Gurdgiev: our only choice now is between orderly or disorderly default. Choose wisely

He3

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Kevin O'Rourke, TCD Economics Professor, draws the historical lesson clearly:

The lesson of the interwar period is that when the rules of the game become unbearable, you change the rules. Sometimes you need a radical break with past policy mistakes to transform expectations and prepare the way for recovery. Ireland and Europe should take that lesson to heart.

Gurdgiev is a numbers man. He says the numbers all add up to default. Our remaining choice as a nation is between orderly default or disorderly default. We do not want a disorderly default, but if we pretend we can continue to carry on regardless, this is what will happen within three years. According to Gurdgiev, by the end of 2014 total debt of the Exchequer and households will add up to €341,000 per taxpayer. For a person on average earnings, this adds up to 10 times the current annual pre-tax income. That is obviously unbearable.



At this moment in time we face a painful choice: either we choose a path of orderly restructuring of our banks' debts today, or we face a disorderly collapse of the banking and Exchequer finances two to three years down the road.

The first path requires abandoning the memorandum on the State's bank guarantee, signed with the troika, that commits the Irish State to ensure the continuation of bond repayments to Irish bank bondholders. This step is easy to take.

Within the ECB/EU/IMF team, it was the EU that insisted on underwriting bank bondholders, against the advice of the IMF. Even a simple glance at the numbers above would imply that should the EU continue to adhere to the same position, by 2012-2013 it will have to deal with the worst possible scenario -- an insolvent member state with insolvent banking and household sectors. The fallout from this for the EU would be far worse than some €60-90bn in the debt writedowns required to repair the Irish economy.

The next step -- after shredding the Irish Government commitment to the bank bondholders -- will be to rebuild the banking sector through a structured recapitalisation of the Bank of Ireland and AIB, by a combination of debt-for-equity swap -- setting current bondholders to equity holders in the banks -- the state purchase of shares in the banks at a heavily discounted price, and a restructuring of Irish bank debts to the ECB. Alongside these financial measures, the banks must be cleansed of their top management and reformed in areas of their long-term strategy and operations.

The state guarantee must remain only for the depositors and even this should be limited, after the reforms take place, to deposits under €200,000. A voluntary insurance scheme should be set up for all deposits in excess of that amount. It can be underwritten, in part, by the State in exchange for premium payments out of deposits. Anyone suggesting that a debt-for-equity swap would result in the Irish banking system collapsing altogether should go back to May this year, when the Bank of Ireland carried an €852m conversion of subordinated debt for equity, netting a capital gain of €233m in the process.
Anyone listening to Gurdgiev debate on the airwaves with government party members (most recently with Mansergh on The Late Debate on Thursday) will know whose judgment is more trustworthy.

His full argument is in the Sunday Independent today:

There is no safety in these numbers - Analysis, Opinion - Independent.ie
 
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captainwillard

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Kevin O'Rourke, TCD Economics Professor, draws the historical lesson clearly:

The lesson of the interwar period is that when the rules of the game become unbearable, you change the rules. Sometimes you need a radical break with past policy mistakes to transform expectations and prepare the way for recovery. Ireland and Europe should take that lesson to heart.

Gurdgiev is a numbers man. He says the numbers all add up to default. Our remaining choice as a nation is between orderly default or disorderly default. We do not want a disorderly default, but if we pretend we can do nothing, this is what will happen within three years.



Anyone listening to Gurdgiev debate on the airwaves with government party members (most recently with Mansergh on The Late Debate on Thursday) will know whose judgment is more trustworthy.

His full argument is in the Sunday Independent today:

There is no safety in these numbers - Analysis, Opinion - Independent.ie

If this hero of yours is so clever, why is he a lowly paid academic? Surely, he should be doing something a little more worthwhile.

Never trust academics.
 

He3

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Try arguing the numbers Cap'n.

Here are some more:

Before last week's loan was forced onto the Irish Government, our real economy -- households, non-banking financial intermediaries and non-financial corporations operating here -- were carrying the debts of €340bn. Add to this the Exchequer's outstanding debt and the total level of Irish economy's indebtedness and ex-banks, and the figure stood at €430bn. This was secured against the expected national income of about €130bn in 2010. In other words, the Irish economy has leveraged some 3.3 times its income.

Courtesy of the ECB/EU/IMF loan, our debt levels have risen overnight to €497bn. Factoring in future borrowings that will be required to underwrite the banks' bondholders, this figure can be expected to rise to €560bn in three to four years' time in constant euros. Nominally, the debt pile could reach over €593bn under benign inflation assumptions and before we factor in rolled-up interest.

Getting a new credit card can never solve the problem of an insolvent household. Ditto for an economy.
 

Finbar10

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If this hero of yours is so clever, why is he a lowly paid academic? Surely, he should be doing something a little more worthwhile.

Never trust academics.
Gurdgiev's main day job is with IBM as far as I'm aware.
 

LongShanks

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If this hero of yours is so clever, why is he a lowly paid academic? Surely, he should be doing something a little more worthwhile.

Never trust academics.
Of all the statements I've seen on p.ie this has to be one of the most senseless.
 

Legacy

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If this hero of yours is so clever, why is he a lowly paid academic? Surely, he should be doing something a little more worthwhile.

Never trust academics.
It might surprise you to know that not everyone is motivated by money :rolleyes: Some people are born to teach and get joy from passing information to others - and then there are others that wouldnt even understand that concept.
 

captainwillard

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It might surprise you to know that not everyone is motivated by money :rolleyes: Some people are born to teach and get joy from passing information to others - and then there are others that wouldnt even understand that concept.
Those who can do.. those who cant teach.
 

Insole

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Kevin O'Rourke, TCD Economics Professor, draws the historical lesson clearly:

The lesson of the interwar period is that when the rules of the game become unbearable, you change the rules. Sometimes you need a radical break with past policy mistakes to transform expectations and prepare the way for recovery. Ireland and Europe should take that lesson to heart.

Gurdgiev is a numbers man. He says the numbers all add up to default. Our remaining choice as a nation is between orderly default or disorderly default. We do not want a disorderly default, but if we pretend we can do nothing, this is what will happen within three years. According to Gurdgiev, by the end of 2014 total debt of the Exchequer and households will add up to €341,000 per taxpayer. For a person on average earnings, this adds up to 10 times the current annual pre-tax income. That is obviously unbearable.





Anyone listening to Gurdgiev debate on the airwaves with government party members (most recently with Mansergh on The Late Debate on Thursday) will know whose judgment is more trustworthy.

His full argument is in the Sunday Independent today:

There is no safety in these numbers - Analysis, Opinion - Independent.ie
Interesting thread thank you.

€341,000 per taxpayer might as well be €3.4 Million. There's no way that can be repayed.
Default it is then.....

Interesting ride/downward spiral ahead, default will come with a price of course so best do it in an orderly fashion. Cuba, Iran and N. Korea might be able to survive without much international trade but it's new territory for us.
It'll make the FF "trade war" of the 1930's seem like a holiday when we don't have any money for imports of fuel and food.
 

LongShanks

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Anyhoo back to the topic at hand.

It's hard to argue with the numbers that Gurdgiev is talking about. He's not alone in calling for a default. Many international commentators and economists have drawn similar conclusions.
 

Cato

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Hold on tight. This ride is going to be bumpy. Of course we should have dealt with all of this two years ago and done a debt for equity swap on the banks and then sorted ourselves out. Instead we'll wait another three years from now and default. At that stage our debt will be so big that we may do some serious damage to the European economy.

Best way is to do it in an orderly fashion, perhaps co-ordinating with other countries in a similar situation. May end up having to peg the punt-nua to sterling in order to have some stability, but in any event it is going to be very rough. FF will probably get back into government on the back of that coming crisis.

Of course, the other great big elephant in the room is the looming residential property mortgage and personal loan defaults. That will cause economic and social upheaval on a large scale all on its own.
 

DownTheyGo

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Does anyone know if the main parties are considering this as a seriously credible, maybe the only, strategy?
 

Cato

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Does anyone know if the main parties are considering this as a seriously credible, maybe the only, strategy?
In their heart of hearts they must know it but they seem determined to be good little Europeans right to the bitter end.
 

LongShanks

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Insole

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In their heart of hearts they must know it but they seem determined to be good little Europeans right to the bitter end.
In their heart of hearts, I would say they (FG) are planning for it and will execute a default on coming to power in the new year or soon thereafter.

FG are not stupid, FF are.
 

SideysGhost

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*whistles innocently*

Sometimes I wonder why it takes people in Ireland so bloody long to come around to the bleedin obvious...
 


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