What should we do in anticipation of default, say, next week?

He3

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Default seems a matter of time. What should private citizens and small businesses be doing now to mitigate harm when default measures are triggered by the State?

The institutions have themselves sorted. What does society need to do?

In case anyone harbours notions that Ireland can clear the bank debts imposed on it by government, consider what Kevin O'Rourke says in the SBP yesterday:

'Only ****-eyed optimism about our growth prospects, which ignores the basic macroeconomics we teach our First Years [at TCD] can make the no-default scenario seem plausible. The ESRI and the government's four year plan supply such optimism, but no one is taking them seriously any more.'

Practical suggestions?
 


HarshBuzz

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Take all your savings and put them in a credit. Democratic control over finances in a few days.
don't do this, if the banks go the credit unions will also go

move your savings out of the country entirely
 

Padraigin

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Default seems a matter of time. What should private citizens and small businesses be doing now to mitigate harm when default measures are triggered by the State?

The institutions have themselves sorted. What does society need to do?

In case anyone harbours notions that Ireland can clear the bank debts imposed on it by government, consider what Kevin O'Rourke says in the SBP yesterday:

'Only ****-eyed optimism about our growth prospects, which ignores the basic macroeconomics we teach our First Years [at TCD] can make the no-default scenario seem plausible. The ESRI and the government's four year plan supply such optimism, but no one is taking them seriously any more.'

Practical suggestions?

The main thing an ordinary person should do to prepare for a default is to avoid holding too much cash. Savings in a bank account or money market account is cash. These should be put either (1) into something tangible that holds its value well or (2) into an account in another country whose currency is not going to devalue anytime soon.

With respect to ordinary citizens, a default is a currency crisis more than anything else. After a default, the government will honor its guarantee to depositors who have money in banks, and the bank itself may be fine. The problem is that the currency may lose value. If you have your savings in euros, it will become savings in punts after default. So long as the punt is valued the same as the euro, nothing has changed. However, especially in the immediate aftermath of a default, the punt's value will slide in comparison with the euro. This means that things will cost more in punts than they do in euro. If your euros have become punts, you will have lost some value to your money. Those who suffer the greatest loss during a default are people who are holding too much cash at the wrong time.

One way to prepare is to put your cash into something tangible that holds its value well and that can be easily resold once the value of the punt stablizes. If you put your money into something tangible, however, be aware that this money will not be readily available for use. To get your money back and able to be used, the tangible thing will have to be sold.

If you transfer your money to a financial institution in a different country, I would avoid the European banks for two reasons. First, the euro is about to take a bumpy ride as well, and it too could go into freefall in the next year. Second, the European banks are nasty about seizing bank accounts of people from countries who default. They seized a lot of Icelander bank accounts when Iceland defaulted.

The good news is that the worst of a default is over once the new currency stablizes in value. This usually takes a few weeks to several months. Once the new currency is stabilized, you can safely put your money back into a regular bank account. The point is that you will have preserved its value.
 

HarshBuzz

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Second, the European banks are nasty about seizing bank accounts of people from countries who default. They seized a lot of Icelander bank accounts when Iceland defaulted.
do you have a link to back this up Padraigin?

this would be illegal in any jurisdiction that I am aware of
 

HarshBuzz

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robut

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Hey Guys,

I am always amazed at these Default topics here. I am not saying it is going to happen OR not, but I do not think anybody is talking of a total default. There are two kinds of default from what I have read:

- Bank Default - Irish banks are "defaulted"
- Sovereign Default - Ireland itself defaults

I think most are talking of a Bank default. An orderly bank default actually. This is where the bank bond holders etc will be offered a lower value for shares / money invested. So they might be offered back .50c in the euro.

Something like this is happening between Iceland and the UK, Netherlands at the moment:

http://www.icenews.is/index.php/2010/12/06/icesave-draft-details-come-to-light/

"Under the new deal, Iceland will pay interest of 2.78 percent instead of the originally-offered 5.55 percent, which was rejected in the March referendum."

In any case if a default arrives there is no talk we will be leaving the Euro. Going back to the PUNT is a separate issue. This might happen if IRL PLC decides to exit the Euro, as far as I know we cannot be kicked out. OR worst case scenario is the Euro collapses which is yet another different topic.

Robut
 

farnaby

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Am I right in saying default = banking collapse (short term) + massive public sector unemployment + public service collapse (medium term)?

People and small businesses ought to be doing whatever they can to earn income from abroad i.e. exporting their labour/goods/services; and get credit from abroad. Because income and credit are going to be severely curtailed domestically.

One of the few things I have going for me is employment in a company that pays me from another country and involves work relating to anywhere in the world (supply chain consultancy). Relatively secure employment touch wood, and i'm an export as far as the irish economy is concerned.
 

Absurdo

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Eu fed

I would reckon these deep pools would be used to finance the banks to infinity and beyond. Bit like QE in US - no real impact on main street - marginal impact on share prices. I will be watching Irish bank share prices quite closely as I would see them as prime beneficiaries. Germans will try to include all kinds of fiscal controls but there is a 50/50 chance they will fail as EU pols grab for the easy money. Will the threat of hyperinflation be what triggers a german exit.
 

Padraigin

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do you have a link to back this up Padraigin?

this would be illegal in any jurisdiction that I am aware of

The European governments (the UK in particular) invoked some kind of anti-terrorist legislation as authorization to seize the bank accounts of Icelanders. I kid you not. This prompted a lot of Icelanders to send out videos at the time saying things like "we are not terrorists."

The details as to which accounts were seized were not made public. Just the fact of the seizure. However, the Icelanders were infuriated, and everyone outside of Europe thought the "terrorist" pretext was utterly bogus.

Iceland to Britain: 'We're No Terrorists' - TIME
 

Kai123

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How about keeping some cash under the mattress?

Me and my girlfriend will be able to pay a loan next week. She has a few thousand in her account. Would the loan become the new currency or will we still owe the loan in euros?

Kai.
 

HarshBuzz

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The European governments (the UK in particular) invoked some kind of anti-terrorist legislation as authorization to seize the bank accounts of Icelanders. I kid you not. This prompted a lot of Icelanders to send out videos at the time saying things like "we are not terrorists."

The details as to which accounts were seized were not made public. Just the fact of the seizure. However, the Icelanders were infuriated, and everyone outside of Europe thought the "terrorist" pretext was utterly bogus.

Iceland to Britain: 'We're No Terrorists' - TIME
this doesn't back up your original assertion at all. This refers to Landsbanki, a broke bank.

It doesn't refer to individuals whose bank accounts in European banks were seized

there is no danger whatsoever of, say, an Irish person's bank account with Deutsche Bank in Frankfurt, being seized if Ireland defaults.
 

CookieMonster

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don't do this, if the banks go the credit unions will also go

move your savings out of the country entirely
I would love to know how much money has moved from Irish banks to the likes of Rabo.
 

HarshBuzz

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I would love to know how much money has moved from Irish banks to the likes of Rabo.
just read their latest interim reports and you'll see how much
 

Padraigin

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Am I right in saying default = banking collapse (short term) + massive public sector unemployment + public service collapse (medium term)?

People and small businesses ought to be doing whatever they can to earn income from abroad i.e. exporting their labour/goods/services; and get credit from abroad. Because income and credit are going to be severely curtailed domestically.

One of the few things I have going for me is employment in a company that pays me from another country and involves work relating to anywhere in the world (supply chain consultancy). Relatively secure employment touch wood, and i'm an export as far as the irish economy is concerned.

Banks generally do not collapse in a default, as a defaulting government usually imposes some kind of restriction about withdrawals while the deposits are being converted to the new currency. If the new currency is in short supply, the amount being withdrawn per day can be severely curtailed. This is part of the planning and preparation that goes into defaulting the right way. If a default happens spontaneously, however, things can be chaotic. That is why a default needs to planned now so that the details are worked out ahead of time.

If the Irish government has enough regular tax revenue to cover its public sector spending, no public employment layoffs should be necessary. Unless the current government was certifiably insane, public sector spending is already being paid for with current revenue. Nothing should have to change in the short term. However, since the government will need to build up its financial reserves to handle capital expenditures and national emergencies and will not be able to borrow its way out of trouble in the immediate future, wasteful spending should be curtailed to allow the government's financial reserves to be increased as quickly as possible.

Nothing should be affected in terms of public services and other essential government services in a default. There may be some delays in getting paychecks issued and/or government invoices paid, but this will be caused mostly by transitioning to a new currency and figuring out how to pay in the new currency. Once the transition is completed, nothing will have changed.

The main impact of a default will be on those parts of the economy that engage in international trade. Some will benefit by a default since a devalued Irish currency will attract investment. The tourism industry will likely benefit, like it did in Argentina after its default. Others may be affected negatively. The net effect may be positive in the long run, however, although the next few months may be bumpy for this sector of the economy.
 

corporal punishment

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Is it possible for a customer of a British bank in Ireland - say Ulster bank - to open a Sterling account with the same bank, and would this be a safe haven in the event of a euro/Punt nua devaluation??
 

geri

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I am longing for the Irish govt to face reality, and I think the will of the people would be to face that reality too, if that means default - rather than prolonging the pain for another few years. We've already had our fill of doom-porn in the media, let's just get on with it. I wish I understood more about the economy, but if this bailout is only giving us a few years breathing space and unlikely to get us out of the hole, let's face reality now. At least then the govt could prepare us for a transition stage, instead of leaving us wondering what's lined up for when the money runs out - again.

Would I be right in supposing though that default over the next few years of this bailout plan is highly unlikely?
 

Edo

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Lads and Lassies

All a bank default (it will be a banking default) will mean is that some of the debt will be converted into equity and the rest will be restructured - possibly at a lower interest rate over a longer time period.

Anybody thinking ( a good number of the plebian classes are thinking) that default means that we wont pay back the cash in the end is living in cloud-cookoo land - Iceland is paying back the debts post default - the Argentinians are still paying back in 90 odd billion they defaulted on in 2001 - the Russkies paid back 100% of the default in 1998 and so on - even Zimbabwe is making signs of going back to the negotiating table with their creditors so they can gain readmittance to the financial world.....

time for a bit of honesty about what default means
 


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