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Thread: Irish economy to be powered by a drop of 2% in interest rates

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    Default Irish economy to be powered by a drop of 2% in interest rates

    It is early days yet in the government austerity programme (austerity feels interminable!),considering it is under way about a year and a half compared to about six previous years of often profligate spending.Assuming the government sticks with the austerity plan agreed with the EU Commission for another year,interest rates on Irish bonds and Irish banks' international borrowings could begin dropping sharply-maybe two percentage points on ten year government bonds-as fears of an Irish sovereign debt default recede in financial markets. This would lift a massive drag on the economy given that the disinlation and deflation trends in most industries except semi-states make present interest rates very high in real terms.

    By removing this drag, a two percentage point drop in interest rates would likely power a strong economic recovery. The government would be less likely to increase taxes as its interest burden lightened and this coupled with the reduction in mortgage and business loan interest rates would encourage both consumers and business* to increase spending strongly. Lower interest rates could also lead to an increased supply of credit to small businesses which desperately need credit. Irish banks could use the two percentage point drop to widen the spreads earned on small business loans over the banks' own costs of borrowing,which would make such lending very profitable indeed.

    This outlook could be undermined by several possible negative developments,such as a double dip recession in Europe,a tsunami of Irish mortgage defaults that would require the nationalisation of Irish banks and an attempt by the government to reduce the deficit by increasing taxes instead of cutting spending. The odds of these happening are probably low.

    *UK businesses now hold the highest ever proportion of liquid assets and cash to total assets by historical standards, which could power a major economic expansion if and when confidence returns. An interesting question is whether large Irish businesses are in that position.
    Last edited by patslatt; 10th July 2010 at 06:49 PM.

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    Politics.ie Member Magror14's Avatar
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    Can ECB rates get any lower?

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    Politics.ie Member rockofcashel's Avatar
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    Quote Originally Posted by Magror14 View Post
    Can ECB rates get any lower?
    He's talking about international bond markets and the cost of money given to the Government for sovereign debt.. currently around 5.5%

    Given that the German bond rate is around 3%, a 2% drop would mean that international bond markets would consider Irish sovereign debt a better bet than Germany's.

    Once again, I have to wonder, what planet Pat is on.
    1,197 people agree with me.. how many agree with you ?

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    Rock 5.5%-2% =3.5% which is still above the 2.6% in Germany

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    What interest rates are we talking about here Pat?

    Given the ECB rate is at 1% currently 1 -2 = -1???

    Or are you talking about the interest we have to pay out on Gov bonds?

    Either way - its completely out of the Governments hands and no amount of sweet talking blamaas is going to convince the international markets that Ireland deserves a better credit rating than Germany or even that close to Germany.

    Like the israelis we have to create "facts on the ground" to justify this................

    Sweet Jesus - if my aunty had balls she'd be my uncle etc etc etc..............

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    Yeah nothing like more debt to fuel the recovery. 500% of our income is just simply not enough. Lets rack her up to 1,000% boy, sink the welly and plough on. How we're sucking diesel....

    If this was April 1st I would understand and laugh. But how I want to cry.
    “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - Friedrich A. Hayek

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    Quote Originally Posted by Cassandra Syndrome View Post
    Yeah nothing like more debt to fuel the recovery. 500% of our income is just simply not enough. Lets rack her up to 1,000% boy, sink the welly and plough on. How we're sucking diesel....

    If this was April 1st I would understand and laugh. But how I want to cry.
    +1

    I just cannot understand the blind faith, in the solution of asking ordinary taxpayers, to take on the debt of Banks and Govts, just to make sure that wealthy bondholders and Institutional Investors do not have to partake in the reccession.

    Surely the way to Economic recovery is to place the burden on the wealthy bondholders by way of a writedown in the debt to be repayed and to free taxpayers and consumers from the burden of debt.

    There needs to be a massive redistribution of global wealth and now seems like as good a time as any to start.

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    Quote Originally Posted by MPB View Post
    +1

    I just cannot understand the blind faith, in the solution of asking ordinary taxpayers, to take on the debt of Banks and Govts, just to make sure that wealthy bondholders and Institutional Investors do not have to partake in the reccession.

    Surely the way to Economic recovery is to place the burden on the wealthy bondholders by way of a writedown in the debt to be repayed and to free taxpayers and consumers from the burden of debt.

    There needs to be a massive redistribution of global wealth and now seems like as good a time as any to start.
    +100..but oh in dreams we live.

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    Politics.ie Member kerdasi amaq's Avatar
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    Our elected politicians, in this country, are little more than errand boys, permanently squabbling over which of them can please their foreign masters the best.
    We have got as much as we are going to get out of Europe; it is, now, time to leave!
    EUROPA CONVENTUS DELENDA EST!...Whistle out the marching tune.....27

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    Quote Originally Posted by rockofcashel View Post
    He's talking about international bond markets and the cost of money given to the Government for sovereign debt.. currently around 5.5%

    Given that the German bond rate is around 3%, a 2% drop would mean that international bond markets would consider Irish sovereign debt a better bet than Germany's.

    Once again, I have to wonder, what planet Pat is on.
    5.5 - 2 = 3.5, which is greater than 3.

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