Budget Deficit - When is it going to reduce?

onq said:
Austerity is one thing, but the banks to lending is quite another.

The racket promoted by the ratings agencies to push up interest rates is yet another loaded scam.
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Why do the rating agencies want to push up interest rates?
 
So their pals the international financiers can charge more for their services!
The Ratings Agencies were utterly discredited in a bi-partisan review of their performance during the financial crisis
Reduced ratings is claimed that high risk applies - higher risks allows the financial vampires to apply higher rates of interest on loans.

http://www.youtube.com/watch?v=eYdTnNzttxk

"The credit rating agencies are; Moody's, Standard and Poors, and Fitch....QUOTE: "Concluding a two-year bipartisan investigation, Senator Carl Levin, D-Mich., and Senator Tom Coburn M.D., R-Okla., Chairman and Ranking Republican on the Senate Permanent Subcommittee on Investigations, today released a 635-page final report (PDF, 6MB) on their inquiry into key causes of the financial crisis. The report catalogs conflicts of interest, heedless risk-taking and failures of federal oversight that helped push the country into the deepest recession since the Great Depression.""

As for the Elephant in the Room - Goldman Sachs -

http://www.rollingstone.com/politics/news/the-people-vs-goldman-sachs-20110511

"Defenders of Goldman have been quick to insist that while the bank may have had a few ethical slips here and there, its only real offense was being too good at making money. We now know, unequivocally, that this is bull****. Goldman isn't a pudgy housewife who broke her diet with a few Nilla Wafers between meals — it's an advanced-stage, 1,100-pound medical emergency who hasn't left his apartment in six years, and is found by paramedics buried up to his eyes in cupcake wrappers and pizza boxes. If the evidence in the Levin report is ignored, then Goldman will have achieved a kind of corrupt-enterprise nirvana. Caught, but still free: above the law."
 
We all know about the Rating Agency and their failings but I think you are taking the whole conspiracy thing a bit too far. Basically what you are doing is saying Rating Agencies downgrade ratings so investment banks can make money by charging higher interest rates. And yet, the Rating Agencies were heavily criticised for giving AAA ratings to high risk products with very low yields. Which is it?

And of course, higher risk=higher interest rates. That's banking.
 
There is no either-or issue as you seem to be suggesting.

You gull people into investing in high risk products to steal their money.

You drop a country's rating to increase your income due to interest charged.

Two sides of the same coin and no, its not a conspiracy - they all engage in it!
 

But how does dropping a rating increase income for a rating agency? How does it increase income for holders of the debt? Just because yields rise after a ratings downgrade doesnt mean holders get more income. The interest rate they receive remains the same but the price of the debt falls. How do rating agencies benefit from this? With regards new debt issued, yes the interest rate charged will be higher but that's because investors are demanding higher interest rates to compensate for higher risk. And these investors include pension funds and insurance companies. Are they in on this racket too?
 
onq said:
So the government policy stands revealed at last!
Borrow for the rest of our lives to keep the banks and the public pay bill afloat, and hope the economy recovers.
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Yup, that is pretty much the pathetic plan they have brought us.

Banks are illiquid, they barely have enough reserves to cover the stress tests, which, let us remember, did not include a scenario of sovereign default.
The reason there is no lending going on in Ireland is twofold, (1) there are boot enough loanable funds and more importantly (2) because Ireland is way too far in debt. The total level of private and public debt is so high that there simply is no room for further debt to be issued.
Debt was the cause of this crisis, it is not going to be the solution.


onq said:
I find the argument that the banks don't have enough to lend specious - if they don't lend they will go under, because they will not make progress and prosper - IOW they are dysfunctional.
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Banks did enough lending in the last 10 years to cover decades. Most of those loans are still performing and creating some level of income. The problem at the moment is still the non-performing part, and the solution for this is not going to be taking on further risk by making large amounts of loans

Absolutely agree. Rating's agencies got it wrong before the crisis, but they are actually starting to get things right now.
 
Chris said:
The reason there is no lending going on in Ireland is twofold, (1) there are boot enough loanable funds and more importantly (2) because Ireland is way too far in debt.
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(i) funds are created by the fractional reserve banking system - they don't "exist" in reality. The fractional reserve system is a gamble on how many people will demand their money back at any one time. We are talking about ratios and runs on banks.

(ii) you cannot make a generalized statement like that. There are areas of the economy where debt is high, mainly in the private property portfolio section. Are you suggesting that Irish business per se is over-borrowed?
 
Sunny said:
With regards new debt issued, yes the interest rate charged will be higher but that's because investors are demanding higher interest rates to compensate for higher risk.
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Are we all so far gone that we just accept this form of loan sharking by banks what we own without questioning the actual basis for us being bled dry? Who are these nameless investors, or are we just being manipulated by the people who manipulate the investments funds?
 

We are running a huge budget deficit, have a crippled banking sector, large unemployment and a housing crisis. Is that not the case or have the rating agencies, banks and investment funds made all that up so they can charge higher interest rates which by the way doesn't automatically lead to higher profits. You are approaching LOS territory to be honest.
 

Banks still need actual cash to lend. The fractional reserve system allows them to lend more money than they have taken in deposits but they still have to borrow the cash to lend. They dont just 'create' cash. And no-one is lending to them.

Chris is right about the economy being highly indebted. And that includes some Irish companies.
 
Getting back on subject.

http://www.finance.gov.ie/documents/exchequerstatements/2011/octobernote.pdf

The deficit is up €8bn.

There have been €10bn in bank recapitalisations and the sale of state holdings in BOI has netted €1bn i.e. a €9bn banking drain.

Therefore the underlying deficit is €1bn lower than 2010.

Spending is neutral with increases of €1bn in the health budget offsetting decent savings elsewhere.

Taxes are up €2bn, most likely from the levies. The €460m raid on pension funds is in there somewhere, but is simply offsetting the loss in VAT.
 
DerKaiser said:
The €460m raid on pension funds is in there somewhere, but is simply offsetting the loss in VAT.
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Out of curiosity, does anyone know where this money is allocated to if anywhere? Thought some of it was supposed to be used to fund job creation but the Department of Jobs, Enterprise and Innovation seem to have spent less this year than last year??? So much for the importance of job creation then!
 
onq said:
(i) funds are created by the fractional reserve banking system - they don't "exist" in reality. The fractional reserve system is a gamble on how many people will demand their money back at any one time. We are talking about ratios and runs on banks.
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Fractional reserve means that you keep less cash on your books than you owe to the creditors, with the cash in excess of reserves being lent out. There simply is no excess cash to lend out.

onq said:
(ii) you cannot make a generalized statement like that. There are areas of the economy where debt is high, mainly in the private property portfolio section. Are you suggesting that Irish business per se is over-borrowed?
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Yes, the Irish business community has too much debt in general. There are still loans being made to businesses, and those that get loans are businesses that have little or no debt on their books. Bottom line is that Ireland has too much debt and everything should be done to reduce that, not increase it.
 

I strongly agree with this. We have no business debts, short or long term and fund capital purchases out of cash reserves (the bit we haven’t moved to Germany). Our bank has called offering us credit. I know of businesses that are borrowed massive amounts of money to expand, in effect they have taken a punt on things working out according to plan. That’s fine as long as you can take the hit if it doesn’t work out but many of them will go bust if their gamble doesn’t work out. Crazy stuff; people are treating bank loans like venture capital and expecting the banks to be OK with that.
 

A big +1 to that. We operate in a free market for goods and capital. There is nothing stopping european banks from setting up their stall here and providing loans. The reason they're not is because they don't see a return. By forcing "our" banks to lend we are forcing an unprofitable outcome which will only be bailed out by the taxpayer again. Imagine any of us won 100m in the lotto tomorrow and we wanted somewhere to invest it...how many people would be willing to lend it to small to medium businesses in this country?
 
Like everything there is a happy medium here. Business lending does serve a useful purpose if properly assessed. I agree that many businesses are over-borrowed but proper credit assessment should ensure that credit is only advanced where risk is at an acceptable level. I am involved in this business all my working life and apart from the madness that took place in the early part of this century bad debt experience has been acceptable.
 
Purple said:
I strongly agree with this. We have no business debts, short or long term and fund capital purchases out of cash reserves (the bit we haven’t moved to Germany). Our bank has called offering us credit.
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I can echo that. My wife opened her own business last week which required an initial capital injection. Based on our circumstances our bank offered us credit which we kindly refused. When enough businesses/people have reduced their debts the banks will start lending again on a wider scale. Like a previous poster pointed out lending in itself isn't bad and is actually quite good if it is financing something which will produce a return. Sadly, given the general level of debt here at the moment any new credit would probably only be used to service existing debt or to pay for the wages.....the sad thing is that the country's finances are in the same state...borrowing to fund current (non capital) expenditure...
 
Chris said:
Fractional reserve means that you keep less cash on your books than you owe to the creditors, with the cash in excess of reserves being lent out. There simply is no excess cash to lend out.
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Fractional reserve banking isn't about lending out "excess cash".

It allows a bank to lend a multiple of its cash reserves, previously circa maintaing a 10% reserve of the total lending.

Money was created out of nothing using the relevant reserve formula.

The system trades on the fact that depositors are unlikely to require all their monies at one time.

ONQ.
 

That's been going on since god was in short pants. It didn't create our current problems.
 
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