Robert Peston (BBC) wrote a blog about his conversation with Irish finance minister Brian Lenihan. He spells out the death grip of debt that Ireland is in. A good read. Some cut and pastes:
Total foreign bank exposure to Ireland's economy is $844bn, or five times the value of Ireland's GDP or economic output.
BK: By way of comparison the CIA puts total external debt of Germany at 1.5X’s GDP. The US is 1:1 Canada has a ratio of 0.7. And Ireland is 5X’s? How did they get so deep into hock? (That same ratio for Russia, India and Brazil: 0.4X, 0.2X and 0.2X respectively. Ahem....)
German and UK banks are Ireland's biggest creditors, with €206bn and €224bn of exposure respectively.
BK: About $600b. Just the UK and Germany. What’s a good “haircut” estimate on this? My answer is it starts with 20% and could be as high as 30%. That would come to $150b. This would be a lights out event for the banks.
The Irish economy is hideously and perilously balanced between recovery and Armageddon.
Mr. Lenihan didn't rule out in his interview with me that the Irish government might eventually be obliged to ask for financial support from the European Financial Stability Facility.
BK: When any Finance Minister says, “I wouldn’t rule that out”, he is really saying, “We are trying to kick the can down the road a bit longer, but really the lines have crossed and we are going to need help.”
The Ireland story has been popping up in the press and with folks who trade CDS and Bund swaps of late. It has not hit the EURDLR. A few short months ago if Ireland was in the spotlight as it is today the dollar would have been soaring. Today it is ho hum. The reason for the change in sentiment is Ben Bernanke and his obsession to devalue the currency. The idea out tonight (From Ben to the WSJ) is that the Fed is planning to buy $100b a month of Treasuries. For as long as Ben likes. We are now completely without limits. What central bank or foreign investor will willingly accept that policy? Why should they? They will vote with their feet.
Europe is in deep trouble. America wants to destroy itself. America will prevail in the race to the bottom thanks to the mindless persistence of Bernanke. And in the process we will all lose. Things are getting downright silly. The price of gold could too.
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"If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People."
ReplyDeleteIt was a fatal mistake for/to allow these weak(er) countries/economies to join the euro zone.
Ireland should have kept its own currency and then printed as much of it as necessary for internal needs. By devaluing that way at least their exports would have been competitive.
Now the situation is hopeless. There is no way they can work their way out of this debt.
The same is true of the US of course. But no one seems ready to believe that.
So they will buy $100 billion of Treasuries a month--by my calculation that is roughly equal to the deficit. We are now to the point where the Fed is issuing Federal Reserve Notes (dollar, dollar, dollar bills, y'all) to soak up the Treasuries produced until further notice.
ReplyDeleteBut how does this help Treasuries? I mean, there won't be less of a supply, even with the Big (and Last) Buyer. And given this market structure, it would seem to me that any Treasury holders would need to hedge against a policy shift at the Fed. If the Last Buyer stops buying, look out below.
Ireland is a Nation of wage earners; not business owners. Foreigners own the majority of the businesses in Ireland.
ReplyDeleteThis keeps Ireland constantly and always dependent upon foreign companies and foreign Governments to "invest" (read exploit) in Ireland.
One very good example is when Seagate Hard Drives built a plant in Clonmel, only to close it a few years later and abandon the cheap metal building that they built in a month.
When Seagate moved out, several hundred workers from Clonmel were out of work. They had a job long enough to go into debt, buy the car, the house, etc., before the rug was pulled.
It reminds me of these 2 guys in the nut house. One had a flashlight, and he told the other one that "I will shine this light up into the corner of the ceiling, and you climb the light". The other guy says in return, "What do you think I am crazy? I will get to the top and you will shut the light off".
Ireland needs to own its own businesses. 51% Irish ownership should be mandatory under the law for all businesses.
Richard Wallace
Thanks Richard.
ReplyDeletebk
Bruce, pull up a chart of the US dollar for the last decade. That is the real chart of the Chinese Yuan being devalued to build Chinese exports. The US will not gain any benefit from a weak US dollar until china is decoupled.
ReplyDeleteThe US has two choices, one of which is disavowing the Chinese holdings in US Treasury's. Declaring them null and void... The US will have to destroy the Chinese economy, to get free of it. Or will destroy it, by getting free. Your choice in syntax.
In either case, we have to deflate China, to regain control of the worlds reserve currency. currently, the Yuan linked Dollars is the actual reserve currency.
And yes, I believe that the US can economically implode China... the real question is can the world economy handle a China that is broke?
Hint... If you break the currency bond, China Inc is BK. They used thin profit margins to invest in capacity. They cant handle a large currency move, like the rest of the world is experiencing. The world has a glut of capacity.
We don't need China as much as China needs us anymore. India, Vietnam & Africa are still available for cheap labor.
Sign me,
Condottieri
I agree with the opinion : "Europe is in deep trouble". Every analyst or financial journalist has to see the huge trading divergence between asian market and european market. Eastern markets are standing on flexible principles. Particularly asian states (Japan, China, Honk Kong, Singapore, Malaysia..) have a economic potential for investments. European governments should help own export to head in asian markets, because european market is a very stagnant at the moment.
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