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The Real Lesson About Ireland’s Austerity Plan


Dreaded_Estate

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The Real Lesson About Ireland

This argument reflects a fundamental misunderstanding of the scale of the problems facing Ireland. It also badly mischaracterizes the policy steps taken by the Irish government. The problems facing Ireland are far greater than the solutions the government has proposed to date. It should be no surprise that market confidence has not returned because there is no reason for Irish creditors to be confident that they will be repaid in full.
There are no signs that any of this is temporary or that adjustments made to date are sufficient to maintain access to credit. The initial austerity measures taken by the Irish government – tax increases and large cuts to public employee wages – seemed ambitious, but they turned out to be a drop in the bucket relative to the cost of the bank rescue. The Irish government created the National Asset Management Agency (NAMA) to acquire property development and commercial real estate assets from banks at a sizeable discount to par. As with similar schemes, this government-sponsored fund faces a catch-22: overpay for assets and transfer losses directly to taxpayers or drive a tough bargain and further expose the banks’ insolvency. To date, NAMA has recorded €30 billion of losses, or more than 10% of GDP. S&P estimates that ultimate losses will be between 29% and 32% of GDP. To put this figure in perspective, this would be equivalent to U.S. taxpayer losses on Fannie Mae and Freddie Mac of $4.2 trillion, or about 11-times the CBO estimate of $380 billion.

Analysts on the political left are using the implosion of the Irish economy to advance their mistaken narrative about the supposed dangers of reductions in public expenditures. This overlooks that any savings generated by spending cuts were more than offset by outlays associated with the €90 billion NAMA to acquire bad loans in the banking system. While Ireland has made additional pledges to reduce the deficit to 3% of GDP in the medium term, its “consolidation plan would benefit from greater specificity,” as the IMF diplomatically puts it. In other words, Ireland has no credible plan to bring spending and revenues in line and has not done what is necessary to “reduce the uncertainties associated with the consolidation process.”
The U.S. is in a very different situation. The TARP has largely been paid back. The losses from Fannie Mae and Freddie Mac are running at about 1% of GDP. The U.S. is not suffering from large increases in implied spending associated with an ongoing bailout. Over half of the increase in the budget deficit is attributable to discretionary outlays, which have pushed the government’s share of GDP to new records. Indeed, the reason the U.S. is likely to benefit so greatly from large reductions in federal spending is because of the growth in private sector investment likely to occur from taking the potential for confiscatory levels of taxation or an Irish-like debt spiral off of the table. Policymakers should not be misled by the Irish crisis. It is debt-financed government expenditures arising from a banking crisis that’s bringing down Ireland, not austerity.
Interesting piece comparing the cost of the banking bailout in Ireland to the US. And the insufficiency of the austerity so far.
 

HarshBuzz

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but St. Patrick Honohan and the Blessed Matthew Elderfield said....

etc
 

Squire Allworthy

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Good article and accurate perspective.

Question now is how to get out of the utter mess created with reduced loss. Terrible waste of money which cannot be afforded.
 

slumdog1971

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Interesting piece comparing the cost of the banking bailout in Ireland to the US. And the insufficiency of the austerity so far.
So should we just forget the whole austerity thing?

From reading the article, the Bank debts that the Gov have forced on us are going to wipe us out anyway so we should go out on a spending splurge.
 

grafter1

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Well while this is an interesting article it's worrying that every day leading publications read by millions are describing the doom and gloom in this country.

The ten year yields are rising again to 6.32% from 6.27% this morning.
 

HarshBuzz

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So should we just forget the whole austerity thing?

From reading the article, the Bank debts that the Gov have forced on us are going to wipe us out anyway so we should go out on a spending splurge.
max out the credit card baby, we're going to Vegas!

I quite like that idea ;)
 

EmigratedTBTF

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While irelands elites(developers,politicians , shady bankers, professionals etc) have moved their money offshore or into their spouses or families names, and irelands unemployed( will not be emigrating to compete with ronnie romanian and paddy polack for 4 uros an hour) and public servants still 40% overpaid the paddy gombeen proletariat(ex middle lass private sector wealth generators) will collapse with the taxes to support above, Real AUSTERITY measures call for real cuts not pretendy make believe as is currently being undertaken Ireland RIP
 

slumdog1971

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max out the credit card baby, we're going to Vegas!

I quite like that idea ;)
Im my humble opinion, you might as well be hung for a sheep as for a lamb.

These articles are all agenda driven. There are speculators and spivs making absolute fortunes from us at the moment and these articles and magazines aregenerally owned by someone or something who has an interest in the game.

It's time we played the game a bit differently. Introduce this budget, cut and raise taxes and then go to the stabilisation fund and offer some debt for equity to the British and German banks.

Also it's time we started sweettalking the Russians and the Chinese. The chinese are flooding africa at the moment buying huge tracts of land for agriculture and mining etc. There has to be an opportunity there for us to sell off some of the land that those idiots in the banks provided millions for other idiots to buy.
 

libertarian-right

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So the plan is slummy, just to tell the NTMA to be ahead of target not just by 6 months, but 6 years spend all the money and then default :)
 

grafter1

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It's hard to believe though that we couldn't make 3-4Billion in cuts without cutting salaries etc. This should be the aim - don't take money out of peoples pockets right now because people are under serious pressure.

The amount of waste in this country is incredible.
 

Squire Allworthy

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It's hard to believe though that we couldn't make 3-4Billion in cuts without cutting salaries etc. This should be the aim - don't take money out of peoples pockets right now because people are under serious pressure.

The amount of waste in this country is incredible.

But the logic of all these cuts fails when on the other hand the government is running up an enormous loss on NAMA etc. If you save 3 billion a year, at current costs, that would pay the interest on less than 50 billion.

So if S&P are correct you will need close on 5 to 6 billion cuts a year just to cover the interest on NAMA losses. Then there is the little matter of normal government spending.
 

MPB

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How often do international commentators as well as homegrown economists have to tell this corrupt shower to cut Anglo and INBS loose.

We are now borrowing at 1% plus more than the EU/IMF fund would allow. So what if the bond markets abandon us after an Anglo default.

They have already told us to feck off and borrow from the EU/IMF fund, by way of the interest rates they are charging us.

The blanket guarantee was an absolute disaster. Why, despite all of the advice to the contrary was Anglo and INBS included? We need answers to this question. Are FF ploughing ahead with this insane guarantee out of vanity and a fear of admitting they made a mistake? Or are they determined to protect their friends and donors with exposure to Anglo and INBS?

Almost 2 years ago David Mc williams wrote that we needed to clear out all of the Boards of the Banks, all of the top levels of the Central Bank and Regulator as well as the heads in the Dept of Finance, before we could tackle this problem in an objective manner.

His point being, those that were part of the problem would make decisions based on covering up and hiding their part in the collapse, while new people would have no relationship to the mistakes of the past and would be able to deal with them with objectivity and promptness.

FFs collusion with the Banks to cover up and delay dealing with this crisis has already cost us 30 billion. If they are left in charge for much longer it will cost us our sovereignty.
 

ChickenBiryani

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All of this capitulation politics gets us nowhere folks.

There seems to be an epidemic in Ireland at the moment of people who believe we should do nothing about lesser ills as long as greater ills exist.

Their answer to anything, is "oh but whats the point when the banks......", like we should just sit here like lemmings and do nothing about blatant other farces in the public finances.

It all adds up at the end of the day.
 

'orebel

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It's hard to believe though that we couldn't make 3-4Billion in cuts without cutting salaries etc. This should be the aim - don't take money out of peoples pockets right now because people are under serious pressure.

The amount of waste in this country is incredible.
Indeed. Have you seen the C&AG report? :mad:
 

Squire Allworthy

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All of this capitulation politics gets us nowhere folks.

There seems to be an epidemic in Ireland at the moment of people who believe we should do nothing about lesser ills as long as greater ills exist.

Their answer to anything, is "oh but whats the point when the banks......", like we should just sit here like lemmings and do nothing about blatant other farces in the public finances.

It all adds up at the end of the day.
Agree

Need to get to grips with the scale of the overall problem and part of the solution has to be a reappraisal of the NAMA and Bank guarantee policies. The liabilities being created there are too big to ignore.
 

flavirostris

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The full horror of all of this is beginning to become apparant. Future generations will still be paying for the collosal mistakes & corruption of this Fianna Fáil government. They have sold this country and it's citizens down the river.
 

Socratus O' Pericles

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Telling it like it is is doom and gloom politics and vaguely unpatriotic,"talking our economy down" etc.

This sounds like daBert in full flow.
People may be docile but they are not stupid.

People who are ahving their gas and esb cut off know there is an elite mainly supporters of the big political parties who are looked after the law of thwe land is set up thast way. Tax law ,private hospitals,supports for business, expense accounts ,and on and on and on are designed to suit the well to do.

When the cut off your electricity remember that........
 

An Gilladaker

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Telling it like it is is doom and gloom politics and vaguely unpatriotic,"talking our economy down" etc.

This sounds like daBert in full flow.
People may be docile but they are not stupid.

People who are ahving their gas and esb cut off know there is an elite mainly supporters of the big political parties who are looked after the law of thwe land is set up thast way. Tax law ,private hospitals,supports for business, expense accounts ,and on and on and on are designed to suit the well to do.

When the cut off your electricity remember that........
After they cut off your electricity they will reposes your house
 

hammer

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The full horror of all of this is beginning to become apparant. Future generations will still be paying for the collosal mistakes & corruption of this Fianna Fáil government. They have sold this country and it's citizens down the river.
No they will not.

Most will have given up and left this kip.
 
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