Doing this would result in financial misery for many people. That's highly unfortunate, particularly if the govt does the usual and cuts things like benefits for truly unfortunate categories like the old and sick rather than cutting pay for civil servants and judges. <br /><br />However, it might allow a clean future for many parts of the economy and for many people like graduates, children, etc.. <br /><br />So, there seem to be three likely scenarios. <br /><br />One is that the government plans hurt everyone in the country a lot, and actually much more than an even share of the already existing damage, since there'll be interest on top. That's their current best case. <br /><br />The second is that everyone in the country ends up entirely broke. That's what'll happen if the current bet fails and the economic curves go bad. <br /><br />The alternate is to recognize that a lot of people have already been made poor by the boom and bust, and to let that sword fall. This MIGHT allow the rest of the population to rebuild something useful. Might. <br /><br />It's what the IMF is likely to aim for if they come in.Hughhttps://www.blogger.com/profile/11104801986833575069noreply@blogger.comtag:blogger.com,1999:blog-8817171247555815363.post-30804211681783341462010-09-16T11:43:46.054+01:002010-09-16T11:43:46.054+01:00Constantin,
I have big reservations and concerns ...Constantin,<br /><br />I have big reservations and concerns in that respect in particular when it comes to the IMF and their policies, but last not least also on the implementation of what you call a robust restoration of fiscal responsibilities.<br /><br />I think the latter would require a well functioning and efficiently organised DoF, ahem.... need I say more?<br /><br />IMF and EU, well, what did they do in Greece? They enabled capital transfer back to german and french banks, imposed austerity measures on the greeks and now? Greece crisis 2.0 is knocking at the door, even harder.<br /><br />Yes, the simple, hence so beautiful debt arithmetic is striking, and leaves no doubts at all on our situation.<br /><br />I always found it somewhat bigot how we pointed the finger at greece when we learned about the Goldmann Sachs/Government fraud of hiding massive debts.<br /><br />Why?<br /><br />Because exactly the same is happening all over the place, and not only in Ireland. Banks were drip feeding results and losses, demanding ever so higher bailouts as a result. Hiding debts is the name of the game they all play!<br /><br />Or in other words, to use the analogy of Junkies again, <i>Yeah mom, I sober up tomorrow, just one more shot!</i><br /> <br />For the germans a weak Ireland and Greece is a good thing, the mood of the german public has no tolerance left to bail out Club Med or ireland in my understanding,<br /><br />I think, the Euro lie is showing it's true face these days, and hiding of debts was only one part of this lie.<br /><br />Best<br />GeorgGeorg R. Baumannnoreply@blogger.comtag:blogger.com,1999:blog-8817171247555815363.post-3475502935878184092010-09-16T10:02:14.930+01:002010-09-16T10:02:14.930+01:00Good stuff. Here's an interesting perspective ...Good stuff. Here's an interesting perspective from Baseline..<br /><br />http://www.project-syndicate.org/commentary/johnson12/EnglishPaul MacDonnellhttps://www.blogger.com/profile/17707637371855622418noreply@blogger.comtag:blogger.com,1999:blog-8817171247555815363.post-90349307595246301492010-09-16T10:02:10.854+01:002010-09-16T10:02:10.854+01:00I'm not sure whether the EU stability fund is ...I'm not sure whether the EU stability fund is the best option for Ireland. <br /><br />Any money from the EU would come with strings attached that IMF money wouldn't, specifically, it is more likely that Ireland would be forced to honour bank bondholders (as many of these are european based) under an EU scheme, whereas an IMF team would be quicker to burn those same bondholders.LorcanRKnoreply@blogger.com