Hair of the Dog?

Informative, and surprisingly not reminiscent of a Mills & Boon publication in any way.

‘To move to the balance sheet view, the central theme in Mian and Sufi’s book is that in order for a debt-laden economy to recover and move forward, it must first resolve its past. The remedies the book suggests to deal with the overhang of debt will also touch a chord with an Irish audience because they centre on debt forgiveness. There are several options open here. The first, which we might term hair of the dog, touches on the recent approach of replacing IMF debt with new lower-rate debt. This is wise, though at the same time limited in terms of its overall impact on the state’s indebtedness. A related and more provocative solution, which might be particularly attractive if the Department of Finance’s forecasts of medium-term growth are to be believed, is to issue more debt to fund labour-intensive projects such as the build-out of infrastructure. However, the only solution to an economy mired in a “house of debt”-style recession is to break the vicious circle that prevents household debt been written off to bank balance sheets and thus in turn to the state balance sheet. This process, if it is ever contemplated, will need to follow the following steps.

Read on from link above

Rem ~40% of cost of EZ Banking Crisis ….

“While if often seems that QE as an economic remedy is ordained by markets, it does have respectable origins. ”

Obviously, markets, like trade, are so crass and bourgeois that decent literati couldn’t have anything to do with them.

Very good down to earth article, with some common sense.

“Household debt and some small business debt will need to be restructured by banks, potentially in return for equity in the properties and even in the banks themselves.”

I cannot understand why it was not govt policy all along to take equity in the case of businesses getting debt relief. Such shares could have managed passively by Enterprise Ireland, and would in time have given something back to the State.

“Those in Brussels, Frankfurt and London who increasingly lionise the Irish economy should have some thought for those who also bear the social costs of the crisis and for the fact that we have not yet apparently learned its lessons….”

Dublin, for some reason, is omitted from the lionising chorus, although as far as I can tell, Dublin is the soprano singer in the choir.

Restructuring of debt may be necessary across the euro area but are there any distribution downsides?: pensions of private sector workers?

The ‘punch bowl’ comment is attributed to William McChesney Martin (Fed chairman 1951 – 1970) rather than Arthur Burns (1970-1978), a Nixon nominee, who is blamed for allowing inflation get out of control after the quadrupling of oil prices in 1974.

http://www.irishtimes.com/business/economy/taoiseach-predicts-nearly-10-years-of-economic-growth-1.1957583

“Ireland can look forward to almost a decade of strong economic growth, Taoiseach Enda Kenny has predicted”

why would he say that when

http://www.theguardian.com/business/2014/oct/07/imf-economic-growth-forecasts-downgraded-crisis
“The International Monetary Fund (IMF) has cut its global growth forecasts for 2014 and 2015 and warned that the world economy may never return to the pace of expansion seen before the financial crisis.”

Is it just for a bit of feel good? Does he even know what’s driving the bit of good news we have at the moment ?

It reminds me of everyone bigging up the Dubs after they won the all Ireland last year. Unbeatable.

http://www.youtube.com/watch?v=vPiqcEqVu7g

@ Michael

“are there any distribution downsides?: pensions of private sector workers?”

Solvency 2 has brought risk management to a new level and bonds are always risk free, remember

“The ‘punch bowl’ comment is attributed to William McChesney Martin (Fed chairman 1951 – 1970) rather than Arthur Burns (1970-1978), a Nixon nominee, who is blamed for allowing inflation get out of control after the quadrupling of oil prices in 1974.”

Oil prices! Econ 101 never mentions ‘oil’. Its not an essential factor of production? Its just another ‘commodity’ – right? So when it gets a tad pricy, just substitute*- right? No, quite wrong!

Oil ‘drives’ 65%+ of the global economy. It IS an essential factor of production. So its price fluctuations have little economic effect? Yeah, right!

There is NO chemical substitute for oil. None! So, how long will it take main-stream economists to cop on to this? The military have.

Gee, I’m real glad Mr Enda says I can look forward to nearly a decade of a recovering Permagrowth. Yipee!

@ Brian Woods Snr

Energy intensity/ efficiency is converging in several big countries.

http://media.economist.com/sites/default/files/imagecache/original-size/20110122_WOC032.gif

On a small economy, the Danish Energy Agency says it would be technically possible to construct a secure and reliable national energy system based on 100% renewables by 2050.

And all of the scenarios assume ‘large’ energy savings, says the DEA.

“Extra-large energy savings will lead to an increase in total costs in the wind scenario. However, there is large uncertainty about the costs of savings. If these costs are one-third lower, the total system costs with large and extra-large savings, respectively, will be equal,” says the report.

Oh Dear, ” … it would be technically possible to construct a secure and reliable national energy system based on 100% renewables by 2050.”

Presumably this is some PR-speak. The spokesmodel should read up a little on those pesky Thermodynamic Laws – you know the ones which decide that the very best efficiency that an industrial-scale generator (raw energy -> motive power) can produce, is 40% – tops!

Jeeze, how often have you to say this: you DO NOT ‘save’ energy, you convert it, and lose* at lot in between.

* No energy is actually ‘lost’ – it becomes degraded to a lower, non-reusable energy state.

Where are they getting this 100% from? – renewables are ‘welded’ to a minimum, simultaneous consumption of oil. No oil, no renewables – QED.

Folk get awfully ‘hung up’ on cost comparisons. Maybe they will discover, the hard way, that Nature is in charge here. Nature does not do costs.

“For a successful technology, reality must take precedence over public relations.” [Richard Feynman]

@Michael

“On a small economy, the Danish Energy Agency says it would be technically possible to construct a secure and reliable national energy system”

Transport and what will replace cars is the big question. A big dose of nuclear would cover a lot of electricity but oil is sui generis. Nothing comes near it in terms of versatility. It may not be possible to drive alone from Twomileborris to Portlaoise at 6.37 pm on a wet Tuesday in the future.

The other thing about renewables is entropy. You need a petrol based system to deliver the replacements. And another planet to mine the resources.

The Danes of course are making assumptions about developments in electro-mobility.

While Ireland has been fretting about the continued hosting of the mainly overseas admin staff of the likes of Apple and a Google, this small economy has become a world leader in wind and related technologies and employs about 30,000 in the sector – compared with about 23,000 in U.S. pharma firms in Ireland.

The Scandanavians usually do not give priority to PR over substance.

I worked for a Swedish MNC for 12 years – but I guess Google may deliver results that confirm a different angle.

By Stephen Kinsella

11 replies on “Hair of the Dog?”