Irish national debt per person highest in the eu

[TheBigShort]

There is nothing compulsive about it,

my point is governments should not be allowed to borrow money,

With respect, it sounds like a compulsion to me.

let's take capital expenditure, there are maybe 40, 50 cranes in Dublin mostly American capital projects there is a shortage of trades people and the government decide to build a children's hospital in this part of the business cycle costing more money, its like poring petrol on a fire because its a liquid,

With respect that makes no sense to me. Either we need a children's hospital or we dont. If, through our democratic institutions it has been sanctioned and approved that we need a new children's hospital, then we should build a new children's hospital.
It is up to private capital projects to decide if they invest or not. The needs of society should not be unduly delayed or cancelled because of private business interests (unless one of those projects is another Krispy Kreme outlet of course - cant be doing without that )
In all seriousness however, I would be interested in knowing in what part of the economic cycle you do think a children's hospital could or should be built? Take a fifteen year timeframe, 2002-2017, as guide.

 

[BilliamD75]

From an economic point of view the hospital could have been built in a recessionary period being 2011 to 2013 when there were no cranes in Dublin and there was an Abundance of trades available, this kind of time frame for capital projects aids the economy from being a depression to A recession

 

[TheBigShort]

I agree in general terms, but from 2011 to 2013 debt to gdp was 110%+. We were in a bailout program. We had no spare capacity to borrow with Irish bond yields at 12%. It doesn't make sense to me that it would have been ok to borrow to build a hospital then, but its not ok to borrow now (relatively small amounts) when the debt is 68% ,projected to decrease further, and bond yields at 1%.

 

[BilliamD75]

Here in lies the situation with government, we could borrow vast sums of money during this period for civil service and social protection, up to 2007 we had very little public debt, the government used the stamp duty on properties for benchmarking and paying down debt,now its using corporation tax for increases again civil service and social protection, don't forget at the time we had a lot of money in the pension fund which could have been used differently, the situation always arise with career politicians, they need re election and decisions are by and large never in the national interest,

 

[TheBigShort]

Im sorry, but its hard to keep up. You are flip-flopping from paying down government debt, to the cost of a hospital for children, to public sector benchmarking.

Can you confirm that you think the State should have borrowed more funds during 2011-2013 to build the children's hospital?

If yes, I think that just contradicts the position that you appear to espouse.

If no, then I ask the question again.
In what part of the economic cycle, using a timeframe of 2002-2017, would you think a children's hospital could or should have built, if at all?

 

[Sophrosyne]

Here in lies the situation with government, we could borrow vast sums of money during this period for civil service and social protection, up to 2007 we had very little public debt, the government used the stamp duty on properties for benchmarking and paying down debt,now its using corporation tax for increases again civil service and social protection, don't forget at the time we had a lot of money in the pension fund which could have been used differently, the situation always arise with career politicians, they need re election and decisions are by and large never in the national interest,

You need to back up what you are claiming with links to statistical evidence.

 

[BilliamD75]

There is no flip flopping what so ever, you asked a question when should we build a hospital, I said in 2011 to 2013 when there was a large availability of trades which would cost less than today savings money, this is self explanatory,whether they build the hospital are not the issue, have already said the state should never be allowed borrow money, I also said it is better to pay down debt when rates are low as to when rates are higher again this is self explanatory, the government waste tax payers money needlessly, if it was a business it would be bankrupt in a year, the statistics are all there if you look for them yourselfes, hope this clears things up for you

 

[Markel]

...if it was a business it would be bankrupt in a year...

It's not a business though... Ireland is a sovereign state that can raise taxation over multiple generations and indeed can indefinitely refinance debt.

 

[cremeegg]

So after first year of repayments, a State can replace old debt thst has been paid down with new debt, simply rolling over the debt.

Over the foreseeable future that will be at a higher interest rate.

If the government took money out of the economy now to pay down debt, this just reduces growth,

Quite probably what the Irish economy needs at present.

All that would happen (if the govt paid down debt) is that the government would be kicked out and the next administration will simply borrow back up to levels we are at now again.

You are probably right here. That does not make it wise however.

The important thing about the national debt is the interest we pay on it and the rate at which it is increasing.

Yes, and both are increasing.

the rate at which borrowings are made is well below the economic growth of the country.

"well below" The average rate on borrowings is approx 3%. €6bn interest on €200bn debt. I have some hope that economic growth is well above this, at present. Looking forward interest rates are going up. No one knows where economic growth rates are going. We could well be locking ourselves into a situation where interest rates exceed growth rates.

This is sustainable borrowing as long as the money is spent to effective use.

Unfortunately the need to get votes and effective use of public money are rarely compatible.

 

[TheBigShort]

said in 2011 to 2013 when there was a large availability of trades which would cost less than today savings money, this is self explanatory

Its true that wage rates had fallen, but that was because capital investment had crashed, credit crunch, State bankruptcy etc...in other words, there was no money (or very little) to pay for the cost of a children's hospital. If the State was borrowing funds to build the hospital it would have been doing so at high interest rates, costing a lot more than it would cost today.

have already said the state should never be allowed borrow money,

Ok, that is your view. I think it would be economic suicide for the State not to be allowed to borrow funds.

I also said it is better to pay down debt when rates are low as to when rates are higher

Yes you did. And I explained that paying down debt would achieve very little. If the government wasn't allowed to borrow as you propose, and if it were to pay down debt with surplus budget then we would be taking €5.5bn out of the economy next year (this is the net surplus in the current account). This would save about €120m in interest repayments.
It would also eliminate all capital expenditure, reduce economic activity, increase unemployment, reduce revenues and send the economy into a recession, if not a depression.
The State would be forced to borrow (whether you would like it or not) but at interest rates far higher than it is borrowing today.

the government waste tax payers money needlessly, if it was a business it would be bankrupt in a year,

Its not a business. It is a mistake to compare national accounts with the accounts of a business or a household.

 

[TheBigShort]

Over the foreseeable future that will be at a higher interest rate.

Irish 10yr bond yields are currently at around 1%. This is reducing the average rate.

Quite probably what the Irish economy needs at present.

On what basis? In what sector would you reduce spending? The Social protection budget has increased by €361m. Not an insignificant amount but on a €200bn debt it would barely register a ripple. All that would happen if you used this money to pay down debt is that you would take this money out of the economy. Why?
I think some are failing to factor in that all this money does is stimulate economic activity, in turn increasing employment, increasing revenues back to the State.
Of course it is not something that is without risk and needs to be managed, but currently that risk is measured by the interest rate charged on new borrowing, which is very little. There is little indication of the economy "overheating". There are structural defects, such as housing and shortage of workers in certain trades, but they wont be resolved by paying down debt and taking money out of the economy. They will only be resolved through further investment.

You are probably right here. That does not make it wise however.

It does actually. As stated, if the government was not to borrow and instead use current account surplus to pay down debt it would send the economy into recession, increasing unemployment, reducing revenues etc. It would be forced to borrow, but at rates that would be a lot higher than today.

Yes, and both are increasing.

Relative to the growth in the economy, overall debt is reducing.

The average rate on borrowings is approx 3%. €6bn interest on €200bn debt.

Yes, and borrowing at 1% is bringing that average down.

 

[BilliamD75]

The government can borrow at 1% because the ecb(lender of last resort) are buying the debt, thats going to change, yes we are a sovereign state but we cannot borrow indefinitely, we will have the imf back again, and we must remember we can go bankrupt just like a business especially since we do not have our own currency,

 

[TheBigShort]

I agree re end of QE. But not necessarily that we will be back in IMF.
This is how I view things. I don't think it is reasonable to simply look at State debt in isolation. The reality is private debt is 406% of gdp. Household debt to income is also 147%. Combine all of the debt and it is equal to around three times the value of gdp.

So what to do? If government cuts spending to pay down debt it deflates the economy putting pressure on services and households come under further pressure. Households are, thankfully, paying down debt but if government spending was cut, or taxes increased that would change.
Corporate debt is massive also.

So what to do?

The only thing I can think of is to introduce inflationary policies into the economy that will drive up prices and wage demands. I think this budget is attempting to do this. I think also that policies emerging from US, UK and elsewhere are also pointing to inflation, also pointing to wage increases.

 

[cremeegg]

Ireland as a member of the Eurozone, cannot unilaterally increase inflation without destroying competitiveness.

 

[TheBigShort]

Ireland as a member of the Eurozone, cannot unilaterally increase inflation without destroying competitiveness.

Agreed. That is why its useful to know that major economies of the eurozone government spending in on the increase and reaching record highs in some instances.

Germany
https://tradingeconomics.com/germany/government-spending

France
https://tradingeconomics.com/france/government-spending

Netherlands
https://tradingeconomics.com/netherlands/government-spending

Italy
https://tradingeconomics.com/italy/government-spending

Spain
https://tradingeconomics.com/spain/government-spending

 

[BilliamD75]

I agree also, it's a part of the whole issue, it's just the size of the debt, 200 billion for less than 5 million citizens, a little example if I may, this is just for example purposes only, 200 billion, the ecb is mandated to buy up to 40% of government bonds say 80 billion at interest one billion (one %,) the other 120 billion in the private sector interest 5 billion, now interest rates are at historical low rates (negative ) when they rise and they will soon in small steps at first say to 4% which is not very high as we have seen them before, the private sector will want a yield above this say 7% just for risk purposes and the ecb offloads its balance sheet and it will the interest will be say 14 billion, the interest rate will be greater than the growth rate as the economy is at near full capacity, the bond market will deem Irish debt a higher risk and demand a higher premium, this starts slowly but accelerates very quickly causing a default (maybe ) this is why rolling over debt is not an option this time, its just to large and the ecb has us on life support which is going to be switched off, (Italian bonds are around 3%and rising) I hope this helps to understand my thinking

 

[Purple]

It's not a business though... Ireland is a sovereign state that can raise taxation over multiple generations and indeed can indefinitely refinance debt.

Except every country is doing the same thing as every citizen in the developed world wants to live beyond their means.
I'm no economist but I don't see it all ending well.

 

[Purple]

The Irish economy is running a high risk of overheating at the moment.

The last thing we should be doing is borrowing money to put more fuel on the fire. We should also not be cutting taxes or increasing welfare rates, particularly for asset and cash rich pensioners.


A country is not like a household; the analogy is too simple and so falls down. A country does need to conform to some basic economic and accountancy norms though and while political expedience (populism) is important in order to keep the other guys out of office reality should not be ignored.


Saying that the current budget is in surplus and that we are only borrowing for the capital budget is just window dressing. We could just as easily present it the other way around.

If we want house price moderation and if we want sustainable growth we need to take some fuel off the fire. Capital spending is necessary at the moment but as that spending takes place within the economy it is inflationary. We should have more of it but it should be done within the context of an overall budget which is balanced.


I would fund capital spending increases by not increasing any Welfare payments, removing many welfare payments for middle and higher income households, making all welfare payments taxable and putting a cap on the total welfare payments per household as well as looking at reduced spending in public services through more restructuring and shared services. That would result in a headcount reduction (through natural wastage, not redundancy). That reduction could be split 50:50 between reduced overall numbers and more “front line” staff. It’s small gains but over a 5-10 year period it would be significant. There’s no need for big confrontations so a better buy-in from Public Sector Unions would be helpful. They need to accept that increases in productivity should not be tied to wage increases as better Public Services benefit their members as well.

 

[TheBigShort]

I don't necessarily disagree with any of the above.
But the issue being raised by some is to run a budget surplus in order to pay down the debt. Running a balanced budget is all fine and I agree that is the financially prudent thing to do.
I accept that there is a deficit being run in budget 2019, but as it is relatively small in the context of the overall debt and in relation to the overall growth in the economy I would not consider budget 2019 as tipping point, or a significant contributory factor if the economy were to crash again - that damage has already been done. Too much public and private debt.
Its how we steer a ship that has already taken on too much water to dry land for repairs so that it can sail again.
Do we put all our energy into paying down the debt, only to end up taking on more debt to plug all the holes?
Or do we drive the economy forward to a point that the debt is beginning to diminish?
I would suggest the latter. Its not without risks, but balanced budgets or, budgets with small deficits relative to the growth in the economy are the way to go.
Paying down the debt is futile. Bringing the debt to a point where it is manageable is the key. To do this our economy, along with economies of developed world, need to inflate. But as borrowing limits in both private and public sectors are stretched to outer limits, more borrowing is not going to cut it.
Incomes need to rise, raising prices and wages to sustain those price increases and spending and grow economies. More robust legislation is required than simply raising the minimum wage.

 

[Purple]

If inflation goes up then so do interest rates.
Be careful what you wish for.