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Is Ireland Really The Poster-Child Of Europe's Austerity Plans?
Authored by Dr. Constantin Gurdgiev, originally posted at True Economics;
Last night I came across the latest data from the IMF on the overall levels of indebtedness and leverage across a number of countries. Here's the original data:
Much can be taken out of the above. For the purpose of discussion below, I define real economic debt as a sum of household, non-financial corporate and government debts, excluding financial firms' debts. This real economic debt is the total liability of the Irish economy: households, private enterprises and public sector providers of goods and services.
First up, total debt levels:
Ireland's total real economic debt runs at a staggering 524% of our GDP and 650% of our GNP. In fact, I use 24% GDP/GNP gap as a basis for adjustment which is significantly less than the current gap, but is consistent with 2011-2012 (to-date) average. Put into perspective:
- Our economy's overall indebtedness is 1.73 times higher than the euro area levels in GDP terms and if GNP is used as a basis it is 2.14 times higher
- Our real economic debt is 14.4% ahead of that of Japan (second most indebted country on the list) if GDP is used and is 41.9% ahead of Japanese debt if GNP is used.
Our real economic debt can be decomposed into the following three components contributions:
In other words, the above chart clearly shows that Ireland's core debt overhang arises not from the Government finances, but from accumulation of liabilities on the side of the companies. More than that:
- Ireland's Government debt levels are 25.5% ahead of the euro area
- Ireland's Household debt levels are 64.8% above the euro area
- Ireland's corporate debt levels are at 209% of the euro area levels.
Thus, with the Government policy firmly focused on taxing households to save its own balance-sheet, we have a perverse situation that the economy is dealing with a debt overhang in Government debt that is more benign than the debt overhangs in the sectors the Government is obliterating. Households faced with increased taxation to pay for Government debts and deficits implies lower spending on goods and services and lower ability to repay household debt. Thus higher taxes on households (direct and indirect, including aggressive extraction of income via semi-states' charges) imply a growing burden of the debt overhang in the private sectors (firms and households).
Adding financial debts to the overall real economic debt in the economy forces Ireland into a truly unprecedented position vis-a-vis other countries in the sample. (Note - adjustment for IFSC is mine).
Using the bounds for debt of 90% (consistent with upper range for Checchetti, Mohanty and Zampolli (2011) and Reinhart, Reinhart & Rogoff (2012)), the levels of cumulative real economy debts that are consistent with reducing future long-term potential growth in the economy are taken to be 270% of GDP. Hence:
and looked at comparatively:
In the above, the larger the size of the bubble, the greater is the drag on future economic growth from debt. The further to the right on the chart the bubble is located, the greater is the problem associated with Government debt (as opposed to other forms of debt). What the above shows is that Ireland's debt crisis is truly unique in size, but it also shows that the most acute crisis is not in the Government debt, but in private sectors debt.
Now, at 4.5% per annum cost of funding overall debt, irish economy interest rate bill on the above levels of real economic indebtedness runs at ca 29.2% of our GNP. Do the comparison here - Ireland's interest-rate bill is equivalent to the total annual output of the Irish Industry (that's right - all of Ireland's Industrial output in 2011 amounted to less than 29.3% of our GNP). This is deemed to be 'long-term sustainable'... right...
Note: In my presentation at a private dinner event yesterday I referenced by earlier estimate of the total economic debt in Ireland at 420% of GDP. My 2011 estimate was ca 400% GDP. These figures have been published by me in the Sunday Times and also correspond closely to the 2010 figures cited by Minister Noonan in the Dail and made public here on this blog. They also were confirmed by Peter Mathews TD. My estimates were based on publicly available data which is less complete than data available to the IMF.
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Mr. Murphy: Top o' the morning, Mrs. Clancy.
Mrs. Clancy: Top o' the morning to you Mr Murphy. Where are you rushing to this fine day? You seem upset. Come on now and have a nice cup of tea.
Mr. Murphy: No time for tea, Mrs Clancy. I need to have a word with me banker.
Mrs. Clancy: Oh really now. But you're not much of a talker.
Mr. Murphy: Tis true. I don't have the gift of gab. If you can keep a secret, I'm not going to talk to the banker. I'm going to spit on the banker.
Mrs. Clancy: Well now, I won't be keeping you. Seeing as your going into town, will you do me a favor.
Mr. Murphy: Sure, Mrs Clancy, anything for the sweetest colleen in the Emerald Isle.
Mrs. Clancy: Please spit on the banker for me...with one of those big gooey gobs I have seen you cough up when you have a mind to.
Mr. Murphy: Consider it done, Mrs Clancy. And an honor it will be to convey your thoughts to the banker. I don't have the gift of gab but I do have the gift of gob.
I had almost forgotten about poor Ireland, what with all the Mediterranean drama and all...
"But shouldn't the bucket be on your head?"
WOULDN'T IT BE EASIER TO JUST SHOOT THE FUCKING STUPID BANKERS IN THE HEAD?
we need to go ahead and *pass* these austerity measures so we can find out what's in them.
I recall that Ireland's Debt/GDP was >1000% as of last year. Did I miss a bunch of writedowns or payoffs or did I have bad info on the debt/gdp?
"Top of the morning" is falsely attributed to Ireland. No one in Ire says that. They really say it in Australia because they are one of the first countries to see the day.
Latvia and Ireland are the two countries being held up as being models of success. What a joke.
Tom O: that was classic!
Funniest shit you will see all night, guaranteed:
Hilarious Irish Bailout Battle Ends In Profanity: 'Fuck You Deputy Stagg, Fuck You'Unparliamentary language my ass. They're so caught up in procedure and pleasantries that they miss the big issue. A little passion about the issue might go a long way about resolving the problem.
That's it! If more passion was used before, the basters would have been a little scared, and not dough such a deep whole to start with.
US politicians in the 1800's would have taken it outside.. either in a fist fight or worst case, a duel.
.
.
Tribute
Payment in acknowledgement of submission.
Trust me the Irish are not taking this well. That's why they keep finding rather large bombs not just in Northern Ireland, but in Dublin and other locations also. The Real IRA is also enjoying a strong resurgence with the appeal to attack not just the Brits, but the banksters. This will not end well as the EU economy slows to a crawl.
Trust is good, not to trust is better. Got some links?
Remind me again what the Irish people got for all of that government debt? And how much the banker oligarchs made from it?
Let them eat sand ! You're the staff socialist .... you tell us !
The oligarchs made billions. What say you?
Define oligarch .... in ten words or less !
Guillotine fodder.
Two words -- that speak volumes.
In English ?
Dead duck.
http://www.youtube.com/watch?v=u14T5wzicqw
Daffy was narcissistic, selfish and a loud mouth. Bugs was cool, wise and witty. Who was the Socialist?
Are you not programmed to respond in that area?
We were not allowed to watch Bugs Bunny .... he was considered a jaded, smart alecky Jewish weisenheimer !
The Guillotine was designed by Hermann Messerschmidt of Munich .... it was originally designed for slicing sausages in delicatessens .... Dr. Guillotine, a French revolutionary coroner, perverted it's use !
I have a cigar cutter that looks so eerily similar to madamme guillotine.
No wonder, they are always drunk. One day, when they sober up, because their tab is so large they are cut off,
they will realize they are a bankrupt nation and go back to potato farming. Pass the sour cream please.
Pass the Uzi .... plate breaker !
That's OUZO. And plate breaking is called SPASTA, which is the Greek word for BREAK.
Then Bankrupt is Bankspasta ? How did you like Anthony Quinn (a Mexican) as Zorba ? Have you ever forgiven us ?
At this juncture, perhaps an Uzi is exactly what's needed.
A debt burden such as Ireland's would lead most people to drink.
The real irony is a Greek making fun of a country being fiscally irresponsible.
There .... you fixed it for me !
Latest Update on
Turkish F-16 forced Syrian civilian airplane to land in AnkaraAnkara reported 12 big parcels of military...
I love war news ! Economics is what happens between wars !
Socialism is a dead end street of hopelessness and despair !
Then buy gold! Don't tell anybody about it (except maybe your wife).
You'll feel much better by morning...
I felt much better the morning after I killed my wife, DouChen !
"I hate all this economic and market talk .... it depresses me !" .... The Jerk goes to Wharton (sequel)
Well considering the trend in the market is now shifted and QE3 is proving futile, put on your helmet, its about to get bumpy.
http://i50.tinypic.com/mv4sxj.jpg
those people need to default and default fast....the sooner the better....my god what an anvil around their necks swimming in a north sea gale....
I gave you an up arrow for imagery !
U2 should host Live Aid for Ireland...
Jim Jones hosted a concert for his black followers in British Guinea .... he called it Kool Aid !
Sheeet, I missed it.
Not to worry .... we're in for fun and games !
Then they can move the proceeds to the Netherlands.
Was it Dutch Guinea ?
Who is Sean Quinn?
Wouldn't it be nice if they would include Iceland stats in with the other European countries?
Syrian plane forced to land in Ankara - weapon systems and communications equipment found on boardI doubt they found anything, or else they would have had a big press conference and displayed it all.
Erin Go Bragh! Re-unite Ireland!
Re-unite Cyprus ! Re-unite Detroit ! Re-unite Korea ! Re-unite Japan (kick out Russia) ! Kick Russia out of Siberia ... give it back to China, Korea and Japan ! Ireland is low priority ! Unite IRA, ETA, Al Qaeda and Sendero Luminoso ! Erin Go Broke ! Go home and smear some shit on your walls .... then kill some horses and band fags !
Is this due to Bono not paying any Tax?
When author referring to "our" debt or "our" GNP or GDP, I wonder if we have to guess country or village based on author's last name or any other hints. The article does not make any sence. Who is "our", who are "we"? Based on authors name (Dr. Constantin Gurdgiev)
is he reffering to Bulgaria and when what Bulgaria has to do with all of that?
Dr G is one of the only economists in Ireland who knows what he is talking about, and is willing to be honest with the Irish people, because of this he has pretty much been black balled by the compromised Irish media,
I don't agree with him on everything, but in my view, he has more right to call himself Irish than any member of our treacherous Quisling govt,
Ireland has only two real economists, Constantine is one, Morgan Kelly is the other, neither are seen on TV very often!
For 'americans', the group is all.
Only if the group palates or excuses the individuals behaviour.
from Italy: at political risk three major regions
http://www.ilsole24ore.com/art/notizie/2012-10-10/regione-lombardia-formigoni-sempre-205955.shtml?uuid=AbFUJWrG
"Funny" thing is the €-fanatics, both elected and unelected, praise Ireland as being back "on track". But analysis like this once again reveal the horrors behind cheap talk and political fanatism. Longer term "€ is f*cked" -thesis intact. lol
Why not? Those 'americans' have the logical stance.
If indeed Ireland debt is so burdensome it cant be repaid, why bother repaying it? And the end game is no longer to try to repay a debt that can not be repaid, but to manage to pile on even more debt.
As usual, 'americans' work in pair so some 'american' economists shall work to try and claim that a sound economy in 'american' economics is an economy that uses debt parcimoniously.
When it is not. In 'american' economics, economies are sound when they consume the fastest in order to exclude others from consuming. Debt is a vital instrument in this game.
long-term sustainable? I don't I understand how it's even short-term sustainable.
Ireland has huge untapped oil and gas I believe...could be a reason why its not a priority for Euroland
If there are any oil and gas reserves out there, they will probably not save the Irish economy. The money would somehow find its way to the Cayman islands or some other tax havens, where the elite keep their loot.
Somehow this oil find sounds a bit to good to be true.
Maybe the Irish should focus on looking for that pot of gold, buried somewhere in Ireland.
Pot of GOLD, Bitchez!
Our Prime Minister is a former primary school teacher who's understanding of economics only pertains to his Government pension which has increased dramatically on reaching the top spot. The present coalition have set a new record when it comes to broken campaign promises and will be turfed out as soon as the next election. We then will have two very dismal groups of citizens ,who will have to walk away from their traditional parties. At this time, Ireland will have to look back at the past 30 years and evaluate their membership of the EU, the EURO and wheither we actually can self govern, which many people consider a mute point now as we surely lost all sovereignty the morning Christine Leguard and Trichet 'ENCOURAGED' us to bail out the banks as otherwise the Dominos were almost certainly to topple all across Europe and beyond. We would have been blinded by the number of countries swimming nacked. Keep up the good work Constantine. The world needs to see this farse exposed.
I remeber when Baroso was in Ireland threatening the Irish all kinds of horror if they would not bail out the banks.
He said Ireland would become like Iceland. He said that the ATM's of the banks would be closed, like in Iceland.
That was a outright lie, the basic services of the banks worked perfectly trough out the crash, no ATM's were ever closed, not for 1 minute.
Threats and lies, the standard procedure for the Elite Union to get what it wants.
Ireland is in desperate need of a Ron O'Paul!
Sheesh Ireland. Just default already. Follow the lead of your neigbor to the north.
The Irish trade surplus is one of the biggest per capita in the world if not thee biggest (Real Pharma and other good off the books stuff)
In this system debt cannot be destroyed – we are reducing our debt in Ireland by exporting our debt/symbolic wealth via goods- export elsewhere destroying internal commerce.
For every trade surplus there is a trade deficit ......the UK had a £100 billion real goods trade deficit in 2011.
The Irish immigrants in my nabe all have the nicest houses. Great houses, belonging to drywall installers. Wouldn't surprise me if the borrowed euros fled to the shores of America. An old trick.
I am not disagree that this has and will further destroy Irish society but the pharma and guys playing with themselves in Google offices is not very energy intensive for the imagined output (although its not taxed much)
There was a 36 and a half billion merchandise export surplus in 2011 or something..............
Back in the day I thought naively that our private debt would be wriitten off in exchange for these nice guys leaving this bog but these GPA and other nice people have too much skin in this irish game of tax arbitrage.
Go back to 1983 and see what happens.
www.tradingeconomics.com/ireland/balance-of-trade
Its the Big Bang (86) Dummies
The local Irish oligarchs such as the former GPA & Ryanair crowd have too much to lose.
governments are never good for their debts.
covert.ias3.com/expose
Default IRELAND! Save yourself.
Think Local. Forget Global.
Unlike Japan and Greece. Ireland has now got OIL!
The Irish ppl better get their tax laws in place asap if they don't want to get screwed by the oil companies.
This is nothing. The Irish people have experienced far worse.
Please move along, all of you.