Fun with Instant Zero Deficits!

I know some of our blog commenters are big fans of the idea of ending the EU-IMF deal and immediately running a zero deficit. I spoke with Kathy Sheridan from the Irish Times a while back about how this would be chaotic.

It’s interesting then to see US politicians apparently eager to try out this experiment on their own economy, pretty much for the hell of it. Here‘s an interesting analysis of the decisions that could be facing the US Treasury on August 2. A corresponding analysis for Ireland would be really interesting.

14 thoughts on “Fun with Instant Zero Deficits!”

  1. Doesn’t the US always have the option of printing more moolah?

    And wow, the US seems to produce far more budget detail, that is, expense heading by month by programme. Could we get something like that here so that we could properly play?

  2. @KW:

    Thanks for putting this up, nothing like a real bit of reality in respect of what gov has committed to and what it gets in revenue.

    This is our future reality, we pay out on current account only what we take in. Borrowing will only be permitted for long-term national strategic projects.

    Will our legislators even consider this? Interesting times!

    Brian Snr.

  3. They may not consider it themselves but it could well,in the future, be forced upon as they fail to raise additional monies to look after their pet constituencies.

  4. “I know some of our blog commenters are big fans of the idea of ending Irish economic sovereignty via an unconditional surrender to the EU.”

    or:

    “I know some of our blog commenters don’t give a rats arse about the country’s future as long as there is a short term fix allowing them to continue to draw their big fat state salaries and pensions.”

    …might have seemed a tad unfair had it appeared say, last October.

    It is possible to focus much on pure economics that you neglect the fact that there are circumstances when in is not necessarily a wise idea to look like a Spock-like nerd who will instantly calculate the rational advantage of handing over his wallet if looked at sideways by someone with stubble and tattoos.

    Don’t assume people who disagree with you are simply thick.

  5. @ grumps

    Likewise, don’t assume everyone who disagrees with you is a traitor to the nation who assumes others are thick.

    I’d recommend dialing the invective down a notch.

  6. Zero deficit…over what accounting period ?

    This is far from a trivial question, indeed to my mind, it is at the crux of the matter. There could be a requirement for the government to balance its books at the end of every day…yes I know the zero deficit people are thinking yearly…but why not daily ?

    Yep I know the argument will be for efficiency and liquidity purposes that annual makes more sense (e.g. tax collection is annual), but any honest person will admit that picking a medium term horizon for liquidity operations, means that due to uncertainty, solvency risk exists. It’s amusing that they think they’re making a normative/ideological argument…whereas actually their argument is empirically flawed.

    Some people are willing to take a longer time horizon, and bet that borrowing a little today will be covered by future payoff. There’s no proof that this speculation is necessarily more risky than that of a shorter time frame. In effect that is what the zero deficit crowd are arguing: longer time frame necessarily means more risk, which is not true, as time (and attendant uncertainty) is only one factor of overall risk.

  7. The Irish government will default and leave the euro long before it has to start cutting nominal wages and pension to run a zero deficit.

    Like it or not, grumpy’s invective above is pretty insightful, for Ireland as well as Greece and Portugal. Senior civil servants, bankers, etc would prefer to be overpaid never week in Euros rather than Punts, Drachmas or what have you. The only way that can happen is if they tow the EU line, inflicting losses on the general population in exchange for a stable salary.

    I don’t know how else to read things. The Irish state, cut off from the open bond markets, is living on emergency hand outs from the IMF, yet continues to run an €18 billion deficit, and continues to pay thousands if not tens of thousands of people absurdly inflated boom-time salaries. An Irish default is going to be a hard sell if our negotiators are still earning 30-40% more than their French and German counterparts across the table.

    Anyway, in the event of a default, I fully expect the NTMA and DoF salaries and defined contribution pension payments will be made that month. After that, its anything goes really.

  8. I read a very interesting article recently and it explained it all very well for me. It all goes back to 1971 when Nixon went off the gold standard and all govts were capable of printing money with nothing to back it up. Deficits were allowed to build up far beyond GDP each year and here we are now and its pay back time. The Bond markets will not invest in a country anymore that has a deficit full stop. All money is heading East. Also by getting to a zero deficit and not a 3% anymore means House prices will actually fall to 80% as predicted by Morgan Kelly. Morgan Kelly,s recent article now makes alot more sense where he suggests getting down to zero % and cut the banks loose. Everything else is pussy footing around now and not facing reality.

  9. @ Zero deficit guys

    I don’t think I ever hear you guys focus on any other aspect of public spending other than public sector salaries, and then mainly on those at the top.

    Here’s a question — can you guys tell us what fraction of government spending is accounted for by spending on public sector pay and pensions?

    Answers on a postcard ….

  10. Karl

    Give up the moral high ground, you are apparently already intellectually superior and of course the festering budget deficit does suit your own needs if not those of the many

  11. @ Karl
    I’m not sure we’ll have a choice in this.
    Come 2013 there’ll be no money left in the bail-out kitty

  12. @ Rich

    “the festering budget deficit does suit your own needs if not those of the many”

    Frankly, I find the idea that I would warn against the dangers of cutting a budget deficit to zero simply because it “suits my needs” to maintain a “festering budget deficit” to be offensive.

    Actually I find the comments on this thread to be so off the wall that I’ve decided to close them. You guys can go insult someone else.

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