The National Debt


#221

Really like the spreadsheet, did something similar but not as good the other day when I found myself thinking things like - actually we’re not quite like Greece, we do have something to contribute to the european economy, maybe we can work ourselves out of this mess. It’s a nice thought, but when you do the maths the hole is just too big.

Collecting 66bln in revenue and only spending 55bln seems politically unworkable, does anyone have any idea what the record is for consistent ‘operating surpluses’ (revenue - expenditure excluding debt interest)?

It’s easy to say ‘yes Mr. Trichet, no Mr. Trichet’ now when we aren’t actually solvant. But when 2015 comes around and the country is able to pay it’s own day to day bills, it’s going to be a difficult sell to the population to say; I know you guys are hungry, but we promised we’d pay these nice men from the ECB back with 6% compounding interest.


#222

finance.gov.ie/documents/exc … ly2011.pdf


#223

An Audit of Irish Debt - Dr Sheila Killian, Dr John Garvey, Frances Shaw -> debtireland.org/download/pdf … _debt6.pdf


#224

Here is a simple prediction based on NTMA data, current expenditure, and next bits of bank bailout:

Irish General Government Debt / GNP ratio will exceed 200% by the end of 2015

The only way out is to devalue the debt.


#225

rte.ie/news/2012/0515/househ … debts.html


#226

Irish household only have €457 billion net of Debt.

Does that include all the money moved off-shore?


#227

IMF says Irish Budget 2014 adjustment should remain €3.1bn - -> finfacts.ie/irishfinancenews … 6306.shtml

National debt rises by €18.5bn in 2012 - Ciarán Hancock -> irishtimes.com/business/sect … -1.1468277

Debt-to-GDP ratio surges by more than 7 percentage points in first quarter - -> independent.ie/business/worl … 39997.html


#228

The General Government deficit ( expenditure less receipts) was c.€14bn last year and is set to come in at €9-10bn this year. Mind you that improved deficit amounts to almost 25% of expected tax receipts so there is very little wiggle room in that sort of arithemetic. Then again it was over 30% of tax receipts only last year so it is coming down fast.

Noonan should be aiming at reducing that shortfall to no more than €6bn in 2015 and with a target of €0 in 2017 or even a slight surplus…and surpluses thereafter. Now would be the time to state that €0 target, especially if Noonan is still MoF on Wednesday moring as I would expect he will be.

HOWEVER improvements in the economy, generally, should deliver most of that €3bn budgetary adjustment in 2015 in the form of higher tax revenue and the ‘special treatment’ of VAT EU wide will deliver €1bn alone. One must be coy about that windfall lest the Germans find out as they surely will sooner or later. :slight_smile:

The governments income profile looks lilke coming in at €42-43bn this year rather than the expected €40bn but we all know that some of this will be swallowed up by O Reilly and his successor in Angola…not all of it thankfully. A few 100 million is being used to pork bits of the economy, called stimulus funding. It will sticky plaster a tad of the capital envelope is all. :frowning:

From 2016 onwards the national debt can be reduced in absolute terms with no real impact on the budgetary numbers because the NTMA can reduce its cash on hand requirement year on year in each of 2015-2017 inclusive. Reductions in cash on hand in 2015 and 2016 will not cover the governments funding requirements so the debt, now €180bn at the end of June will probably rise to €187-188 bn at end 2015 before stabilising at that number. Finally an end to it. So I predict that the absolute number will be €188bn tops.

This strategy of making payments to reduce the absolute number, starting 2017, reduces the debt in absolute terms YoY and even if growth is anorexic it reduces further on the key Debt/GDP measure. I think growth will be 2-3% per annum over 2015-2017 inclusive. From 2018 on the explicit target must be to get the Debt/GDP ratio under 100% by end 2022, which is achievable in a generally stable environment and to get the debt number down to €170bn over that time too. We will not be out of the woods ( with the scope to finance expected deficits over a recession) until we have it down to €150bn or so, perhaps by 2030

A recession in the interim will lengthen the time required of course.

The debt gdp ratio was restated as 116% last week once slappers, crookedness and villiany was capitalised onto it so there is no obvious reason to my mind that it cannot be brought down to 110% by end 2016…mainly by increased growth. But the NTMA can play a part by indulging in strategic redemptions to keep the narrative on track.


#229

Think it is safe now to announce no more debt after FY2015 in the budget speech. A combination of reducing NTMA cash in hand and an improving economy should realistically cover 2016 in full if the IMF debt swapout starts shortly ( by end October) and goes smoothly thereafter.

The government will run a small debt in 2016 but they already have the cash to cover it in full.


#230

How’d I do ?


#231

Spot on, the only mistake you made back in 2010 was assuming pretty much absolutely no uptick in the economy out to 2016 and even then you’ll only be out by €1bn or so by then…maybe €2bn.

The other €75bn you predicted is tacked onto on the national debt as you said and thanks to government expenditure exceeding income as you predicted.

The NTMA, however, is running a much bigger float ( at least €25bn as of a year ago plus the dregs of the NPRF), more than I thought it would by now and that is what can be used to massage the numbers. We can probably get away with a float of €10-15bn cash by the end of 2015 but it will likely take until end 2016 to swap out the pricier sovereigns and IMF and Euro loans ( plus Brits Swedes etc) before they can countenance a run down of part of that cash pile.

Relatively little will be used to pay down any debt, if they redeem €10bn of IMF loans in the next few months it will be reissued in full as cheaper sovereigns. It will be 2016 before they start to reduce the cash pile IMO.

As for paying any of it back… :frowning:


#232

spcapitaliq.com/insights/credit-risk-heatmap-highest-levels-across-southern-europe?

Question for those who know better: With our absurdly low credit risk rating and a consequent absurdly low interest rate on new national debt could it be that the financial markets are conspiring to artificially reward Ireland for not burning any bondholders? (e.g. as an carrot to others for the future to show what happens to ‘good boys’). Obviously the recent economic improvements and growth forecasts will have a positive effect on Ireland’s credit risk but can a median probability of default of 0.09% compared to say Germany’s 0.34% be real world considering the health of our state owned banks and debt to gdp ratio? Or are we actually, truly the least likely to default on debt in the whole of Europe???


#233

“median probability of default (PD) levels for all non-financial corporations in Europe”

So it’s nothing to do with national debt or banks.


#234

This makes absolutely no sense. A PD of 0.09% implies a AAA rating… The only thing I can think of is that perhaps a high proportion of investors in Irish soverign debt includes government owned banks and the ECB. Does anyone else have any insights? Clearly Ireland is only barely investment grade with the main rating agencies and nowhere near AAA


#235

Ah so it is the implied rating for non-financial corporates. Since most of these are export oriented and not focused on the domestic economy, perhaps there is some logic to it. Most Irish listed companies are in excellent financial shape - the banks excluded of course 8DD


#236

They’re the dolphins swimming alongside the Titanic. :smiley:


#237

Market assumes the ECB stands behind the debt – that it is risk free like Treasuries; JGB’s; Gilts and other fiat issuing sovereigns.
Look at JGB, 10Yr Japanese debt is now 45bps or something like that but their fiscal situation would be considered “worse” than ours by orthodox (read: ignorant) economists;
they miss the fact that Japan can print any & all liabilities in Yen.
Market is assuming same dynamic in Eurozone but it is mistaken; each country is more like a municipality in US terms; and cannot print money to meet liabilities (cf. promissory notes!); therefore is very much at risk of default!

So, to answer your question, the market is confused by the differences between sovereign currency issuers (zero default risk) and sovereign currency users (real default risk).

EDIT:
Just looked at the link and saw it’s corporates; I’ll leave my post up because it’s applicable to the thread nevertheless.


#238

Thanks to all above for explaining it.


#239

On reflection, while the ISEQ is full of strong corporates, only a relative few are investment grade and none that I am aware of are AAA. Therefore such a low probability of default makes no sense for either the sovereign or corporates. I am perplexed
XD


#240

trueeconomics.blogspot.de/2014/1 … le-on.html

Constantin pointing out Ireland is the most indebted country in the euro zone but you wouldn’t have guess it by the trade that was being done in Liffey Valley today.

Xmas in Germany is nowhere near as commercial as it is here in Ireland.