Financial cost of Covid and who will pay the bill

joe sod

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I started a new thread on the financial impact of the Covid measures first introduced by the government last year and who will ultimately pay for it when its all over. I didn't want to start yet another Coronavirus thread but actually this topic has not been really discussed at all yet. Also in another thread "will you go for a pint when restrictions are lifted" the discussion moved very much off topic to the area of bond yields . Ultimately the government is borrowing all this money to fill the gap caused by closed businesses and forced unemployment. Obviously the vaccine rollout is well under way now and the end looks to be in sight but I am very concerned at the lack of urgency and the cavalier approach of the authorities to reopening businesses and getting off the borrowed money.
 

noproblem

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A quick answer to your question and not straying from what you asked, my answer is, The taxpayer will, but it will be many many, years in the future.
 

Sunny

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A quick answer to your question and not straying from what you asked, my answer is, The taxpayer will, but it will be many many, years in the future.

I am sure my kids and Grandkids will be relieved....... Sure they only have the Financial Crisis and pensions timebomb to pay for as well......
 

noproblem

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A pity about them, sure we never had anything like that at all in our lifetime. Thankfully we got toilets inside before I reached my teens, a fridge shortly afterwards and I had great pleasure later in life to get some central heating for my hard working parents and grandparents who lived there as well. We won't mention the 22/24% interest rates we paid. Then again we never had the internet or mobile phones either, that's why we invented them for you and your grandkids :)
 

Sunny

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A pity about them, sure we never had anything like that at all in our lifetime. Thankfully we got toilets inside before I reached my teens, a fridge shortly afterwards and I had great pleasure later in life to get some central heating for my hard working parents and grandparents who lived there as well. We won't mention the 22/24% interest rates we paid. Then again we never had the internet or mobile phones either, that's why we invented them for you and your grandkids :)

Ah sure as long as you are ok now.......Sure why do we bother with climate change as well. We will all be dead by the time it impacts us.

We should probably more borrow more money and have the craic.......
 

Purple

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We won't mention the 22/24% interest rates we paid
Wow, so the real cost of your debt was reducing by 22/24% each year. Yet another thing to add to the list of reasons why you had it better than those starting out now.
Oh, and you had a house to put the fridge in. That's another thing the 20 somethings won't have.
 

RedOnion

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Cost: estimates are around 38bn, including stimulus packages to reboot the economy.

Who will pay: it'll just get added to the national debt bucket to be continually refinanced, with little bits repaid from budget surpluses in years to come.

Some official stuff published recently if you care for some light reading. I've tried to avoid any spurious websites...

Projections from the ESRI:

Debt issuance. NTMA presentation is an interesting one that covers a lot on the economy and public finances:

Dept of Finance Fiscal Monitor to end of March, covers tax incomes, expenditures and numbers stuff:
 

noproblem

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Wow, so the real cost of your debt was reducing by 22/24% each year. Yet another thing to add to the list of reasons why you had it better than those starting out now.
Oh, and you had a house to put the fridge in. That's another thing the 20 somethings won't have.
The fridge was for my parents, both dead now, bless them. My interest rates were because I didn't have a large deposit or parents/grandparents to give me anything. If you can't understand how bad things were only a short time ago I suggest you don't make condescending remarks to those of us who did have it really hard.
 

Purple

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The fridge was for my parents, both dead now, bless them. My interest rates were because I didn't have a large deposit or parents/grandparents to give me anything. If you can't understand how bad things were only a short time ago I suggest you don't make condescending remarks to those of us who did have it really hard.
I did know the hard times. I remember the late 70's and 80's.
I also know that young people starting out now have it much harder than I did or than my parents did after they were married (they both grew up dirt poor so as children they did really have it worse).

The best time to buy a property is when interest rates are high. I bought my first apartment in Dublin city centre for £57,000 when I was 23 year old. I sold my second hand car and used savings for the deposit. I was 2 years qualified as a tradesman. Interest rate was 14%. Within a year it was 7.5% (that's why I bought; with EMU on the way rates were going to go down so prices were going to go up).

When interest rates are high then inflation is high so the real cost of your debt reduces significantly each year. You struggle for a few years but after 5-7 you are comfortable. People who took out big loans 15 years ago have seen no reduction in their real debt levels and their property is still worth less than they paid for it.
 

joe sod

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Interesting article today in the independent that AIB boosted its holdings in Irish government bonds to 7.7 billion euros a 45% increase and Irish government debt now constitutes 70% of its total capital. The rest of the article is behind the pay wall. Still it's a bit curious that a state owned bank would invest most of its capital in the debt of the state that owns the bank.
Therefore indirectly savers in AIB are owners of Irish government debt and that's where some of their savings are going now. Thanks to the ECB those savers are getting virtually no interest and the Irish government is getting very cheap credit. Viva la Republic
 
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RedOnion

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Interesting article today in the independent that AIB boosted its holdings in Irish government bonds to 7.7 billion euros a 45% increase and Irish government debt now constitutes 70% of its total capital. The rest of the article is behind the pay wall. Still it's a bit curious that a state owned bank would invest most of its capital in the debt of the state that owns the bank.
Therefore indirectly savers in AIB are owners of Irish government debt and that's where some of their savings are going now. Thanks to the ECB those savers are getting virtually no interest and the Irish government is getting very cheap credit. Viva la Republic
What should AIB do with their excess cash? They need to put it into highly liquid assets. Is there another country's debt you would prefer to see them holding?

They haven't actually invested their capital in state bonds, but the amount equates to 70% of their capital.

But I fear you're taking your own thread off topic now. AIB were holding Irish bonds long before Covid. But in the last year they've got extra cash, so they've bought extra bonds.
 

joe sod

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They haven't actually invested their capital in state bonds, but the amount equates to 70% of their capital.
I don't understand what you are saying here because this is the sentence from the independent article

"Figure represents 7pc of bank’s total assets and 70pc of its capital"
But I fear you're taking your own thread off topic now. AIB were holding Irish bonds long before Covid. But in the last year they've got extra cash, so they've bought extra bonds.
Im not taking it off topic, because the topic is about how The government is funding the Covid borrowing . Im not saying anything improper is going on Im just shining a light into the area which most people don' t consider. The government is getting cheap credit from its own bank and savers in that bank are actually paying in a small way for the Covid response .
 

Sunny

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I don't understand what you are saying here because this is the sentence from the independent article

"Figure represents 7pc of bank’s total assets and 70pc of its capital"

Im not taking it off topic, because the topic is about how The government is funding the Covid borrowing . Im not saying anything improper is going on Im just shining a light into the area which most people don' t consider. The government is getting cheap credit from its own bank and savers in that bank are actually paying in a small way for the Covid response .

Haven't read the article but looks like that they are taking the nominal value of the bonds and saying they represent 70% of their equity which is a nonsense. Banks are leveraged and assets are risk weighted so the % of the banks capital allocated to the bonds would be tiny.

As for the State getting cheap credit from AIB, that doesn't really stack up. The Government are not issuing billions of debt in private placements to AIB. The debt is all being issued through normal channels and most Irish debt is owned by non resident institutions. I don't know why they have increased their holdings to such an extent. Might be the yield or for collateral reasons.
 

RedOnion

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"Figure represents 7pc of bank’s total assets and 70pc of its capital"

Still it's a bit curious that a state owned bank would invest most of its capital in the debt of the state that owns the bank.

Nowhere in that article does it say that AIB has invested its own capital in State debt.


Im not saying anything improper is going on Im just shining a light into the area which most people don' t consider. The government is getting cheap credit from its own bank and savers in that bank are actually paying in a small way for the Covid response .
The alternative is that somebody else buys the bonds from NTMA, at a negative yield. And AIB has to find somewhere else to place their excess deposits, at a negative yield.

Interest rates were negative before Covid. Just looks like they will be for longer now.
AIB has excess deposits before Covid, they just have more now.
AIB held state bonds before Covid, they just have more now.
 

almostthere

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A quote from The Irish Independent from a Government minister....."He said he expected the estimated cost of mandatory hotel quarantine to now exceed the projected €7m. He said as further hotels were added the cost would increase."

I thought that those individuals who were staying in mandatory quarantine were paying top dollar for the privilege?

Where do the other costs come in to justify €7m?
 

odyssey06

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A quote from The Irish Independent from a Government minister....."He said he expected the estimated cost of mandatory hotel quarantine to now exceed the projected €7m. He said as further hotels were added the cost would increase."

I thought that those individuals who were staying in mandatory quarantine were paying top dollar for the privilege?

Where do the other costs come in to justify €7m?
There may be some additional security costs the state needs to pickup.

Also, I think state is covering costs of returning Erasmus students.
 

joe sod

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I think this question is much more appropriate now that the covid emergency is over and the total cost of it is circa 35 billion euros bringing our national debt to close to 250 billion euros now. The government threw the kitchen sink at Covid spending more per head on it than any other european country. The thinking seemed to be that Covid was the only thing that mattered and there would be no more emergencies afterwards yet now we have a much bigger problem, the Ukraine war, exploding inflation, and possible shortages and rationing.
The ECB now about to raise interest rates to counter this inflation and to stop the value of the euro falling on the currency markets, therefore the cost of that huge debt to Ireland is about to rise substantially .
Throughout Covid we were being told by the media and government that over 4000 people died from Covid yet a study in the lancet journal showed that Ireland had the lowest excess deaths from Covid of any country with just over a 1000 excess deaths from Covid or only 25% of the official statiistics
 

Sophrosyne

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Throughout Covid we were being told by the media and government that over 4000 people died from Covid yet a study in the lancet journal showed that Ireland had the lowest excess deaths from Covid of any country with just over a 1000 excess deaths from Covid or only 25% of the official statiistics
You are misinterpreting the conclusions of the Lancet study.

“In Ireland, the study estimates there were an additional 1,170 excess deaths from all causes over the period in which 5,910 Covid-19 deaths were recorded.”
 

Purple

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You are misinterpreting the conclusions of the Lancet study.

“In Ireland, the study estimates there were an additional 1,170 excess deaths from all causes over the period in which 5,910 Covid-19 deaths were recorded.”
Exactly; fewer road deaths and deaths from other causes but also plenty of people who would have died otherwise who had Covid when they died and so were shown as Covid deaths.
If I was Covid positive but died of a heart attack or was run over by a bus I would have gone into the Covid deaths statistics. Thereofre it is fair to say that the real figure of those who died from Covid is lower than the number who died with Covid.
 

odyssey06

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Exactly; fewer road deaths and deaths from other causes but also plenty of people who would have died otherwise who had Covid when they died and so were shown as Covid deaths.
If I was Covid positive but died of a heart attack or was run over by a bus I would have gone into the Covid deaths statistics. Thereofre it is fair to say that the real figure of those who died from Covid is lower than the number who died with Covid.
In Ireland you wouldn't have been included in the death stats ... I thought it went from the death cert causes, which is why the lag in deaths were so pronounced. It's not automatic that a positive covid means it is included. A heart attack is a murky one because covid could be a contributing factor. But as we would expect a certain number of people to die from hearts attacks etc in the year, that is where the excess death figure comes in.
 
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