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Now, of course, all these factors are compounded by the Government having to introduce swinging capital and ongoing expenditure reductions to try and rein in the deficit.
Basically the whole edifice had been built on the assumption of ever rising property prices with, at most, a "soft landing" or mild correction every now and then. As you know, the "market is always right". notes from no w here
Now, of course, all these factors are compounded by the Government having choosing to introduce swinging capital and ongoing expenditure reductions to try and rein in the deficit.
Fixed that for you.
It is, of course, arguable that the Government should have gone down the Greek route and kept incurring that level of borrowing in the hope that a quicker recovery in the economy and tax take would have enabled us to reduce the deficit at less social cost in due course.
However my point is that we should never have nationalised private debts in the first place. We need a functioning banking system, but that need did not have to be fulfilled through bailing out existing bondholders in exiting banks. The banks, especially Anglo - should have been allowed go bust on a Friday evening and reconstituted as new entities the following Monday.
As David McWilliams has argued, banks go bust all the time, debts are restructured all the time, and there is no reason why such defaults should have had any longer term effect on Ireland's Sovereign debt rating.
Indeed, as we started out from a relatively low level of National debt (c. 28% of GDP at its lowest) 12% budget deficits would have been sustainable for a few years if we hadn't invented NAMA or bailed out the private banks. notes from no w here
It's not about deficit reduction, it's about looking good to the markets.
Markets: Help! We're broke!
Governments: Here's a bailout...
Markets: Oooh - just look at all the new public debt. We're not having that. You might default on us.
I cannot help feeling that "the market" is looking on in shopcked bemusement that we are bailing out the banks in the first place. "We can't trust people who are that stupid now can we"? notes from no w here
But when it is ok to run 50% deficits at one side of the Atlantic but it is not ok to run 12% deficits at the other end, I must concede that something's wrong... luis_de_sousa@mastodon.social
50% refers to total debt to GDP.
I don't think budget deficits equivalent to 12%+ of GDP are sustainable except in an emergency and for a relatively short period. Not only do you have the increased servicing cost, but the interest rates demanded by sovereign debt markets become unsustainable - as in the case of Greece.
Frank this is objectively true in our case in the Eurogroup. But for a state with its own currency such deficits can be run for "long" periods without defaulting. First of all you have to continuously depreciate your currency so that rolling over debt doesn't kill you. Secondly, you set up some sweet rates on government bonds to seduce local investors, keep the debt in borders. Watch the US closely for something along these lines.
There's an obviously problem, at some point the folk may become nervous about an ever depreciating currency. After that it's game over. luis_de_sousa@mastodon.social
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