update - solution?
william smyth Says:
8th, 2010 at 2:07 pm
The fundamental issue at stake is control over
the money supply. Money itself has no intrinsic
value. Its value is that of a means of exchange.
The government could issue a state credit
card indexed and backed by the resources held by
NAMA. Those credits could then be
used as a means of exchange for goods and
services within the domestic economy facilitating
the transfer of econmic resources (activity /
If the interest charged on credits
were zero, supply would be dictated by the the
value of assets held by NAMA and the creation or
addition of new resources in the economy.
Distinct from currency, these credits
would not be traded as goods in themselves (0%
interest rate)), and would exist only as a means
of exchange to facilitate transfers within the
domestic market. No debt is generated by this
model. Precedent has been set by existing
corporations such as TESCO.
The domestic market would operate as a sub-economy
without necessitating leaving the euro as those
credits would be indexed to the
assets held by NAMA which have in turn been
valued in euro. Credits could
ultimately be exchanged for tax credits at the
end of the fiscal year. So long as credits
in the economy exceed tax credits, the model will
perpetuate as the demand for tax credits equates
to the demand for credits. Thus the
government control the supply.
Simultaneously, Ireland would be insulated
from any currency war / flucuations.
Credits would equate to a cross
between food stamps and greenbacks.
NAMA is a clean,fully capitalised, soverign
By issuing credits backed up in
full by property assets, the floor of that market
will be set.
Demand for expensive loans from international
money lenders is thus reduced and domestic
activity is incresed.
if we raised the coporate tax rate we could
appease our european financiers and probably
dispel many of the doubts regarding such a plan.
ultimately, corporations could then exhange
domestic credits for tax credits
UP DATE FROM DE SPIEGEL:
The EU Is Pushing Ireland to the Brink of
One of Ireland's struggling banks: The banking
sector is Ireland's Achilles' heel.
government has just passed its fourth budget in
two years. But the drastic savings measures it
contains will not help the country's massive debt
problem. Some economists are now predicting it is
only a matter of time before Ireland defaults.
The sum is enormous: 6 billion ($7.9
billion) is how much the Irish government wants
to cut from the public finances next year. The
drastic course of treatment, the fourth budget in
two years, was passed by the Irish parliament
late on Tuesday night. It will be a huge test of
strength for the small country: The average Irish
household will be 7,500 worse off by 2012,
according to the Irish Independent.
The Dublin government has been congratulated
and encouraged from across the European Union for
being so brave in sticking to its austerity goals.
The unemployed, low-income workers, pensioners,
students -- hardly any sector of society has been
Yet this huge national sacrifice will not
significantly improve the country's massive debt
problem. The sometimes severe cuts to social
welfare payments, public sector pay and state
investment pale into insignificance when compared
to the massive gaps in the Irish banks' accounts.
That is why investors are continuing, undeterred,
to speculate on Ireland's eventual insolvency.
Irish Taxpayers Paying the Bill
The bailout loan of 85
billion that the EU, the European Central Bank
and the International Monetary Fund agreed to
extend to Ireland just over a week ago had failed
to calm market jitters. And why would it? After
all, it actually exacerbates the country's
The EU has failed to make the foreign
bondholders take a hit on the losses from toxic
real estate loans. In particular, the ECB
insisted that the interests of the German,
British and French banks would continue to be
protected. Instead, Irish taxpayers are being
asked to pay the bill: at a hefty interest rate
of 5.8 percent, to ensure the foreign creditors
will get their money back rather than face any
That may be something German banks welcome,
but it is a disaster for Ireland. And many
economists now predicts that it is just a
question of time before the country defaults.
"This 'bailout' will sink the Republic,"
warns economist David McWilliams in the Belfast
Telegraph. "It is the EU giving us
enough rope to hang ourselves in the hope that we
don't hang all of them."
If Ireland fully exhausts the EU bailout then
it will double the national debt to 175
billion by 2014, he calculates, and the interest
on that would come to 8.5 billion a year --
more than even the thriftiest of governments
To make sure that the state does not drown in
its debts, the annual rate of growth has to be
significantly higher than the interest due on the
national debt, McWilliams argues. If the Irish
economy does not grow by 8-10 percent, then the
country will end in a debt-deflationary spiral.
And even the most optimistic government
projections are just below 4 percent.
Barry Eichengreen, a professor of economics at
the University of California, Berkeley, makes a
similar argument. It would be neither politically
nor economically sustainable to force Ireland to
pay 10 percent of its national income as
reparations to bondholders, he wrote recently in
German business daily Handelsblatt, "as
anyone who remembers Germany's own experience
with World War I reparations should know."
It would be more sensible to have a debt
restructuring and offer the bondholders 20 cents
on the euro, he argues.
Such a restructuring would with one fell swoop
cut the Irish public debt from 130 percent to 100
percent of GDP, he says. And it would have shown
the Irish that the European Union was on their
side, writes Kevin O'Rourke, economics professor
at Trinity College Dublin, for the
Eurointelligence website. Instead the EU is
forcing "pro-cyclical adjustment onto
countries that are already sinking."
'We Face a Negative Spiral'
O'Rourke's prognosis is as foreboding as that
of his colleagues. "We now face a negative
spiral in which austerity causes emigration,
which increases the burden of the debt, which
ultimately leads to more austerity," he
writes. He recommends as a way out the path
pursued by Iceland. In a referendum, the voters
rejected a proposal to pay back their banks'
international creditors. Ireland, O'Rourke argues,
needs a "radical change."
The Irish government, however, is determined
to play according to the EU's rules. It is above
all about credibility on the financial markets,
argues Irish Finance Minister Brian Lenihan, who
was just named Europe's worst finance minister by
the Financial Times.
The budget that he presented to the parliament
on Tuesday, a mix of cuts and tax hikes, will
just further depress an already weak economy. And
the cuts will continue: According to the
government's four-year plan, which it unveiled in
November, a total of 15 billion will be cut
It is, however, doubtful if the government
will be around long enough to implement its plans.
Although the budget itself passed through the
Dáil, the Irish parliament, with the backing of
some independent parliamentarians, the next
government, due to be elected in spring at the
latest, will likely make changes to the plan.
Ireland's Achilles' Heel
And the austerity measures will achieve little
if Ireland does not get a handle on the problems
with its banking sector. It is still the country's
Achilles' heel. Ever since the Irish government's
fatal decision to provide a blanket guarantee for
all debts and deposits at the banks, the fate of
the state has been linked to that to the
financial institutions. And those toxic debts
left over from the real estate boom are still
lurking in their accounts.
The banks have already started erasing those
toxic debts from their books -- either by moving
them into the state's so-called bad bank, NAM, or
by selling them on at a discount price to
investors. However, no one has been able to
calculate yet exactly how high the losses are.
Of the 85 billion EU/IMF loan, 35
billion alone is earmarked for the Irish banks.
And 10 billion of that is to be a direct
capital injection, while the rest will be kept as
an emergency fund. Aside from the scandal-hit
Anglo-Irish bank, the country's two biggest banks,
Bank of Ireland and Allied Irish Bank, will soon
be majority-owned by the state.
The size of the EU/IMF bailout was calculated
on the basis that the banks could bear a default
of up to 10 percent on all mortgages. This super-stress
scenario would cost around 15 billion,
according to the Irish financial regulators. The
rescue package would suffice for that.
However, the high interest rates mean that
Ireland has no prospect of paying back the loan.
There remains only the hope that the government
won't have to avail of all the funds. But no
expert believes that this will be possible --
after all, the Irish banks have repeatedly sought
fresh capital over recent months.
A bailout? This is more like a stitch-up
Sunday November 28 2010
Let's say a few words in defence of Brian
Cowen. Just a few -- despite the bloody awful
time we're going through we haven't entirely lost
our minds. We're well aware that Ahern, McCreevy,
Harney, Cowen and their cronies took a thriving
economy for a joyride and crashed it. And for
over two years Cowen and Lenihan have stubbornly
continued the right-wing policies that caused the
However, Cowen appears to have been getting a
bad rap on this "IMF bailout". The
story is much more complex. For a start -- we're
not being bailed out, we're being stitched up.
And it's not so much the IMF that's doing it, it's
our European "partners".
Over that weird week in mid-November, Cowen
denied the bailout rumours (though EU sources
confirmed that bailout talks were under way). The
Government deliberately misled the citizens. For
a few days, the media seemed as puzzled as it was
aghast. At this time of crisis our philanthropic
European partners were offering us tens of
billions, and Cowen didn't want to accept their
generous offer. Was he mad? Bringing in the IMF
and the EU (through the European Financial
Stability Facility) was humiliating, infuriating
-- but it was a way out of an impossible crisis.
The supposition was that Cowen didn't want the
shame of being the Taoiseach who brought in the
bailiffs. Much more likely, he and Brian Lenihan
understood the stitch-up being prepared. They
resisted the "bailout" for very good
reasons. Typically, they misled us about what was
going on, instead of bringing public scrutiny to
bear on the events.
Who is being bailed out?
Yes, idiot Irish bankers loaned billions to
idiot Irish developers, with the blessing of
idiot Irish politicians. The resulting credit
bubble eventually and inevitably burst -- and the
developers (and many mortgage holders) can't pay
back the loans, so the banks are insolvent.
And the collapse of the property market
deprived the Exchequer of revenue it had come to
depend on, causing a huge government deficit. But
that's just part of the picture.
That money with which the banks gambled came
from somewhere. In recent years, Europe was awash
with cash, money saved by prudent citizens of
stable economies. Idiot German and French and UK
bankers needed someone to borrow that money and
pay interest on it. They were delighted to pump
countless billions into the vaults of the idiot
Irish bankers. With the blessing of idiot EU
politicians, bureaucrats and regulators.
They did so with the same recklessness with
which the idiot Irish bankers poured the billions
into the pockets of the entrepreneurial gobshites
who built the luxury hotels and the trophy
buildings and the ghost estates that now lie idle.
It's now clear that Cowen and Lenihan's
suicidal blanket bank guarantee wasn't just a
product of their idiocy. They were under pressure
from their EU mates to ensure that no bank failed.
The idiot German and French and UK bankers
wanted their money back. The idiot Irish bankers
couldn't pay. So, Cowen and Lenihan agreed that
the gambling debts of the private banks would be
paid by the citizens. In the words of
Commissioner Olli Rehn (who approved of this
shabby course): "Sovereign debt has not been
at the origin of the crisis. Rather, private debt
has become public debt."
Lenihan excuses loading the debt onto us by
claiming, "We all partied". It was as
if the crisis arose from the moral failure of a
people -- rather than a failed economic model,
Yes, we partied -- by buying homes at prices
set by corrupt banks and rapacious developers. By
taking minimum wage jobs and clothing our kids.
By saving for our children's education. There was
lunacy, but the vast majority of us worked and
saved and spent in line with our means -- we didn't
For two years, Cowen and Lenihan have put
increasing loads of debt on our backs, slashing
services and benefits we spent a lifetime
building up through our taxes. And now -- the
"bailout". From (as the RTE
cheerleaders like to put it) our EU "partners",
who are "coming to our rescue".
So, our EU "partners" are giving
Cowen access to 85bn, at usurious interest
rates. Part of that money will be given to Irish
banks, to bail out the German, French and UK
banks -- and those billions will be added to the
citizens' debt. By 2014, we may be paying over
8bn a year in interest.
This isn't a bailout or a rescue, this is a
The economic collapse is an EU problem. The
private banks are in trouble. The euro is in
trouble. Our membership of the euro makes our
sovereign deficit problems worse (and I don't see
that Cowen and Lenihan had a realistic choice in
this). We can't devalue the currency and the
Government's room for manoeuvre is limited.
We are not being bailed out. This is an EU-wide
piece of financial engineering. It is being
arranged in order to get the German, French and
UK banks out of the hole they dug for themselves,
and to save the euro. Charging any interest above
a nominal rate is profiteering.
The general election -- it doesn't matter. One
group of fearful, deferential politicians will be
replaced by another. The four-year "plan"?
Dead within days of being published. All that
remains of it is the slashing and burning that
will kill the old, betray the young and penalise
low and middle earners. Taking another 15bn
out of the economy will undercut any chance of
growth. On top of that, paying between 2.5bn
and 8.4bn a year in usurious interest on
the fake bailout would beggar us.
Will the citizens tell the bankers and their
politician friends to bugger off? I'd like to
think so, but the signs are that currently the 'fighting
Irish' have all the
pluckiness of a bald, bound and stuffed turkey
being slid into an oven at 180 degrees, gas-mark
It's time, says Fine Gael's Leo Varadker, to
"play hardball" with our European
"partners". What's hardball, Leo?
"Burn the bondholders," says Leo. No,
son, that's not hardball. That's what should have
happened as a matter of course. The bondholders
gambled, they lost.
Hardball -- well, our "partners"
have pretty much closed off all the safe options.
We're left with -- what? Maybe calling Merkel and
Sarkozy and Cameron into a room and telling them
that for the foreseeable future every EU treaty
adjustment will go to an Irish referendum, and it
will be lost.
The European project has at its heart some
laudable aims, albeit corrupted by a lack of
democracy and a surfeit of economic extremism.
But perhaps the extremism wins, and perhaps the
EU project is over.
Or -- if we want to go ballistic altogether --
we could always pick an island (Inishvickillane
would be my choice), put it on eBay and invite
the Chinese, the Iranians and the North Koreans
to bid. Let's see how much Merkel and Obama
between them would come up with to head off that
prospect. Bids start at 85bn.
And that, Leo, would be hardball.