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Ireland’s Debt-Ridden Government Is Now Being Paid To Borrow
Submitted by David Stockman via Contra Corner blog,
About 36 months ago Ireland’s two-year notes were yielding 14% and its government and the Brussels apparatchiks were scrambling with tin cup in hand to stave off disaster. Now their yield is negative 0.01%.
Mirabile dictu!
Yes, a wonder to behold - but not one I can explain. Better its left to the experts in today’s bizzzaro world of maniacal central banking. That is, with the reminder that the ECB has now set its deposit rate at negative 0.2%, here’s how Goldman explained the Irish note miracle to the WSJ:
If “you buy short-dated Irish or French paper and pay less [than depositing at the ECB], you’re improving your net income, even if the yields are still negative,” said Jonathan Bayliss, a managing director for global government bonds at Goldman Sachs Asset Management in London.
That’s right, down is the new up. The price and yield of government bonds no longer have anything to do with risk or economics; its all about central bank machinations. Actually, its all about the speculator driven momentum surges that are triggered by central bank maneuvers.
As is well known, Draghi’s “whatever it takes” pronouncement triggered the most blistering bond rally in recorded history. Leveraged speculators have literally made triple digit returns since July 2012 in the notes of still debt-besotted basket cases like Spain, Italy and Ireland.



Indeed, in its breathless reporting on the miraculous recovery of the European bond market, the WSJ noted that red hot returns are still being earned two years after the fact—- as Draghi hints ever more strongly that a tsunami of ECB bond buying is just around the corner. During the last 9 months alone, punters have made double-digit returns on the debt of Italy and Spain—both of which are barely treading economic water and sinking deeper under the burden of public debt:
Spanish debt have fallen to 2% from 3.71% at the start of the year….That has lifted total returns—which includes price changes and interest payments—to 13%. On average, Italian bond yields have dropped to 2.33% from 3.78% over the same time frame, generating total returns of 12%.
Its not surprising, of course, that yield parched investors are being virtually herded into peripheral sovereign debt. After all, if they happened to have more confidence in the AA rated, stalwart supplier of the world’s sweet tooth (Nestle SA) than in Europe’s socialist politicians, for example, they would be able to garner the grand sum 0.4% on its five year notes.
So what you get is a vicious push-pull. The big time hedge fund gamblers pile on when they conclude the central bank is going to be buying or supporting a specific asset class. Then when bond prices start rising rapidly more cautious institutions join the fray. In the instant case, for example, Spanish and Italian banks have brought nearly $500 billion of their own country’s sovereign debt since mid-2012.
The bank bid adds thrust to the momentum play, but its also telling. With their marginal cost of funds at the zero deposit rate, why would European banks not harvest this ECB enabled yield curve arb all day rather than actually engaging in the act of loan-making? And then, finally, any timid bond fund managers left in the world can either choose to be fired for failing to hit their benchmark or pile on, too.
Needless to say, the end result is the complete destruction of price discovery and the rampant mis-pricing of risk. Yes, in the case of Ireland, there has been some sparks of rebound with GDP up in three of the last four quarters and its peak unemployment rate beginning to recede. But its pre-crisis debt binge was so spectacular that it is still hopelessly buried in the residue.
After all, the EC fix did not involve debt repudiation or meaningful lender haircuts: It was just another giant exercise in the toxic Brussels alchemy of refinancing the debt, stretching the maturities and, just generally, kicking the can. So, yes, after Irish bank debt outstanding tripled in six years through 2009 to the astonishing sum of $600 billion or 3X GDP, it has been sharply reduced by the bailout. Still, it remains at a GDP ratio far higher than the US.
As shown below, however, this was essentially accounting legerdemain. The towers of bank debt just moved over to the government accounts—leaving Ireland’s public debt to GDP ratio at 124%, and at a level 5X where it was in 2008 when the binge was cranking hard.


The problem is that on all the important economic metrics, Ireland’s economy is still smaller than it was in 2008. On the broadest measure, GDP is still 17% below its 2009 peak. Even in real terms, the Irish economy is no larger than it was in 2007:


Likewise, its unemployment rate has dropped from 16% to around 12%, but like in the US there is less to that gain than meets the eye. Ireland has experienced a huge reduction in its labor force including outmigration. The telltale evidence is in the figures for the number of people actually employed. That is still down by 10%. Similarly, industrial production is no higher today than it was in 2007.


Similarly, private final consumption expenditures have barely returned to 2006 levels after a 15% decline from the peak:

In short, there has been no Irish miracle turnaround that would remotely warrant the massive bond rally that has occurred since the crisis—to say nothing of a negative yield on its two-year notes. Instead, the crackpot financial engineers in Brussels have turned Ireland into a debt serf that, at best, may manage to tread water until the next global downturn puts the damper on its export recovery.
But here’s the thing. Virtually none of the punters who have heeded Mario Draghi’s word clouds actually own Ireland’s debt. They all rent it by the day.
That means that Ireland’s two-year notes yielding negative 0.1% will be crushed on the sound of a single word. Nein!
When the Germans say no to massive QE, the two-year rip in peripheral bonds will become a monumental wreck. And the Irish taxpayers and economy will be left with a mountain of debt—public and private—that at last count totaled about $2 trillion on a $225 billion GDP. It can’t possibly be serviced.
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draghi will buy them
Makes perfect sense, until it doesn't.
They really are out of thier minds in the Central Banking world.
OK, where's The Dork of Cork? We need a bracing view, and pronto.
Ireland recovered so much that now its actually a safe heaven for capital.
I don't know if I should laugh or cry. Because you only repeated what my TV, radio and newspaper tells me every day.
Your lack of faith is disturbing, comrade.
And you seem a little sick. Have you come in contact with anyone from Liberia or came in contact with someone, who came in contact with someone who travelled to Liberia?
I think you need a checkup.
This should be on the other thread and I apologize but this is worth the listen. This fuckin docter actually marched out on cnbc and said he would have been more than fine to sit on the plane next to ebola guy.
http://www.cnbc.com/id/102048219
The propaganda runs deep in the matrix. He was probably one of the "Dr." props who stood behind Zero nodding approvingly as El Presidente signed Zerocare into law.
Everybody's a tough guy AFTER the fact. Straight-up playground rules. After the fight everyone claims they could have done better than the people who were actually involved.
CNBC tries to assign Ebola to the 'fringe nutter prepper' domain. Lets see what they say when they and their families get it.
Be proud, not afraid. Living in America is like living in Heaven before you get to go to Heaven.
Now, go shopping - somewhere far away. Everyone can afford a coach ticket; this is America, after all.
I am exceptional, I deserve it, and doggone it people like me.
The trouble with Ireland is, it's full of Irish!
Actually thats no longer the case.
There has been a third drop ~ in women age 20 - 24 since 2009 (good looking young girls always follow the money)
Irish men have been forced to fedex in Phillipino girls as they can no longer afford to run the irish models. (extraction of purchasing power has been off the scale)
It's just a play on a line from a movie....settle down people.
The trouble with Ireland is that it's a banana republic full of chancers, cute whores, grifter politicians, inferiority complexed broadcasters, and a lot of second rate gobshites in suits
Maybe. But if so how did we reach #4 in the Human Development Index? Almost certainly well ahead of wherever you're from.
The trouble with Ireland is, it's full of Irish!
If only! It's full of Nigerians, Congolese, Somalis, Ghanians, Afghans, Pakistanis, Indians, Filipinos. You name it. Meanwhile actual Irish people flee the country looking for work. The nation wreckers have done an excellent job in our case
What happens when the Central Bank itself goes bankrupt?
They dont, they can print all they want, they just can't promise what value the paper might have. ;)
Correct.
As they should be, because we all know that they do what's best for the common good.
The buyers of this paper are holders of the equivalent of Erie Canal bonds...that's what happens when the ECB goes belly up.
Maybe Germany won't say no. Maybe they will dance around it and rumor monger both ways for 3 years before agreeing to it and announcing it will start in 2019. Fall 2019
"the crackpot financial engineers in Brussels have turned Ireland into a debt serf"
ehm... no
the crackpot banksters of the bank called Anglo Irish, infamous for the tapes of their conference calls where they made fun of Germans going to pay for the bill and "took the number out of their arse", first helped with other banks to fuel a crackpot property bubble and then blew it up,
with the Irish regulator firmly asleep (then at that time all Irish banks were regulated by Ireland),
and then the Irish government decided to bail them out,
and the whole thing brought Ireland's debt to GDP from 60% to frigging 120%
so don't come with "Brussels turning Irishmen into debt serfs", David Stockman, because it's simply not true
-------------
plenty of factual ZH vintage articles to underpin all this
@Ghordius.
You seem to not understand the power dynamics between Dublin (the local area of extraction) and the larger financial power since Tudor times.
Local political officers are merely estate managers.
They are not chieftans.
The closest we got to a chieftan was Charles J.
despite valiant efforts to restore Irish purchasing power in the late 60s & 1970s - he like most irishmen became wildly corrupt in the 80s as the external money power overpowered all domestic exchange.
what I understand or not is actually completely irrelevant. what I wrote up there is completely factual and can be verified. what David Stockman wrote... less so
of course if you put it in a different way and ask what the other EU countries should have done when Dublin asked for help...
imagine if they had said: your problem. let Anglo Irish go bankrupt. personally, I think the complaints would have been even louder, but this is pure speculation
you, my dear Dork, are a representative of that kind of Irishman that somehow negates any kind of Irish agency
Actually we don't know what happened.
There has been no inquiry .
We get the local estate managers defending their position and we get silence from the ECB.
Me thinks it takes two to Tango.
These boyos have a symbiotic relationship me thinks.
PS
I never have negated irish agency - see above.
I simply look at these dynamics within a larger structure of control.
A regular irish traitor can be bought off pretty cheaply - even today.
A regular irish traitor can be bought off pretty cheaply - even today.
In the case of Alan Shatter you don't even have to pay this traitor for his evil work. http://irishsavant.blogspot.ie/2012/03/shatter-watch-treacherous-nation_...
fuck you Ghordious you eussr paedo cocksucker just like your hero van rompuy, the jew run pro fag/paedo eussr is helping to destroy Ireland and other european vassel states, death to the antiwhite jew pro nigger immigration eussr.
Well said Paddy! +100.
The Irish Govt. did not 'decide to bail them out'. The gun was put to their head by that French tosser Trichet. Effectively the ECB would let Irish banks go bust if the Irish Govt - read Irish taxpayers - didn't guarantee the (heavily French) bondholders.
I think they will be freed once the central banks get overthrown.
Why would Germany say no? Have you seen the yield on the ten year bund?
What is the name of the number that comes after a trillion? Ah yes, quadrillion. Get used to it.
At least they have beer...lots of beer...
Not a fan of so called sov debt (especially if not widely dispersed and held locally as happens in Ireland)
But the reduction of yields have caused the movement of external funds into property.
Domestic credit remains deeply neagative.
Property is now really unaffordable for the median Irish resident when it should be the cheapest thing in Ireland given its abundance.
The plan continues to be to replace the irish with a cheaper more pliable workforce under the shield of a artifical scarcity programme.
To create a sort of temperate Bangladesh with neither Paddies or paddy fields.
We cannot have a positive net growth society, it would trigger the derivatives collapse. The brain children masquerading behind the exponential growth would become broke in a HFT millisecond.
Grab your popcorn....
Might I add, financial debt swap would become a demise. Winks.
This from the FT the other day
The Irish economy is growing strongly after its three-year, €67bn bailout. ....."
Correction from Dork : The Irish based conduit economy is growing strongly after its three -year bailout.
Almost all the data that I read remains deeply negative for the resident population other then some capital goods dumping on the sidelines.
Wages continue to contract according to CSO estimates (although the ICB claim they are rising ?)
M 1 is now contracting again after a modest rise recently - as for M2 and 3.....
When one looks at domestic credit creation - this remains deeply negative.
Money and Banking Statistics – August 2014
Household loan repayments exceeded drawdowns by €250 million during August 2014; developments in August were mainly driven by a €176 million decline in loans for house purchase.
• The net flow of loans to households has followed a negative trend for approximately the past 5.5 years. In the case of loans for house purchase, repayments have exceeded drawdowns by €1.8 billion for the year to date. Net repayments of non-housing loans, were proportionately much higher at €1.2 billion, over the year to August 2014 – these repayments represent 5 per cent of the outstanding stock of non-housing loans at start-2014.
• On an annual basis, lending to Irish households continued to fall, decreasing by 3.7 per cent in August 2014. Loans for house purchase, which account for 81 per cent of total household loans, declined at an annual rate of 3.1 per cent. Lending for consumption and other purposes declined by 6.2 per cent year-on-year.
Dork : external credit is blowing up Irish asset prices - making them unaffordable for people who continue to see massive declines in their real end use purchasing power.
So no change from the process started in 1979 ~ then.....
Therefore more real economic & social disaster awaits us.
Much of the increase in on the ground economic activity (rather then wealth) is the net increase of tourists relative to Irish who now remain at home in greater relative numbers.
The extraction of purchasing power continues.
And some call this growth ?????
Ireland has been a corporate tax-free haven for years. It had it's tech-boom.
The conduit economy is booming but not the local.
When Apple came to Cork in 1980 ~ the old industries were closing down. (moved to Asia)
In 79 /80 the euro syatem scaled up to the point where depression was needed in Ireland to further concentrate capital in the hands of the few.
Back then Apple employed regular corkmen and women - this money was spent in the local economy and indeed saved Cork from completly imploding at that time.
Now they don't make much stuff , its a call center filled with non irish who send much of their money home.
money from the multi national sector feeding into the economy is a illusion.
The only people who benefit from the current structure is the politicans and high end system managers.
where you around in 1979-1980? the euro system? in 1980 the official currency in Ireland was the Irish Pound
the introduction phase of the euro system started in 1999 and ended in 2002
No it did not.The euro system was developing many decades before (think of the snake back in the 70s) I am afraid you seeem to know nothing of irish and indeed the Euro monetary deflation experiment. its very clear on all the irish documents that I read , we (we is in fact a incorrect word) left the Sterling building in 79 to join the euro ............we had a immediate mini depression after this event. (in fact it was the biggest contraction of per capita spending power in Europe)
Good post. Now explain the percentage siphoned out of Ireland to support weaker EU States.
This is not rocket science, rather referred to as theft.
I'm inclined to agree with your analysis but how do you explain the massive increase in Dublin house prices? Where's the money coming from?
Fig Newton yahoo Mossad presentation at UN has no legs. Message: We need more monies to tackle proxy war. I loved the camera pan to Palestinian United Nations spoke person.
These fucker's are so deeply imbedded in the lie, they have forgotten the job requirements of serving the people and protecting tyranny.
Live and learn.
See, their debt is perfectly sustainable. Pundits often complained that the EU didn't have a transfer scheme between EU countries the way US has between states. Looks like Draghi has set one up ad hoc. Now the only questio is how long will the Germans be willing to pay into the system.
Which will be sold as elongated USD monies donated under aid purposes. Unfortunately, the mickey mouse Federal Reserve is just creating more debt under the falsehoods that they have the money to support the investment. Cost benefit analysis ratio was kicked out the door once Quantitative Sleazing began.
It's like when I fart, I can be fined global warming fees, yet lavish bank investments remain being a hypocritical stooge.
", private final consumption expenditures have barely returned to 2006 levels after a 15% decline from the peak"
The population continues to rise (despite a extraction of 20 somethings from the burning building)
The now 30 somethings who arrived in vast numbers in the early noughties continue to have kids (as 30 somethings tend to do).
Therefore the per capita consumption is even worse then the above figures suggest.
Stockman refuses to acknowledge the vast difference between GDP (the conduit profit taking economy) and local spending power (there is none)
Could little old ireland be the real reason why the US stock exchange continues to outpreform ?
The population continues to rise because that filthy traitorous shit Alan Shatter has imported about 70,000 Third World bottom feeders in the two years he was in office.
I'm Irish, lend me money!
It's the same thing with people as it is with sovereigns, right?!
Irish debt/gdp was 27% in 2008.
Irish debt/gdp is 123% in 2014.
(and the debt/gdp figure for 2014 is heavily massaged)
Dork of Cork is correct.
Ireland's Conduit economy allows for the routing of economic activity generated abroad to be included in Ireland's GDP calculation. None of the activity generated abroad has any impact on the local Irish economy. Except for company Brass Plate signage makers.
Irish debt/gdp figure in 2014 is actually far higher than 123%.