Igcuimhne81
Registered User
- Messages
- 12
This all depends on how the defult happens. Ideally Ireland would talk to bond holders and explain the situation and come to an agreement. This is what private citizens are being advised to do when they have trouble with debts, and is the right advice for a state as well.Just a general question and not related in anyway to what is happening in the world economy at this moment. But what effect would a default have on a country like Ireland?
I have heard conflicting reports on whether it is possible for a member to be kicked out of the euro. I haven't looked at the legal documents signed by member states, as I have made provisions for an Irish default regardless of what happens currency wise.What would happen to our membership in the euro?
If Ireland were to default it would certainly not be able to live up to any deposit guarantees. This would make it very difficult for Irish banks to get funds on the money markets and would likely result in bankruptcies, with risks to deposits.What would happen to deposits held?
What effect would there be on inflation/deflation?
Some of this is the 'nuclear' scenario, and makes for worrying reading.
As someone with their life savings in deposit in Ireland, the thought of having it wiped out is very scary. Surely this would not be allowed to happen across the country, the place would descend into anarchy and chaos.
Lots of interesting stuff Chris, but I'm not sure I agree entirely with this analysis....At the moment, with the euro, the newly printed money has been largely offset by credit contraction (through debt defaults). The newly created money is being used by banks to fix their balance sheets, but as soon as they start lending out the excess reserves held, we will see huge increases in prices.
Lots of interesting stuff Chris, but I'm not sure I agree entirely with this analysis.
Here's my very simple model of what happened. Banks lent stacks to developers (both directly and through giving mortgages to homebuyers), developers gave stacks to farmers for their land. That's when the money supply was created. If farmers started to spend their windfalls on goods and services then big inflation would follow. The land turns out to be worthless. Developers can't pay back their loans. Government buys loans from banks so that they are still able to back the farmers' and everybody else's deposits. This support does not increase money supply but does prevent the existing money supply (deposits) becoming meaningless, so of itself it is not inflationary but counter deflationary.
Because of the massive asset deflation we have seriously deflationary wealth effects. The farmers can still go on their spending spree, but developers can no longer support the construction industry and homeowners in negative equity substantially reduce their consumer demand. And nobody wants to lend or borrow. All in all I don't see any hyperinflationary effects.
It requires a level of management that only a free market can provide. I have to disagree on the economy not wanting credit, I believe the economy is completely hooked on credit, which is why there is talk of governments 'forcing' the banks to lend out to SMEs, or providing billions in funds directly. SMEs are desparate for credit, large corporations are finding it relatively easy to get funding in comparison.Okay Chris, it will need careful management by the ECB as well as the will. The banks have the liquid reserves to fuel wild money creation but they haven't the capital reserves to grow the asset side of the balance sheet and anyway the economy doesn't want credit even at these rdiiculously cheap levels.
Inflation is a monetary phenomenon created by central banks and governements. Higher prices are merely a consequence of inflation. For central banks to claim that they are in the business of keeping inflation low, is like a vodka distiller saying their sole purpose in business is to keep alcoholism low. This might actually be a good topic for a new thread.I remember in the inflationary 70s all the focus was on money supply and the authorities used most ad hoc devices like corsets and the like to try and control it.
My view is that the authorities can control inflation if they want to. In the 70s they were half hearted because the inflation helped to soften the blow of the oil crisis.
There is a danger that in a desire to dilute the real value of sovereign debt they will relax on inflation. Thank heavens for Germany and I see the Euro starting to do quite well again.
For central banks to claim that they are in the business of keeping inflation low, is like a vodka distiller saying their sole purpose in business is to keep alcoholism low.
Too few and its not worth the effort, too many and her work is devalued.
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