Wednesday, Aug 25, 2010
Ireland suffers ratings downgrade
BBC News: Ireland suffers ratings downgrade
The Irish Republic has had its credit rating downgraded by a leading ratings agency, Standard and Poor's (S&P). S&P fears that the growing cost of propping up the country's banks will further weaken the government's finances. It now thinks that the Irish government will spend 90bn euros ($101bn; £74bn) helping the banks, 10bn euros higher than previous estimates. The country's own debt agency described the analysis as "flawed".
Posted by cat and canary @ 08:53 AM (2195 views) Add Comment
27 Comments
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1. uncle tom said...
When looking at the bailout numbers, you need to remember that Ireland only has a population of 4.2 million.
£74bn equates to over £17k per head of population - 50% more than their total annual tax revenues.
Ireland's economic numbers are so extreme, their credit status should have been reduced to junk ages ago.
How can they possibly justify AA- ? This was the same rating that Ireland enjoyed in the mid nineties, when it was the great Celtic tiger economy..
..today, Ireland has blown it, and has a sovereign debt crisis that is not under control..
2. str 2007 said...
UT
Do you know how that compares to our debt per head of population ?
Fully agree that as most seem to struggle to clear a credit card £17k per head (£50kish per household ?) seems an incredible amount and to me aswell suggests they're well under water. AA- seems ridiculous.
Maybe someone cleverer than me could explain how debt at this level is in anyway sustainable ?
3. str 2007 said...
In fact I'll go further (subject to responses to my above comments) and really question any credibility these rating agencies have given there ignorance to the initial crisis - which seems to be continuing.
Maybe they know of a new Guiness ad campaign that will save the day LOL.
4. estrader said...
STR 2007,
http://www.youtube.com/watch?v=jj8rMwdQf6k
I HIGHLY recommend watching the entire video but if you go in 37min you will get a brief explanation of how rating agencies rate 'things'.
5. sureseam said...
str @ 2
Am probably no cleverer than you, however a few thoughts:
The Reinhart & Rogoff book [This time is different] shows that the debt to GDP ratio taken to trigger sovereign default varies widely. Japan okay at 300+% compared to Russia's last default at 12% for example.
Having achieved a globalised economy; we now have a globalised debt problem. If (say) Spain go bust then they can't crash their currency and export like crazy .... because no one is in the mood to import like crazy. By being in step economically: the dominoes are lined up.
If Greece goes bust then the French, German, UK [etc] banks will take a big haircut which could trigger the next step and so the dominoes fall. RBS, Lloyds and HBOS are part of this scene and backed by the UK tax payer.
But don't worry they'll still have money to lend to British house buyers on high LTV mortgages.
6. nickb said...
@sureseam
Yes... but... A key factor it seems to me is the currency in which the debt is denominated. It's common for defaults to happen in debt denominated in foreign currency - hence Russia, Argentina, various third world countries struggling to repay $ debts. This is essentially the situation Ireand is in because it is not free to create Euros; it is not really a monetary sovereign at all. Fortunately the UK is not in the same boat, it is as Japan is, the monopoly issuer of its own currency, and that explains why Japan can have a debt that is a multiple of its GDP. Which also shows that the hysteria surrounding the UK's current levels of debt is just that. This is a key reason why I would resist our joining the Eurozone.
Nick
7. mark wadsworth said...
Just to put that €90 billion in perspective, it's nearly one third of Ireland's annual GDP.
For a country to simply flush a third of its annual GDP down the toilet, even if that's spread over a few years, is asking for trouble
8. mark wadsworth said...
Re what Nick B says, Japan is a strange case - although nominal govt debt is 300% of GDP, the bulk of this is held by Japanese banks and Japanese savers (don't ask me for precise figures).
9. estrader said...
"the monopoly issuer of its own currency"
If you take this argument to the extreme you could say that a country can survive and even prosper by producing and "exporting" nothing but its own paper I.O.U's, which is exactly what a fiat currency is.
Do you really want the U.K to follow in Japan's footsteps?
10. nomad said...
As well as being ardent savers these names may help to convince Japanese creditors of their substance: Denon, Fuji, Sony, Epson, Toyota, Mazda, Nissan, Bridgestone, Sharp, Nikon, NEC, Suzuki, Yamaha, Shimano, Honda, Canon, Casio, Daihatsu.
Whereas here in the UK: Rolls Royce, Cadburys, Rover. Oh no, sold them all - but we do have some big banks.
11. drewster said...
Whereas in Ireland they have Ryanair, and.... well, that's about it? (Even Guinness now belongs to global drinks conglomerate Diageo).
12. jack c said...
@nomad - Rolls Royce became insolvent in January 1971 and by February of the same year was placed into receivership and then subsequently nationalised by Ted Teeth's consevative gov of the day (showing my age here). The US gov also had to underwrite bank loans for Lockheed who were involved in various RR projects. So it seems bailouts are nothing new, they just appear on a much wider (like worldwide) and larger scale.
Yes we now have some large banks but these are also currently partly government (or tax payer if you prefer) owned - fortunately as our service based economy has developed we now have a huge amount of tanning studios and coffee houses etc... which will fill the gaps you mention !
13. nickb said...
@estrader
Where do I advocate that exactly? Of course it still needs to produce real goods and services. All I'm saying is that a monopoy issuer of its own currency is in a better position to handle debt (denominated in that currency) than a country which has debts in another currency. Shouldn't be too difficult to see why that might be so. If you think that's not the case, please provide some evidence.
@Mark,
Whether it is a 'strange case' - would you agree that many governments in many periods have had debts that are multiples of their GDPs and that this has not always led to some kind of crisis. I suggest that these are the facts of economic history. Counter cases will be ones where governments have defaulted in debts denominated in their own currency, so I'd like a list of these please!
Nick
14. braindeed said...
Aren't S&P the amongst the clowns responible for this mess in the first place?
15. mrmickey said...
As has been pointed out Japan has been borrowing money from it's own savers, I assume as the UK has no savings we borrow our money from svers in other countries, big difference
16. titaniccaptain said...
Gold seems to be reacting rather well to the news of more potential sovereign debt problems.....
Makes you wonder if the talk of Gold not being in a bubble has some truth about it....
Now I must apologise in advance for this but this is for a few mates out there on this site who have emailed me asking about it....sorry to divert this serious conversation.
....as many of you know I left the bands I was in to do my solo stuff and I think this is a nice swan song for myself....I am the chap on Bass and backing vocals.
After this live session the band has been inundated with offers for support acts with top bands and record deals with major companies but I am still out (even though he asks at the end of the interview if we are sticking together) because God has put in my heart to do my own stuff and leave the band(s) ....I know it sounds bonkers but there we go.....at the end of the day when I pass away there won't be Chris King there waiting to take my hand in the next life....but there will be God.
We play 4 songs during the show....this will be my last inclusion of myself on this site so don't get too worked up chaps....
We start at 23 mins 28 secs.....and it was LIVE live.....a few dodgy moments but then again Chris was hung over to hell...
http://www.bbc.co.uk/iplayer/console/b00tj5z9
17. miken said...
Let's hope that the UK government starts to cut it's deficit so we don't end up like Ireland.
It's entirely possible that our yearly interest bill on UK debt could exceed the £74b that Ireland pays out to support its banks.
It's obvious from the FTSE falling level that investors are piling out given how precarious the UK looks. If I had the guts to invest 1.5 year ago and make a 30-50% killing then I too would also be cashing in right now.
18. mark wadsworth said...
Nick B: "Counter cases will be ones where governments have defaulted in debts denominated in their own currency, so I'd like a list of these please!"
I was agreeing with you :-) Such cases are few and far between, and there is 0.0% chance that UK government will default in the foreseeable.
19. Rental John said...
From earlier this year - but interesting article from the Economist:
www.economist.com/blogs/buttonwood/2010/02/debt_crisis_-_how_countries_rank
20. nickb said...
MrMickey,
You are supposing that banks "lend out savers' money." They don't, they create credit backed by savers' deposits, large multiples of it. Any economics text will tell you the same, though they tend to disastrously underestimate the banks' credit creation powers. Brits have sterling deposits and savings, though more than 95% of our "sterling" money supply is created as bank credit, that is, debt.
Nick
21. estrader said...
Nick, I said "if" you take the argument to the extreme. You want some evidence of fiat currency failures? Is this Historical account fact or fiction?
http://dailyreckoning.com/fiat-currency/
"The history of fiat money, to put it kindly, has been one of failure. In fact, EVERY fiat currency since the Romans first began the practice in the first century has ended in devaluation and eventual collapse, of not only the currency, but of the economy that housed the fiat currency as well."
22. mark wadsworth said...
NickB,: "[Banks] create credit backed by savers' deposits," is not actually true.
What they do is the other way round - they create deposits backed by credit - imagine a bank with no assets or liabilities whatsoever, if somebody walks in and asks to borrow £100,000 as a mortgage to buy a house, then provided the bank can persuade the vendor to deposit the £100,000 straight back into the bank (or the banking system generally, which trickles its way back to the original bank via inter-bank market), then hey presto, assets and liabilities of banking system have increased by £100,000!
Conversely, if we all put cash into the bank but nobody wanted to borrow it, then the money would just stay in the vaults (and savers would be paid interest). It's people willing, able or stupid enough to borrow money from banks that drive this - the only restraining factor is the willingness of the recipients of that money (for example house vendors) to leave their deposits in the banking system.
23. mark wadsworth said...
That should have read "and savers would NOT be paid interest" of course.
24. This comment has been removed as it was found to be in breach of our Blog Policies.
25. str 2007 said...
Sorry guys I ask questions then get called out all day and didn't get a chance to log on.
estrader - cheers for the link. It was Peter Schiff in 2006 saying how hins were going to unfold, he didn't seem to cover how agencies rate countries, but good vid anyway.
Sureseem
LOL, they've always got money for houses.
TC
- your link not only managed to crash this computer it also crashed another computer on the same internet connection. - must be your singing LOL. Good Luck with the new path.
But cheers anyway, I did listen and when I've got time will go back to listen to the top ten punk records on the programmme.
26. Kenny said...
If the Bank of England was nationalised back 60 years ago. Why then do we borrow money from our own printing press at interest.
Can any one please explain..
27. Pat said...
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