You refer to John FitzGerald, who is possibly a clever economist who like most people speaks with wsidom and sometimes doesn’t.

You then suggest “95pc of the posters on here” are ignorant.

So do you believe that the bulk of the surpluses from the activities of Pfizer et al are kept in the domestic banking system?

Ireland for one, as Japan levels of government debt become obvious to more.

The Irish debt will inevitably become correctly rated as junk. But in return for debt forgiveness, what will be offered by a desperate Provisional government of Ireland?

re Sindo article

proof that you shouldn’t believe everything you read in the papers

re that Sindo article:

“Ciaran O’Hagan, an Irish economist who is head of rates research at Societe Generale in Paris, said measures to limit public debt and contingent liabilities were now needed.

On whether these urgent measures were required before the end of September, he said: “Bang on.”

That was in direct response to me! Why amn’t i quoted too?? This is a sham. For once me and Prof Lucey agree!

@BL If you didn’t actually talk to Corcoran, he should be ashemed of himself for implying that he did so, which I agree is how I read the article. I am even more annoyed that he didn’t quote me!!

Balance of Payments is not a simple issue. It is particularly complex in a jurisdiction which is economically peripheral, and which is playing host to US MNCs whose activities are of a scale comparable to its GDP.

A merchandise trade surplus sounds good until you ask what is going elsewhere in the current account and capital accounts. The tax-avoiding chicanery in the MNC sector is becoming every bit as problematic for us as the stuff the banks have got up to.

http://www.progressive-economy.ie/2010/08/who-benefits-from-irelands-imbalance-of.html

@JTO Points well made. Every piece of bad news from S&P, Moodys, Morgan Kelly etc. is seized upon as the opener of a new thread. Fitzies comments in the Sunday Tribune certainly warrant a debate on an economic blog. The fact it didn’t get one is telling indeed.

As to your speculations on the little round ball I would defer to Fitzie as to whether that enters our BoP.

I’d certainly be delighted to see Professor Fitzgerald elaborate, for the benefit of posters here, on the views that he expressed in the Sunday Tribune article which I quoted, and which paint a radically different picture to the one given by most posters, including most academic economists, on this site. The fact that his views on this issue, as expressed in the Sunday Tribune article, seem pretty similar to mine (and rather different to your’s) is of no importance.

Given that it is in such short supply, we really need to make use of whatever expertise exists among Irish economists. It is abysmally obvious that the vast majority of posters on this site, including most academic economists, do not appear to know the difference between the balance-of-payments surplus/deficit and the government budget surplus/deficit, a matter of vital importance when discussing a country’s creditworthiness or likelihood of going bust. Hence their increasingly absurd pronouncements to the effect that Ireland is likely to go bust at the very moment when it is becoming a ’surplus country’ in the usual meaning of the term ’surplus country’ in economics (ie referring to the balance-of-payments).

But, if Professor Fitzgerald has little interest in posting on this site (and, given the level of ignorance displayed on this site, who could blame him?), you can grasp the essential points from part (b) of my first post above, although I’m sure that Professor Fitzgerald would explain them much more clearly than I do, and probably sufficiently clearly for even you to understand them, a task that is way beyond my capabilities.

I would direct you to the comments posted by the other Brian, Brian Woods II. I’m not quite clear if he agrees with my views on this issue (possibly not, and no harm in that), but he does at least say ‘JTO has a very important point’. It is precisely because of its importance that I thought it would be a good idea to have someone of status, who actually understood the issue, to post on it.

Oh well, much as I’d like to continue debating this with you, I’m off now to spend the evening in the New Orleans French Quarter, where I hope to make a modest (very modest) addition to Ireland’s balance-of-payments surplus at the casino.

What is the nature of the collective called ‘Ireland Inc’ ? No such body corporate exists. It seems to me that the title refers very broadly to ‘business’, particularly the more powerful or well placed elements within it. The business sector is just that. A sector.

Private wealth will always seek to protect itself from the consequences of political crisis, but states, and societies, also have legitimate objectives.

But let’s take it (BOP surplus) at face value. First obvious conclusion is that we do not have a problem with the Euro exchange rate and any talk of exit and devaluation is addressing a problem we actually don’t have.

If ESRI BoP forecasts are credible, we are not living beyond our means unlike the other PIGS. If we are not living beyond our means how can default be on the cards?

JTO again:

My sentiments exactly.

However, my status on this site (and in the world generally) is justifiably zero. That’s why I would like some reputable economist, like John Fitzgerald, who has written on this matter elsewhere (as I quoted above), to post here on the issue of a BOP surplus and what that would mean in relation to creditworthiness, likelihood of going bust, etc. It would also be useful if some of those economists, who are forever screeching that Ireland is about to go bust, made the occasional comment about the implications of moving into balance-of-payments surplus situation and told us whether or not they agree with John Fitzgerald’s comment above. And, if not, why not? However, I doubt if that will happen. The normal pattern on this site is that, once a reasonably credible (even if not 100 per cent convincing to everyone) argument is posted, which in any way challenges the view that economic armageddon is at hand, then the thread quickly dries up, and those actively trying to spread the apocalyptic view simply move on to another thread, making almost identical points to those they have made a short time before in the thread just abandoned. And, indeed, exactly that has happened with this S & P thread, from which all the leading prophets of economic armageddon appear to have now fled, only to re-emerge to make almost identical posts in the adjoining FT thread.

At the risk of repetition, the core of the argument is as follows:

(a) ESRI and the Central Bank have both forecast that Ireland will have a balance-of-payments surplus from 2011 on. The most recent balance-of-payments figures indicate that this forecast is quite likely to prove accurate.

(b) A prominent and reputable economist, John Fitgerald of ESRI, has pointed out (see quote above) that countries with a balance-of-payments surplus are unlikely to go bust, and has been supported in this view by an unprominent and disreputable poster, JohnTheOptimist (see post above).

I’d have thought that, in the prevailing climate, these were rather important points, whether one agrees or disagrees with them. So, Brian Lucey, Karl Whelan, Peter Mathews, Cormac Lucey, do you have any comment to make on the matter, even if it is only to disagree with John Fitgerald’s point? Why the silence?

Regarding Michael Hennigan’s point that the balance-of-payments deficit may contain an element of statistical illusion, as a statistician, I am happy to look at any argument that is backed up with statistical evidence, but Michael gives none. Again, if an acknowleged expert on balance-of-payments issues, like John Fitzgerald of ESRI, looks at Michael Hennigan’s claims, I will be happy to defer to whatever he says. But, as far as I know, both ESRI and the Central Bank have published numerous commentaries on balance-of-payments issues over the years, and I don’t recall them ever making the point that he is making.

If ESRI BoP forecasts are credible and if the MNC aspect is not a serious distortion then JTO has a very important point. We are not living beyond our means unlike the other PIGS. If we are not living beyond our means how can default be on the cards?

I have been struggling for some time with the ESRI forecast of a BoP surplus. MH may have a point. If the BoP surplus is merely MNCs temporarily parking funds here then it is an illusion. But let’s take it at face value. First obvious conclusion is that we do not have a problem with the Euro exchange rate and any talk of exit and devaluation (I know it is a total nonsense in practical terms) it is addressing a problem we actually don’t have.

But does it mean we can’t go bust? It seems to mean that Ireland Inc can’t go bust as a collective. But Paddy the Plasterer can go bust. And so to can the government. The government needs to borrow. It is some comfort that if it so suited them Ireland’s private sector would seem to be able to fund that on its own. But Ireland’s private sector is free to lend to whom ever likes and it is unlikely that mere patriotism would prevail if it became clear that the government would be unable to pay back its loans. In summary there is a difference between the finances of the government and that of the people of Ireland as an aggregate.

I really don’t understand the point you are making. Obviously, I have failed to convince you. Fair enough, there is no reason on earth why you should listen to anything I say. But, here is what John Fitgerald of ESRI said a few months ago in the Sunday Tribune:

“In the current crisis, what makes Ireland very different from Spain, Greece and Portugal is our forecast balance of payment surplus – the people of Ireland are collectively net repaying foreign debt. With further tough fiscal action on the way and depressed consumers, the surplus will inevitably increase, as will the related repayment of debt. There are few examples in recent history of countries with balance of payments surpluses going bust; debt repayment and insolvency don’t normally go together.”

That is more or less what I said in part (b) of my post. But, he has put it much more succinctly and much more clearly. I repeat my call that John Fitgerald be invited to post on here to explain the significance of Ireland becoming a ’surplus’ country (his forecast, not mine) in relation to such items as creditworthiness, likelihood of going bust, etc. At least he understands these things, which is more than can be said for 95pc of the posters on here.

Revenant…like that. Although if you really knew your JBK you might know that Tull is an amalgam of two individuals, Tommy Mc I & II. III is currently a TD.

In the last two months the peripherals have fracuted into two divsions, Greek yields have risen by 114bps, Ireland by 39bps and Portugal by 18bps. Yields in Spain have fallen by 15bps while Italy is down by 22bps.

The outperformers have a deeper domestic bond market than Ireland. Although, Anglo and AIB issues are undermining the situation.

it would be helpful if policy makers were to tke note of the FT Ed but I fear they won’t. Seniors are sacrosanct. The ECB does not want to pull that thread.

Re the balance-of-payments surplus, which is largely related to the multinational sector, that uses non-repatriated profits for inter-company lending ex-US, how does that benefit the domestic economy?

They fear that Nama assets will be worth even less than originally thought, leaving the government, which guarantees Nama’s borrowing, with the short end of the stick. And if Nama forces steeper haircuts on peddlers of financial junk, their need for recapitalisation will rise correspondingly. This too will be at taxpayers’ expense – as the recent plan to inject more capital into Anglo Irish Bank proved.
Bailing out failed banks means bailing out the wholesale lenders that funded them. But when losses are doled out, unsecured creditors belong right behind shareholders. Until they are returned there, markets will expect taxpayers to continue paying an ever-rising bill.”

The bond spreads are rising slowly and nastily. Whats most worrying here now is the absolute total and deafening silence from Govt (apart from Dara Calleary, who seems to have been left minding the shop while the adults go to the beach for the day).
Without also rising hares, theres the small wee matter of the MLRA lurking also. In essence, we were told by Alan Dukes that so long as the anglo losses were of the 22b magnitude then we would see no problems with the MLRA. So far we have heard zippo to demur from the 35b cost now floating in the ether.
So, a simple question : is the MLRA, 11.5b loan from the CBFSAI, now in any danger? Are there sufficient assets of quality left in Anglo to back this repo? Other questions follow on from a “no, not really” answer.

@the revenant of Listowel
Alas, Anglo and NAMA now seem more Jeremiah 25:29…

“It is time to staunch the bleeding. As Irish state guarantees near their expiry date, some banks will not be able to refinance their balances. The government should prepare insolvent banks for forced debt-for-equity swaps, which would instantly recapitalise the banks in question and cap the government’s exposure. This cannot be done frivolously; European institutions are exposed and EU partners must be consulted. But someone must put an end to the practice of handing banks blank cheques. Some Irish pluckiness would benefit us all.”

S&P note NAMA debt as accounting for 23.6% of 2010 GDP at the peak of Govt Debt, whenever that might occur.

Assuming GDP of circa €180bn, S&P are countung the full €40bn of anticipated NAMA debt with no credit for assets.

It is interesting that S&P say bank bailout costs will continue to increase while at the same time saying they anticipate the NAMA haircut will be less for later tranches (i.e., NAMA will pay more).

It seems to me that at the core of the pessimistic-optimistic debate is the simple question as to whether or not our economy can continue to grow while carrying the NAMA burden. JTO you have been very consistent in your analysis of the macroeconomic stats and accurate in your forecasts to date (not that you need to be told that!) and your contributions have been very welcome (your BOP analysis being a prime example). They have also been quite courageous given the uncharitable abuse that you often receive despite your readiness to admit your blindspots. That said, the NAMA problem undoubtedly has serious consequences for our growth potential as Brian Lucey has been at pains to point out. For me the nub of the debate is will NAMA have such a negative effect on the economy so as to make the accuracy of the optimistic short-term predictions irrelevant in the medium to long term or as in the words of the Guv’nor are they ‘manageable’? An unemotional reply to this question by either side which took account of both positive developments in the economy (most notably our export performance) and the Debt funding problem
would be welcome.

Matthew 7:1

On average the growth might be sufficient but I’m not so sure that the growth will affect the ones that need it most. The ones without jobs will not benefit and as a result anyone who lent them money will not benefit. Irish banks are heading into more difficulty and the state is picking up the tab. The state will either have to reduce spending or increase tax take to pay the tab & neither will do much good for the domestic economy.

The balance of payment surplus: Money might be coming in but where will it go & how will it be used? Are the ones receiving the money from abroad somehow obliged to provide it to the state or will they invest/spend it as they like?

& the bank bailout is covering losses. Losses are covered with surplus. This surplus could have been used for investing and increased surplus generation. The surplus in Ireland will for a long time go to paying for the gigantic misallocation of capital to the construction sector.

JTO has made very good contributions on the domestic economy and is right to be optimistic about exports, production, GDP growth, etc.

“What will sink us”, as Morgan Kelly said, will be the bank bailout and Nama. JTO has stayed away from commenting on these issues.

JTO again:

Thank you for the compliment, George. What you say about my staying away from commenting on these issues is correct. Very observant of you. As I have said a few times on other threads, I don’t post on banking matters or on NAMA, as I freely admit I know nothing about them. I limit myself to topics I know something about, such as macro-economics, demographics and infrastructure development. I’ve been posting for the last 3 hours on another thread on this site, relating to the construction of a motorway from Dublin to Derry (or, as Brian Lucey no doubt calls it, Londonderry). It would be good if everybody posting on this site stuck to topics that they know something about and contented themselves with simply reading the threads concerned with topics that they know nothing about (in my case, banking matters and NAMA). Incidentally, if you think 4.30am is a bit late to be posting here, it is actually 11.30pm as I’m in Tallahassee, capital of Florida, tonight.

While I’m certainly not going to comment directly on banking matters and NAMA for the reasons I just gave, macroeconomic matters do have some bearing on them. So, briefly (as it is getting late even here):

(a) All the figures regarding debt are meaningful only as a percentage of GDP (or, if you wish, GNP). Therefore, it matters what the GDP/GNP growth rate is in the next few years. If GDP/GNP grows at 0pc over the next few years, then debt as a percentage of GDP/GNP will be a particular level. But, even if the debt remains the same, if GDP/GNP grows at 3pc/4pc/5pc over the next few years, then debt as a percentage of GDP/GNP will be much lower.

This time last year, almost all economic forecasters predicted that GDP (repeat: GDP, not GNP) in Ireland would fall by around 3pc or 4pc in 2010. The Dept of Finance, Central Bank, and ESRI all predicted a fall of 3pc. The IMF predicted a fall of 4.0pc in GDP. Standard and Poor predicted a fall of 4.5pc. As is now clear, all of these forecasts have turned out to be of a very poor standard, especially Standard and Poor’s, which is how presumably they got their name. In contrast, I predicted this time last year that GDP in Ireland would rise by 2.8pc in 2010 (my prediction can be found on the site for some time around August/September last). Nearly all economic forecasters have since moved in my direction, with continuous upward revision of forecasts for GDP growth in 2010, although none of them have come as far as me yet (give them time). Ulster Bank were the latest to so only today (or, at least, today if typing this in Tallahassee, but yesterday if reading this in Ireland), They revised their GDP growth forecast for 2010 from -0.5pc to +1.0pc. That’s a massive revision to be done in one go, especially following similar revisions since they forecast a fall or 3pc back this time last year. I’m still sticking to my forecast of GDP growth of 2.8pc in 2010, and even one more quarterly revision of this magnitude, on top of the three of four quarterly revisions most economic forecasters have allready made since this time last year for GDP growth in 2010, will bring them into line with mine.

One can get too nitty-picky about figures, of course, and its possible I’m guilty of this in the above paragraph. But, more broadly, it can be seen that the various factors that are causing the debt problems in the banking sector are also causing a massive improvement in competitiveness, which is in turn leading to exports increasing far more rapidly than was predicted, which is in turn leading to GDP increasing far more rapidly than was predicted. So, take the fall in house/office/industrial premises prices. We can debate how large its been, but let’s say 50pc for argument’s sake. Clearly not good news for the banking sector. But, the converse is that such a fall results in a massive improvement in competitivness, especially as there has been hardly any fall at all in many countries, including the UK.

(b) My second point macro-economic point relates to balance-of-payments. Unfortunately, only two economists in Ireland appear to understand what this is, Ronnie O’Toole and John Fitzgerald. I certainly don’t find much evidence that posters on this site have much of a clue as to what it is. Quite simply, when we talk of ’surplus’ and ‘deficit’ countries, we are talking about balance-of-payments surpluses/deficits, not government budget surpluses/deficits. Nearly all countries have a government budget deficit. But, in relation to balance-of-payments, some have a surplus and some have a deficit. It is almost impossible for a country with a balance-of-payments surplus to go bust. By definition, such a country has enough savings to fund any budget deficit. Of course, savings and government deficit-funding is a 2-way flow. So, savings in other countries help fund Ireland’s government budget deficit, as is well documented in above posts. But, savings in Ireland help fund other countries’ government budget deficits. I myself am funding Obama’s budget deficit this year, or at least part of it. A country’s balance-of-payments surplus/deficit is a measure of the relative size of these 2-way flows. A country with a balance-of-payments surplus either has enough savings to fund its government budget deficit in its entirety, without recourse to borrowing from abroad, OR the amount of savings from that country going to fund the government budget deficit in other countries will be greater than the amount of savings from other countries that it needs to fund its own government budget deficit. The significance of all this is that nearly all forecasters agree that Ireland is rapidly heading towards a balnce-of-payments SURPLUS. Most predict it by next year at the latest. The improving balance-of-payments situation is the main reason why Ireland continually dumbfounds the doommongers and continually has no trouble selling its bonds, even when useless organisations like Standard and Poor are hurling bricks at her. Its also one of the major differences between Ireland and Greece. As I say, on most economic forecasts, by next year Ireland will be classed as a ’surplus’ country, in the meaning of that term that is normally applied (ie in relation to balance of payments). Hence, predictions that Ireland is likely to go bust are a nonsense.

I apologise if the above is a bit rambling and incoherent. Typed very quickly after a 10-hour coach trip from Savanna to Tallahassee. I suggest that John Fitzgerald be invited to post on this site on the significance of having a balance-of-payments surplus. He would certainly explain it a lot more clearly than me, but, from what I’ve read of his commentaries, the gist would be the same.

RTE continues to fail abysmally in it’s obligations to public information regarding this mess.

This whole thing comes down to any restructuring been seen by FF as political suicide and so as out of the question. Despite most evidence pointing to the fact that some debt restructuring would considerably improve our credit worthiness in the medium term.

RTE should explain that even with an unlikely (given British cuts and American houehold deleveraging) recovery here we are currently choosing a unique brand of japanification.