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Thread: "ingenious, elegant" bond solution rejected by Noonan on contested grounds

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    Default "ingenious, elegant" bond solution rejected by Noonan on contested grounds

    In the Guardian, economist David Graeber mentions a proposal by Warren Mosler and Philip Pilkington. The kernel of the idea is a tweak to the present system that would allow taxpayers to use national government bonds to settle their taxes with. This would work even if the bonds were defaulted upon.

    The effect would be that, even in the case of a default by Portugal for example, there would still be a market for Portuguese bonds. Anyone who owes taxes in Portugal would be interested in buying those bonds.

    Apparently, this was proposed to Noonan in Dáil Éireann but Noonan's advice was to shoot it down. Graeber strongly disputes the line of reasoning Noonan took.

    Quote Originally Posted by David Graeber
    When it was proposed in the Irish parliament in May 2012, finance minster Michael Noonan rejected the plan on completely arbitrary grounds (he claimed it would mean treating some bond-holders differently than others, and ignored those who quickly pointed out existing bonds could easily be given the same legal status, or else, swapped for tax-backed bonds). No one is quite sure what the real reason was, other than perhaps an instinctual bureaucratic fear of the unknown.
    The enormity of this plan is huge. Even in the event of a total lack of interest in Frankfurt or City of London for the bonds, the government would be able to raise real money on the markets. The Troika could ejected and the locals placed back in charge of their finances.

    Hospitals and schools could start hiring again to start to patch up the damage caused by the 2009-2013 austerity madness.

    Here is the Mosler-Pilkington proposal: Levy Economics Institute | Publications

    Here is David Graeber's column: There's no need for all this economic sadomasochism | David Graeber | Comment is free | The Guardian
    When you see the words "Mises" or "Hayek" in someone's post, just ask yourself: do I really want to ban paper money and go back to gold?

    You have to pity the kind of people who buy into conspiracy theories. I find the following to be the saddest words on the internet: "Re: connection between Bilderberg puppet lady gaga and viral outbreak in ukraine "

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    Politics.ie Member Prester Jim's Avatar
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    A perpetual, if smallish, market for the bonds?
    Sounds great to me but economics isn't my field yet.
    Shocked but not surprised that Noonan dismissed it, as we all know we don't select the best people to be our leaders.

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    I wouldn't blame Noonan. He doesn't have 58 hours in a day, so he can't inspect the minutiae of every proposal. He necessarily has to rely on a staff to brief him.
    When you see the words "Mises" or "Hayek" in someone's post, just ask yourself: do I really want to ban paper money and go back to gold?

    You have to pity the kind of people who buy into conspiracy theories. I find the following to be the saddest words on the internet: "Re: connection between Bilderberg puppet lady gaga and viral outbreak in ukraine "

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    Quote Originally Posted by Prester Jim View Post
    A perpetual, if smallish, market for the bonds?
    Similar to the way Japan works its debt system.

    I really do suggest everyone read the proposal paper, it's very clearly written.
    When you see the words "Mises" or "Hayek" in someone's post, just ask yourself: do I really want to ban paper money and go back to gold?

    You have to pity the kind of people who buy into conspiracy theories. I find the following to be the saddest words on the internet: "Re: connection between Bilderberg puppet lady gaga and viral outbreak in ukraine "

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    If a country defaulted and traded down to 50 in the euro and you had to pay a hundred euros in cash taxes, could you buy the bond at 50 with a nominal value of 100 and settle you full 100 euro bill. If yes, the revenue would be short 50 euros.

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    Politics.ie Member LDF's Avatar
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    It's a good idea but does it address the real problem? Ireland's problem isn't lack of access to cheap debt. Our problem is too much debt.
    I care about all sorts of crap.

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    Politics.ie Member publicrealm's Avatar
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    Quote Originally Posted by grassroots View Post
    If a country defaulted and traded down to 50 in the euro and you had to pay a hundred euros in cash taxes, could you buy the bond at 50 with a nominal value of 100 and settle you full 100 euro bill. If yes, the revenue would be short 50 euros.
    No - it doesn't work that way. The Government wins - probably by confiscating all bonds over a certain amount.Or something.
    I have measured out my life with coffee spoons......

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    Politics.ie Member Sync's Avatar
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    If an investor holds an Irish government bond, for example, worth 1,000 euros and the Irish government misses a payment of interest or principal,the investor can simply use the bond to make tax payments to the Irish government in the amount of 1,000 euros.
    So...I remember reading a version of this yonks ago but using Ireland as an example, let's say I pay 100k tax a year. Now of that (roughly based on http://budget.gov.ie/budgets/2013/Do...I%20-%20IV.pdf)

    40k will go on Social Protection
    28k will go on health
    17k will go on education
    15k will go on other stuff

    I also save up and stick 100k into this bond scheme and it sits there for 5 years accruing interest. Then after 5 years the economy goes tits up and the govt needs my 100k. I say fine, they have it, buy a bond and I don't pay any tax that year.

    The schools, hospitals, social welfare now face a shortfall in the amount of my tax money don't they?
    I'm living in America, and in America, you're on your own. America's not a country. It's just a business. Now f***ing pay me.

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    Politics.ie Member seabhcan's Avatar
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    Quote Originally Posted by grassroots View Post
    If a country defaulted and traded down to 50 in the euro and you had to pay a hundred euros in cash taxes, could you buy the bond at 50 with a nominal value of 100 and settle you full 100 euro bill. If yes, the revenue would be short 50 euros.
    Revenue would be short 100 euro as I see it.

    The bond is only allowed to be used to pay tax if the country defaults, right? So if Ireland defaults, Ireland says (initially at least) we're not paying you back that bond money you lent us.

    But revenue still demands tax be paid. If it accepts a 100 euro bond (which has already been defaulted on) as payment, then Ireland has no gain from that transaction.

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    Quote Originally Posted by feargach View Post
    Hospitals and schools could start hiring again to start to patch up the damage caused by the 2009-2013 austerity madness.
    We have a deficit of >€10 Billion.

    We are still spending as if we have a property/banking bubble going at full throttle.

    Coming up with new ruses whereby the Sovereign can borrow even more money does not address the fundamental problem - spending is based on windfall taxes from a lending bubble. The real economy - the one based on selling goods and services cannot carry the bubble level spending.

    The model proposed above is a good one. Another good one would be one where the State pays 10/14 of every bill in €, and 4/14 in these tax credits. PS workers, SW recipients, Etc., could sell the 4/14 tax credits on a secondary market for cash. That would also remove the necessity to borrow, and would create a stark picture in everybody's eyes of just how out of control spending is.

    Hopefully we'll see something along those lines coming to the fore in the near future.

    The alternative doesn't bear thinking about.
    "Always do right. This will gratify some people and astonish the rest." Mark Twain

    “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.” Napoléon Bonaparte

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