10/9/2012: Insane path of Irish 'wealth'

Another interesting chart from the IMF reports today:

Now, look at the red line - Net Wealth in Ireland, which has dropped to levels below those in Q1 2002, while housheolds' total taxes (VAT and Income taxes combined, excluding other) has ballooned from €17.96bn in 2002 to €23.54bn in 2011. So let's do a simple mental exercise: net wealth is down ca 30%, household taxes are up ca 31%... and we are supposed to:

• Deleverage our own debt
• Deleverage the banks-related debts of the Exchequer

What a better illustration of madness can one find? Oh, wait, I know - the Armchair Socialists' one: "Ireland is a very wealthy country and we must tax wealth to extract funds for the Government". Alas, we are rich... rich as we were more than 10 years ago. Since 2002, folks, it's not the wealth of ours that grew, but the appetite of the State for our wealth.

10/9/2012: Irish Households Debt Overhang: IMF note

IMF published today three papers relating to Ireland's economy. Each of interest on its own merit and I intend to blog about them.

However, here's a chart that actually summarizes pretty well both the extent of the Irish crisis and the sorry state of affairs expected as we exit it:

Here's IMF's explanation for the household deleveraging process out of what is - by the standards of the chart above - a historically unprecedented debt overhang.


"Under the current forecast, households would reduce debt gradually from about  210 percent of disposable income to 185 percent by 2017. Building on the forecast of the
savings rate, the debt path is calculated based on the IMF desk forecast for a muted recovery
of disposable incomes at below GDP growth. Further, the debt path assumes that households use about half of their savings to retire debt, and new lending growth remains moderate, increasing from 1.6  percent of GDP in 2012 to 5.3 percent by 2017."

Now, give it a thought, folks.

1. Irish crisis in mortgages is well in excess of anything represented in the above chart;
2. Irish deleveraging over 9 years (2009-2017) will yield mortgages debt reduction of just 25 percentage points even if we use half of our entire savings to pay down the debts;
3. This painful deleveraging will still Ireland's mortgages markets in wore shape in 2017 than the second worst peak  of the crisis (the UK) back in 2007.

And here's the chart showing that all the debt paydown to-date has had zero effect on arresting the degree of Irish households leveraging (debt/asset value ratio) as underlying asset values of Irish properties continue to fall:

It is clear from the above that the Irish Government is out to lunch when it comes to dealing with the most pressing crisis we face - the crisis of severe debt overhang on households' balancesheets.

9/9/2012: Ireland's stellar exports performance?

Three charts that put to the test one of our greatest claims to fame - the claim that Ireland is one of the world leaders in exports performance.

Charts above clearly show that Ireland's performance in exports growth was rather spectacular in the 1990s, strong in 2000-2004 period and below average in 2005-2009 period. However, in 2010-2012 period - the very period when, according to our Government we are experiencing dramatic growth in exports - Ireland's exports performance is, in fact, well below the average for our peers.

As the result of this, despite an absolutely massive collapse in imports, Irish current account performance (external balance that is supposedly - per Government and official analysts, and the likes of Brugel think-tank heads - going to rescue us from the massive debt overhang we have) is underwhelming:

9/9/2012: September Euro area bonds supply

September 2012 bonds supply and auctions for euro area countries (via Morgan Stanley):

9/9/2012: Some pretty big moves in CDS markets

Here are the moves in sovereign CDS since April 1, 2012 through last week.

7/9/2012: Theobroma cacao is not a placebo to cognitive ability

One of really cool studies that really shows economics is much more than dismal science:

The paper by Savastano, titled "The Impact of Soft Traits and Cognitive Abilities on Life Outcomes" (link here) "combines neuroscience, psychology, and behavioral economics to empirically analyze the extent to which academic achievement, the relative weight of rationality vs. fairness in decision-making, and life satisfaction are affected by cognitive ability, persistent personality traits, and short-term stimuli based on psychological priming techniques."

The paper sets an experiment: "Prior to undertaking a course exam and playing the role of the respondent in an ultimatum game, a group of Masters and PhD students were stimulated either emotionally (via chocolate tasting) or rationally (via mathematical problem solving)."

The experiment involved "a chocolate tasting ...on a sample of 83 graduate students who were asked to play the role of the respondent in a one-shot ultimatum game against a computer. A sub-sample of 50 students also undertook one of their exams of their M.Sc or first year of the PhD program in Economics right after receiving the treatment. Students were also asked to complete a standard Big Five Test which was complemented by an Emotion Regulation (ER) Tests to allow disentangling broader aspects of their personality." Other controls were implemented as well.

The core questions were:

1. "how personality traits (Big Five and ER scores) and cognitive abilities (proxied by past school performance) affect educational outcomes, namely the exam score for the two subsamples of students who, respectively, had chocolate or were rationally stimulated prior to undertaking this stressful activity;
2.  the nexus between short-term and long-term determinants of life satisfaction, as well as the extent to which personality traits can help to explain subjective assessment of well-being; and
3. the relationship between personality traits and cognitive abilities on the threshold value of acceptance of the ultimatum game, therefore on rational choices.

Core results are:

1. "This analysis brings good news for “chocolate and its derivatives” lovers. Theobroma cacao is not a placebo; it is statistically confirmed that the brown nectar provides individuals with a shot of positive energy that helps them feel happier. 
2. "If a piece of chocolate is also associated with “positive” soft personality traits, one can also experience some form of persistence in life satisfaction, or other life outcome. 
3. "Like any other external and exogenous shocks, the long-term effects are the sum of different factors, and the relative weight associated to it. There can be a positive relationship between a positive (negative) shock and its short-term impact. 
4. "However cognitive abilities, enduring positive personal traits and rationality help to mitigate the effects in the long-run, when individuals use reappraisal and revise their initial expectations, which together lead to more rational choices. 
5. "It appears that the homo economicus hypothesis is justified in the long term, but subject to the weight of emotionality in the short- run.

If you might think this is all just esoteric academism, don't. The author provides an example of where this knowledge can be applied to specific industry outcomes analysis, e.g. farming.