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Time For Ireland To Default

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David McWilliams writes of Greece’s latest debt deal and how the smart option for Ireland now is to default. Of course when the country is run by school teachers and ex unionists there is no chance, as their only focus is securing funds to pay public sector wages as well as their own.

McWilliams has consistently argued against Irelands odious bank debt which lets face it is just being paid back for bondholders who gambled badly. Now is the time to push for a debt deal. Unfortunately the Presstitutes refuse to debate openly the merits of reneging on payments to bankers. Equally discussion of pulling out of the euro has been muted least it catch on.

ireland toxicbankGreece has defaulted again, and the financial markets have shrugged their shoulders. The euro remained unchanged versus the dollar. The Greek stock market even rallied. What does this tell us? It tells us that, as this column has argued again and again, the markets have no memory. Because it improves the overall position of a country, a debt restructuring will be welcomed since it adheres to the golden rule: a broken balance sheet is made better by less debt not more debt.

The media is reporting this as a “deal” in Greece. It is not, it is yet another default from a country where the economy is destroyed and needs to be nursed back to health rather than punished.

The big news for Greece and for us is that the troika has accepted that the country must be healthy in order to pay debt. This logic applies to Ireland too. Before we focus on the implications of the latest Greek default for us, let’s look at the broader picture. And before you think that I am advocating we follow the Greek route, I am not, I am simply pointing out the reality of the global economy and the realpolitik at the centre of Europe.

Effectively, the troika and the Europa group of Greece’s creditors have “agreed” (rather they have had their hands forced) to restructure their bailout loans. Interest rates will be lowered and even deferred to give Greece breathing room.

The crux of the agreement is that Greece’s debt-to-GDP ratio should reach 175pc in 2016 and 124pc in 2020. So 120pc has become the new sustainability.

It has also calculated that this is how capitalism works. In a crisis, the debtor and the creditor suffer, they both lose out and that’s how the system works. It is called co-responsibility.

The eurozone’s economy is in tatters, carrying too much debt, unable to grow. Italian consumer confidence has fallen to a record low this month. It is now at the lowest level since the series began in 1996. The only countries that seem to be keeping their necks above water in Europe are Bulgaria, Romania and Poland. This is hardly a reassuring picture, is it?

As the great deleveraging continues and unpayable debts can’t be paid, it would be surprising if Athens is the only government to choose to face down its creditors.

This all brings us here to Ireland as we continue to squeeze the economy dry, foisting austerity upon austerity and the local economy falters. Next week will be more of the same. We have been at this for five years now and there is no sign of recovery. It is increasingly clear that the Irish domestic economy will not recover as long as the crushing debt burden on the country’s young workers is not lifted.

And as we all buy and sell to each other in the local economy, your spending is actually my income and my spe- nding is your income. And if we all stop spending at the same time and the Government exacerbates this by slashing spending simultaneously, who is spending? And if no one is spending, who is earning? And if no one is earning, who can possibly be saving without earning?

So you see that what sounds good for the individual, such as “I am saving”, is only good for me if others continue to spend; if we all save at the same time, there is no income.

Now as these macro-economic targets that the Government and the troika set themselves are always debt expressed as a percentage of income, if our income is falling because no one is spending, then debt expressed as a percentage of income will be rising, not falling.

Now is the time to push for a debt deal, instead of the excuses pushed by the government for nearly two years as to why they haven’t.

This is why there has to be a debt deal for these hundreds of thousands of mortgages underwater. We already have 128,000 mortgages in arrears. This figure is rising consistently. There are 400,000 tracker mortgages which will only get more expensive as interest rates eventually rise over the course of the mortgage. These people will face default when this moment arrives and our banks will be bust again.

Now is the opportunity, when the EU is doing deals all over the place, to propose a big bank solution for Ireland’s mortgage debt. Such a deal would aid the Irish recovery, the EU would have the victory it so craves and ordinary Irish people would have the debt relief they so desperately need.

This would allow the economy to breathe again and it could be made the centrepiece of Ireland’s EU Presidency in the next six months. The EU President sets the EU agenda for the period when it has this role. Let’s not miss this chance.

Otherwise Ireland will become known as the country that never misses an opportunity to miss an opportunity. The Greek deal is an opportunity; let’s not throw it away.

Source: David McWilliams

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David McWilliams: World Economy Still in Trouble

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David McWilliams explains the ails of the World Economy through Punk Economics5. The key points are as follows

  1. Slowdown in china,
  2. Fading recover in the US
  3. Euro crisis
  • Chineese slashed rates and are panicking, they are under pressure to deliver growth for their people.
  • US employment recovery is fading and all indicators are down
  • After EU summit, Spanish yields > 7%.
  • Germany Vs the Rest, either they pay or euro collapses.
  • Most of europe is unable to compete with Germany and never will.
  • Merkel has an election next year and is more likely to put Germany first before Europe.
  • Debt deal will most likely fall apart followed by the markets attacking on the sovereigns.
  • France is the weak link.
  • The debt deal collapse will follow the path of 1944.

=> Spain & Italy to be locked out of the markets. Then pressure on France.

Germany to abandon Italy & Spain to save France (in compromise with German electorate)

Cases In Irish Courts Point To Mass Defaults To Come

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David McWilliams writes for the Irish Independent of cases currently going through the Irish Court system and points out that this is a sign of mass defaults that are to come. As David sat in court observing so big names including being pursued by the banks for millions what of the millions of struggling taxpayers saddled with huge personal debt.

And this is the point of it all, down at the courts we see a huge amount of effort and huff and puff much of which is pointless because so many people and companies are bust.

And it is only the tip of the iceberg. The next phase of the Irish economy’s story won’t be the recovery but the mass default phase and it will imply the banks will need yet more capital. When that capital is unforthcoming, we will have another bank crisis.

The banks don’t have the capital necessary to foreclose on thousands of defaulters. If they foreclosed now, they’d simply go bust. However, by not actively foreclosing they will just go bust passively, slowly, zombie-like.

The charade replayed every day at the Four Courts is the canary in Ireland’s default coalmine. The people yesterday in the courts are those who can still afford the theatre of defence. For most debtors, this is a luxury that only the “soon-to-be-poor” can still indulge.

This is only the beginning.

Far from the majesty of the Four Courts, lies the County Registrar’s Court. Here we see what’s going on further down the food chain. This is where the small fry — those thousands who borrowed too much to finance the first-time houses — are being pursued by banks.

The banks, which have been bailed out by the State, are not down here yet because of the implicit “moratorium” against foreclosing given in exchange for state money. But this won’t go on indefinitely because the longer the banks remain zombies, the more the real productive part of the economy grinds to a halt for the want of credit.

Finally a great realistic sumation of the economy by McWilliams.

It might have escaped you with all the talk of China and referendums and promissory notes, but Ireland slumped back into recession last week. House prices fell more in February than ever before and unemployment and emigration continue to rise. As basic economics suggests, too much debt combined with asset price deflation and an overvalued currency without the ability to print our own currency tend to strangle the economy.

Lesson For Ireland In Greece’s Default

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Every since the banks went bust in Ireland the politicians have been saying that the taxpayers have to pay back the bank’s debt. If they didn’t repay those debts it would have disastrous consequences. Well if Iceland’s experience hasn’t proved this to be false, the Greece default last week certainly has. David McWilliams had this to say

Now there we were, thinking that financial markets didn’t like defaults. In fact, we were warned that if we were to do something as dastardly as not pay Anglo unsecured creditors, the sky would fall in. This line has been followed by our state as if it were gospel.

Yet on Friday, we see that not only is it not gospel, it is nonsense. The financial markets didn’t sell off, but rallied enthusiastically after the news that Greece had defaulted spectacularly on sovereign debt, not bank debt. So the markets that lent Greece money rallied on the news that Greece wasn’t going to pay the money back.

The largest sovereign default ever – and the only one in a developed country in 60 years – was embraced by the financial markets. In fact, for what it’s worth, the Greek stock market rallied too.

So what does this tell us?

It tells us that financial markets have no memory. They move on. It also means that when something becomes inevitable, sensible people accept it and make provisions. The fact that the default was not orderly or chaotic makes no real difference. Only weeks ago, creditors of Greece were saying that they wouldn’t accept default (as if they had a choice).

………

So what happened to the so-called vindictive financial markets, and what they would do to Greece if Greece defaulted? They rolled over. And what about the ATMs? Remember the notion that the ATMs wouldn’t work if bondholders didn’t get paid? Well, ATMs worked just fine in Athens on Friday evening.
More significant has been the U-turn by the troika. A few months ago, the EU view was that no default could be contemplated yet, on Friday, even the so-called hard-line Wolfgang SchÌuble, German finance minister, called the deal an “historic opportunity for the country”.

What of Ireland’s future

Now what does all this mean for us in Ireland, as we move forward?
It means that we, too, will get a debt deal on banking debt, not just the promissory note. The question is whether we are best to go for it now or wait for something much bigger down the road.

 

David McWilliams – Greece To Default This Week

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Irish economist David McWilliams has indicated that he expects Greece to more than likely default this week.

It looks like Greece will be kicked out of the eurozone – perhaps as early as this week. Indeed, it is more likely, for the sake of optics, that the Greeks will choose to leave at some stage. If it doesn’t happen this week because there is a deal stitched together, it is likely to happen when the next funding crisis emerges.

Ultimately, the world knows that austerity isn’t working in Greece and is clearly making things worse.

Half of Greek men under the age of 30 are unemployed. The budget deficit is still 10 per cent of GDP, as is the current account deficit. This means that Greece has to borrow 10 per cent of its total income just to pay for imports. The banking system is bust and there is no prospect of recovery. And yet the EU advocates ‘more of the same’ in terms of austerity policy.

As we hear from EU leaders weekly, that a Greek default will not be a huge problem because banks are well capitalised due to LTRO etc, McWilliams sees otherwise. He believes the knock on effect is being spun in much the same way as was spun in Ireland when the property market was about to crash.

If the Greeks leave the euro, then what will happen? We will see a massive bank run in all of peripheral Europe because, if this can happen in Greece, it can happen anywhere.

That is the nature of a crisis. It is never controlled. The world moves quickly and the paradigm shifts. Remember the soft landing spoofers in Ireland? When property started falling first, their story was, initially, that ‘this is a buying opportunity’.

Then the falls continued and the story was ‘it will only fall in Roscommon and Leitrim’. As prices fell, the story changed to ‘prime property will hold its value’ and then, when prime property collapsed, it changed again. That’s what happens – once a crisis starts, all bets are off.

Remember, this crisis was caused by over-lending as well as over-borrowing.

Lets take a look at the change in attitude to Greece by the EU leaders and the real reason for the LTRO.

The shift in the EU attitude towards Greece – if they don’t ‘shape up’, then Europe will not pay up again – is 100 per cent related to the shift at the ECB.

The ECB is operating a massive operation of injecting liquidity into the banking system, and this could be a central factor in the Greek euro exit. Up to now, the big fear was that, if Greece went, it would prompt yet another credit crisis in Europe. This would cause bank failures and these bank failures would beget yet more economic chaos. This has all changed now.

The ECB will, by the end of the month, have injected €1 trillion of cheap money into Europe’s banks by this new operation, whereby it lends to banks for three years. I can’t stress enough how important this is. It is a giant, monumental ‘cash for trash’ scheme, which is giving banks real cash for brutal collateral at 1 per cent.

This is Europe’s answer to quantitative easing, and it means that, whatever the European banks need, they will get.

There are many ramifications of this which we will come back to in later articles. However, for this week, let us satisfy ourselves that this operation makes the Germans feel that a Greek euro exit could be managed. Why else do you think the Dutch EU Commissioner stated last Tuesday that the eurozone could handle a Greek exit from the currency?

Make no mistake, the elite in Europe are preparing for a Greek exit. They feel they have now enough liquidity in the banking system to handle the shock because, if the Greek exit causes losses in the banks holding Greek bonds, the ECB will at least give them the liquidity to handle the short-term crisis.

Obviously they will take a capital hit, but – as far as the politicians are concerned – this is tomorrow’s worry. We could be in for a huge week.


 

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