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Thread: The new Irish Punt? Very artistic pound notes!

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    Default The new Irish Punt? Very artistic pound notes!

    If the international banking crisis isn't resolved soon,it is possible that the EU economies most vulnerable to massive credit crunches and massive,destructive recessions-Ireland,Italy and Spain-could be forced to leave the Eurozone. It is doubtful that the European Central Bank will adopt a sufficiently expansionery monetary policy to accomodate the needs of these three countries for fear of reviving Germany's historic fear of inflation. If monetary expansion were perceived as excessive,Germany would credibly threaten to leave the Euro and restore the beloved Deutchmark.

    The credit crunch is a great challenge to business and government as usual.In Ireland's case,the country has been governed too long for the benefit of strong vested interests-mostly in the public sector-which need to be tackled,and there are too many barriers to competition,eg:

    []Overpaid public sector workers with gold plated pensions and pay far superior to the private sector's
    []Public sector unions with a 1970s mentality which drag out any attempt to reform work processes (eg Cork electricians' monopoly on changing light bulbs in hospitals)
    []ESB's stranglehold on power generation through its ownership of a large part of the power distribution grid which should have been transferred to Eirgrid years ago
    []The mushrooming of hundreds of dubious Quangos,a new form of jobs for the boys
    []Irresponsible train drivers who strike at the drop of a hat and inconvenience tens of thousands
    []The useless giant bureaucracy at the HSE which needs to be replaced by one of the successful models of health care on the Continent eg Holland's
    []Uncompetitive market restrictions in law,medicine and dentistry
    []Speculative property developers and their irresponsible bankers
    []Excessively legalistic and slow planning systems

    If the government doesn't reform the above,economic recovery could be delayed for years. It is even possible that a decade of economic growth could be lost as in the case of Japan since the late 1980s.

    Rather than engage in bruising confrontations with vested interests,it could be tempting for the government to abandon the Euro and restore the Irish Punt with a view to inflating the economy.Inflation would reduce the burden of mortgages on householders and developers and increase property prices in punts.This would reduce the bad debt writeoffs of banks. Inflation would also increase the assets of banks in business loans and improve bank profits,helping to recapitalise banks. It would make it easier to reduce the wide gap between public sector and private sector pay. And until wage earners woke up to the implications of inflation,it would restore competitiveness to exports.

    The disadvantages of inflation would be a very sharp rise in living costs in our import dependant economy and possibly a catastrophic rise in living costs together with a big jump in interest rates if the new punt was valued too low in foreign exchange markets. To avoid undervaluation of the punt,the government could commit to holding its value to a trade weighted mix of the British pound,the Euro and other major currencies.

    So one morning we could wake up to discover that our bank accounts are again full of those very artistic pound notes!

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    Politics.ie Member 20000miles's Avatar
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    How about we just kick government out of the money production business and let the people decide what money should and should not be.

    And your inflation suggestion is quite frankly rubbish. You first list a few so-called "benefits" then go on to say that there would be catastrophic results as well.

    Inflation steals from the poor and redistributes wealth upwards. Period.

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    Quote Originally Posted by 20000miles View Post
    How about we just kick government out of the money production business and let the people decide what money should and should not be.

    And your inflation suggestion is quite frankly rubbish. You first list a few so-called "benefits" then go on to say that there would be catastrophic results as well.

    Inflation steals from the poor and redistributes wealth upwards. Period.
    I don't recommend inflation through a restored punt. Inflation can be very destabilising to a society as you infer.

    I'm suggesting that if the government fails to engage in strenuous reforms of vested interests,as is quite possible or even likely,economic recovery could be delayed for many years. In that event,the government could well be tempted to restore the Irish punt in order to inflate the way out of recession.

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    Quote Originally Posted by 20000miles View Post
    How about we just kick government out of the money production business and let the people decide what money should and should not be.

    And your inflation suggestion is quite frankly rubbish. You first list a few so-called "benefits" then go on to say that there would be catastrophic results as well.

    Inflation steals from the poor and redistributes wealth upwards. Period.

    Not very complicated but the poor, and even worse young socialists, can't figure it out

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    Politics.ie Member wombat's Avatar
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    Let me try and follow your reasoning. The govt. has given a gaurantee to the banks but the bank shares are falling because investors believe that the govt. will have to buy shares in the banks. The govt. don't want to do this because it doesn't have the cash. The govt. introduces a budget which raises taxes on everyone except property speculators. Unemployment is rising - soon it may rise exponentially. You think the govt. will introduce new colourful currency with a picture of Bertie on it so we'll know there's loads of sterling & dollars to back it.

  6. #6

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    Quote Originally Posted by patslatt View Post
    So one morning we could wake up to discover that our bank accounts are again full of those very artistic pound notes!
    With flying pigs swooping thru the dewy air...
    Tell me, apart from "what will this be backed with" have you actually thought for more than a nanosecond on the practicalities of this?
    If you havent, try this
    http://www.econ.berkeley.edu/~eichen..._euro_area.pdf

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    Quote Originally Posted by wombat View Post
    Let me try and follow your reasoning. The govt. has given a gaurantee to the banks but the bank shares are falling because investors believe that the govt. will have to buy shares in the banks. The govt. don't want to do this because it doesn't have the cash. The govt. introduces a budget which raises taxes on everyone except property speculators. Unemployment is rising - soon it may rise exponentially. You think the govt. will introduce new colourful currency with a picture of Bertie on it so we'll know there's loads of sterling & dollars to back it.
    If international stock markets are predictive (they usually are but there is a joke that the US stock market predicted 9 out of the last 4 recessions),the world economy is facing the longest recession since the 1970s or even the 1930s. In this situation, our vastly overpriced property bubble leaves Ireland very vulnerable as mortgage credit destruction decapitalises the banking system and starves business of credit.In this credit crunched recessionary environment,the drastic government reforms outlined in my post are needed for reasonable economic performance.

    If reforms are shirked,the economic scenarios are all gloomy:

    []Economic stagnation,mass unemployment and emigration as in the 1980s
    []The ECB and the EU Commission call in the IMF to dictate drastic cuts in government spending,which could be very damaging to the economy in a recession,especially if cuts heavily impact stimulative and necessary infrastructural projects
    []To avoid bruising political reforms of vested interests and to avoid the humiliation of an IMF dictated recovery programme,Ireland abandons the Euro.

    Restoration of the Punt would enable the government to restore competitiveness through devaluation and to reduce the public sector's excessive cost burden through inflation.

    But in the present international financial panic,this would be a high risk strategy given the aversion to developing country debt and presumably debt of small countries . Without access to international debt at reasonable interest rates and exchange rates,the value of the punt could collapse.This would wreck our standard of living and disrupt businesses dependant on imports as import prices rocketed. The government guarantees on the loans from abroad to Irish banks would then be very difficult to repay. This is the Argentine scenario.

    As for recapitalising the banks, the government could do that by guaranteeing a reasonable return to investors in shareholder rights issues who hold for say seven years. That would buy time for the banks to work through bad loans and would be relatively easy for the government to finance compared to direct government purchases of shares now. Seven years hence,recapitalised bank shares could recover strongly and the government may even have to pay little if anything for its guarantee. One caveat,though: the govenment should not guarantee rights issues of certain smaller zombie banks sunk by loans to zombie developers,since it is necessary to ration scarce capital in this credit crunch.

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    Quote Originally Posted by patslatt View Post

    Restoration of the Punt would enable the government to restore competitiveness through devaluation and to reduce the public sector's excessive cost burden through inflation.

    But in the present international financial panic,this would be a high risk strategy given the aversion to developing country debt and presumably debt of small countries . Without access to international debt at reasonable interest rates and exchange rates,the value of the punt could collapse.This would wreck our standard of living and disrupt businesses dependant on imports as import prices rocketed. The government guarantees on the loans from abroad to Irish banks would then be very difficult to repay. This is the Argentine scenario.
    .
    Replace could with would and would with will

    Which is why it cant happen...not even FF are that thick...are they?

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    Quote Originally Posted by patslatt View Post
    And until wage earners woke up to the implications of inflation,it would restore competitiveness to exports.
    ??? how long do you think that'd take...5, maybe 10 minutes?? Half the country spend their whole lives complaining about the cost of living

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    Politics.ie Member Furze's Avatar
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    Quote Originally Posted by patslatt View Post
    .......... and emigration as in the 1980s ...........
    This pressure release will not exist this time round.
    Mammy, get the hammer there's a fly on daddy's head.

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