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Irish rate is 5.8%

Ireland is no more of a 'basket case' as some posters have put it than most of the developed world - all the banks are all interlinked in a self collapsing web of loans - hence everyone has to be bailed out by everyone or everyone will go belly up - but hoe we can ever do the necessary de-leveraging of loans if none is ever to be written off I don't understand!

And the bonuses will be the first thing out .

Round and round it goes - the money train. Where does it stop? Nations borrow money at one interest rate only to lend it to Ireland, Greece - et al - at another interest rate - but where does all the money come from? Well it appears to be all interlocked and ultimately countries will continue printing (even if electronically) money. I notice that pension annual inflation increases have been recently altered to the C.P.I. rather than the R.P.I. index. Also inflation linked bonds from National Savings have long been withdrawn. The indications are obvious - inflation will eventual free these indepted economies in the West from the burden of all this debt. So as the stock market falters slightly, gold oil and commodities and vases (£51,000,000) are at record heights, so the lesson is clear - keep your savings out of cash in any form.

Interest payments to represent 20% of tax revenues by 2014.

Average annual capital repayment to be Euro 12 billion.

Population 4.5 million.

Are you sure ...?

How can Ireland afford the punitive interest terms of this deal?

Aren't the markets going to conclude that Ireland cannot afford to pay and that affordable help will not be forthcoming to any of the other PIIGS if and when they need it?

Far from helping the Euro, this deal could well be the start of finishing it off because it makes default so much more likely.

Busby2

No haircuts on senior debt. Protect the rich. Shaft the poor.

I think Robert is blogging on the hoof

Interest to represent 20% of Taxes by 2014?

12 billion repayments?

60 billion tax receipts - cloning Shergar 1000000 times wont bring in those taxes.

Oh forgot, Corporate Tax must have to be increased - Go-Go-Google-Gone

And so the "markets" (or cartels, as most people would call them), continue to consolidate their privatisation of Governments around the world. When does it all go pop? And what happens then?

Of course there will be Haircuts - just not yet, not yet

Unfortunately the ones that should of had the number 2 have all bought Gold so only the "loads of money"in your face baby boomers, middle class and peasants will be left holding the toilet paper, wall paper, fuel or whatever you can use the branded "i promise to pay the bearer" nothing vouchers.

or they could just manufacturer a war in Korea,

Interest payments = 20% of tax revenue by 2014. I guess the Irish are hoping that tax revenues hold up then. I buy a lottery ticket each week.

2. At 19:59pm on 28 Nov 2010, jimbo26 wrote:
And the bonuses will be the first thing out .

Well....there's usually quite a bit of self congratulation to be apportioned first. Then there's the awards ceremony for safely negotiating such a difficult task to a successful conclusion, before triumphantly declaring record profits (and the odd bonus) followed by hand wringing and agonising over rationalisation of jobs/wages/conditions. You know, pay cuts, the sack, reduced hours, that sort of thing. "We're letting you go, Prime Minister".

Is it me or am I missing something? With such a high interest rate Ireland are going to struggle just to pay the interest on these loans, where do the funds come from to actually pay the loans back? or they just intending to roll them over after the 7 years? So is this really a loan or what the "loans" to Greece are looking more and more like a free gift for incompetence?

"Brian Cowen, the Irish prime minister, disclosed that interest payments on all Ireland's sovereign debt - including the rescue funds - will be equivalent to a full 20 per cent of Irish tax revenues by 2014."

So on that basis the Irish government must be gambling on a return of the celtic tiger, because I do not see how it can be 20% otherwise. Assuming a 5.8% average interest rate on €85bn doesn't come to 20% of their current tax revenues. And this is also taking a BIG assumption that 10bn Euro's that has been set aside for "immediate recapitalisation measures" and the 25bn Euro's emergency fund is going to be enough to cover the gaping cess pit holes of the Irish banks books.

So who is next in line for the free cash handout?

Greece.. "We do not need a bailout"... er well actually we do Mr IMF, Mr EU..
Ireland.. "We do not need a bailout"... er well actually we do Mr IMF, Mr EU..
Portugal.. "We do not need a bailout"...
Spain.. "We do not need a bailout"...

Maybe Saint Bono could do a benefit gig and make a global appeal to world leaders to write of Ireland's debts, while he is at it Greece, Spain, Portugal...

This surely simply delays a sovereign default.

How long will it take the markets to twig Ireland won't actually be able to repay this? Not long is my guess. They simply can't do it.

The irony is that far from strengthen the Eurozone this will actually hasten the end of the Euro.

Robert - I imagine you must have a keen sense of humour. It would be handy on these sorts of occasions.

The 'rescue' package. Have you ever felt the weight of one of those old style lifebuoy rings? The sort that weigh a good few kilos? When deployed you have to avoid hitting the person you are aiming to rescue otherwise they may be badly injured and drown as a consequence.

20% of tax revenues by 2014. Raiding the sovereign wealth fund. Good luck.

Next!

More smoke and mirrors.

Ireland will contribute 17.5 billion to its own bailout including 12.5 billion from its pension fund?

A quick trawl through the recent raids on the NPRF will tell you that there isn't 12.5 billion left:

Total value - 24.5 billion
Less: Amounts already used to bailout the Irish Banks - 15.7 billion
Less: Amounts used to pump-prime local infrastructure economic development projects - approx 1.3 billion

So at best, 7.5 billion left.

The game is over - its time to start telling the truth.

Will they be contributing when our time comes ???

No. 12 Loftgroov:

Oh, I'd say by 8:30 am tomorrow. Unless of course Mr Market convinces himself that there isn't really a problem.

We do live in strange times ...

If the maturity of the loans is 7 years, does this not mean that Ireland has to create a payback fund of 120B in this time, or be declared bankrupt?
When, oh when, are all the nations involved in this merry-go-round of borrowing and lending going to realise what is blindingly obvious to anybody who sits in a quiet room and thinks about it for five minutes, that the game is up for an economic system which relies on borrowing to fund their lifestyles.
The oft used phrase which really raises my hackles is "sustainable growth" .
Two hundred years ago, it may have seemed possible that the Earth would supply us with a never ending supply of energy sources, raw materials, and natural resources such as arable land, and fresh water to provide food supples in abundance. Scientific and engineering ingenuity kept this idea alive and quality of life improved enormously.
Two hundres years later, we have passed the halfway mark in burning the natural oil and gas supplies, we are desperately trying to make use of wind and solar energy, and we are already complaining that China has commandeered most of the remaining supplies of rare earth metals, apparently essential for our growing demand for modern electronics, with which our young people seem to be permanently attached.
In the last century we had some early warnings that we should not expect growth to be continuous, but that was blamed on world wars, and any other minor periods of recession were described as mere glitches in the never ending path to growth.
As a sixth former,I once ducked out of an exam which expected me to write an essay on the subject "That men do not learn from History, is History's greatest lesson".
Boy, could I write that essay now!
There is no such thing as sustainable growth, and it was never more true than today, but still our world leaders keep pretending that the present situation is "just another glitch, which will be over as soon as growth starts again, which it must surely do bacause it always has.
I wish someone would explain to me on what basis is this growth going to emerge? All I hear is that the Green Technology will be our saviour, so why are our students still expecting to benefit from a degree in Media Studies if they can afford to go to university, while we claim to need to import scientifically trained people from abroad who have the "right" training?
This would be funny if it was not so serious!
The only means of preserving our future as a nation, will be when the penny drops that we need to learn to live within our means, and stop spending money which we cannot afford. To get there we need to deal with a lot more than the deficit, because even if that was reduced to zero, there would be left the little matter of the national debt which is currently at £970 billion, which will rise to £1.5 trillion, before it peaks, even with the best guesses of the current government. Under Ed Milliband's new new labour the national debt would disappear off the scale, but would probably be wiped out , as would everything else, with a meteor stike from outer space.

The blogs here expect that there wil be an adverse reaction in the markets to this. The exact opposite to what is intended.

So, if the market does not react well and positively, it will surely point to the fact that some new thinking and actions are needed to find a way forward. Continuing the way we are seems pointless. I wonder if any politician will have the nerve to say so and follow a new direction

Sometimes, all that is required is a sense of perspective.

For example, the US National Debt is currently around $14Tn, which seems, at first glance, to be a terrifying number.

But then the next number is that estimates of the assets of the USA range up to $349Tn.

Suddenly, the US National Debt does'nt seem so bad.

Which of our bloggers fancies running the same exercise with say, the UK and Ireland?

This type of European mobilization is not usual!
Ireland will receive around 85 billion of Euros, it represents the half of the Irish GDP...
Furthermore , I think that it's normal to impose a high interest rate. The Irish government should assume their bankruptcy and shows how they can save their country.
I hope Ireland will succeed to reach one's goal.
Greece, Portugal, Ireland... Everything comes in threes!

No. 19 JohnConstable:

Accepting your figures at face value, my first reaction to your post was 'You have a point!' But then I wondered about liquidity.

I would guess that the bulk of the assets are fairly illiquid but the liabilities are short/medium-term. Again, the assets are probably depreciating but the debt still needs to be serviced.

Is this significant?

Did the UK have to borrow the money to lend them?

#19. JohnConstable wrote:

"Sometimes, all that is required is a sense of perspective."

More wild numbers... private debt in the USA 2000tn. (possibly, but nobody knows and anyway debt and credit are so intermingled that who can say!)

And what is more I have heard it said that even the more modest numbers of public debt will require more than double total US taxation annual just to pay the interest if(when) interest rates return to reasonable long term average levels - The USA is bust along with the entire Western World - so what is China going to do about it? Bail us out, like Ireland, leaving us more in debt or write part of what we owe then off? (So that we can continue to buy the products of their factories.)

The real question is haircut sharing. How to do it without destroying the idea of money, debt and credit? I don't think anyone really knows, and if they say they do they don't understand the question!

How can you have growth when everybody is going to be strapped for cash ?
Or is it more credit card and personal loans ?, where the banks make more cash out of keeping everybody in debt the eternal debt slave.
People know there is tax hikes coming so they are not going to throw cash around like its gone out of fashion, well at least the smart ones are not.
Interesting to see how many idiots over spend in the run up to Christmas.

All this user's posts have been removed.Why?

>> 22. cookinggrannie wrote:
Did the UK have to borrow the money to lend them? >>

We are borrowing an extra £10 billion a month at the moment, to cover our own shortfalls. If you believe Ireland will pay it back, then we are just using our better credit rating to make money off the back of the Irish. If you think they will default, then we are adding yet more to our real debts.

Irish Independent reports a telephone poll of 500 people at:

---
With the article headline reading:
Default! Say the people
Irish negotiators raised defaulting but 'Europe went completely mad'
---
Apparently, 57% wanted a default. Soon see what the markets make of it.

All this user's posts have been removed.Why?

Evening Robert,
thank you for the update and analysis of the Irish bailout (oops I mean borrowing facility...this is NOT a bailout).
So a month ago, Biffo stated to all and sundry that Ireland was fully funded and did not need any more cash. Then we are told that there has been a run on the banks and some Euro 16 Bn had been withdrawn. Now we are told that Euro 85 Bn will be made available to refinance the banks and that this had to be agreed within TWO days.
Would someone explain what has changed in the last month?
Was there any mendacity in the politicians statements? If this was a private company, there would be an enquiry as to the validity of company pronouncements and the directors would be forced to explain themselves.
Would someone explain why two nationalised banks require fresh finance?
They will not be able to provide any more lending -ever and should be wound up.
It seems to me that there are many parallels here with what happened to Northern Rock.
I still feel that on the basis of available figures from the banks, their loans and historical norms that this bailout is too small and is short by about Euro 31 Bn.
The interest rates required on any loans should be base rate plus let's say 1% profit.
Any rate higher than this is punative and speculative and the UK Treasury should be ashamed of themselves again!
So now we have Greece who will be unable to repay the loans and now Ireland.
The protection offered to the debt holders of these banks stinks of cronyism as everyone knows that when you make a loan there is ALWAYS a risk. This is not money being lent by little old ladies with their pensions but corporations and other banks who need now to take the necessary write-downs.
This package and the political authors have let the Irish people down badly and even though they may have enjoyed some of the boom times, the Irish people are being asked to socialise the losses of private banks again.
N.B. coming to a country near you in three years time.

Ireland will be fine for a while, at least they've got a (borrowed) cash-pile to sit on. Next round for them starts when the Fed, ECB and BOE start hiking rates and that 3% IMF rate follows them higher. Same for the next lucky recipients.
Gut Luck, as Ms Merkel may say

All this user's posts have been removed.Why?

10. At 20:49pm on 28 Nov 2010, Duxtungstu wrote: ...

In the midst of all of this, I would just like to thank Duxtungstu for a laugh that made me blow my coffee out my nose.

Thank you, sir (or madam)! I needed that pretty badly.

13. At 21:13pm on 28 Nov 2010, Duxtungstu wrote: ...

And again, thanks for this one.

Europe continues to play "pass the parcel" with debt rather than reverse the enlargement of 2004. The situation can only worsen as West to East transfers dominates the multiplier in the Keynesian consumption function via wages. Some talk about the European Union as a political experiment with monetary union simply the means to the end. However the enlargement of 2004 was a political "land grab" by the European Parliament. It was bankrolled by property tycoons who successfully converted their dotcom billions during the 2000/2001 speculative bubble into land assets. Why else fund the EU cyber-defence centre in Estonia? After the fall of communism, a "Marshall Plan for Eastern Europe" was proposed. Instead the European Parliament has emerged to do it. The likely danger remains a future war in Georgia with NATO involvement escalating into a nuclear conflict with Russia. When it happens, politicians are unlikely to escape the dismantling of their political experiment by the irate peoples of Western Europe. But can Ireland's status won as a Celtic tiger translate into action to halt “West to East” wage income transfers? A tiger needs to be savage. The legacy of communism still leaves 10 desperate faces behind each content one seeking a job in Ireland. It should also remember the nature of this parcel it now passes on to Portugal, Spain, Italy and the UK. Every country host to millions of East European workers and in turn saved by bankers. Saved from what? All seem unaware the theories of Keynesian consumption function exists or if so care not to interpret it in any way which might dismantle the EU's political experiment prematurely. That is unfortunate as it is a missed opportunity to prevent the inevitable end game over EU enlargement over the new people.

I'm confused Mr Osborne - can you clarify

What is the security on the loan?
When is borrowing to speculate a good idea?
Is this not a sub-prime loan?
You turned down loans to viable UK manufacturers - but found it for foreign banks - how come?

Before the Irish bailout happened, I thought that Gordon Brown was the devil. I'm now starting to crack in that he also didn't take us into Europe. If he had, and we lacked the levers of devaluation, QE, interest rates, etc then we'd be being bailed out by Greece right now probably.
Thanks for giving us blow-by-blow updates Robert, beyond the call of duty on a Sunday night.

If in the olden days a person entered on to politics by having a job, becoming a local councillor then an MP they had a bit of business training along with the idea of how to meet and set budgets.
Now all over the world it seems kids go into a university to take a politic degree, then an 'adviser' to a party or a senior politician then a safe seat then suddenly running a country. Is it any wonder that banks and countries have no idea of how to survive?
And banks pay out bonuses and dividends without making a profit, in fact having to be bailed out.

As no 38 has said and I am now of the firm opinion Mr Brown is now been missed now he has gone in so many ways. What else will come out of all of this soon?
Will the banks we all now own ever repay the tax payers money to give use all some relief from the hairshirt of austerity?

What’s interesting is that they’re going to use Ireland’s National Reserve Pension Fund for some of the bailout. Apparently around €17.5 Billion from the fund is to be used (over 50%). And none of the money is supposed to be drawn down until 2025.

Imagine if the ‘Bank’s’ haven’t yet revealed the full extent of their losses.

37. At 08:41am on 29 Nov 2010, barry white wrote:

"As no 38 has said "
Did (will?) 38 really say that?? :o)

I think the lesson here, that interest payments will be 20% of Irish tax revenues by 2014, is the utter stupidity of governments allowing themselves to get into so much debt in the first place (by abandoning Keynesian rules when it suited them) and encouraging banks to lend to bad risks, so that governments could put on a greater illusion of prosperity that they could flog to their voters.

"The Chancellor George Osborne believes he has wrung an important concession from other EU countries in return for providing this loan to Ireland: he has secured an agreement, I am told, that the UK will not be part of the new rescue fund for eurozone countries to be launched in 2013"...Some concession! As the UK is not part of the EuroZone, they are presumably ineligible to join the rescue fund in the first place! And it begs the questions as to who will rescue the UK when their turn comes!

Humour me here, with a conspiracy theory (not normally my style) that explains two mysteries I haven't seen explained elsewhere:

1) Why would an apparently intelligent, competant and risk-averse German regime kill the bond markets for some Euro-peripherals by warning of hair-cuts in an apparently uncontrolled and very unwise fashion, thereby raising the cost of borrowing in some very delicate states?
2) How was the export-led German economy going to compete in the currency wars, when other warring nations have coordinated, integrated policy making apparatus for cheapening their own currencies that is completely missing in Europe?

You can see where I'm going: the theory states that Germans are deliberately pushing the PIGS over the cliff to keep the Euro low.

They would rather shell out a trifling 85Bn here and there (which they might get back even with a spot of interest) than cripple their economy with an overpriced currency.

Whether you believe this crazy-talk or not, it's working - check out the "goldener Herbst" on the German press sites... they are now nearing full employment for the first time since unification.

Shoot me down in flames...

Moxtherog

36. At 08:17am on 29 Nov 2010, Peter White wrote:

37. At 08:41am on 29 Nov 2010, barry white wrote:

Yes. It's always easy to criticise but much more difficult to actually make a useful contribution yourself.


As 23. At 22:33pm on 28 Nov 2010, John_from_Hendon wrote:

"The real question is haircut sharing. How to do it without destroying the idea of money, debt and credit? I don't think anyone really knows, and if they say they do they don't understand the question!"

23. At 22:33pm on 28 Nov 2010, John_from_Hendon wrote:
The real question is haircut sharing. How to do it without destroying the idea of money, debt and credit? I don't think anyone really knows, and if they say they do they don't understand the question!

Perhaps another question they’re trying to grapple with at the moment is:
How do you avoid ‘haircut sharing’ without the current system of ‘money, debt and credit’ being understood?

‘Austerity’ is a reasonable consequence of ‘profligacy’.
Unless it’s their ‘profligacy’ that results in your ‘austerity’.

Austerity sounds almost virtuous.
Until in the name of ‘Austerity’ they raid your pension fund and savings.
Then perhaps ‘Austerity’ isn’t quite so virtuous after all.

And they’re going to use over half of Ireland’s National Reserve Pension Fund for some of the bailout.

€25 Billion bank contingency? Of course this will be drawn on, it is too tempting for some people to leave it untouched.

With apologies to a well known childrens' book:
Burglar Banker said "I will have that".

I'm starting to think that Merkel actually wants the whole thing to collapse. Why else would she make so many damaging statements?

> Or to put it another way, Ireland will not have any kind of private-sector
> financial system for many years to come - which reflects the appalling risks these
> banks took.

Shock - horror - what a surprise - bankers have been acting stupidly with our money!

@19. JohnConstable wrote:

"Sometimes, all that is required is a sense of perspective.

For example, the US National Debt is currently around $14Tn, which seems, at first glance, to be a terrifying number.

But then the next number is that estimates of the assets of the USA range up to $349Tn.

Suddenly, the US National Debt does'nt seem so bad."

And (you might have added) what is the national debt anyway? It's the amount a government has borrowed from willing lenders, who have given up the use of the money they paid for the bonds thay bought, in exchange for the promise of the return of that money after a given period (plus interest on it in the meantime). Exactly the same as a savings account, with a building society say. It's just money loaned to the government earning a return for the lender, instead of being put to some other use (or kept under the mattress).

It's also a means whereby governments soak up excess purchasing power when an economy overheats (hardly our present problem!). At the right yield there's never any shortage of buyers - unless the market suspects that a government may default.

There are some who argue on principle that national debt should be paid down (to zero?), because then the interest paid to bond-holders would be saved. One might ask: saved for what, exactly? Government doesn't need that money in order to spend, so long as there are good reasons for spending. And anyway, debt is the best way to fund certain kinds of government spending (just as it is for some kinds of business spending, leading to a balance in almost every company's balance-sheet of debt and equity, for sound business reasons).

@ 4. At 09:35am on 29 Nov 2010, Dempster wrote:

> ‘Austerity’ is a reasonable consequence of ‘profligacy’. Unless it’s
> their ‘profligacy’ that results in your ‘austerity’.

Exactly, and that's why we have to clip the bankers. They lived it up, and now they have to live low. It's only fair, after all.

Whilst all this is going on - and I'd be interested to hear other contributers estimates on how long it will take to sort out - How are the multinationals doing?

It appears to me that they are all sitting pretty at the moment with lots of cash in reserve.

Meanwhile, national economies collapse, public sectors are taking a booting and taxes rise.

There seems to be a certain duality here.

48. At 10:09am on 29 Nov 2010, torpare wrote:

And anyway, debt is the best way to fund certain kinds of government spending
=============================================================

Can someone explain to me why this is the case? A genuine question, because this is something that has always mystified me.

Unlike a company, a government can just raise taxes to meet current expenditure (or, say it quietly, just print money). All the interest paid on bonds, and the capital, is met, in the end, out of taxation, so surely it is just a question of which set of taxpayers pay the bill for today's spending- the current generation, or future generations? Or am I missing something?

@23. John_from_Hendon wrote:

"And what is more I have heard it said that even the more modest numbers of public debt will require more than double total US taxation annual just to pay the interest if(when) interest rates return to reasonable long term average levels"

What do you mean, exactly, by "public debt"?

If you mean "Treasuries", they have a coupon - ie the rate of interest printed on the bond - and a maturity date (either specified or "not before..."). The coupon doesn't fluctuate - it's what it says on the tin. Future issues of Treasuries will have a higher coupon if interest-rates rise (as they surely will at some stage). That financing problem - if it is indeed a problem - will need to be addressed if and when that stage is reached; meanwhile all sorts of other factors will have altered.

"The USA is bust along with the entire Western World"

No it isn't. This is just wild alarmist talk,

" - so what is China going to do about it? Bail us out, like Ireland, leaving us more in debt or write part of what we owe then off? (So that we can continue to buy the products of their factories.)"

Neither China, nor India, Russia or Brazil (the so-called BRIC countries) is self-sufficient nor ever going to be. They export to us either raw materials and primary products for our consumption or manufacturing (note: not capital goods). or finished goods and services that they can produce more cheaply than we can. We (if we don't talk ourselves into a state of catatonic paralysis) can so long as we are clever enough continue to export to them a wide range of capital goods plus consumer-goods and services with a high added-value content - for which the market will grow exponentially in those countries as their standard of living rises. It's called international trade.

But to be successful at it you have to invest much more heavily than we're currently doing in education and scientific research. To invest in human capital in other words.

THAT'S the real problem!

Did not the German finance minister, Wolfgang Schauble, argue that Ireland should pay a higher interest rate of around 7 per cent? His demand may have reflected the chronic unpopularity in Germany of the country's participation in bailouts of financially weaker EU states, such as Greece and Ireland.

Also, Germany are the ones who are trying to save the bond vigianties who are coming after bunds and their banks next. German banks hold TRILLIONS in worthless liabilities (we have not forget that Ireland property bubble was funded by German banks like Hypo which is now under government 'control'). Its the elephant in the room that nobody in EU wanst to talk about. ...Germany will be the core country to go down.

What will they do if Spain or even Italy (extremely long term low growth - may have problems in the near future with its own repayments!) need a handout? It just cant be done. Ireland is just a side show before the main event coming our way 2011 / 2012

Iceland told its creditors to go to hell and is better off for it. However. Ireland, due to the Euro could not do the same, but to be sure now, they surely wanted to. Begorrah.

PS. There is not enough money in the EU fund to bail out Spain and have any leftover! - Belgium and Portugal - get in there quick!!! Hurry now!!!

@51. haufdeed wrote:

"Or am I missing something?"

I suspect that you are, but I'm afraid I'm not technically equipped to help much.

You could try this:-

Personally I can't understand half of what Bill Mitchell writes (too technical for me).

If you're in the same boat, try this:-
(can be downloaded free as a .pdf file)

Even I can follow it.

In a nutshell, according to these guys' theorising - called "modern monetary theory" (MMT for short) - which personally I find very plausible and which is totally at variance with that of mainstream economics, so it must be right ;) - your question:-
"All the interest paid on bonds, and the capital, is met, in the end, out of taxation, so surely it is just a question of which set of taxpayers pay the bill for today's spending- the current generation, or future generations?"
is entirely misconceived, because in the way that our monetary system actually works (as opposed to the way most people believe it works) the interest paid on the bonds and the capital is NOT met out of taxation.

Slightly miffed that bloggers might suggest that this blogger deals in 'wild numbers'.

I learnt a while back that you must be very careful and respectful of any numbers that you publish on these blogs.

So the numbers that I posted earlier on this blog thread for the American debt and assets originated from STRATFOR’s global team of intelligence professionals.

(sorry - no web link as this facility seems to have been disabled on these forums but it is easy enough to find via a saerch engine).

55. At 11:23am on 29 Nov 2010, torpare wrote:

=============================================================

Thanks for your help. I am now reading Mosler's piece- very interesting, and throws a whole new light on our recent general election campaign, in my view. Either Mosler is completely wrong, or our politicians don't have a clue what they're talking about (or they do, but are willfully misleading the electorate!}.

Apologies for reposting this from another RP blog but it seems more relevant here at the moment ...

The way a government produces "money" to pay its bills is probably one of the best kept open secrets in history. I say that in the sense that although the method is there for all to see - the vast majority will dismiss it as impossible (even if they bother to find out about it).

To me, this is the underlying reason why the UK is not prepared to join the Euro. It's not simply an economic matter - control of the currency is how a government pays its bills. Take Ireland for example. It has decided to use billions from its pension fund towards the bailout. If it still had the punt this wouldn't be a problem because the government could just write cheques to its future pensioners in punts and amend its own spreadsheet accordingly.

22. At 22:23pm on 28 Nov 2010, cookinggrannie wrote:
Did the UK have to borrow the money to lend them?

@.22

Yes we are borrowing this money - as others have pointed out - but this is at a more favourable rate than we are lending to Ireland thus we are expecting to make a profit. To provide a little bit more analysis I have done some simple back of the handkerchief calculations.

The UK can currently borrow money that is secured for the long term (10 year bonds) at 3.44% on the bond market – this is far better than Ireland can which is struggling at a very high rate of between 7 and 8% .The difference represents the perceived risk of the two individual countries defaulting on their loans - the UK having the better credit rating. The UK is borrowing an extra £6bn (at for example the 3.44% 10 year rate) and lending it back out to Ireland for 5.8% - this represents an annual return on the investment for the UK of 2.34%. If Ireland were simply to make interest only repayments on this loan then it would represent an annual income for the UK government of £140m until repayments were made. It’s worth pointing out that these aren’t exactly huge figures– in fact £6bn represents about 3 weeks worth of UK government borrowing so it’s a reaosonable risk to take to keep our closest trading partner in business.

This comment was removed because the moderators found it broke the house rules. Explain.

@59:

Chris,

Is the UK borrowing GBP or Euros ????

Bailing out the very banks that are ripping off British taxes by hundreds of millions each year sounds like a good deal.Google alone profited 1.6 billion last year but only paid approx 140.000 quid in tax to the U.K because they are housed in Dublin with such unreasonably low corporate tax.Google are one of many.

So I presume we will need to borrow this money, but I also presume it will not be added to government debt, like the student ‘loans’ both now and proposed. I presume this will appear under a different heading within the governments book, thus making it look like we owe less then we actually do. Sounds like smoke and mirrors accounting to me.

61. At 14:00pm on 29 Nov 2010, vegetable_grower wrote:
@59:

Chris,

Is the UK borrowing GBP or Euros ????


@ vegetable_grower

The UK is borrowing Pounds because we are selling UK Government Bonds in pounds(£).

My example was a little simplistic of course - it takes no account of fluxuations in exchange rates (i guess Ireland would be olbliged to pay us back in pounds on the direct loan so would pay for that) nor does it account for any impact there may be on our own bond market interest rate - although any direct impact is likely to be tiny given the relaitve size of te £6bn loan to the overall UK debt position.

[[17. At 21:36pm on 28 Nov 2010, angloscotty wrote: ]]

Angloscotty; ok I read the analysis so what are you proposing as a solution bearing in mind we are where we are?

[[ 62. At 15:25pm on 29 Nov 2010, peevedoff wrote:]]

It may have been only 140m euro but I bet the Irish Governement are very grateful Google (and many others ) are still there, at the moment!





I have seen many such comments that a low euro is in Germany's interest but surely its also in the best interests of any Euro counrty which can produce or offer things which non EU countries want? So poeple of euroland; get of your 'bottoms' and start making and selling things abroad but preferably not your industrial base, if you have one.

[[ 62. At 15:25pm on 29 Nov 2010, peevedoff wrote: ]]

By the way peevedoff it wasn't ythe UK but the Irish goverment which benefitted from the 140m euro.

However the UK goverment will have benefitted by a sifnificantly greater amount as Google emplys a large number of people in the UK most of whom will pay; UK income tax, national insurance, VAT and spend substantially within the UK economy.

Would you rather Google left the UK?

All this user's posts have been removed.Why?

All this user's posts have been removed.Why?