The National Debt


#381

The IMF reckons (not that I have much faith in their prognostications) that we are in danger of another financial crash. Apart from the fact that the world increased its debt by 60% in the last 10 years, it hasn’t invested in productive parts of the economy.

Instead we’ve blown asset bubbles and concentrated wealth in fewer hands. We also need to worry about the strength of the US economy (those of us not in the US, that is). Yields on longer dated US treasuries are rising. If the Fed raises interest rates four times in the next year as projected they’ll be above 3%, compared to a project 0.2% for the Eurozone at the end of 2019. Who the hell’s gonna want to buy European bonds then?


#382

ECB Money printing has largely ended, I explained that last week.

As for buying US treasuries instead in € if you are in Europe. The spread is around 3% now, US Treasuries will pay more than German bonds every year, but the €=$ rate is highly unpredictable.

The big buyers of US treasuries were Asian exporting countries not Europe. They could end up with currencies depreciating relatively at 3% a year even if they did buy treasuries and likely they will not.


#383

Ok gotcha. So is it the case that USD appreciates against EUR to prevent capital flight? But then there must be capital flows not involving euro to begin with. Oil springs to mind. A stronger dollar means oil price inflation for Europe, does it not? Enough inflation, even of the external variety, eventually means interest rate hikes for Europe. I realise the European economy is less oil intensive than the US.


#384

But we can’t have both high interest rates and a crash at the same time. One might trigger the other, but if the US economy tanks the interest rates will come back down.


#385

If the 40 billion from the 80s wasn’t reduced, who honestly thinks this 200 billion we have now will ever be reduced?!


#386

Ultimately some of it will have to be called in as pension funds need to pay out. You can run but you can’t hide.


#387

Not really. The state can keep rolling this over, as long as it’s not growing and interest rates are low.


#388

^^^ Mortgageboy is correct, a 10 year bond is payable in 10 years, not before.

This year it is possible that the government will run a surplus. A tax windfall of €1bn from Corp Tax would have put them in surplus but ye olde HSE deficit of €700m :frowning: then drastically reduced the effect of that windfall and a year end deficit of €200m is now forecast along with a €600m surplus in 2019. A quick divvie from AIB would balance the books as it did 2 years ago.

rte.ie/news/budget-2019/201 … 6-donohoe/

€200m is of course better than the forecast 2018 deficit of around €1bn in the budget last year.

Nothing can be called certain, in 2019, thanks to Brexit of course. But budget surpluses do influence bond rates.


#389

So, allegedly this year we spent (budgeted) more on Health than even Celtic tiger years, and still we spent an extra three quarters of a billion purely by accident?
I can have no confidence in this system, especially when the public health service is so poor, and apparently a poor place to work with lots of overtime etc
If we make an extra billion in corpo tax and just burn through it how will we ever pay down the 200 billion in our lifetime?


#390

Well, if the Irish health service is as bad as they all say it is, our lifetimes might not be long enough for us to need to worry about it. :wink:


#391

The NTMA got off their Green Bond last week , €3bn for 12 years @ 1.3%. The bid cover ratio was notably healthy so another few of these, like one for Metrolink if required, would appear to be quite feasible, especially at those rates. A lot cheaper than a PPP would ever be.


#392

Government debt is never going to be paid down. That just doesn’t happen. Not even we’ll run oil rich countries like Norway pay down debt


#393

With money this cheap we should be building way more infrastructure now


#394

But that would be countercyclical. And the construction is probably expensive now. Diminishing any perceived benefits from low teaser rates.


#395

Exactly, it would be cheaper to look at smoothing across the bottom of a cycle and by pretending it is ‘green’ it would not be perceived as ‘normal’ borrowing that one would expect at that stage in a cycle anyway.


#396

What infrastructure do we need?

The money to pay for all that infrastructure (+ the interest) always comes out of the tax payers pocket.

It’s worth considering the opportunity cost. That Money could have been spent in any number of other areas at the discretion of the tax payer. (Starting a business/Saving for retirement/Developing new skills etc.)


#397

Couple of Metro lines in Dublin wouldn’t hurt. Some other related projects like removing all railway level crossings in the Greater Dublin Area.
Build the Dart underground. extend all rail lines where the dart runs to at least 3, ideally 4 tracks instead of the current 2.

Expand the Tom Clarke Bridge to 4 lanes minimum, and fix / expand the roads in the general area.

Build some houses / apartments, albeit not sure if this technically runs under “infrastructure”.


#398

Roads cannot be financed from Green Bonds, water and rail yes. Some big ticket items like Metrolink and the new Dublin water pipe (€4bn the pair) will probably have to be kicked off at the bottom of the cycle in a recession and are candidates.


#399

Really? You should explain that to the European Commission. I seem to remember voting for Treaties about this but it’s hard to keep up. You could get a holiday in Italy out of this 8DD

neweurope.eu/article/eu-com … uro-falls/


#400

I think you made my point in the link. No sanction for Italy despite ongoing debt issues. No one realistically expects itsly to pay down the debt