Saturday, December 19, 2009

Economics 19/12/2009: Ireland's Financial Assets & Liabilities 2002-2008

Per CSO release earlier this week: "The net financial assets of households fell by €41.4bn in 2008 to €80.9bn, a drop of 34%. The financial assets of the sector, which does not include housing or other physical assets, dropped by €27.3bn while liabilities increased by €14.1bn, resulting in the decline in net financial assets of the sector."

What worries me more than the decline in the values of assets is the rise in liabilities.

"A net incurrence of liabilities of €13.4bn (a pronounced drop from 2007, due mostly to the decline in borrowing) combined with a fall in the net acquisition of financial assets to €7.7bn, has led to net financial transactions of €-5.7bn for 2008. This continues the trend observed in earlier years although to a much lesser degree."


So let's see those continued trends up close and personal:
So currency & deposits - aside from financial sector, or more specifically banks - is held primarily by the households (suckers for liquidity and low yields), followed by non-financial corporations.

When it comes to financial securities (other than shares), households and non-financial corporations are at bottom - not to be seen in comparison with other financial intermediaries and bonds- issuing government.
But these too are dwarfed by the extent of securities holdings by financial system and in particular banks. Ex monetary institutions (aka banks) there has been a drop off in assets in this category in 2008.

Loans on the asset side:
Obviously banks and other financial intermediaries lead. But non-financial corporations are also increasing lending here. Why? Because these account for loans to subsidiaries and also because these reflect overall decline in lending to the corporate sector. It is, in many ways, a form of financial barter - non-financial companies should not really engage in lending, they should engage in producing.

So what happened to total financial asset holdings?
Per chart above, things were not all too bad in 2008, given the destruction of value in assets worldwide and serial devaluations against the euro. Not too bad, unless you consider the net assets held:

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