Would prices fall if the I.M.F. came in?

Filan

If everyone had less money, as would be the case, would prices fall? After all money is only worth what it can purchase? If we had less money but less money went further it wouldn't be so bad. is this overly simplistic?.
Alan

MaceFace

Filan wrote: »

If everyone had less money, as would be the case, would prices fall? After all money is only worth what it can purchase? If we had less money but less money went further it wouldn't be so bad. is this overly simplistic?.
Alan

Well to start with there is no chance the IMF will be invited into a Eurozone country.

ei.sdraob

would there be more deflation?

P. Breathnach

Filan wrote: »

If everyone had less money, as would be the case, would prices fall? After all money is only worth what it can purchase? If we had less money but less money went further it wouldn't be so bad. is this overly simplistic?.

What has the IMF coming in got to do with your question? It's not a real likelihood, anyway.

Incomes generally are falling, and so are prices. That's probably, on balance, a good thing. The problem is that they are not falling evenly. Some groups are maintaining their incomes, while others are taking a terrible hammering. That is what is euphemistically labelled a "period of adjustment", but we can also see it as a period of conflict: the private sector/public sector disputes are the most obvious example.

Imagine that we get through our period of adjustment and that average incomes settle at 15% less than they were at their peak. It is very unlikely that prices will fall to the same extent, because so much of what we buy involves imports or imported content. Further, because of the mess our public finances are in, we will probably be paying more tax in the future.

What it boils down to is that our standard of living is likely to fall. we do not have to see that as the end of the world: a 10% fall in the standard of living we have been enjoying would still leave us at a very high level.

optocynic

P. Breathnach wrote: »

What has the IMF coming in got to do with your question? It's not a real likelihood, anyway.

Incomes generally are falling, and so are prices. That's probably, on balance, a good thing. The problem is that they are not falling evenly. Some groups are maintaining their incomes, while others are taking a terrible hammering. That is what is euphemistically labelled a "period of adjustment", but we can also see it as a period of conflict: the private sector/public sector disputes are the most obvious example.

Imagine that we get through our period of adjustment and that average incomes settle at 15% less than they were at their peak. It is very unlikely that prices will fall to the same extent, because so much of what we buy involves imports or imported content. Further, because of the mess our public finances are in, we will probably be paying more tax in the future.

What it boils down to is that our standard of living is likely to fall. we do not have to see that as the end of the world: a 10% fall in the standard of living we have been enjoying would still leave us at a very high level.

WOW. I fully agree...

dan_d

Well, the IMF would probably slash pay in the public sector, among other measures. Prices would fall as a result, as the cost of living is relative to people's salaries as a general rule.
They wouldn't necessarily fall the day after the IMF arrived, BECAUSE of their presence.They would fall over time as a result of whatever actions the IMF may take.

Filan

Is there really no chance of the IMF entering a Eurozone country?. Is the E.C.B. in effect doing there job now anyway?

nesf

Filan wrote: »

If everyone had less money, as would be the case, would prices fall? After all money is only worth what it can purchase? If we had less money but less money went further it wouldn't be so bad. is this overly simplistic?.
Alan

It's not overly simplistic, it's essentially true. It's complicated in that prices are dictated by wages in other countries not just our wages and prices and wages are both "sticky" and don't adjust very quickly but over a medium time span yes if wages drop prices drop.

Prices for food, beer and what have you are dictated by how much the staff selling it to you are paid as much as any intrinsic price the item itself has.

Filan wrote: »

Is the E.C.B. in effect doing there job now anyway?

No, the ECB can't dictate budgetary policy to us, it can only give suggestions. There are some things it has to be consulted on but this is only when policy would affect other EU countries (i.e. we can't adopt policy that would give our banks an unfair advantage against other banks from other EU countries and similar).

Alcatel

No, the ECB can't dictate budgetary policy to us, it can only give suggestions. There are some things it has to be consulted on but this is only when policy would affect other EU countries (i.e. we can't adopt policy that would give our banks an unfair advantage against other banks from other EU countries and similar).

True that, but in reality they're having much the same effect, with less of an overt "Do as your told" approach. We're running all our economic policies by our European partners - as I think we should, as it happens.

Anyways, IMF, ECB, it's gonna be the same outcome - and yes, prices will be driven down, we're going nowhere but down at the moment. I see unilever taking ads all across the place about how Ireland is 'voting yes' for lower prices on their product portfolio. It's a clear trend that's even being stuck on the side of busses, so it must be true

SkepticOne

Prices would down either way. The IMF gets called in at the point where Ireland can't meet its commitments otherwise. These commitments would include the public sector wage bill, social welfare, etc. The IMF helps keep those going so in a sense it could be seen as propping up prices!

nesf

Alcatel wrote: »

True that, but in reality they're having much the same effect, with less of an overt "Do as your told" approach. We're running all our economic policies by our European partners - as I think we should, as it happens.

Anyways, IMF, ECB, it's gonna be the same outcome - and yes, prices will be driven down, we're going nowhere but down at the moment. I see unilever taking ads all across the place about how Ireland is 'voting yes' for lower prices on their product portfolio. It's a clear trend that's even being stuck on the side of busses, so it must be true

Nah, the difference is that the ECB is only interested in the overall picture of our Economic policy, i.e. are we trying to reduce our deficit and get things under control. The IMF would be looking at things in far closer detail and dictating how wages/social welfare payments should pay out at which is quite different to the ECB who don't care what these are so long as we can balance our budget and keep it that way.

NewDubliner

Filan wrote: »

If everyone had less money, as would be the case, would prices fall? After all money is only worth what it can purchase? If we had less money but less money went further it wouldn't be so bad. is this overly simplistic?.Alan

Well since most of what we consume is imported, I'd say not by much except for the part of the cost represented by local input - distribution and sales staff. If they're paid less, the saving might be passed on to you.

Taxes wouldn't come down either as we still have a national debt and a bank & property speculator bail-out to pay for.

Public services would either cost more or be cut back as staff are fired or costs passed on the the public. You might have to pay for stuff you presently get for free.

And as we'd be encouraged to sell off water, roads, gas and electricity distribution. The new owners would raise charges as far as the market can bear.

SkepticOne

NewDubliner wrote: »

Well since most of what we consume is imported, I'd say not by much except for the part of the cost represented by local input - distribution and sales staff. If they're paid less, the saving might be passed on to you.

I'm not sure I would agree with that. A huge amount we spend money on is the likes of housing, insurance, services of one sort or another, taxes etc. Then you have the markup that retailers charge in Ireland above that which even the same chain in other countries charge.

NewDubliner

SkepticOne wrote: »

I'm not sure I would agree with that. A huge amount we spend money on is the likes of housing, insurance, services of one sort or another, taxes etc

Housing has certainly dropped in price. Plenty of cheap 2nd hand cars too. Interest rates can only go up though.

Insurance might remain the same while replacement costs might go down, the number of claims might go up due to more crime as a consequence of unemployment and lower benefits.

SkepticOne wrote: »

Then you have the markup that retailers charge in Ireland above that which even the same chain in other countries charge.

Maybe, maybe not. They've got problems in their own countries and if oil goes up, production and transport costs do too.

But the question was if the IMF was to come in, would prices go down? I think that there's no reason at all to expect this. There's no reason why taxes would automatically come down. Any savings in public expenditure would just go to bailing out the distressed banks and their mates, the unfortunate property speculators.

P. Breathnach

NewDubliner wrote: »

... Any savings in public expenditure would just go to bailing out the distressed banks and their mates, the unfortunate property speculators.

No. Any savings in public expenditure will serve to reduce the amount the exchequer needs to borrow to fund public expenditure. That's a big problem, and quite separate from the problems for the banks and the property speculators.

The funding for NAMA and for bank recapitalisation are handled in a completely different way. There is no system in place to rescue property speculators. NAMA is designed to cushion the banks from the damage they suffered by lending to investors in property.

nesf

NewDubliner wrote: »

Any savings in public expenditure would just go to bailing out the distressed banks and their mates, the unfortunate property speculators.

No. And this kind of crap is what's going to bankrupt this country. We need to balance our budget. Spending propping up our banks isn't part of this budget, it is separate borrowing pool that funds this.


If we don't balance our budget the country will go bankrupt. It is that simple.

NewDubliner

nesf wrote: »

No. And this kind of crap is what's going to bankrupt this country. We need to balance our budget. Spending propping up our banks isn't part of this budget, it is separate borrowing pool that funds this.

Youre just engaging in a game of 'find the lady'.

Some of that magical 'pool' was money (a trifling 7bn euro) taken from the NPRF which was collected via taxes and PRSI and set aside and ring-fenced to pay pensions. Because the NTMA wouldn't invest in dodgy banks, a law was passed to allow the fund to be pillaged. The short-fall in pension funding, caused by the bank bail-out raid will have to be made up from cuts or more taxes.

Where does the money come from to pay interest on the other money borrowed to fund the banks and NAMA: another magical pool?

There's a deliberate attempt by banking and property interests to keep their bailout off the table.

It's all public money.

P. Breathnach

NewDubliner wrote: »

Youre just engaging in a game of 'find the lady'...

No matter how often, and in how many ways, you say something that it is wrong, it remains wrong.

The National Pensions Reserve Fund is a capital fund. NAMA is effectively off-balance-sheet funding. These are important distinctions.

We have a critical problem with our current account. That is the reason why we need to reduce exchequer spending. It's as simple as that. Saying that it is something different is mischief-making.

nesf

NewDubliner wrote: »

Youre just engaging in a game of 'find the lady'.

Some of that magical 'pool' was money (a trifling 7bn euro) taken from the NPRF which was collected via taxes and PRSI and set aside and ring-fenced to pay pensions. Because the NTMA wouldn't invest in dodgy banks, a law was passed to allow the fund to be pillaged. The short-fall in pension funding, caused by the bank bail-out raid will have to be made up from cuts or more taxes.

Where does the money come from to pay interest on the other money borrowed to fund the banks and NAMA: another magical pool?

There's a deliberate attempt by banking and property interests to keep their bailout off the table.

It's all public money.

Look, seriously why do you bother talking about something that you don't understand. It's all public money but borrowing for capital investments (i.e. NAMA/bank propping up/building roads, schools and whatever) is dealt with in a completely different fashion (both by the Government and the investors that lend this country money) than our current spending on the day to day running of the country. There is a reason why they are two separate entities in the Budget!

Look I'll use the household example (even though it is a poor analogy).

Borrowing to buy a house, or to pay for very unusual medical bills or a college education for your kids is viewed very differently by banks to you borrowing to cover your month to month expenses. A bank might be perfectly willing to give you money to fund the former but it will be far less likely to give you money for the latter (and generally only as an overdraft facility). Banks treat both as separate entities because one is a once off and the other isn't. Borrowing for current spending is bad because unless you cut your current spending or get a pay raise you'll face the exact same problem the month after. Borrowing to cover a big once off expense is different because you won't be looking for the same money again the next month. Can you see the difference here?

NewDubliner

nesf wrote: »

Borrowing for current spending is bad because unless you cut your current spending or get a pay raise you'll face the exact same problem the month after. Borrowing to cover a big once off expense is different because you won't be looking for the same money again the next month. Can you see the difference here?

It's interesting that you use the word 'expense' to describe the bank and property speculator bail-outs. It honestly reveals that these are not 'investments' and we're never going to get that money back.

The bail-out borrowing might be non-recurring, but the interest repayments are recurring expenses.

If we have to fund interest repayments on loans to bail out developers and banks from current spending, doesn't that increase the public-sector deficit?

If we cannot fund state pensions from the NPRF because 7bn has been taken out of it and given to the banks, doesn't that mean the shortfall have to come from current spending and increase the deficit?

gurramok

Do you want to add the yearly deficit shortfalls to the national debt instead? :eek:

MaceFace

NewDubliner wrote: »

It's interesting that you use the word 'expense' to describe the bank and property speculator bail-outs. It honestly reveals that these are not 'investments' and we're never going to get that money back.

The bail-out borrowing might be non-recurring, but the interest repayments are recurring expenses.

If we have to fund interest repayments on loans to bail out developers and banks from current spending, doesn't that increase the public-sector deficit?

If we cannot fund state pensions from the NPRF because 7bn has been taken out of it and given to the banks, doesn't that mean the shortfall have to come from current spending and increase the deficit?

NAMA will result in a cost for the taxpayer regardless of what people are saying. How much that cost will be is impossible to tell.

However this conversation is bordering on the merits of NAMA now and I don't think we want to get into that in this thread which is about the IMF coming in.

So, will prices fall if we invited outsiders into the country?
Yes - as this would result in less money in peoples pockets (through cuts or taxes) and therefore the demand for many things would decrease, thus improving competition.

NewDubliner

MaceFace wrote: »

N
So, will prices fall if we invited outsiders into the country?
Yes - as this would result in less money in peoples pockets (through cuts or taxes) and therefore the demand for many things would decrease, thus improving competition.

I think there is no one single answer to the question.

Which prices would fall? Whice prices would remain the same and which prices woulld go up?

nesf

NewDubliner wrote: »

It's interesting that you use the word 'expense' to describe the bank and property speculator bail-outs. It honestly reveals that these are not 'investments' and we're never going to get that money back.

The bail-out borrowing might be non-recurring, but the interest repayments are recurring expenses.

If we have to fund interest repayments on loans to bail out developers and banks from current spending, doesn't that increase the public-sector deficit?

If we cannot fund state pensions from the NPRF because 7bn has been taken out of it and given to the banks, doesn't that mean the shortfall have to come from current spending and increase the deficit?

Eh, ok. For the sake of other people reading this, since I give up on trying to convince you of anything..

a) We bought the assets. The interest payments are now to NAMA. The interest rate payment idea of yours is a fallacy. Any future bank funding, i.e. capital injections, will not come from the current budget.

b) We pay for state pensions out of the current budget already. Zee shortfall already comes out of the budget etc.

c) We lose all the money? Seriously, just no. We can make a substantial loss but we will receive income from the performing loans that make up around half of the total. So we're not going to lose all the money.

NewDubliner

nesf wrote: »

Eh, ok. For the sake of other people reading this, since I give up on trying to convince you of anything..

If we don't make a profit on NAMA, how do we pay the interest on the money borrowed to purchase the assets? Where does that money come from?

If income from investments, intended to help fund Social Welfare pensions is down because the NPRF was forced to hand over money to the non-performing banks, how does that shortfall get made up. Does it come from taxes?

Do you agree that taxation charges won't come down if the IMF moves in?

The only argument I can see for prices coming down is reduced demand. That argument could be undermined by reduced economies of scale and also by new taxes and charges introduced by IMF or whatever the nemesis of the day is.

jimmmy

If + when the IMF comes in I would assume the minimum wage will be cut. It should never have been raised to its current level anyway, I remember even saying that at the time, and raising it raised the price of everything, directly or indirectly . Its about 50% more than that north of the border.
Once govt expenditure + the minimum wage is cut then prices will fall, as the govt raising them was one of the main factors leading to price inflation in the economy during the tiger.

NewDubliner

jimmmy wrote: »

Once govt expenditure + the minimum wage is cut then prices will fall, as the govt raising them was one of the main factors leading to price inflation in the economy during the tiger.

If government expenditure on services falls, the savings will be diverted into paying off the bank and property speculator bailout. The public themselves will also have to pay for services that were previously subsidised out of borrowings.

jimmmy

NewDubliner wrote: »

property speculator bailout.

???? Have any property speculators got a bailout out of public or bank funds ? Methinks not - the bank or Nama holds the deeds to any properties and the speculator / developer is not entitled to them or any proceeds of any sale unless the loan is paid off in full. Most developers have lost a fortune on the deposits on the property they bought, as the banks typically got 20% deposit. Banks generally did not gove 100% loans - they were stupid but not that stupid.

MaceFace

jimmmy wrote: »

???? Have any property speculators got a bailout out of public or bank funds ? Methinks not - the bank or Nama holds the deeds to any properties and the speculator / developer is not entitled to them or any proceeds of any sale unless the loan is paid off in full. Most developers have lost a fortune on the deposits on the property they bought, as the banks typically got 20% deposit. Banks generally did not gove 100% loans - they were stupid but not that stupid.

I wish you are/were right jimmy but I see a couple of problems:
The government will not go after the developers as aggressively as the b anks would have. There will be a lot of hush hush going on I fear.

As for the deposits - many investors did not pony up 20% in cash but simply put up collateral in the form of their existing land banks/sites many of which are practically worthless. The banks were that stupid!

Oh and for everyone else - the IMF will NOT come into Ireland. Never ever ever will it happen - Europe would not allow it. So forget it.

jimmmy

MaceFace wrote: »

I wish you are/were right jimmy but I see a couple of problems:
The government will not go after the developers as aggressively as the b anks would have. There will be a lot of hush hush going on I fear.

As for the deposits - many investors did not pony up 20% in cash but simply put up collateral in the form of their existing land banks/sites many of which are practically worthless. The banks were that stupid!

And in many cases the banks had whatever profit the developers already made on previous developments, and hung on to it as deposit on new sites. It meant the developer was paying less interest too, so it suited him / her. Nobody expected the market to crash as much as it has. Now the banks / Nama have the deeds + whatever deposit the developer initially invested.

MaceFace wrote: »

Oh and for everyone else - the IMF will NOT come into Ireland. Never ever ever will it happen - Europe would not allow it. So forget it.

You know something Mary Harney does not know ? She mentioned the distinct possibility within 2 years. Do not think the ECB will lend 25 billion per year - and increasing - to the Irish govt forever - would you ?

MaceFace

jimmmy wrote: »

You know something Mary Harney does not know ? She mentioned the distinct possibility within 2 years. Do not think the ECB will lend 25 billion per year - and increasing - to the Irish govt forever - would you ?

This is just scare tactics by our leaders to force through unpopular changes.

Remember that the IMF have to be invited in and we would invite the EU in before them. They would run this country like a country as opposed to the IMF who would just run the country like a private company and do whatever is necessary to break even.