Advertisement
If you have a new account but are having problems posting or verifying your account, please email us on hello@boards.ie for help. Thanks :)
Hello all! Please ensure that you are posting a new thread or question in the appropriate forum. The Feedback forum is overwhelmed with questions that are having to be moved elsewhere. If you need help to verify your account contact hello@boards.ie
Anyone read Mcwilliams new book and agree with his alternative to the current mess?
Options
Comments
-
SkepticOne wrote: »But our ability to pay that debt depends on the competitiveness of our economy not the tokens of exchange we use internally. The punt could be valued at 100 to the Euro but what would matter would be whether we can produce exports of goods and services at competitive rates.
To see this more clearly imagine that for whatever reason the Euro doubles in value next to the dollar due to a boom in Germany. Does this help Ireland's economy and consequent ability to pay debts? I think a moments reflection shows us that it does not. The immediate effect would be collapse of businesses and redundancy. Eventually there would be an adjustment of wages and some businesses would start up again, but by then it would be too late.
There's no big pile of euros owned by Ireland that we pay our debts out of that would be threatened by devaluation. We pay our debts out of money we make by selling goods and services abroad currently.
What you're arguing, in effect, is that if the new punt devalues by 5% against the euro to €0.95 (making our euro debt of €50bn equivalent to N£52.63bn), but that devaluation boosts our GDP by 10%, then although our debt has increased, our ability to pay has increased more.
I think that probably works if the figures come out right, but only if that happens - if the devaluation is then followed by a slide, so that the new punt drops to €0.85, our GDP boost is more than wiped out.
What about personal debt? If I owe €10,000 in euro-denominated debt, then I'll owe N£10,526 after devaluation, while my €40K salary has become a N£40K salary (that's the point, after all, right?). I have, in effect, only 95% of my previous ability to pay - and that's assuming no slide. A compensating increase in my ability to pay would make the devaluation pointless.
As far as I can see, there's nothing in devaluation that can't be achieved by wage cuts - so I suspect that devaluation is being offered by McWilliams as an attractively easy opt-out from the current battle with the public sector. Essentially, it would "allow" our government to reduce the value of the public sector wage bill by reducing the value of money for everyone.
The more I think about it, the more I think that's what McWilliams is doing here - being the guy on the sidelines who offers the attractive 'way out' of your dilemma. Even if you turn it down, you'll remember his offer with gratitude - I suspect he'd rightly be horrified if the government took his advice...but he knows they won't.
cordially,
Scofflaw0 -
I think if we leave out the hyperbole, yes, we would be looking at a devaluation of the punt to the extent that the country becomes competitive. The extent to which it devalues would depend on the extent to which the economy as been eroded due being in the Euro.And what will the markets make of this new Punt?
They'll speculate on its collapse, why wouldn't they? Its a sure bet.
After all we left a strong, stable currency and went on our own. You reap what you sow.
I'd say the IMF is far more likely than some brave, new dawn.0 -
Actually I would argue that our debt in external terms has not increased, it has stayed the same. What has changed is our internal cost structure so that we can better meet that debt commitment.What you're arguing, in effect, is that if the new punt devalues by 5% against the euro to €0.95 (making our euro debt of €50bn equivalent to N£52.63bn), but that devaluation boosts our GDP by 10%, then although our debt has increased, our ability to pay has increased more.
The important thing is that inflation is kept under control. Our labour costs have to come down relative to labour costs in other countries but if inflation takes hold then the benefits are gone. But we would have the tools to deal with that.I think that probably works if the figures come out right, but only if that happens - if the devaluation is then followed by a slide, so that the new punt drops to €0.85, our GDP boost is more than wiped out.
If your debt is with an Irish institution or an Irish branch of a foreign institution then that debt would be re-denominated in the new currency.What about personal debt? If I owe €10,000 in euro-denominated debt, then I'll owe N£10,526 after devaluation, while my €40K salary has become a N£40K salary (that's the point, after all, right?). I have, in effect, only 95% of my previous ability to pay - and that's assuming no slide.
Devaluation would bring down both public and private wages relative to other countries' currencies. Foreign goods would become more expensive in terms of the new currency. However a lot of our cost of living is internally generated so the impact would not be as great as might be feared. I know we would all like to suffer no loss of income of any sort but unfortunately whether we stay in or out of the Euro gaining a competitive edge will involve taking a hit.As far as I can see, there's nothing in devaluation that can't be achieved by wage cuts - so I suspect that devaluation is being offered by McWilliams as an attractively easy opt-out from the current battle with the public sector. Essentially, it would "allow" our government to reduce the value of the public sector wage bill by reducing the value of money for everyone.0 -
SkepticOne wrote: »Actually I would argue that our debt in external terms has not increased, it has stayed the same. What has changed is our internal cost structure has changed so that we can better meet that debt commitment.
Our external debt won't have changed in external terms, but that's irrelevant, really. We won't be operating on those 'external terms'.SkepticOne wrote: »The important thing is that inflation is kept under control. Our labour costs have to come down relative to labour costs in other countries but if inflation takes hold then the benefits are gone. But we would have the tools to deal with that.
After all, we were so good at it before.SkepticOne wrote: »If your debt is with an Irish institution or an Irish branch of a foreign institution then that debt would be re-denominated in the new currency.
Make it so! Actually, that puts the burdens on the banks, since their borrowings will be in euros - and there is no chance of them not passing that cost along.SkepticOne wrote: »Devaluation would bring down both public and private wages relative to other countries' currencies. Foreign goods would become more expensive in terms of the new currency. However a lot of our cost of living is internally generated so the impact would not be as great as might be feared. I know we would all like to suffer no loss of income of any sort but unfortunately whether we stay in or out of the Euro gaining a competitive edge will involve taking a hit.
Actually, a lot of our cost of living is externally generated - it's why we have a large import bill. Even utilities like the ESB are importers.
As I said, I can't see anything here that can't be done by reducing wages - which doesn't have all these rather interesting side-effects (which we have by no means covered exhaustively here). I appreciate you feel they're arguable side-effects, but that's...well, arguable, really.
cordially,
Scofflaw0 -
SkepticOne wrote: »I think if we leave out the hyperbole, yes, we would be looking at a devaluation of the punt to the extent that the country becomes competitive. The extent to which it devalues would depend on the extent to which the economy as been eroded due being in the Euro.
I accept you see it will make us competitive. You just seem to be ignoring everything else along the way which could make us uncompetitive!Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
0 -
Advertisement
-
How do you make out it is irrelevant. Our ability to pay that debt depends on being able to bring money into the country from those we export to. The buyers of those products and services don't care about what currency we use within Ireland. They are just interested in the price in their own currency. I think a lot of this has been forgotten during the boom.Our external debt won't have changed in external terms, but that's irrelevant, really. We won't be operating on those 'external terms'.
I agree that a lot of the benefit could be had if we could adjust wages quickly and fairly however a lot of the "side effects" predicted for currency devaluation will also happen here. But the bigger question is how realistic is the idea that these wage reductions will happen quickly enough and severely enough to save the country.Actually, a lot of our cost of living is externally generated - it's why we have a large import bill. Even utilities like the ESB are importers.
As I said, I can't see anything here that can't be done by reducing wages - which doesn't have all these rather interesting side-effects (which we have by no means covered exhaustively here). I appreciate you feel they're arguable side-effects, but that's...well, arguable, really.
It looks like most of whatever closing of the government finances gap will be made this year by jacking up taxes rather than the necessary reduction in wages. And in the private sector the wage bill is going down through layoffs, short time and redundancies from rather than pay reductions. Wages are sticky on the way down.0 -
Scofflaw/K-9 have said pretty much what I was going to say already.
Devaluation looks lovely initially (easy competitiveness gain without the need to convince people they need to cut their nominal pay) but in reality it creates as many problems as it solves and cut adrift from monetary union we would be at the mercy of the international currency markets and it really wouldn't take that much money to attack the new Punt and drive it down further (see Soros' Black Wednesday for an example of it being done to a much bigger economy). We couldn't even control what exchange rate the Punt would be at! We don't have close to enough reserves to pull such a stunt!
It's not that devaluation doesn't bring benefits, it does, it just bring a whole lot of costs too and risks that McWilliams isn't bothering to mention when he promotes the idea. Honestly I really don't like this about what he's doing because he knows enough about the topic and has enough publicity to educate people on the economics behind such a move and both the good and bad that could happen but instead he just plays up the positives and gets a bit more publicity for himself.0 -
There are many things that make Ireland uncompetitive. In Ireland a lot of our competitiveness was destroyed by the housing boom. We will become more competitive but what I think people are underestimating is the difficulty of doing so within a currency union.I accept you see it will make us competitive. You just seem to be ignoring everything else along the way which could make us uncompetitive!0 -
SkepticOne wrote: »There are many things that make Ireland uncompetitive. In Ireland a lot of our competitiveness was destroyed by the housing boom. We will become more competitive but what I think people are underestimating is the difficulty of doing so within a currency union.
This I'd agree with, I think there hasn't been wide popular realisation of how nasty becoming competitive again is going to be for Ireland. Doesn't mean there's a better option than staying in the Eurozone though.0 -
SkepticOne wrote: »There are many things that make Ireland uncompetitive. In Ireland a lot of our competitiveness was destroyed by the housing boom. We will become more competitive but what I think people are underestimating is the difficulty of doing so within a currency union.
Property and land costs made us uncompetitive.
How making mortgages more expensive and decreasing wages and tax revenues will make us more more competitive, I'm not sure?
Unions aren't going to suddenly accept it, just because we have our own currency.
This before addressing Social Welfare, the pay bill, lowering tax revenues etc.
It just seems like the the last 12/18 months doubled!Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
0 -
Advertisement
-
I don't think this is a good example. Soros took advantage of the fact that Britain was struggling within the exchange rate mechanism. It just needed a shove from Soros to push it over the edge. Black Wednesday is really an argument for a free floating currency and Britain has since not bothered to try and get back into the ERM.see Soros' Black Wednesday0 -
SkepticOne wrote: »I don't think this is a good example. Soros took advantage of the fact that Britain was struggling within the exchange rate mechanism. It just needed a shove from Soros to push it over the edge. Black Wednesday is really an argument for a free floating currency and Britain has since not bothered to try and get back into the ERM.
Ah, but what you're proposing depends on the Government maintaining a certain exchange rate level in order to stop debt repayments overwhelming both the public and private purse! So it really is very similar to the ERM, just with bigger stakes.0 -
This is one of the points I have tried to argue against a few times and I don't think there has been a valid come back.Ah, but what you're proposing depends on the Government maintaining a certain exchange rate level in order to stop debt repayments overwhelming both the public and private purse! So it really is very similar to the ERM, just with bigger stakes.
In terms of the burden of servicing external debt the key thing is competitiveness not the tokens of exchange we use internally. To illustrate this point I used the idea of the euro doubling in value due to some event in another euro country. It doesn't help pay our debts. Eventually, of course, there is an adjustment and things return somewhat to normal, but not without a lot of social cost and it is quite likely that the banking system would become stressed under such circumstances as businesses go under.
When we look at the side effects of devaluing they seem to be very similar to the side effects of reducing wages which has to happen anyway. Those that argue that this should happen through the governmnet facing down the unions and through companies folding and redundancies rather than devaluation are making a political rather than economical argument I feel.0 -
In the book, he makes the following argument
European membership is a political union and the concept of the euro is also financial union. But this is bogus. The USA is basically 50 mini-countries with their own economies making up a whole. When one state is in recession, a boom in another state makes up the difference in a way. So it evens out.
However in the EU there is no financial union, and we either sink or swim. A thriving Germany should essentially bail out a weaker Ireland but this doesn't happen. Based on this, the decision to leave the euro is a valid one as it is not really a financial union at all.
McWilliams is wrong about this. Earlier this year, California faced a financial meltdown (think one comparable to Ireland's). The state Government there asked the Federal Government could they help them out. The response from the Federal Government was "Sorry guys, you are on your own" - this response was partially driven by a belief it would be unconstitutional for the Federal Government to bail out California, partially also by a political belief which is, in a Federal system, each state has the freedom AND the responsibility to manage its own finances.
As such, given that the EU is not a Federation, the idea that either the EU (as a whole) or another member state, such as Germany, is about to bail us out is just off the wall.
That said, his point about a booming economy in one state helping the economy in another (not booming) state is valid for the US. It is also valid for the EU - a booming market anywhere in the EU for our exports would be great news both for industry and the state's finances.0 -
SkepticOne wrote: »When we look at the side effects of devaluing they seem to be very similar to the side effects of reducing wages which has to happen anyway. Those that argue that this should happen through the governmnet facing down the unions and through companies folding and redundancies rather than devaluation are making a political rather than economical argument I feel.
There's no currency risk with our borrowings if we stay in the Eurozone. This isn't a political argument.0 -
No but our requirement to borrow due to being unable to make the necessary adjustments is going to be that much greater. This is why I think currency risk at the national level is a bit of a red herring and have already argued against it on this thread.There's no currency risk with our borrowings if we stay in the Eurozone. This isn't a political argument.0 -
All this talk of leaving the euro. Is there a legal way to have your euro's protected from conversion to a new currency other than the 'under the mattress method'?
Maybe having that money in a foreign bank account and still been an Irish resident?
I believe if you have your money in Rabo or BOS here, it will still be converted to the punt in a doomsday scenario.0 -
SkepticOne wrote: »The answer is an appropriately valued currency for the economy in question.
Too high or too low is bad for the economy. What most people are doing on this thread is taking the "too low" side of the equation and using this to argue invalidly against an appropriately valued currency for Ireland.
Just like Thailand, Argentina, Mexico... oh wait...0 -
SkepticOne wrote: »This is one of the points I have tried to argue against a few times and I don't think there has been a valid come back.
That's because you are not listening.SkepticOne wrote: »In terms of the burden of servicing external debt the key thing is competitiveness not the tokens of exchange we use internally.
I don't understand this sentence.SkepticOne wrote: »To illustrate this point I used the idea of the euro doubling in value due to some event in another euro country. It doesn't help pay our debts.
It lowers our credit rating making further loans more expensive. It makes banks/businesses insolvent. Yeah, we sure could do with that right now...SkepticOne wrote: »Eventually, of course, there is an adjustment and things return somewhat to normal
No. No. No. You are basing this on, once again, guesswork, you are talking out of something that is located below your back. The empirical evidence suggests that damages caused by currency crises (such as the Irish one in 1955, did you read up on that?) can last up to a decade.SkepticOne wrote: », but not without a lot of social cost and it is quite likely that the banking system would become stressed under such circumstances as businesses go under.
The banking system, which is insolvent as it stands, would become more insolvent. Further billions of recapitalisation would be required. You seem to be a fan of wishful thinking, because you "analysis" seems to be on the upside constantly.SkepticOne wrote: »When we look at the side effects of devaluing they seem to be very similar to the side effects of reducing wages which has to happen anyway.
No, you are guessing again. Reducing wages does not lead to significant percentages of our GDP share of investment suddenly leaving. Try consumption share.SkepticOne wrote: »Those that argue that this should happen through the governmnet facing down the unions and through companies folding and redundancies rather than devaluation are making a political rather than economical argument I feel.
Not my argument.
Would it be fair to say that you have no formal qualifications in this subject (economics)?0 -
-
Advertisement
-
SkepticOne wrote: »I think if we leave out the hyperbole, yes, we would be looking at a devaluation of the punt to the extent that the country becomes competitive. The extent to which it devalues would depend on the extent to which the economy as been eroded due being in the Euro.
I think you mistakenly view it like this.
1) Devalue Punt = Debt becomes instantly higher
2) Ireland more competitive = Short-term influx of FDI
No. Firstly, the effects of Ireland leaving the Euro and any attempt at "picking" a valuation will fail, like it has so many times before. The government will either undervalue or overvalue. I have already explained what happens next so I'm sure you took all that in.
In addition, you are blatantly ignoring all the other reasons why CEOs are not choosing Ireland to invest in:
http://gcr.weforum.org/gcr09/
Being competitive isn't about having weak currencies, you know. It is far, far more complex than the average armchair economist thinks.0 -
It's not that devaluation doesn't bring benefits, it does, it just bring a whole lot of costs too and risks that McWilliams isn't bothering to mention when he promotes the idea. Honestly I really don't like this about what he's doing because he knows enough about the topic and has enough publicity to educate people on the economics behind such a move and both the good and bad that could happen but instead he just plays up the positives and gets a bit more publicity for himself.
As I said, he gets kudos from many people for suggesting the idea, while knowing full well there's not a snowball's chance in Hell the government will even contemplate it.When we look at the side effects of devaluing they seem to be very similar to the side effects of reducing wages which has to happen anyway. Those that argue that this should happen through the governmnet facing down the unions and through companies folding and redundancies rather than devaluation are making a political rather than economical argument I feel.
I'd say it's the other way round, myself. Leaving the euro and assuming we can stabilise the Punt Nua at some chosen level involves taking on a huge set of risks for a gain that can be achieved without those risks but with a bit more willpower.
Our cost base in euro terms has to fall. Whether that's achieved through wage cuts or leaving-the-euro-plus-devaluation the increase in competitiveness has the same benefits in terms of ability to repay external debt - but leaving the euro has a whole heap of other implications that McWilliams glosses over and you're waving aside.
Nor, if it come right down to it, will devaluation solve any structural issues. It won't change the size of the public wage bill with respect to the private sector - instead the hope is that it will reinflate the private sector to the point where taxation can once again sustain that wage bill. It won't change the structural inefficiencies within the Irish economy - the high utilities cost base, the gross overspend on health, the fattened wage packets of Irish workers - and all of its gains can be wiped out by a rise in the value of the Punt Nua.
It's just another attempt to use fiscal trickery to get out of the mess without actually taking the pain.
cordially,
Scofflaw0 -
It's just another attempt to use fiscal trickery to get out of the mess without actually taking the pain.
cordially,
Scofflaw
That would be my take on it aswell. I would like to see a proper discussion on it but it's probably a tabooed subject as even a TV debate on the issue, with senior political figures, could have knockon effects.0 -
-
All this talk of leaving the euro. Is there a legal way to have your euro's protected from conversion to a new currency other than the 'under the mattress method'?
Maybe having that money in a foreign bank account and still been an Irish resident?
I believe if you have your money in Rabo or BOS here, it will still be converted to the punt in a doomsday scenario.
yep an offshore account
HSBC (one of the safest banks at the moment) offer multi-currency accounts in Jersey semi-offshore with a debit card to access your money anywhere in world, and as long as you dont want to receive interest (which is feck all on current accounts anyways) then as per EU payments directive the authorities dont have to be notified
im not getting involved in this thread because all that was said here was said by me in previous threads, this is the ultimate example of DMcW whooring himself, what hes doing is playing on nationalist/populist feelings of a "common" joe, the same joe who is up to his neck in debt in euros, a debt which would remain around his neck either way (as happened in Iceland last year)
during the most recent currency collapse in Argentina thousands of people went across the river with briefcases full of dollars into Uruguay, a larger version of this would happen here, and remember unlike Argentina we dont have a country the size of Europe thats full of natural resources
another example of devaluation that im directly familiar with is Russia in 90s on my travels, dollar was the defacto currency, you were sneered at if you produced local ruble, and once again ireland does not cover 1/6th of the world and has a wealth of resources like russia to recover
neither is there a precedent in history for something like this happening, it would be similar to California splitting off0 -
-
Whilst we do have some businesses here that export abroad I think the above is the primary reason the government stays in the Euro at this stage: in order to continue borrowing. However is getting further and further into debt a desirable way to continue?If we left the euro, we still have no actual nation income because the grand plan was everyone to buy and sell apartments from each other for the next 100 years. Convert to New Irish Pounds at any time, there is still NO MONEY COMING IN.
At the moment, we get favourable borrowing as we are an asset being part of the Eurozone. Outside it, we'd actually have to go through a few generations to even get to the state Sweden and the UK are in right now.0 -
No, I don't think I have mentioned FDI in this thread as part of the argument.Flamed Diving wrote: »I think you mistakenly view it like this.
1) Devalue Punt = Debt becomes instantly higher
2) Ireland more competitive = Short-term influx of FDI
Again, I don't think I have suggested that a specific valuation should be targeted. A floating currency is what I have suggested.No. Firstly, the effects of Ireland leaving the Euro and any attempt at "picking" a valuation will fail, like it has so many times before. The government will either undervalue or overvalue. I have already explained what happens next so I'm sure you took all that in.0 -
SkepticOne wrote: »Whilst we do have some businesses here that export abroad I think the above is the primary reason the government stays in the Euro at this stage: in order to continue borrowing. However is getting further and further into debt a desirable way to continue?
do you have a business that exports?
well I do
100% income is in dollars, the exchange rate fluctuation were fairly ****y but you know what happened? we moved most of the equipment to the states hence the main costs are in dollars now
what a business needs is stability
taking the floor under the economy especially now wont help in achieving stability
devaluing whatever savings the company made in order to ease the pain for a reckless government is highly anti business, same goes for making everybody in the country poorer by exact same amounts
all i can say is thank ****ing god that the government dont control the currency, devaluing by a third didnt help the UK much and just covered over the gaping cracks created by reckless politicians, and would anyone trust the current government of not making a big ass of it, or/and caving into unions who will ensure that their members still get paid in euro0 -
Advertisement
-
So most of your operations are in the US where the dollar has devalued against the Euro?do you have a business that exports?
well I do
100% income is in dollars, the exchange rate fluctuation were fairly ****y but you know what happened? we moved most of the equipment to the states hence the main costs are in dollars now0
Advertisement