Debt and Deleveraging

More comment is required.

1) Debt to GNP would probably be a better benchmark for Ireland.

2) There is a need for comment on how much of that 259% associated with financial institutions is an IFSC effect that has little relevance to the domestic economy.

Also, the size of teh debts owed by non-financial corporations seems very large especially since a not insignificant part of employment here is by MNC who presumably don’t count.

Is it possible that MNC’s are setting up subsidiaries here and raising debt through them for tax reasons?

@all
very revealing, good work.

I wouldn’t worry about the financial sector debt to much as this is mostly financial trickery. The non financial sector corporations debt is the most worrying for me as it suggest ordinary manufacturing and services companies are likely heavily leveraged and this debt will that to be paid down before these companies can grow significantly and employ people.
The household debt figures are very high also and this will also be a drag on demand, but then that’s hardly news.

Krugman is cautiously optimistic in this piece — perhaps he could join with tag line “Paul the Optimistic” since we need one.

It is very important to deal with IFSC debt correctly, otherwise these Ireland-compared-to-world-average debt comparisons are pure garbage in – garbage out.

http://www.irisheconomy.ie/index.php/2012/01/19/whelan-time-for-a-deal-with-super-mario/#comments

Apparently our naivety knows no bounds:

For example, Varadkar has warned us not paying Anglo $1.3 bn this Wednesday would result in a financial bomb going off in Dublin.

A Little bit of Math warrants here:

http://www.politics.ie/forum/economy/140523-anglo-irish-bank-bondholders-revealed.html

BrahMos is a stealth supersonic cruise missile that can be launched from submarines, ships, aircraft or land. It is a joint venture between Republic of India’s Defence Research and Development Organisation (DRDO) and Russian Federation’s NPO Mashinostroeyenia who have together formed BrahMos Aerospace Private Limited. It is the world’s fastest cruise missile in operation.[3]

http://en.wikipedia.org/wiki/BrahMos

Unit cost US$ 2.73 million = ¢2,111,140

My math gives 1000000000/2111140 = 473 Brahmos

So, the equivalent of 473 of the latest cruise missiles in financial terms will be targeted at Irish taxpayers this Wednesday.

The irony is Varadkar is warning of significant increase in borrowing costs for Ireland if the Anglo bondholders are not repaid. The markets are punishing Ireland BECAUSE they are paying off these bondholders….

No folly too great to build for this most incompetent Government Europe has known; I include the last in that.

Massive numbers leaving the public service in health/education on great pensions will have to be rehired towards end of year on special contracts to fill up the black holes.

More Math: Irish economy to grow by 1.3% this year; Troika says .5%. Assuming Troika figure which is understated, correction means statistically the government has made a significant error of judgment of the order of magnitude: (1.3 – .5)/.5 * 100 = 160 %……Sounds like they’re up to their usual standards then

Along with the pension mess above, the Troika are concerned the financial sector has not even begun to shed the number of jobs required. They are looking at layoffs 2-3000 required between now and April; how long the government can hide from shedding these jobs is anyone’s guess.

Hoping for reform? Not a chance. Too busy cutting and slashing the lower end of health/education to protect Croke Park. Even the troika are underwhelmed at the outrageous salaries paid out by a bankrupt government to senior cronies across the public service.

From a macroeconomic point of view a stage is reached in every currency crisis when the elite circle the wagons around themselves to protect their interests. Nothing above is any different to the experience of other countries eg Argentina, Russia. Its the eye of the storm used to save what can be saved before the titanic capsizes.

Right now we’re on top of the waterfall paddling full steam ahead on exports; even though shaken by threats re CT and a financial tax. Foreign bondholders are looting what they can before the inevitable fall.

Fa la lala la, la, la, la, la a financial doo doo.

@Cormac
These sound like magical numbers – how do these guys make such precise measurements ?
Surely debt (at least goverment debt) is just money or the grease to keep the engine going , how does this effect growth ?
We now know that Sov goverments can engineer any interest they wish & not bond traders as they have monopoly control of the currency.
Japan is still growing albeit slowly (perhaps more sustainably ?) when its goverment debt is over 200%.
Why is that ?
Energy is the driver of growth.
What is happening here is pretty simple to understand – our sov debt is chiefly external.
So in a envoirment of private debt repayment our overall money supply MUST FALL .
The core must feed off the periphery to grow as they are farming whatever surplus energy is remaining through the mechanism of debt peonage as they either don’t want real continental growth or are unable to execute a rational plan for this growth.

Two-thirds of American household deleveraging results from mortgage and consumer debt defaults.

@Cormac Lucy

I agree the numbers are simply awful and the countrys daily pre occupation of the Govts debt load based on these numbers clearly looks misplaced – the real issue is in the homesteads of the country.

Given the numbers and the conclusions drawn from all the studies available is it fair to say that Ireland Inc really has only one option and that is to take a knife to the mortgage debt and write it off ?

If the model required to do that indicates a number of c€30bn to get to a meaningful place where mortgages are say at 110% of expected PTT falls in residential houses being about 75%. What then? Revise the Basel rules for Ireland and seek a deregation for a number of years ? How do we get to the promised land ? Bankrupting potentially thousands of home owners as is consistiently called for by many on this site to me is a very strange way to right the wrongs of banks clearly mispricing property and associated lending.

No matter what the solution folks it aint going to be ‘fair’ – so stop dreaming.

Does anyone have a trend graph of these figures?

The most important indicator of how long a debt-driven recession lasts is the speed at which deleveraging takes place.

For instance the McKinsey report quoted at the top of the article emphasized that the US was perhaps a third through its deleveraging, whereas the UK and some other Eurozone economies had barely started.

I get the feeling that here in Ireland we have been deleveraging fairly smartly (earlier deflation, payments surpluses) are there any numbers, or published graphs, to back it up. Does anyone have the comparable total debt figures for 2008 and 2011?

@ All

The real interest of the report is not the dodgy figures in respect of Ireland but the lessons drawn from the Swedish and Finnish experiences (conveniently summed up in the executive summary; linked PDF document).

The lesson drawn appears to be the quicker private debt is deleveraged, the more rapid can be the recovery.

Where are we on this score?

“I go back to my overriding issue here and that the mortgage disaster stems from a mis pricing of the asset class arising out of flawed mortgage lending models and these are banking errors. In all cases banks had the opportunity to stop these property transactions proceeding – they decided against that and expected the lending margins to be earned and the bonuses for the lending departments to follow. Please can someone explain to me how a new personal bankruptcy/ solvency scheme of arrangement solves the issue when the error in the overwhelming majority of the cases rests with the lending banks. I’m at a loss on this one.”

I think this is pretty clear. Even if banks were foolish to make the mortgage loans they did that in no way affects the enforcability of those contracts – morally or legally.

Almost all contracts involve a division of risk – a collapse in property prices (whatever the cause) was risk borne, first by the borrower, and upon default, by the lender. Simple as that

The above figures state that Irish household debt is 124% GDP for Q2 2011.

However, the latest Central Bank Private household credit report shows gross household debt at 77% and net debt at 21% GDP.

Yet, the source for the McKinsey graph is “national central banks”.

Can anyone explain?

@ Seamus Coffey,

$1.3 bn this Wednesday is no optical illusion or overstatement, its unfortunately, very real.

However, I agree with your post. There is quite an amount of obscurity in the matter of full detail on what constitutes our precise debt profile.

I would like to see a precise accounting of the figures involved.

It would go a long way towards this to see a full profiling of the debt accounted for by the full financial sector located in the IFSC.

We are all aware of the practice of B&B debt in the financial industry. I would be concerned that Ireland through its CT haven status is in part a dumping ground for debt that comes through the IFSC from other flags.

The overall debt volumes at half the stated amounts would be untenable. If we were an Iceland or a Lehmans; or even a Dexia exposed both to Greek debt default and to subprime OTC’s sold on to us through Morgan Stanley, then sure, those volumes are possible.

But we had a plain vanilla property bust. Yes, developers ploughed their loans into property markets across the world, but the total volumes of debt appear to exceed even these liabilities.

Is it possible to have a precise accounting of all liabilties the state is currently liable for?

Is it a case of we’re drowning in debt already, so our ‘allies’ get to hide some of their debt in ours, in a similar manner to the way European corporate profits get processed through Irish CT?

@ Yields or Bust,

I made no reference to government yields, but simply stated that amount of money that is paid in interest. I can’t recall using a “net debt” measure in relation to the mortgage crisis but perhaps I did.

@christy

Unfortunately it isn’t as simple as you claim it to be.

The citizens of the country have come to the rescue of these banks – and I’m pretty sure I’m not alone in not actually remembering signing my name to any bailout contract and yet I end up paying for those who actually contracted to take the risk of the banks going bust i.e. the financiers being the equity holders, the bond holders and the depositors. So your so called contractual approach fails at the first fence.

The problem I believe as has been the methodology employed by the Courts in dealing with the issue. To me it is a case of divide and conquer and hence the reason why the banks will always come out on top in mortgage default cases.

You are correct insofar that each individual contract looked at as a separate case will always favour the banks – but the fact there are so many of these individual cases surely its not beyond the wit of the Courts to join the dots and ask the bleeding obvious question being – whats the common denominator here? – the answer being of course crazy lending practices by those who were Regulated to know better, whose day job it was to know better and whose economic well being is based primarily on them ensuring the integrity of the market is maintained. All tests which the banks have comprehensively failed.

In addition the normal ‘out’ for struggling mortgage holders has historically been to sell up and rent. This normal out has also been denied because of the small matter of c150k of unwanted product sitting on the market. Now perhaps you could explain to me why any bank is entitled to 100% of their cash back when they have screwed the market up for all participants including themselves – burden sharing I would have thought correctly begins with those who caused the problem in the first instance – given that property is a market which is utterly dependent on leverage for its survival explain to me exactly why the party to any contract who does their level best to destroy the market and the hand that feeds them should be entitled to 100% of their cash back.

Over t

@ christy

“I think this is pretty clear. Even if banks were foolish to make the mortgage loans they did that in no way affects the enforcability of those contracts – morally or legally.”

Don’t know about that? They were not paid huge salaries and bonuses to be foolish and there are many who say that the foolishness stayed into the area of criminal negligence. If that is true, it changes the culpability for the loans. It took 222 years for BoI loan book to reach 100bn but 4 years later 2008 it was 200bn surely they cannot expect to collect that? How were thousands of shareholders who invested in these well run banks literally wiped out. I know many people who depended on their bank shared for nursing homes and they are distraught. Meanwhile the guy leading the Anglo investigation retires with 150K and 75K pension and takes up a job over at BoI. Surely, there is a major conflict of interest?

Can someone explain why when you step literally 1 meter over the border into NI and a radically different insolvency regime applies? So, if someone has a loan with BOSI (any bank) they are crucified in the republic where BOSI no longer even have an ATM machine but if they rent a derelict flat in NI and apply for bankruptcy there they can hit the road running after 12 months?

As for the data above, Constantine Gurdgiev has been banging on about this for almost 2 years now i.e. Ireland being one of the most indebted nations on the planet but finally it seems to be gaining traction.

The amount of household debt is a fundamental problem in trying to engineer recovery.

Talking about a bankruptcy period of 3 years or 5 years because people have a bee in their bonnet about Fitzy and Quinner is madness. We have to have a personal insolvency regime that is no harsher than the UK or we will lose businesses to the UK. We also need to get as many people into and out of this system as quickly as possible.

The Government (particulary An Taoiseach, Min for Finance and Min for Justice) need to have the balls to do what is right for the country.

There may be a disparate band of pinsters, Joe-Duffyites and FG-Savanarolas who will choke on their cornflakes at this but we have to take the chance that losing all your dosh is enough to avoid moral hazard.

Of course some people will do very well out of it because the banks won’t foreclose but that is happening anyway, except in slow motion. In the meantime, there are plenty of others sinking into depression, suffering permanent psychological damage and even committing suicide.

re Krugman:

“My preference is to leave financial-sector debt out of the picture, because it’s conceptually very different from nonfinancial debt. Think of it this way: compare two banking systems, one in which banks directly lend deposits out to customers, another in which many deposits are lent out through the interbank wholesale market, and then lent on to nonfinancial customers. The second system will show much higher financial-sector debt, and it is in some real sense more risky than the first, but the real economy isn’t more highly indebted than in the first case.”

Re Par 2 , this is a key difference between the FED and the ECB. The second system has a system of checks and balances operated by the FOMC to redistribute the effects of this interbank lending among the players involved. The only shakeup involved is through a QE which might have an inflationary effect, the real economy is a different matter. However, the weakness of the euro project means no such second system exists. Once deposits are lost eg in a property bubble, these losses leak into the real economy;
nationalisation or state guarantee bring them into the real economy. Unfortunately, the poor design of the euro means the only way of dealing with such losses is a one to one relationship the ECB has with its CB’s . What ECB lacks is probably a new one to many relationship with its buyers; so debt can be purchased and redistributed among its members through eg a system of eurobonds designed to absorb loss, transfer loss, manage loss making divisions in the EMU. Right now its a credit union, each member has to deal a one to one solution with ECB/Troika/IMF upon which political pressures make more difficulties.

The forcing by the ECB of eg Ireland to take on financial sector debt in the absence of financial tools to regulate the debt of financial institutions, has led to financial services and banking debt become amortized into sovereign debt and therefore leak into the real economy.

This is the real scandal of the euro credit union.

“But what I’ve been able to gather is that Europe has had a substantial rise in public debt, with little or no private-sector deleveraging.”

Indeed, thats why banks are not allowed to fail in Europe, because it gets switched into public debt so easily; with the backing of our politicians.

Overseas com

“I feel a little bit frustrating that nobody on this blog ,which is supposed to be a blog by and for Irish economists ,seems to have definitive numbers on Irish level of debts.”

I think the figures obtained by Peter Matthews in a Dail question are the ones that many people seem to have the least difficulty with.
The big lesson from Japan is that once you get to a certain level of debt going to pay interest it can make recovery very very difficult even in the medium term. Any gains in growth go straight to repaying debt which remains stubbornly high regardless of the levels of Austerity the country is prepared to endure.

The banks have created this mess because international short term funding was not outlawed, which it must be in future. That is how BOIs balance sheet went from 100bn to 200bn in 4 years as Robert Browne says.
The money that provided these loans has been withdrawn by the original lenders and now the ECB has stepped in to fund the difference while we wait for the loans to be repaid.
However a large proportion of these loans will never be repaid so the government has capitalised the banks massively. Incidentallly this shows the folly of the capital ratio being the main tool of regulators when loans massively exceed deposits. With 1 simple change in regulation – to make Loans to Deposit Ratio >=100% illegal this crisis would not and could not have happened.
So what are we do to now? I am not so clear on this, I would favour the government fully nationalising all remaining privately owned banks – I would expect their losses would justify this. Then there would have to be mass bankruptcies and foreclosures before we could start again with a new banking system.

Re Mathews, debate with McHale, once again, is it not strange a full audit of debt is not freely available:

This was back in November:

Here Matthews figures range up to ¢ 100 bn from ¢ 70 bn
from losses due to the turbo charged credit bubble

http://www.cahill-printers.ie/Debates/DDebate.aspx?F=FIJ20111117.XML&Ex=All&Page=6

I cannot but highlight the complete and utter idiocy of Plan A. Did the troika foist this upon us in return for ‘bailout’; did a ‘blind’ Department of Finance or NTMA led negotiating team swallow this whole, the same crew of the Marie Celeste, who brought the IMF here in the first place?

The whole of the EMU and the western world must be laughing at this?

“Plan A, although it will be incredibly difficult, is the best route towards a solution to the crisis. It means we will get through it with our creditworthiness as a state intact. We will not have defaulted and there will be reputational benefits, affecting not just the State but also the economy. We are a trading nation heavily dependent on investment. Plan A would reduce the risk of a really sudden cessation of funding, which could occur and which would be incredibly damaging given our financing needs and the size of the deficit we will have on an ongoing basis. Trying to keep the finances in place and spread the adjustment over time seems to be the best approach. Plan B is just too risky to contemplate at this stage.”

The notion that this country is concerned re the reputational damage of its negotiating team, or its banks, at this point, is a joke.

To realise the present government are confidently pursuing PLAN A is worth a laugh from the Three Stooges 🙂

http://www.youtube.com/watch?v=0UDu4IEkPPI

“Hey, chucklehead, did you get the tools?”

“What tools?”

“The tools we’ve been using for the past ten years”

“Oh, those tools!”

“Yeah, I got em ”

Lol

Dork just talked to a business contact in Saudi, petrol is (wait for it) €0.09 a litre there…

Considering that 2/3rds of petrol price here is taxes (and taxes on top of taxes) ….

@ Alchemist,

Was there to be legislation re builders having to supply bonds to prove they would finish unfinished estates; or, make sure the previous scam of not paying tradesmen for work they carried out on estates, with the developer just closing his company and starting another under a new name, meanwhile the brickies/painters/plasterers end up with nothing…I think it was one of Sean Gallagher’s platforms….your example recently in the news re whole rebuilds required due to bad workmanship/fire hazard…I don’t follow that area but notice reform there is not in the media, so must be on the back burn…Germany’s regulatory
regime works extremely well for them and avoided them a property scam like ours! I’m off, have a good evening 🙂

@Christy
“The State owns the banks – and given the current gov’s policy – every penny written off unnecessarily on mortgage debt is another penny that must be paid by the taxpayer. So the fact that citizens have rescued “the banks” is not relevant.”

One problem with this logic is the context within which it took place. The state failed to damp down a housing bubble which inflated accommodation costs for both buyer and renters. Some would feel that it cheer-led the bubble through tax policy. The state also levied some of the largest property-related stamp duties (land and property transfer taxes) and development levies in the Anglophone world throughout the bubble period. It used this tax revenue to fund reduction of direct taxation rates on labour among other things. This behaviour amounted to a transfer from property buyers to everyone else, and the sums involved were often very large.

These policies were not accidental and were deliberately engineered by the Irish state. In the aftermath of the collapse of the productive part of the economy, which it was responsible for overseeing, it seems to me that it may have a very clear moral responsibility to return at least some of the money it gouged from taxpayers who were subjected to inflated property transfer taxes during the bubble years. This would arise in cases where such individuals are now at risk of financial ruin mainly due of the disastrous stewardship of the economy by the state during and after the bubble years. How it is to be done is another matter but the moral principle of restitution from tax beneficiaries to those who were clobbered by stamp duties during that era seems clear enough to me.

@Seamus Coffey

Indeed.

Also BIS data collection criteria (upon which the chart is likely sourced) are hopelessly outmoded due to:
1) Increased globalisation
2) Financial sophistication: lots of hedging goes on, and nett positions often lower than gross

Very little attention has been paid to improving economic stats in order to keep pace with globalisation. I think it would be helpful if this blog was to campaign for:
1) Improved BIS standards (which effectively govern much CBI/ECB standards)
and
2) Increased domestic data collection

Such things take years to achieve…and it would be nice to have richer data soon

DOD,
People really should listen to what Merkel says not what we want her to say. There will be no significant write down of peripheral debt bar Greece. She wants to win the next election. Burning the savings and raising taxes of German workers to pay higher paid Irish public servants and welfare recipients would cost the CDU seats.

Zhou,
Since there will be no debt relief from abroad, what you propose is a wealth transfer from those who were financially responsible in the boom years to those who are victims of the downturn and those who were down right irresponsible. Helping the former under certain conditions is necessary but helping the latter will draw the ire of vast swathes of the population.

If I become an FF Borgia can I have a dig out.

@ Eamonn Moran

The figures provided to Peter Mathews suffer from the same difficulties as those used here. In fact there are the same. If asked to pin down the level of debt at the end of 2011 I would go with:

Household Debt: €186 billion
Government Debt (ex Prom Notes): €139 billion
Credit extended to Irish Private Sector Enterprises: €99 billion
Bank of Scotland (Ireland) commercial loans: c. €15 billion
Irish non-financial corporate bonds: c. €10 billion
Irish Loans in NAMA: c. €50 billion

Any figure preceded with “c.” is a bit of a guess. If the Promissory Notes are included as part of government debt I would change the amount attributed to NAMA to the consideration it paid for the Irish loans (c. €20 billion).

The total is around €500 billion which is 320% of GDP and 390% of GNP. This is a higher level of debt than the countries shown above.

Very strong PMI data out of the Eurozone this morning btw, now looks like no recession in EZ and economic activity bottomed out in Oct/Nov. Revised Q4 growth data may also not look as bad as initially gauged.

There’s a rather good discussion of our debt here:

http://www.askaboutmoney.com/showthread.php?t=150911

The discussion on this blog re ELA/PN has teased out 3 here (one of the comments to above), so I’ll just add the comment for reference

3 Central Bank Liquidity Funding
This money actually earns us interest. It is not secured on assets, so we could lose it if all the banks go bust. But the same people who argue this, argue that the NPRF money invested in AIB and Bank of Ireland will not be recovered. This investment was to supercapitalize the banks to provide a buffer against future losses. It is very unlikely that this money will not eventually be repaid to the Central Bank

5 The EU-IMF funding of €66 billion
This does not show up in the above table as it’s in the future. €40 billion relates to funding our exchequer deficit over the next three years. €26 billion will be used to replace maturing debt and pay the Promissory Notes which are included in the General Government Debt figure at 2 above.

@ S Coffey

“Irish Loans in NAMA: c. €50 billion” NAMA more like ¢30 bn

RE

Household Debt: €186 billion
Government Debt (ex Prom Notes): €139 billion
Credit extended to Irish Private Sector Enterprises: €99 billion
Bank of Scotland (Ireland) commercial loans: c. €15 billion
Irish non-financial corporate bonds: c. €10 billion
Irish Loans in NAMA: c. €50 billion

Obviously, it would be good to have a detailed account of the makeup of the above items on a loan by loan basis, not possible; though stats should go deeper into these. But, the problem is confusion is made between good and bad assets upon which above debt is based; also loans which are toxic, and loans which are not. For example, the figure ‘credit extended to Irish Private Sector Enterprises’ to me is a fascinating figure I’d be very interested in lots of more data upon.

IT should be possible to separate out from all these figures
lending which is funded on a good asset base that will make a return on investment, or lending that will make a return on investment even though the asset upon which is based is eroded; from lending whose asset base has disappeared and will never be repaid.

It appears easy enough for the Greeks to identify a debt write down of ¢100 bn, good luck to them this week. But for us it seems impossible to even come to agreement on a figure for debt writedown.

So, we have the ridiculous and ludicrous situation of Noonan meeting with Ollie et al today and its on debt writedown, but we have no figures on what we want on the table.

I’ve posed a figure of bn 42 bn based on a writedown of ELA, I’ve seen other figures go to ¢50 bn and ¢75 bn

I, for one, would like more data substantiating the view that the figure of debt writedown is a minimum figure total based solely on verifiable evidence that this figure represents what cannot be repaid 🙂

@Zhou

4. We are in an dire economic crisis which demands more dramatic actions to get recovery in motion. Accordingly, a shorter bankruptcy period is required than would otherwise be the case.

+ 1

Maybe an amnesty period of one year or even 6 months before returning to a 3 year bankruptcy period with stronger conditions to help deal with tsunami of meltdown.

@ Zhou
You are 100% correct and it is 100% not going to happen.
Because many of those in and around government are the same people who “will look first to their self-interest and the high esteem in which they hold themselves, and who will thereafter happily cut off their own nose rather than see their next door neighbour escape decapitation.”

@ Colm Brazel,

I included the nominal amount that is owed on the Irish loans in NAMA rather than the amount NAMA valued/paid for them. If we write down the value of the NAMA loans then the Promissory Notes would have to be added to the government debt as it is largely these that will make up the difference. There is little impact from doing one or the other on the final total. Either the developers repay the full €50 billion of loans or they repay €20 billion and the State pays €30 billion. And we know which one is going to happen.

@ Eamonn Moran

Yes, the non-financial corporate sector is the main difference. The Sector Accounts figures provided by the Central Bank and CSO are gross and non-consolidated. I think the Credit Advanced to Irish Resident Private-Sector Enterprises data provided by the Central Bank gives a better idea of the debts of the corporate sector. This spreadsheet contains a lot of useful figures. I would point out that Bank of Scotland (Ireland) left this series in December 2010 when it pulled out of the Irish operations. Its loans still exist but are in a recovery vehicle called Certus rather than a bank. NAMA accounts for much of the drop seen since the middle of 2009.

I’m not suggesting Irish debt is not excessively high. It is. Rather we should try to get a handle on just how high it is.

@Tull
If I may interject on your conversation.
Refer to my various posts about the fundemental difference between goverment money & bank credit deposits.
So who pays in a PRIVATE debt jubilee ?
So lets say all mortgage contracts are no longer valid.
Ownership is transfered from commercial bank to the former mortgage holder
Credit Deposits become goverment money (post offices stuff & the like).
At the moment credit deposits are subtracted to pay mainly external sov debt holders interest.
Bond holders would have taken the entire loss.
If there is no credit deposits where does the money come from to pay the sov debt holders ?
The CB just prints whats needed to cover interest.
But what happens to inflation / trade balance if all this private debt / money is released on the domestic scene ?
To prevent malinvestment there must be higher taxes on waste ?
Where is the waste in Ireland ?
Its chiefly energy & consumer durable imports(cars etc)

So taxes for cars & oil, both for transport & heating rise to fill the debt void.
What do you think happens to the price of houses out in the sticks which are dependent on both cars & oil central heating ?
The country would become rapidly more effiecent in its entire resourse allocation chain , from post offices to public transport to electric utility provision – pretty much everything while maintaining the value of money and thus their contract.
But don’t expect this – this debt artifice will eventually collapse and they will be forced to massively defecit spend out of this to cover the CAPITAL Losses & socialise the losses through raw inflation as the bank bond holders have escaped.
Unfortunetly this is what will happen as they break their social contract to remain on top.
Its is essentially the same trajectory although in the second the Irish will have very little wealth to rebuild our capital base
Go to 15.45 to 21.10

http://www.youtube.com/watch?v=hGl3QPfB084

“Settlement is a function of bankruptcy”
“The whole system is running toward bankruptcy which is a way of settlement”
“what they are doing is DETERMINING WHO THE LOSERS ARE”

@Eamonn
There is a huge difference between commercial banks kept alive by cheap ECB money that then go out and buy goverment debt at a large margin to cover their bad credit judgements & giving the money to the people & writing off private debt.
The banks are shearing us without providing any social utility worth a damn.

Its this intense symbiotic relationship of banks & the state which has destroyed the west.
We could be witnessing the end of Cromwellian like republics.

Sensible Money is an organisation attempting to remind economists how money is created and what happens as a debt is repaid.

The existence of all this debt implies the existence of a creditor. A creditor who most of us imagine is lending existing money. However new money is created through the bank loan process and with it a corresponding debt.

This is the root of the debt crisis problem. Any future money which the economy needs will also have a debt. Restricting debt, and hence money, arbitrarily to some ratio of GDP won’t solve the debt crisis.

DETERMINING even.
This stuff is easy – its a wealth extraction excercise , pure & simple.
In open sight.

@ Tull
Where did i suggest debt should be written off?

@Eamonn
Its not going to happen until all or most of the wealth is extracted – then they will give the money back to the people – but by then it will be nearly worthless.
Its all so predictable , the people running this operation cannot be allowed to take a loss – since we don’t run this kip……………….

The deliberate confusion (?) of the nations money supply with its private credit (loans) is the mark of a colony.

PS witnessed the female(socialist) PM of Denmark on Euro news – I was shocked.
Not because she is a good looking woman & all but her Invasion of the body snatchers response to Euro questions…………
Google this & you should get the video

Danish PM: What’s good for euro is good for Europe
euronews‎ – 19 hours ago

@Tull

You are equating bankruptcy/insolvency procedures to debt forgiveness.

The difference in my mind is that an insolvent person loses all assets and must start from scratch.

If they are allowed to keep their house then it is only with the consent of the bank and on the basis that they will have to start from scratch to pay market value or more for it. If they have any equity it must be sold to pay their creditors.

My suggestion is that they should be allowed start from scratch more quickly and should spend less time as bonded serfs.

Let’s be very clear, people are already living as bankrupts under the control of their banks because our bankruptcy system does not function for creditors or debtors.

Ultimately, I don’t think shortening the bankruptcy period will cost the state or the taxpayer anything. I believe that much as the Germans need to support the recovery of the rest of Europe out of enlightened self interest, so must the prudent Irish support the recovery of the insolvent Irish out of enlightened self interest.

I believe that a shorter insolvency period will lead to greater tax revenues through a quicker recovery.

A shorter insolvency period will also stop people carrying their capital losses and business losses forward forever and a day, paying no tax on new income and remitting their money to banks and foreign creditors.

Who will pay? We’ll all pay dearly if we follow your logic.

(you will also note that the IMF have pointed out that debt relief for americans in negative equity is critical to american recovery.)