Tuesday, July 14, 2009

Irelands external debt

I wish to explore our external debt of $1,841,000,000,000 http://www.nationmaster.com/graph/eco_deb_ext-economy-debt-external
I believe this figure is the elephant in the room that is not being discussed and I wish to outline how the Government interventions has, I believe socialised much of this debt putting the death nail in any chance we had for future prosperity.

As you can see from all the zeros this number is off the scale and the idea that we were a wealthy nation is a myth. Per capita, we borrowed almost $500,000 and from the taxes on how this was spent the Government increased the size of the Public Services that now costs €65 billion PA to run. Interest repayments on this borrowing has to be between $50 and $100 billion or up to half current GDP. Of course some people got wealthy as some of this money stuck to their fingers as it circulated. But wealth of nations is build by savings and investment that improve productivity. But we are being fed that its consumption and spending that makes the world go round.

Until recently our National Debt was about €45 billion, less than 5% of this external debt and well manageable at under 25% of GDP.

Now this $1.8 trillion we bowered was I believe made up of unsecured debt, as well as debt secured by assets and personal and business guarantees. When things went pear shaped, the underwriters of this mess were in a serious situation and it was a bad situation for many individuals and businesses that were over leveraged. However it was not a very bad situation for many of us. We as well as the Government were living pretty much within our means and had the ability to adjust down if necessary. The banking and legal system was in place to deal with the risks that were taken and we could all begin again on solid ground with valuable lessons learned.

However this situation changed when the Government gave the bank guarantees. All the so call economist and bankers can dress up or down the figures all they like but the bottom line is that we the people are now the underwriters of much of this figure. While individual and business can say to the lender this is the security for the loan, you know the risk etc. this is not possible for Governments and every effort will have to be made to make full repayment.

We are being drip fed sound bites about this issue. Crap like “we couldn’t let the banks go under, letting Lehman Brothers collapse caused the current crisis”. My favourite is, “we must get the consumer spending”. The diversion that is an Board snip and a €5 billion cut over 5 years when we are short €30 billion this year alone. Most of this comes from a few sources and it is continuously rehashed by journalists and the media. The international bankers are laughing all the way to the bank. Their pile of bad loans is now AAA. With a stroke of Brian Lenihan’s pin the Irish nation is enslaved by debt.

Henry Ford spent his life protecting his company from bankers and stated if the people understood what they were up to there would be revolts before morning. However, it was our Government that signed the deal and of course will play dumb when the reality of these figures finally hit the fan.


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