update - solution?

william smyth Says:
December 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 / work)

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 CORPORATION.

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…..


The EU Is Pushing Ireland to the Brink of Ruin

By Carsten Volkery

One of Ireland's struggling banks: The banking sector is Ireland's Achilles' heel.

The Irish 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 left unscathed.

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 financial problems.

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 losses.

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 could afford.

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 by 2014.

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.,1518,733522,00.html

A bailout? This is more like a stitch-up

Gene Kerrigan:

There is a very good reason our Taoiseach was slow to accept the EU/IMF deal, writes Gene Kerrigan

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 economic apocalypse.

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, casino capitalism.

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 gamble.

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 hold-up.

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 4.

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.

Sunday Independent