Clarity needed when figuring out Government debt

Tony Leddin and Brendan Walsh provide additional clarity on the government’s net debt situation in today’s Irish Times, with an attempt to reconcile figures from Morgan Kelly and the NTMA.  

Seamus Coffey’s detailed response to Constantin Gurdgiev is also helpful in this regard.

81 replies on “Clarity needed when figuring out Government debt”

@ John

another issue that has not been considered (i didn’t see it anyway) is that even if you want to include the NAMA debt, it’s highly likely that, whether at profit or loss, it will have sold down a considerable chunk of its assets by 2014 (the point at which MK’s figures must surely be based, even if wrong, given GGD etc). It’s also highly likely that the banks will have been sold off or heavily deleveraged at that stage too, so again, whatever the evnetual sale figure, there will have quite obviously have been some decent inflow back into the state coffers at that point. Mk’s maths seem to suggest that NAMA or the banks will not have sold even a cent of assets.

Morgan Kelly shredded yet again. The list of reputable economists taking his figures to pieces is growing: Seamus Coffey, Joe Durkan, Antoin Murphy, Tony Leddin and Brendan Walsh.

One of the most interesting comments in this IT article is: “There is an urgent need for the protagonists in this debate to try to reconcile their numbers and to present as accurate a picture as possible of the challenges facing Ireland.”

Who could disagree with that? But, how can this happen when only one side of the argument is prepared to engage in public debate?

Seamus Coffey, Joe Durkan, Antoin Murphy, Tony Leddin and Brendan Walsh are all willing to engage in public debate, to answer media questions on their figures, and, in some cases, to post on here and to answer points made by other posters on here.

Coward Kelly isn’t.

As I said on one of the earlier thread’s, Kelly’s preferred modus operandi is to launch a grenade without warning, designed to inflict as much damage on the economy as possible and cause as many economic casualties as possible, then disappear without trace for six months, until such time as he judges it opportune to launch another one.

The Irish Times should refuse him a platform unless he is willing to answer their own journalists questions about the differences between his figures and those of an increasing number of reputable economists who refute them. This site should do likewise. They should not post his articles on here unless he is willing to come on here and answer other posters’ questions on his figures and, in particular, why so many other economists come up with totally different figures. However, I am JohnThePessimist on that score. Despite his recent demise, I confidently expect Osama Bin Laden to at least match Kelly in terms of public appearances over the next few months. As for posting on here, there is more chance of DSK posting here to defend his reputation than there is of MK posting here to defend his figures.

Truly brilliant demolition of Gurgdiev by Seamus Coffey.

Something tells me that this thread will attract few posts.

The value of the banks and of NAMA assets at 2014 is surely a subjective matter. Hence , no definitive prediction for the total debt can really be made. Morgan Kelly gave his opinion on the matter, others have given theirs. What more do you want. Time will have to tell.

a few days ago you were decrying the prevalence of too many pessimistic default voices in the irish media…but on the other hand you want to hear more from Morgan Kelly than just the odd article every 6 months or so. make up your mind.

Working out these projections I think is quite complex, and fraught with dangers, as the current debate shows (and particularly complex for Ireland relative to other countries).

That is why I have suggested paying particular attention to accretion of public debt in the current year, to the detail and the reasons for it. That understanding is a necessary preliminary to figuring out how to best contain the increase. I note that in today’s Irish Times, Arthur Beesley writes “Dublin has no immediate need for new loans from the [EFSF]. The Government’s cash balances are strong at the moment, meaning it must pay interest on money it is not spending”.
So if the current accretion of debt can be contained, if future liabilities – contingent or real – can be held in check this year – there’d be reason to be reassured. Till now, funding from IMF and EU alone for 2011 is projected at almost €43bn. That adds around €10k public debt per capita.
I’d also note that rating agencies are likely to look not at projections of absolute debt levels, but also examine additional contingent liabilities for the taxpayer, and analyse carefully the evolution of interest rate payments relative to capacities for public revenues.

Ironically, in flagging the Leddin-Walsh article, the Irish Times asks ‘Is Morgan Kelly out by €1bn?’
Would that he margin of disagreement were so small!

“While the NTMA result is still enormous, and based on projections subject to a high degree of uncertainty, it is well-below the peak of 117 per cent of gross national product reached in 1987.”

This is a poor comparison. We probably now aren’t at the dawn of a level of growth characteristic of a developing nation like Ireland was back then. Add to that the global economic problems and you can probably assume that the debt-to-GNP threshold as a point-of-no-return is lower now than it was then.

Following on from Mr. Bond’s very relevant points, would it not be possible for some of the assembled expertise in economics to develop a simple set of pro forma government accounts (income statements, funds flow, balance sheets) over the next 5 years. I realise there are data deficiencies and it might need some arm-waving and wet fingers in the air, but, at least it might give us some idea of how much debt is backed by assets, what debt reduction might occur as these assets were realised, what sort of fiscal adjustments are possible and feasible, what contingent liabilities remain, what impact state asset disposals might have, etc.

We’re flundering in a fog of telephone numbers, rebuttals and counter-rebuttals.

Going by these articles, the optimistic, best case scenario is for a total debt level of 205-210 billion by 2014/2015…..if the last 3 years have taught me anything, its that the optimistic best case scenario, where irelands government and banks are involved, is rarely worth the promissary note its written on.

@ Jarlath

he has a GGD figure of 190bn, and then assumes we lose 60bn on the 80bn of NAMA and bank investments. That appears to be the only way he can get to 250bn.

Given that we’re actually only putting in 50bn into NAMA and the banks, it seems difficult to lose 60bn on that. That’s not a subjective argument, its just basic arithmetic.

Reading through the article, all the differences are made up in how confident the NTMA / authors are of the economy growing at such and such a rate and the banks not requiring any additional support over the next 3 years. i.e one is an optimistic best case the other a pessimistic worst case, if you like, I can’t see how any of the alleged double counting etc. happen. No reputational shredding apparent at all (unless you’re working in any of the banks!)

I’ll grant that ‘genius makes no mistakes’ but its still a bun fight on which you feel is more realistic, economics is still political scrying, I couldn’t put the word science near it at all.

“Given that we’re actually only putting in 50bn into NAMA and the banks, it seems difficult to lose 60bn on that. That’s not a subjective argument, its just basic arithmetic.”

Yes, but it seems Kelly is anticipating we’ll end up adding in more, following from his previous Pythian missal on (rapidly accelerating) mortgage provision.


I simply want to see Kelly engage in public debate on his figures.

Kelly used figures in his IT article a fortnight ago to back up his claims that Ireland was facing economic Armageddon. These got massive publicity, both in Ireland and worldwide, and further eroded confidence.

Now, a whole series of reputable economists have picked huge holes in his figures, and accused him, among other things, of double-counting some items and not counting at all some other items, resulting in his overall net debt figure being a wild exaggeration.

I simply want to hear what Kelly’s response to this is. Does he stand by his original figures and, if so, what is his response to the points the other highly reputable economists are making? Having done the damage, his simply sitting back and not responding at all is disgraceful, cowardly and unprofessional.

I am against the IT giving him a platform for rants, then allowing him to disappear without responding, when other economists pick huge holes in his figures. Since the IT gave him the platform in the first place, why don’t they send a journalist to interview him on how come his figures differ so much from the others.

Andrew S’s comment sent me scurrying to Wikipedia to trace the reference to ‘Pythian’. Here’s an extract from the entry:
“According to Ovid, in the formative years of growth after the deluge, mother earth accidentally produced a gigantic Python that terrorized the humans. Apollo successfully killed it, though it required almost every arrow from his quiver. To ensure that no one forgot about this heroic deed, he created the Pythian games to commemorate his victory.”
Is MK the Irish Python?

Anglo Irish and Irish Nationwide were not included in the recent stress tests and going by their drip drip performances of the past I reckon the full 35 billion will be called upon. Anyway the whole argument here is petty and childish, bitching over my figures are better than your figures. there is probably around 5-7billion in the difference when the above are eventually taken into consideration. Bring on the budget deficit and lets start to live within our means for once. Still alot of 011 cars out there. Loads more fat to cut.Go to France anytime and people drive modest cars and live in normal houses, not like here where the car defines who you are and of course how many rooms in your house.

@John McHale
Do you think that the comment by Joseph Kelly is incorrect? I thought his interpretation of Morgan Kelly made sense. To repeat his key points:

GGD from the NAMA note at end Dec 2010= 148.1 billion
Financial Assets from the same NAMA note= 40.6 billion
Net Govt Debt -from the same NAmA note= 116.9billion.

Kelly’s figure is €110 billion. Not much difference there from €116.9

Kelly’s solution-no more borrowing leaves Net Govt debt at 116.9.
The promissory notes, committments to banks are consigned to a bonfire.

The error being made by several commentators including Prof Murphy is that they are not taking Kelly’s solutiuon into account. They are all starting from 2014 or 2015.
Kelly is starting from now.

@ Andrew

it seems almost a certainty that he’s double counting the banking recap. It’s fairly black and white: the NTMA have included it in the 190bn GGD, while Morgan Kelly adds it on top – see below. Unless you are suggesting that MK has very quietly thrown in an ADDITIONAL 35bn banking recap on top of the 24bn recently announced, and then thrown in another sundry 30bn (the 220bn to 250bn jump) just for good order?

“If everything goes according to plan, as it always does, Ireland’s government debt will top €190 billion by 2014, with another €45 billion in Nama and €35 billion in bank recapitalisation, for a total of €270 billion”

Also, on your suggestion that “Yes, but it seems Kelly is anticipating” – well the problem here is that you’re guessing on what he’s thinking just as much as the rest of us. He could be anticipating a worse deficit, a worse banking sector (and the various different guises behind this), a worse CBI ELA loss etc etc etc. But he doesn’t say. He just magics the numbers out of the air, after the double count which is quite apparent above. It’s not like the article was too condensed to flesh out his suggestions and train of thought – its a monster in terms of type space, there’s acres of room to explain where he comes up with his figures.

One of the basic core complaints is that he didn’t explain where a large chunk of his numbers came from, and that he hasn’t addressed these in the 2 weeks after. Its a very fair complaint that needs to be addressed.

The starting point for all these projections should be the governments SPU document released a few weeks ago. Then decide what is included and what isn’t included within this, what assumptions you disagree with and how this affects the numbers.

According the SPU the Government’s projection of GGD shows it increasing to €205bn
This includes the promissory notes and includes the €24bn additional identified in the latest version of the stress tests.

It excludes NAMA (asset and liabilities), doesn’t allow for any additional money for Anglo or INBS and doesn’t allow for any slippage in getting to the target deficit by 2014 or lower than expected growth.

My own opinion is that some additional money will be required for the banks. Definitely not more than €10bn and probably about €5bn.
Personally I think keeping NAMA off balance sheet makes no sense. It is a government debt therefore it should be included within the GGD.

If we borrowed money to build a toll road the debt would be added to GGD with no consideration for the value of the asset can’t see how it is any different to a ghost estate in the midlands. It is an accounting sleight of hand and nothing more.

That adds €31bn to the debt but by 2014 NAMA will have sold off a substantial proportion of its assets and should have reduced this debt significantly. So if we say it will have sold 50% of its loans by then. NAMA adds €15bn my estimate of GGD by 2014.

That adds about €20bn to the government’s central projection and brings the GGD to €225bn or about 130% of GDP.

This assumes that the government meets the budgetary as set out in the SPU and ignores what it is going to do with its cash balances. Although I suspect that the NTMA will want to hold on to these reserves until the crisis is well over because you never know when they may come in useful.

In my mind the GGD will be €220bn ± €10bn or 125% of GDP ± 6%. (Maybe with a little more emphasis on the – as the government should still have some cash reserves that could be used to reduce GGD)

However a more significant point in my opinion is whether GDP is the best measure for Irish debt sustainability in the first. It might be what is used internationally for comparison purposes but that doesn’t mean it is correct.

GNP is probably the better measure (but still not perfect) for measuring government debt sustainability. The gap between GDP and GNP is primarily MNC profits and is therefore in the main taxed at 12.5% versus circa 35% for the rest of the economy. Given the limits on increasing the tax on MNC profits the government’s ability to increase tax and close the deficit is therefore more closely linked to GNP.

Using GNP rather than GDP puts the debt at about 150% of economy, once you get to this level unless the – gets very big we are exceptionally close, if not already well past, sustainable levels of debt.

@ All

Should we not collectively take note of the comment by Ciarán O’Hagan above? The debate about figures for Ireland’s future level of debt on the basis of a rather hysterical and clearly faulty analysis by one Morgan Kelly is not advancing matters one iota. What really matters is whether we are making progress with regard to returning to the markets in 2012.

Everyhting depends on the resolution of the government in staying on the budgetary track set out in the MOU and, if possible, improving on it. This should be the focus of expert attention.

Meanwhile, back in Europe, they are getting ready for a Vienna waltz with regard to Greece.

Still not convinced on the double count, black and white as it might be, it all depends on what year / outcomes over the next 3 you want to follow and as you say, what to infer someone might have been thinking!
Agree, follow up piece should be required, for JTOs blood pressure as much as anything else! 🙂

NB: I found Simon Coffeys blog twice as confusing as the arithmetic it’s trying to knock down… I’ll keep reading until the numbers make sense I suppose.

@Peter, also ref the Pythia, high on fumes delivering cryptic oracles at Delphi 🙂

@ JtO/Seamus Coffey

superb rebuttal to Dr Gurdgiev. Various deposit-selling-moments identified and filletted. The “rational analysis” part at the end was particularly good.

“The debate about figures for Ireland’s future level of debt on the basis of a rather hysterical and clearly faulty analysis by one Morgan Kelly is not advancing matters one iota.”

Still not convinced its faulty though, and that is exactly the problem.
Economics is a prism.

@ eoin bond

Who is to say how much more will go into the banks….that snowball might not have reached its conclusion just yet. My take on this debate is, you have one group at one end shouting 250!! (give or take) and you have another group at the other end shouting 200 (give or take)….and in the middle you have the unknowable of what the banks will require, what they will be worth and similar with NAMA. Lets face it, it could go either way.

You could well accuse Kelly and Gurdiev of double counting..but you could also accuse Leddin, Walsh and Coffey of being overly optimistic to the point of naivety.

@ JTO and EB

I think it would be great if Kelly were to contribute more and discuss the few articles he produces. Say a weekly column, pushing his case for default and massive budget cuts….both of you would love that I’m sure

I for one am glad that Morgan Kelly kicked off a firestorm of debate on debt sustainability, regardless of whether his numbers have difficulty standing on their own two feet. Two things are clear in my mind: (i) Morgan Kelly’s numbers are too pessimistic, given all the information available today; and (ii) Morgan Kelly’s leverage figures will probably end up being closer to the mark based upon the turnout of actual events.

The US recession officially ended in June 2009 and the 2015 debt figures assumed by the Troika/commentators assume no global recessions before then. Given the Fault Lines (copyright Raghuram G. Rajan) in the economy today, does any reader of this blog seriously believe that we are going to last six and a half years without the global economy hitting a speed bump? Note that the last up-cycle lasted only six years. These forecasts are suffering from Gordon Brown thinking – no more boom and bust!!! As if growth rates were consistently +2% instead of a combination of +4%s and +0%s (and our chances at the +4%s are rapidly being eaten up by austerity) .

The IMF paper that Economic Incentives linked to assumes GDP growth accelerating from here to 2015, culminating with 5% nominal growth in 2014 and 2015. What happens if you throw in a couple years of negative or flat growth and some associated extra government borrowing instead? I could see a conservative €205bn and 110% debt/gdp in 2015 morphing into 130% pretty quickly.

I’m not predicting a global recession today or tomorrow, but there is a 100% certainty that there will be one sometime in the future and I’d lay odds that it happens by 2015. And at that stage, all the economists and technocrats backing today’s forecasts will shrug their shoulders and say “how could we have seen a global recession coming?”.

So even if Morgan Kelly’s analysis is flawed, anything that prods the government into accelerating their spending cuts is a positive development in my opinion, because relying on a long-term goldilocks global growth economy to get us out of this mess is a triumph of hope over experience.

I do not think that economists who witnessed the 1980s up close and personnel have got their heads fully around a effective hyperinflation of non-productive assets during the 90s and 00s.
These “assets”are still in the system with certain projected values.
As rising tax levels go to pay real money interest (goverment debt) the value of the assets would reach their true value which is for near cash price as they have no productive component that can service mortgage interest.
(You see I believe that during EMU the true cost of sovergin debt was kept artificially low by the antics of the CBs – this created the resulting explosion of non productive assets)

Perhaps this is why MK adds a 30 Billion contingency because he does not believe the NAMA assets will really reach 50 billion.
He should address this issue however.

Anyhow the primary debate amongest the chattering economic little circle here should not be NAMA dreams but efforts to increase the productivity of the domestic economy – tapping into a dying global credit engine to sustain our lifestyles is a era that is coming to a end.

As I said before if the Irish Goverment makes the strategic decision to stay with the Euro it needs to direct large amounts of deposits / pensions towards goverment debt as taxing people merely externalises the money supply
If this is politically impossible we need to hit the eject button.

@ Jarlath

a weekly column would constitute a debate. At the moment its more like hand grenade throwing from MK.

On the “it could go either way”, i agree completely. But the problem is that in MK’s numbers, there’s no attempt to explain the what, why, or how the numbers go the other way (either that or he is simply double counting, they are the only two explanations for his figures).

If the govt came out next week and simply said “we reckon the debt will be 170bn in 2014”, and didn’t give any backing data/forecasts, then people would rightly throw their suggestions in the bin. But they don’t, they actually regularly produce 50+ page documents underlying all the forecasts and assumptions. We’re simply asking MK to add a couple of hundred words to his forecasts.

@ eoin

Big difference between 50 plus pages and a few hundred words. I understand what you’re saying but I dont see how it would effect things. The man is entitled to his approach, just as David Mcwilliams is, or Seamus Coffey. He’s made the case for a pessimistic view that debt will get to 250….there is a counter optimistic argument being put out that it will peak around 200.
I think it bothers both you and JTo that this counter argument will receive minimal coverage, whereas Morgan Kelly’s pessimistic case nearly halted the entire country.
Understandable…but we have been taught the hard way in Ireland to back the pessimist. Not sure you could disagree with that.

@ Jarlath

i actually think what bothers a lot of people about this or McWilliams eulogies is that they are granted enourmous space in the two main newspapers of the land, and apparently on a more or less unconditional basis. As JTO has suggested, the Irish Times itself should ask him to back up the headlines with a bit more reasoning. We let the property optimists do the same thing on the way up, yet we appear to be making the same mistake with the pessimists on the way down. Seamus Coffey, for instance, has worked damned hard to research and refute many of the headlines figures being bandied about by MK and Constantin Gurdgiev, but as with stories across all parts of the world, retorts and corrections, of positive and negative stories, are never given as much type space as the original eye-catching headline.

@ Eoin

MK has been consistent in his approach for as long as I can remember. Hard to expect him to change now. It is a fair point what you say regarding property pushers on the way up and pessimists on the way down, but bottom line, newspapers will publish what people want to read. And the people of Ireland are most definitely finished with the “it’ll be alright” brigade, you have to admit we have been stung by that lot so often now, there is scarcely a patch of flesh for them left to land on.

It’s no surprise that a man who delivered some harsh truths a few years ago and was proved correct, is now being listened to when he produces more harshness.

How hard Seamus Coffey works is irrelevant, who’s to say Morgan Kelly doesnt work harder.

@ Eoin Bond

“whatever the evnetual sale figure, there will have quite obviously have been some decent inflow back into the state coffers at that point.”

I’d be very interested in your opinion of the viability of keeping the banks, when healthy, in state hands for a more sustained period before self-off.

Not so much in a, ‘will the troika let us’, sense, but on the pragmatic viability of an effectively state run banking system generating profit for the state – which I assume would be the case of the state is the major shareholder.

@ Gavin

its a profit vs contingent liability issue. As we have seen, the banks are an enourmous contingent liability, and whatever about the Troika, i’m not sure the debt markets will let us do it. Regaining their trust will probably require a formal cutting of the financial sector umbillical cord so that there is no “next time”. Strict resolution laws will also be needed to copper fasten this premise.

I’d argue for a drip drip sale – get rid of AIB and ILP relatively quickly (by 2013/14), and look at maybe BOI being a longer term investment, feeding chunks into the market bit by bit. Remember, we’ll also have a lot of property assets via NAMA for the next 5-7 years as well to contend with.

@John McHale.

I am not yet convinced by the methodology used by Dr’s Leddin and Walsh.
I wish to query one point in particular on the NTMA column.

“Minus-Non Bank financial assets . Deduct 31.2 billion.
Hold a minute. I thought this was the NTMA end 2010 figure for non financial assets. I also understood that most of these were going into the banks and will not be there at all in 2014/2015. In fact my undestanding is that this money is now on deposit, awaiting an ECB security to come and put a triple lock on it.

If I am correct in this, how can it validly be deducted from GGD in 2014?

The second point is the NAMA assets/liability offset. The latest NAMA proposal doesn’t give a lot of confidence that asset will equal liabilities in NAMA land. But this is a subjective matter.

I am also conscious of the Dr Gurdgiev point that the ICB/ECB ‘off balance sheet’ borrowing is a pretty large elephant looking in the window at all these calculations.

Even if the Leddin/Walsh figures are proved correct, I am still of the view that our borrowing is disasterously high and is being maintained and increased to protect financiers, iinsiders and freeloaders.

@ Joseph Ryan

re ECB/ICB borrowings – given that they are collateralised with banking assets, the issue here is that you can’t make the loss twice, ie a loss on the collateral, and a loss on the original loan, if you know what i mean? It’s a double ‘counting’ of the impact of the asset quality on the bank balance sheets. Its damn close to a deposit selling moment to be perfectly frank.

Think of it like this:

Bank ABC:

Assets 100bn, Capital 10bn, Liabilities 100bn.

The liabilities are completely ICB funding via collateralised repo, backed by the 100bn in assets.

The assets subsequently only turn out to be worth 50bn, implying a loss of 40bn on the overall entity. We don’t then say we also owe the ICB another 100bn on top of this, against collateral worth only 50bn, implying an additional 50bn in losses – its included in the original liabilities figure!!

Dr G’s analysis only makes sense if the assets backing the repo were for some unknown reason not subject to the stress test AT ALL. This is patently not the case. The stress tests take into account losses on all assets, whether simply sitting on the bank balance sheets, or being used as collateral for ICB funding. We can’t lose the money twice.

@Bond. Eoin Bond.

The assets subsequently only turn out to be worth 50bn, implying a loss of 40bn on the overall entity. We don’t then say we also owe the ICB another 100bn on top of this, against collateral worth only 50bn, implying an additional 50bn in losses – its included in the original liabilities figure!!

So what do we do with the €40 billion loss in the ‘entity’.
Recapitalise the ‘entity’ again?
I am not an expert in this area. Far from it. But I am going to keep raising questions where I am not satisfied with the answer. If that makes me sound a little stupid from time to time, so be it.

So I am not buying your answer to the Dr G point above.

My main point was the methodology of the Dr’s Leddin/Walsh chart. I will hope to get an answer on that some time.

@ Joseph Ryan

“So what do we do with the €40 billion loss in the ‘entity’.”

What loss in “the entity”? Per the stress tests, in order to pay 100% of all liabilities (ie including repaying the ICB and ECB monies), based off assets stress-valued to X, we require additional capital Y. The stress tests deduced Y to be 24bn. The stress tests assumed that ICB/ECB get all their money back alongside everyone else, and 24bn was the requirement to ensure this happens.

@Bond. Eoin Bond.

You gave the hypothetical example showing the €40 bilion loss. Not me.

The assets subsequently only turn out to be worth 50bn, implying a loss of 40bn on the overall entity.

If you think the €140 billion loaned out by the ICB/ECB is rock solid based on stress tests, good for you.
What a pity the ECB then, did not express a little more confidence last Nov or indeed in April when we hear constant references to the ECB being concerned about the value of its collateral.

Dontcha just love this notion that the government debt is balanced by nothing of any worth – and that it’s going to balloon out of sight anyway.

It’s probably worth reflecting on who benefits from the propogation of this notion.

@ Joseph

apologies, i thought by the entity, you meant the ICB or ECB, not the original bank.

My point is this – the stress test were conducted on the basis that every single cent of liabilities are repaid, and came up with an additional 24bn requirement to meet that goal. Saying that we need the 24bn in capital, and after that we will have to deal with the losses in the ICB/ECB collateral is a clear case of double counting.

Now, if you want to claim the stress tests are too low, thats a completely seperate debate on which we had a completely seperate, well discussed, thread. It’s, again, subjective, and again i’ll point at the $50mm, two hundred page assessment given out on the back of it, one which most people actually seem to suggest is probably a bit too aggressive if anything. But like i said, MK doesn’t even try to question them (or maybe he does, we’ve noted his vagueness of backing data), so its a bit late in the day to say “Dr G is right because i don’t fancy the stress tests”. He’s double counting, plain and simple.

@Bond. Eoin Bond.
No problem
If the ICB/ECB are going to get all the €140 billion back, then no provision should be made a loss on that number. I think Dr G wanted a 16% provision.
That is a value judgement and yes it does place doubt on adequacy of the stress tests.
If that is his call, he is entitled. I am neither spokesman for MK or Dr G.

I happen to be a parent, all of whose three children will probably have to emigrate to make a life for themselves, following the destruction already caused and the further destruction that a mountain of debt will bring to whats left of the economy.


Did anybody get a chance to consider the technical pointed raised re the methodology of Dr Leddin/Walsh calculation.

The IMF Review just released pegs the 2014 gross government debt at €208.5 billion. (119.1% of the projected €174.1 billion nominal GDP). This is about €6 billion above the DoF estimate and much closer to the alternatives offered to the €250 billion figure that has generated so much heat.

Worryingly, the IMF also forecast that the debt will still be increasing by €8 billion a year at that stage and will reach €216.6 billion in 2015. The DoF are forecasting that the GGD will increase by €1.5 billion in 2015 to be at €203.6 billion.

The IMF projection of the 2015 General Government Balance is €8.1 billion with all of this being added to the GGD (i.e. no use of cash reserves or no cash reserves to use!). The DoF projection is that the 2015 GGB will be €5.0 billion with €1.5 billion of this being added to the GGD.

So while there is now a growing consensus on where the debt will be in 2014 (and it won’t be €250 billion) there is a divergence on what the debt accumulation rate will be at that stage. The IMF see further difficulties in reaching the budgetary targets.

@ Joseph Ryan

re ““Minus-Non Bank financial assets . Deduct 31.2 billion.
Hold a minute. I thought this was the NTMA end 2010 figure for non financial assets. I also understood that most of these were going into the banks and will not be there at all in 2014/2015. In fact my undestanding is that this money is now on deposit, awaiting an ECB security to come and put a triple lock on it.”

Whats the query or issue here? As far as i’m aware, the new government intends on keeping a 10bn cash buffer at all times, and the rest would be redesignated as a financial asset after it is placed in the banks as capital, ie we currently reckon our investment in the banks is worth 9.4bn, assumingly we will estimate the value our our supercapitalised banking system at 30bn+, plus the 10bn cash buffer = 40bn+?

Just over a year to go as things stand before borrowing at market for Ireland. Greece downgraded again, confirmation they will regard reprofiling as a default for rating purposes, Norway has had enough and unless I am mistaken the Spanish CDS (non-trivial) market seems to have woken up.

@Joseph Ryan,
I guess Kelly “ignored” the 31.2bn for precisely the reason you mention – it’s gone to the banks. Leddin and Walsh would presumably respond that, in that case, his figure for the value of Nama+Banks should be higher than the 50bn figure they say he’s using. Kelly does seem to assume that, at the margin, another billion to the banks is another billion down the drain. Those who were suckered into taking up the Bank of Ireland rights issue might agree.

Sorry if this is a silly question (I don’t devote much effort to studying forecasts, particularly about the future, as Sam Goldwyn would say): where does Kelly’s 190bn come from? Obviously it pre-dates the NTMA note Leddin and Walsh are using. It doesn’t exactly jump out of the April Stability Program Update either.

@ Joseph

I do agree that the Leddin and Walsh calculation is a little unsteady. They subtract end-2010 financial assets from the end-2014 gross debt which may not be appropriate as the end-2014 is dependent on the use of the end-2010 assets. Their sum is

202.0 (gross debt) – 16.2 (cash) – 15.0 (NPRF) – 9.4 (Bank equity) = 161.4

Apart from the €16 billion of cash we held at the end of 2010 the value of the other financial assets are largely notional. We know that there is €15 billion remaining in the NPRF but €10 billion of that is going to go into the banks. That means €20 billion of the financial assets will have gone into the banks and it is very hard to determine what value that will have by 2014. The will be €5 billion remaining in the NPRF.

Although the NTMA have said they wish to keep the end-2011 cash balance to around €16 billion it is not clear what will happen after that. However given that the GGB will be €8 billion in 2014 and the GGD is forecast to increase by €5 billion it is clear that some source other than borrowing is anticpated to fund the annual deficit. In my view this is likely to be the cash reserve we have.

It is likely that the distinction between gross debt and net debt will become less important over the coming years as more of the NPRF goes into the banks and our cash balances are drawn down. The net debt calculation undertaken by Leddin and Walsh is likely to be higher than 91.2% of GDP in 2014 and any attempt to do so will be difficult as it will depend on the value put on the nationalised banks.

I think at this stage it is far better to focus on the gross debt figure and Leddin and Walsh were correct to dismiss the €250 billion figure. Their net debt calculation seems a little off.

While you are debating about how many angels can dance on the head of a pin, you many wish to take a gander at what is going on outside of Ireland and how that will affect these guessing games by people who, with the exception of MK, have a poor track record. Greece received a downgrade to B plus from Fitch today and they also announced that a Greek ‘soft restructuring’ or ‘re-profiling’ would trigger a ‘credit event’ and default rating from them. Things are looking great in Spain as well.

It is very likely that events outside Ireland will do the country a big favor and cause the EU to break up on its own.

so what have we learned? That MK seems to have been a tad pessimistic seems reasonable. That he is a mere 30b or so out (220 v 250 seems to be the @agreed@ range) is seemingly irrelevant as we are well on the way to a gargantuan supra 100% of GN/DP seems also to be reasonable. And that we need to cut and tax also seems reasonable. Lets focus on that.

@ Eoin Bond

Thanks very much for that. Just thinking out loud to see if I’ve got you right. So state ownership of the banks is risky because if the banks were to go smash again, the state is on the hook for them. This makes markets squirelly. But at the moment the situation remains cloudy as it seems that until the shiny new ESM is in place it is not clear whether an EU sovereign is fully liable for its ‘systemic’ banks, whether or no a guarantee is in place. Certainly the ECB doesn’t think it a good idea that Ireland lets its banks go splat.

In planning for a future sell-off then, it seems to me there will be too much uncertainty for this to happen until until after the ESM – and the credibility of the ESM – is in place, as until such time investors in either the banks or the sovereign are still being asked to buy a pig in a poke.

@Seamus Coffey

I do agree that the Leddin and Walsh calculation is a little unsteady. They subtract end-2010 financial assets from the end-2014 gross debt which may not be appropriate as the end-2014 is dependent on the use of the end-2010 assets.

Thanks for that. But to be clear.
On the straight comparision presented today, the analysis is out by 31.2 billion, based on that presentation.

I don’t want to conflate todays presentation with a calculation done in a different manner by yourself. I will try to look at that later.
I have no wish to rub anybody’s nose in this. And I have found your calculations to be convincing if somewhat difficult to follow.

I am not referring to the above calculation but I would disagree with one point one your general methodology. That is that the use of NPRF cash not being borrowed should be discounted from the equation. A fairer approach I believe would be to include the fall in NPRF cash from the start period to the end period.

It is a real pity that the NTMA are not required to produce GGD and NGD figures for the years in question. We would then be back to the central point. Does this approach make sense or is there a better way.

@Bond. Eoin Bond.

re: re ““Minus-Non Bank financial assets . Deduct 31.2 billion.

Whats the query or issue here?

As far as I can see, you must deduct the 31.2 billion from both sides of the comparison or from none.
To put is a little less politely than @Seamus Coffey above, the specific comparison is wrong. Wrong by 31.2 billion.

@ Joseph,

How is the analysis out by €31.2 billion?

Leddin and Walsh presented a 2014 gross debt figure of €202 billion (from the NTMA) and subtracted the 2010 financial assets value of €40.6 billion (again from the NTMA) to get a net debt figure of €161 billion. They assign a net value of zero to the NAMA process.

Morgan Kelly has a figure of €250 billion which he says be got by “subtracting off the likely value of the banks and Nama assets” from his starting point of €270 billion.

@Seamus Coffey.

To make the comparison valid you must deduct the 31.2 billion from both sides or none. In fact from none.

In fact I believe the correct figure to be deducted from both sides should be the value of NPRF financial assets at the date of the comparison i.e 2014.

If the NPRF financial assets are there for the “NTMA” calc in 2014, they should equally be there for the MK calc.

But who knows, I could be wrong! I don’t think so but its possible. And if I am my sincere apologies. But I would like to be convinced and so far I am not convinced that it is correct. And yes unsteady is a good word word. The minus financial assets (31.2 -2010, ?? 2014) deduction should be on both sides for a valid comparison.

Sorry guys, but I’m going blind again trying to understand all the prose descriptions of a balance sheet and I fear that others struggle too.

I’ve put some data from the NTMA note, plus some remembered guesstimates of other numbers in a Google Doc at this URL

It allows for elements up to Dec 31 2014. Perhaps if people who have a clear view of specific data points, e.g. Prof Coffey, Bond.EoinBond and Dreaded Estate could edit these to reflect their base case arithmetic then people could follow the debate.

I hope this is useful. If not, I’ll back out of the discussion again..

Note: Since those sheets can be edited by anyone, if the principals wish to be clear about what their work is, it’s easy to copy specific sheets to another google doc and to make that read-only.

No wonder the Irish are in so much trouble if even their best economists can’t even agree on how much the country owes. People are throwing around figures in the billions like they were chump change. I’ve seen more accuracy in astronomy papers!

And all of for nothing! What’s the difference between €180 or €240 billion? The country is bankrupt in either case.

What we have here is a bunch of economists haranguing over the figures in the ledgers while the building is on fire and about to collapse. What use is any of this? At least Kelly, McWilliams and Co. spend their time coming up with alternatives, however radical. The rest seem to be having trouble figuring out their sums.

And this goes treble for the officials in the department of Finance, and the banks. Never in the field of human finance has so much been miscounted, for so many, by so few. The financial professionals in Dublin appear to have made their careers on figure fudging and creative accountancy, and now appear unwilling or unable to change their habits now that real numbers are needed!

The public has been mislead by supposedly accurate figures for three years now(or possibly a decade). Given the current record, the bill could spiral to a full trillion within a month for all we know. And I remind those who would scoff at such a notion that you also scoffed when warned that the figures might be more than a few billion in total.

And by the way, just in case anyone else–economists, business editors, etc–needs a reminder: A billion is a thousand millions. Please double check that in your calculations please.

@obsessive maths

the best economists have actually tried to come up with an objective figure for an approximation of national debt in the IT today

Tipping points in debt sustainability actually make big differences in creditors willingness to lend and in the ability of the real economy to attract rational investment. 30bn does count.

Social political crank rants with numbers that clearly were presented deliberately to cloud an already complex picture of national solvency is not needed. Does this thread attract 700+ comments and appear in numerous international financial blogs?

“I’d argue for a drip drip sale – get rid of AIB and ILP relatively quickly (by 2013/14), and look at maybe BOI being a longer term investment, feeding chunks into the market bit by bit.”
I’m waiting for the “government has no business running banks” line for my full bingo card.

I’m sure the banking industry (not including you in this) can’t wait to get back to the situation where they can pay whatever bonuses they like. All in the name of the best of course… and sure it would be a great thing for pension funds to be able to diversify back into what lost them so much money before.

As for the contingent liability of nationalised banks, what does the current mess tell you? It tells me that every sovereign, particularly the small ones, will have a contingent liability from their banking system whether private or not. This being so, it makes sense to maximise the income for the state.

@Seamus Coffey

A few points.

1. The Irish times (Dr Leddin /Walsh) numbers today are not correct.
2. There is a simple understandable error. There should not have deducted the €31.2 billion from the NAMA calculation.
3. The figure on your blog (May 6th) are substantially correct, with a couple of debatable issues. I have spend some time going through them but taking your figures for deficit etc.

A. The GGD figure of €205 is correct but you deduct the balance unpaid of the promissory note €15 billion to get to €190 billion. The EU stats as you are aware would leave this at €205 billion. They regard all of the promissory still due as “borrowed”.

B. The EU GGD figure of €205 billion correctly takes no account of the destruction of the NPFR or the reduction in cash balances. These are very relevant factors because they are a loss of cash to the State. By using the Net Govt borrowing ( ie GGD – financial assets) movement over the period one should see the total “loss” as distinct from the borrowing.

C.The 2015 GGD of €205 billion is borrowing is not backed by any specific assets.

D. Potential NAMA losses, if any, which are ‘backed’ by assets are not counted. There could be a contingency required.

E. There is no provision for the The ECB/ICB $140 billion loan, which is backed by assets in banks that have been stress tested to the ‘extreme’. This is a subjective matter.

F. The future as we know is based on forecasts and it would appear to many people that the risks are on the downside.

G. The MK figure of €110 billion (Net Govt borrowing) is probably still fairly accurate if you draw a line in the sand today or perhaps a month ago and say no more borrowing and burn the promissory notes and bank cap committments.

In summary, your figure of GGD €205 is correct. The Ir Times (Leddin/Walsh) is incorrect but if you add back the error of 31.2 billion and the balance of the promissory note it is virtually equivalent to your number.

So by the end of 2015 and going well we are in the range of €205 billion with several contingent liabilities like Nama and the ICB/ECB still looming over us. I don’t know what projected GNP is at that point.

So back to the essential question.
Is that a good place in the December frosts of 2015?
And congratulations on your analysis. But please do it on a spreadsheet if you can.

Your own site would be a fantastic site if it was easier to navigate and post.

The tone of the IMF note out today suggests that some of the 16 bn unused in this round of bank recapitalisation will be required after 2013.

@ hogan

Enda or Noonan asked for that last week (or the week before), allows for longer period until ‘market funding’ is resumed.

They may have asked for it, but the IMF report does not include that asking. My guess is they’ll have to negotiate a change to the MoU if they want to:
a) use the banking contingency for other than banks
b) delay returning to market funding

My guess is the answer from the IMF will be ‘no’. Until the sovereign can self-fund, the banks won’t be able to self-fund. Delaying a return to the markets means delaying the recovery in the banks. Delaying a recovery in the banks means delaying credit conditions normalisation. So a slower recovery of the economy.

I don’t know that I agree with all of this, but I believe that is the logic. If you believe that bank credit is the engine of economic growth, the logic is pretty inescapable.


*2015 GGD €205 billion + a % €16billion . So about 112% of forecast GNP of €182 billion plus a little bit depending on the shrillness of the tone.

@ Hoggie

I’m out and about, but IMF earlier on today said that bank recap contingency funds could be used for exchequer funding.

@ Joseph

I think we are going around in circles here and have lost the interest of all sane readers! Anyway, to tie in with a common definition of insanity I will keep going.

In my view both today’s article by Leddin and Walsh and Morgan Kelly a few weeks back did the same basic calculation but used entirely different numbers. The calculation is

Gross Debt minus Financial Assets equals Net Debt

Morgan Kelly starts with €270 billion (including NAMA bonds) and uses a €20 billion value for the banks and the NAMA assets and gets back to €250 billion. Implicitly he has assumed no cash balances by 2014 and the only value in the NPRF is the value he assigns to the banks.

Leddin and Walsh start with a €202 billion (excluding NAMA) and subtract €40.6 billion as the combined value of the banks, cash balances and NPRF amounts. They assume the net outcome of NAMA is zero so adding in the assets and liabilities of NAMA makes no difference to their sum.

There is no difference to what they both did. They both started with a gross debt figure and subtracted assumed values for the assets they think will exist. To make the sums exactly equivalent you could add €31 billion for the NAMA bonds to Leddin and Walsh’s gross debt figure, but subtract an additional €31 billion for the value of the NAMA assets. Thus

MK: 270 – 20 = 250
L&W: 233 – 72 = 161

These are the equivalent calculations and there is a huge difference between them.

We already know why Morgan Kelly’s starting figure is higher: he double counts the bank recapitalisation figure of €35 billion he uses.

They differ substantially on the value they place on the financial assets we will hold in 2014
– cash
– Bank equity
– NAMA assets

Kelly puts a value of €20 billion on all of this (or €50 billion if the unspecified €30 billion he adds is treated as a “contingency provision as suggested by Leddin and Walsh). The fact that we don’t know what Kelly was talking about makes it all the more difficult to analyse his figures. Regardless he subtracts €20 billion from his gross debt figure.

Leddin and Walsh place a value of €72 billion on the above assets. This is also incorrect as they base the value of the first three on their end-2010 outcome which could be substantially different to the value they will have at end-2014. The breakeven assumption for NAMA is also doubtful at this stage.

I’m not quite sure I understand the error you are trying to highlight in the Leddin and Walsh analysis. In point 2 above you state that they should not have subtracted €31.2 billion for NAMA. They did not subtract this money because of NAMA. They subtracted €31.2 billion as the value of the cash and NPRF assets held at end-2010. See point 2 here.

The NAMA figure is €30.6 billion. The numbers are similar but they are not the same. Leddin and Walsh assume the assets and liabilities of the same and “hence do not contribute to overall indebtedness” as they state in the article.

For point A above I was trying to make the distinction between debt that requires cash interest payment and debt that generates accrued interest. It is true that we will have around €205 billion borrowed by 2015. However we will be required to make cash interest payments on €190 billion.

The €15 billion of Promissory Notes is obviously borrowed money but because of their design the interest that is due on these is rolled up into the capital meaning the repayment schedule is extended. This makes no difference to the overall cost of the Notes but it does make sustainability slightly easier in 2015 as we will have slightly smaller cash interest payments to make at that time.

Haven’t the energy to wade through all this properly right now, but must just correct an error by John McHale above. Surely he means:

Claret is needed when figuring out Government debt.

You need not reply to this if you do not wish to. But in the interests of the remaining sanity that I have I am going to post this.

I still reiterate that the IR Times NTMA column figure is incorrect, because of the treatment of the 31.2 billion non financial assets.

I may have mislead you by using ‘NAMA’ for this €31.2, I meant to type NMTA, as in the heading of the second column. The point still stands.

1. I am not starting at all with the Kelly €270.billion figure. I am not trying to do a three way reconciliation here.[I have had enough of those.] I am simply taking today’s figures from the Ir Times and logically comparing both columns.

2. In the NTMA column, taking the GGD €202 billion (which is almost exactly your figure of €205) how can you possibly deduct 31.2 billion of non financial assets from that figure. They will not be there. That money is will be gone in 2014 for the most part gone to the banks.

3. It is still labelled Non-bank financials assets in the Ir Times. In 2014 we will not have non bank financial assets, unless we will a very big lotto in the meantime.

3. Even if by some magic, 31.2 billion is not gone and will still be there, then it is equally valid to deduct the figure from the other column in today’s (now yesterday’s paper) paper.

4. In any case how could your own figure of GGD €190 (GGD 205-15 PN) be correct and reconcile with the net govt debt (161 ) in the Ir Times unless there were to be non financial assets of approx €30 billion in 2014.

5. I agree also that if MK is adding the €35 billion to bank recap on top of the starting figure of €190 in 2014, then that is double counting.

In summary, there is no logic to the deduction of the €31.2 billion from the second column because it will not be there in 2014 and if it will be there then for legitimate comparison it should be deducted from both columns.

I am going to Dublin in the morning to pay respect to Garret Fitzgerald RIP, so I will now give this issue and myself a rest.

It’s a poor advertisement for economics when professional economists cannot agree on a set of figures and assumptions for just a few years forward.

On NAMA’s overseas assets, the outlook looks good; Europe wide commercial property, as measured in local currency, returned 8.0% in 2010.

Most of the Irish investments were in prime locations in main urban centres. A deal with a sovereign wealth fund could do the trick.

As for debt comparison with the post-1987 period, at a time when Ireland was beginning to gain from 25% of US greenfield investment in Europe with 1% of the region’s population, it was also a beneficiary of big inflows from Europe.

Servicing the national debt took 28% of tax revenues in 1991 but the net cash receipts from Europe in 1991 at 6.2% of GDP more than offset the interest burden. In 2013 we will become a net contributor to the EU budget for the first time since 1973 after receiving over €40bn in aid.

In 1987, Ireland’s debt to GDP ratio was 125% and the spread on Irish 10 year bonds with the German bund was 700 basis points or 7%. On joining the European Exchange Rate Mechanism (ERM) the spread began to fall, and was down to 100bps in 1992. Before joining the euro in Jan 1999, the spread was 10-20bps.

@ Hugh Sheehy

Thanks for google docs balance sheet.

Some comments, meant to be useful, ignore otherwise.

(1) Is there a way of noting ‘prediction’, as some of these figures have come to pass and some not yet.
(2) Am I right to think that the ‘Bank Collateral’ of 160 is balancing the ECB liquidity loans of 160? If so:
(a) Should that be ECB/ICB liquidity (so we know who the state is stiffing if the M Kelly option is furthered).
(b) Given that, I think, the public can’t ‘see’ this collateral – though assured it is there – is the value of 160 a guesstimate?
(c) I wonder whether the 160/160 should be dealt with seperately, as, for example, isn’t a large chunk of it an ECB asset?
(3) As the attempt is to arrive at a 2015 number, does any interest repayment fall due during this period?

@ All

Why the fixation with 2015? I see already that there is discussion that the debt may just continue to rise thereafter.

Briefly. A different perspective on what will the debt mountain top out at and is it manageable (which is partially a judgement call), could be rephrased as how much weight will the mountain-climbing Irish Donkey carry before its spine breaks? People arguing that X is managable while Y is not, could be said to be offering a handy target target to suck the maximum out of the tax-payer, without actually starting a revolution. It almost encourages lenders to the state to load to that figure, as that maximises the return this side of default.

@ Eoin Bond and Hoganmahew

That’s exactly the argument I’m interested to see it being discussed at government/EU/IMF level.

For the ‘it’s managable/no-default/pay our way’, argument to really work a part of the vision, especially for public buy in, is that the banks, rather than dragging down the state are set to the pumps, pumping sovereign debt which has been shipped for them, back out of the system.


Claret is needed when figuring out Government debt.


If case you get the wrong impression, I am not an economist, professional or otherwise! But I do agree with your comment-the lack of definition or the use thereof is astounding. The NTMA in fairness have started to put a little structure on it.

@ Tomc

“Tipping points in debt sustainability actually make big differences in creditors willingness to lend and in the ability of the real economy to attract rational investment. 30bn does count.”

Your comment on tipping points is true, but unfortunately we have already passed our tipping point – that’s why we are being funded by the ‘goodwill’ of the Troika rather than the markets.

As to whether or not 30bn will count in 2015, there is no way to predict where the tipping points might lie… a more accurate statement would be “30bn may or may not count, there’s no way to know, but its best to be conservative” (Reinhart & Rogoff have highlighted the substantial variability in debt levels ahead of default

@Michael Hennigan

It’s a poor advertisement for economics when professional economists cannot agree on a set of figures and assumptions for just a few years forward.

JTO again:

This is true. However, the fault lies entirely with one side in this dispute, which simply refuses to engage in the sort of debate process that could lead to agreement on the figures.

While there is room for perfectly legitimate disagreement about future growth assumptions, there are other items in the dispute about figures which are simply black and white. For example, a whole string of reputable economists have now claimed that Morgan Kelly has simply double-counted one particular item worth 35bn euros. Either this is right or wrong. No two-ways about it. Nothing to do with assumptions about future growth rates, property prices, tax revenues or whatever. Either those claiming that he has double-counted a 35bn euro-item are right or they are wrong. If they are wrong, then Morgan Kelly deserves an apology. If they are right, then Morgan Kelly deserves the chop.

The public who pay the salaries of the economists on both sides of the dispute are entitled to know. If Morgan Kelly believes that he hasn’t double-counted a 35bn euro-item, then he should say so and explain in what way the others are wrong in making this claim. All he has to do is spend 5 minutes posting here. But, all we get from Morgan Kelly is total silence on this matter. This should not be allowed to continue. The media should demand a response from Morgan Kelly on whether or not he concedes that he double-counted a 35bn euro-item.

However, his silence speaks volumes. If he were forced to concede that, his credibility would be shot to pieces, and the entire Morgan Kelly cult would disintegrate. In a court of law, if one side to a dispute made a claim, and produced lots of evidence supporting that claim, and the other side did not respond at all to the claim, there are no prizes for guessing which side the jury would come down on.

As well as getting the figures for Ireland as correct as possible, it is also necessary to put them in perspective. Listening to media commentators, one would think that nearly every country in the world was debt-free, and that only a few black sheep, called PIIGS, had debt problems. In fact, Ireland’s government debt figures are not markedly different from the average for developed countries, as the IMF say (link below). Which does not, of course, mean that that debt should not be brought down rapidly. It is very desirable that it be done so. But that is best done by staying calm, acting sensibly and not allowing hysteria and panic to take hold, which is clearly what one side in this dispute want, probably in pursuance of some mad political objective or because they have a financial stake in doing so.


We used the recently-released NTMA figures to try to arrive at a reliable projection of the level of the net General Government Debt in 2014 and to compare this with the Morgan Kelly figure of €250bn that has attracted so much attention.
We acknowledged the uncertainty attaching to such estimates. Many of the comments here have drawn attention to the reasons for this uncertainty.
We would like to pick up in particular on a point made by Joseph Ryan among others.
In arriving at net GGD we subtracted from gross GGD the NPRF investment in the banks, regarding it as a relevant government asset. When doing so, we assumed no change in its face value between now and 2014. In fact, when calculating net GGD the NTMA made no allowance for the NPRF investment in the banks.
The NTMA Note also informs us that about €10bn of further banking racapitalisation will be provided from the NPRF. The Government’s non-bank financial assets will therefore be reduced to €21.2bn, but the value of the investment in the banks will rise to €19.4bn. Following the approach we used, this is simply a switch from one form of relevant asset to another and does not affect the figure for net GGD.
If, however, we reduce the government’s non-bank financial assets by €10bn and assign no value to the NPRF’s investment in the banks (which seems to us to be over-conservative), net GGD in 2014 would rise to €180.8bn (103% of GDP).
This is still a long way off the MK estimate of €250bn (143% of GDP).

@Brendan Walsh

The total value of investment in the banks, assuming no change in face value, would be €29.4bn?

Currently 46.5 bn (about) has been put into the banks. Existing capital buffers can be discounted to some degree as they will have to remain since there is no desire to liquidate them – the banks will need capital buffers.

To get to bank losses already accounted for, we have to include subordinate debt exchanges/writedowns that have already happened.

Then we have to allocate the losses/writedowns/recapitalisations to particular banks, as we cannot do an aggregate calculation – that AIB or PTSB may have x losses doesn’t mean we can burn BoI subordinate debtholders.

Then we have to assess the value of recapitalisation funds – the earlier funds bought assets that are worth less now.

Finally, we need to think about ongoing funding costs and whether those are at a loss.

We can then look on the other side at expected losses in the reference time period (to the end of 2015 say).

The banks had about 440 bn of loans and loan-like assets at the start of the collapse (likely including cross-holdings in each other’s bonds).

An average property crash would give NPLs of 12% of assets – about 52.8 bn. A severe one could be double that 105.6 bn – a severe crash is accompanied by a financial crisis; in our case it is exacerbated by a sovereign crisis. Due to the size of the bubble, recoveries on NPLs (taking into account rolled up income that has already been paid out in dividends) is likely to be low.

The question to decide the likely level of bank losses is to look for expected losses and see whether they are accounted for. I suspect Mr. Kelly is working backwards from an estimate based on other property crashes as to how much the crash will cost. On this basis I think it entirely reasonable

Note: typically costs have been expressed in terms of percentages of GDP of the host nation of the banking system. I think this is flawed for a couple of reasons:
1. The size of the Irish banking system relative to GDP.
2. The extent of the crisis – 100% of the Irish banking system (from credit unions up) is involved. The sovereign is facing its own crisis.
See here: for more on past crises.

In answer to your questions..
Any number for 2011-2015 is an estimate.
I’ve put in the ECB loans as counterbalanced by collateral. It’s possible some of that collateral is not really solid.
I’m only looking at balance, so if interest payments are made out of taxation I don’t count them. Only if they’re rolled into debt do they matter, and they’d be included in the deficit fgures for the next years.

@ Hugh Sheehy

Well done on the spreadsheets.

The fact that Joe Durkan ‘Hadn’t time to do a spreadsheet’ says enough for the throughness of his analysis being more ‘group think’ opinion, than your simple spreadsheet analysis – or maybe he is under such pressure that he cannot find 20 minutes to put together a simple spreadsheet?

As to the rest of this thread I have to agree with Michael Hennigan and JTO on their point that ;

It’s a poor advertisement for academic economics in Ireland when professional economists cannot agree on a set of figures and assumptions. I would add that maybe that is the point.

To be blunt I cannot envision any of the analysis’ presented by these ‘academic economists’ passing any board for a decision.

Most likely see them being given directions to the nearest social welfare office at the end of the meeting.

€35bn now €24bn (1/3 out) a good thing? A gross miscalculation no matter how you look at it – by the economists and ‘experts’ .

Accountancy is not a ‘protected profession’ for very good reason – I thnk the phase in the 80’s and 90’s was ‘creative accounting’ (Enron, Arthur Anderson etc.) seems it is still alive and well.

Dreaded Estate and OMF made some very good points and for a while remained unanswered or responded to.

JTO et al. seemed to be hunkered down in their respective trenches lobbing grenades of their own back, name calling in an infantile attempt to destroy the ‘enemy’ (reputation). Rather than clearly setting out the figures, as you have done.

A bit of focus on the issue and less on the personality might further the debate.

I remained unconvinced by any of them.

Thanks again.

@Brendan Walsh

That you for the clarification on the methodology used.

Having read that clarification and while not prepared to fully
‘Go down on my kness and do what must be done..”,
please accept my apologies to yourself and Dr leddin for the use of the word incorrect or incorrect methodology.

In my humble defence, I was thrown off the 31.2 billion in 2014. I was even more thrown off by my own now clearly incorrect assumption that any residual Non-Bank cash balances in 2014 were not a forecast. Instead that were real NTMA forecast figures drawn from the NTMA, as should be possible. And as such should be deducted from both sides of the comparision, whether specifically used by MK or not. I was wrong in that assumption.

I also want to apologise to Seamus Coffey for keeping him up very late on Friday night and testing what was left of his sanity at that point.

The exercise has also led me to understand that the NTMA GGD of €202 billion is a forecast of the bare birthday suit deficit at 2014, with a lot of risks on the growth side, the looming contingency of Nama, the mortgage issue in the banks etc.

Nevertheless, I have found the exercise very instructive. It reiterates my view that the building up of the huge mountain of debt is not the way to go and the reason for the build up is the inability of the nation to share the pain of survival in a fair way throughout society.

On foot of this thread I thought it might be good to get an outside eye, and so I’ve gone for the big guns and asked my mother to have a look.

My mother, Marjorie Kostick, is one of the UK’s leading tax accountants, and has worked on various cases ranging from highly complex carousel frauds to ‘is the hula-hoop a crisp’?

I laid out the issue as well as I could (mistakes mine), with lots of links, including those from this thread.

At the bottom of her reply I attach a link.

Over to my mother.

“Well Gavin, it would take a lot longer than a few hours to sort out all the web sites and figures. You will know more than me I am sure. However, a few comments fom some pages of scribbled notes.

“Re the 160. Think if you had received a cheque for 200 and needed to pay out 160. You can’t tear off part of the cheque so you borrow the 160 from XXXX [wife named here – let’s leave her out of it].

“Cash the cheque and repay her. So in one way it is an in and out transaction that doesn’t affect the accounts and appears coud be omitted. But just suppose the writer of the cheque died before it could be cashed? There is a very slight chance the borrowing could have a detrimental effect. So the best thing to do to make the situation clear is to put 160 as both an asset and a liability in the accounts as Hugh Sheehy has.

“Thank you for the last emails, but there are so many sites it is hard to sort them out. I have used Kelly original, Leddin and Walsh 27 May 2011, NTMA Information on Irelands national debt part 2 and part 1, Sheehy balance sheet.

“However, go to Hugh Sheey’s balance sheet. I have mentioned the 160.

“Check his treatment of NAMA. It has 30 asset and 30 liability. If you then go to NAMA website, the quarterly accounts seem to be ‘an account’ of what has happened not reconciled accounts. Of course this might be a summary for the public and when they are presented there may be futher calculations. There have been comments which suggest there are formal 2010 accounts somewhere but I have not found them.

“Well, NAMA 3rd quarter accounts mention 25% of loans are performing – but that means not on arrears for more than 30 days. Read that the other way arround -75% are overdue.Then the 4th quarter mentions enforcement, and there was a comment in one report that even discounted some loans acquired were probably overvalued. So I think Sheehy could possibly be amended from using 30 as both asset and liability for NAMA. Say the 45 as liability and 30 as asset (the 45 came from another site) This would amend his net liability to Kelly’s 250.

“With regard to the repayment of the bonds, neither repaying or not repaying is acceptable. Has anyone suggested repaying in the form of half cash and half a further bond to at least delay the sudden large out flow? (Since first writing this I noticed somewhere someone had)

“So go next to my spread sheet as I can’t line up the figures too well on this.

“If you have looked at the calculations, I’d end up saying a good guess would be 230, levelling out in 2014 and 2015.”

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