Is there a balance sheet for Ireland Inc.?

[Brendan Burgess]

Dan O'Brien has another good article in today's Irish Times

Household assets take sting out of debt level

Putting all the pieces together, what does the full balance sheet say about personal wealth? At last count, households’ assets were worth almost 3.5 times their debts. While that may sound reassuring, it is much less than in peer countries. Belgians’ assets are worth 10 times their liabilities, the highest ratio of 14 European countries for which fully comparable figures are available.

This is my summary from the numbers in his article
The source appears to be this Central Bank study The Impact of the financial turmoil on households

property	€362 billion
bank accounts	€120 billion
pension and insurance policies	€120 billion
shares and equity	€60 billion
Total gross assets	€662 billion
less household debt	€192 billion
net worth	€470 billion

Our gross national debt is of the order of €150 billion

So, in total, Ireland Inc. is worth around €320 billion

This is very little comfort to someone who is unemployed and has an unsustainable mortgage.

But it would suggest that there is no case for trying to get the EU/IMF to write off some of our national debt.

[Brendan Burgess]

How complete is this picture?

It omits the government's huge unfunded pension liability. But I suppose the government's pension liability is someone else's asset.

Are there other debts not included? Corporate debt is presumably reflected in the net value of "shares and equity"

NAMA's assets are roughly in line with their liabilities. Even if their assets were reduced to nil, it would still reduce the net worth to €290 billion.

[Chris]

Very interesting figures Brendan. One question I have is that O'Brien states in the article that at the peak housing assets stood at €609bn which has declined to €362bn. Any idea where that €362bn came from? According to the CSO we have had a real estate decline of pretty much 50%, which would indicate total real estate assets of €305bn.

Seán is on the average industrial wage. He owes €500,000. If Seán had no assets he would probably be in the soup. If, on the other hand, he had €10 million in stocks, property and cash in the bank he would be sitting pretty – having €500,000 on the liability side of his balance sheet would be barely consequential.

But what if Sean cannot service the debt with his income? Then he is still in trouble and has to liquidate some of his assets. Some of these may well be liquid enough but it is an overly simplistic example to make the point he is trying to make. The numbers he is using are also a bit too selective to make a favorable point of the balance sheet, i.e. €500k liabilities vs. €10mil assets. When you use your figures from the table a more meaningful example would be €342,000 debt with €662,000 assets which of course doesn't look as good.

So yes, while the overall balance sheet is important, it does not alleviate the problem of servicing debt. When Ireland Inc gets into bigger difficulty servicing debt then it cannot liquidate pensions at all and real estate is very illiquid. In my opinion total debt to GNP is still the most important figure to be looking at.

[Firefly]

"Seán is on the average industrial wage. He owes €500,000. If Seán had no assets he would probably be in the soup. If, on the other hand, he had €10 million in stocks, property and cash in the bank he would be sitting pretty – having €500,000 on the liability side of his balance sheet would be barely consequential. "


If Sean is on an average industrial wage, he must have (a) won the lottery, (b) inherited his wealth or (c) be pretty handy with a balaclava & baseball bat. In any case, the 500k debt wouldn't worry him too much!

[orka]

Originally Posted by Brendan Burgess

But it would suggest that there is no case for trying to get the EU/IMF to write off some of our national debt.

I don’t think that’s what Dan O’Brien is trying to say and I don’t think it’s a conclusion that can be drawn. A better analogy to Ireland’s situation is:

"Seán is on the average industrial wage. He owes €500,000. If Seán had no assets he would probably be in the soup. If, on the other hand, Sean’s brother had €10 million in stocks, property and cash in the bank, Sean’s family unit is sitting pretty"

A flaw in trying to say that Ireland Inc is okay because the balance sheet appears positive is the assumption that all assets can be called on to match liabilities – but they can’t – well not as long as we don’t become communists and snatch all assets overnight. In the analogy, Sean might need some debt restructuring even though his brother could theoretically help him – but can’t or won’t. In Ireland’s case, there’s a limit to how much of private citizens’ assets can be called upon to cover public and private debt.

[44brendan]

But what if Sean cannot service the debt with his income? Then he is still in trouble and has to liquidate some of his assets. Some of these may well be liquid enough but

it is an overly simplistic example to make the point he is trying to make. The numbers he is using are also a bit too selective to make a favorable point of the balance sheet, i.e. €500k liabilities vs. €10mil assets. When you use your figures from the table a more meaningful example would be €342,000 debt with €662,000 assets which of course doesn't look as good.

Totally illogical arguement IMO. There is no way that the underlying assets of the country's citizens (broadly composed of PDH's etc) can be brought into play to service a countrys debt. Assumption is that we totally ignore the liquidity of these asets and assume that assets can be readily sold to reduce borrowings. Also assumes that the state has ready access to all liquid and other assets. Does gross national debt actually mean anything. I.e. Is there not a case for double counting of debt? I.e. If I owe A 1K and A owes B 1K does this add 1K or 2K to the Gross National Debt?

[DerKaiser]

Originally Posted by 44brendan

Does gross national debt actually mean anything. I.e. Is there not a case for double counting of debt? I.e. If I owe A 1K and A owes B 1K does this add 1K or 2K to the Gross National Debt?

Good point, only debt external to Ireland should count. Though the €120bn in pensions & savings might include some of the internally issued debt.

I can see a good case for the €300bn, 2m dwellings at say €150k a pop.

Any price on our marine territories?

Obviously you can't sell 2m houses from under people, but a good point would be why we could keep our vast marine territories, one million acres in coillte, etc full intact in terms of state ownership, whilst reneging on our debts?

[44brendan]

Despite having some reservations re the "Not Our Debt" supporters and the Occupy Movement, I do empathise with some of their core arguements. I.e. That the 67B+ put into the Banks should not be classified as Soverign Debt and needs to be treated seperately by the EU (who effectively insisted that it must be paid). I accept that this is somewhat off topic, but it does add considerably to the debt burden as stated in OP and our ability as a country to deal with that level of debt.

[Brendan Burgess]

Originally Posted by Brendan Burgess
But it would suggest that there is no case for trying to get the EU/IMF to write off some of our national debt.

Orka said

I don’t think that’s what Dan O’Brien is trying to say and I don’t think it’s a conclusion that can be drawn.

Hi Orka

I hope that there is no confusion over this. Dan O'Brien is not suggesting this at all. He produced the numbers.

The suggestion is mine.

I might try to write a longer piece setting out the arguments for this.

[Protocol]

http://www.cso.ie/en/media/csoie/rel...exd_q42011.pdf

This may be helpful.

It shows our foreign assets and foreign liabilities.

[Brendan Burgess]

The Central Bank issued new figures yesterday.

Anyone want to review and summarise them?

[Protocol]

Seamus Coffey of UCC has a post here:

http://economic-incentives.blogspot....l-balance.html

Note that it seems to be an analysis of the Govt sector, not the whole economy.

[Protocol]

I'm a bit surprised at the fin assets of 70bn in the Govt sector.

But not surprised at the 187bn debt.

In the four years since 2007 the net position has worsened by 115 bn.

The banking crisis has cost us 62.8bn.

[Brendan Burgess]

Hi Protocol

That is very interesting.

€8 billion in quoted shares?
AIB
ptsb
Aer Lingus


Unquoted shares? The semi-states?
ESB
Coillte
Bord Gais

Who would the €8 billion of long term loans be to? Maybe loans to the same semi-states?


The figures leave out any liability for the pension liability which would be huge.

Brendan

[Protocol]

Long term loans....I'm not sure.

The commercial semi-states typically borrow through banks or on the capital markets?

We did lend to Greece as part of their IMF / EU bail-out..............

[Chris]

Originally Posted by Brendan Burgess

The figures leave out any liability for the pension liability which would be huge.

I had the same thought, but I'm not surprised that it is left out.

Originally Posted by Protocol

We did lend to Greece as part of their IMF / EU bail-out..............

And Ireland would have had to contribute to the Spanish bank bailout.