"It's not as bad as the 1980s"

[Brendan Burgess]

Dónal de Buitléir, an economist and former Chairman of the Commission on Taxation has an interesting article in today's [broken link removed]

|1980s|now
Unemployment|17%|14.4%
Employed|1.1 m|1.8m
Workforce education|lower|much higher
Debt/GDP ratio|119%|118% (in 2013)
Interest cost/GDP|10.3%|6.3%
Tax burden|34.6%|30.5%
Balance of payments|in surplus|in bigger surplus

However the following factors are worse now

• We devalued the punt by 8% in 1986
• The world economy was much better giving us more scope for growth
• Private debt was lower in the 1980s. But it’s not as bad now as is reported
• We are now unable to borrow on the international markets

 

[Brendan Burgess]

No direct reference to the budget deficit
One thing he does not directly refer to is the budget deficit. We are still borrowing one euro in three for public expenditure. This is providing a massive, artificial, economic stimulus at the moment. Or put it another way, if we cut public expenditure, pensions, and social welfare by 30%, there would be a very significiant deflationary effect. What was the comparable level of budget deficit back then?

Mortgage Debt in 2007
I think he underestimates the problem

80% of of households own their own home.mortgage
households represent 22% of all householdsonly
20% of mortgage households(<6% of total households)had mortgage repayment ratios of 22% or greater

Firstly, it is a lot worse in 2011 than in 2007, which he acknowledges.

Secondly, I think that the 22% of all households having mortgages is incorrect.

There are 800,000 mortgages according to the Central Bank

I understand that there are around 1.9m houses. There are around 400,000 privately owned houses which are mortgage free, so around 66% of house owners have mortgages

The banking system is frozen for businesses and potential house buyers
He doesn't deal with this very serious issue. If I read this article by Colm Fitzgerald correctly, the reduction in the money supply will have a serious negative economic effect.

 

[Brendan Burgess]

Dan O'Brien wrote an [broken link removed]about the debt burden back in April

THOSE WHO say Ireland’s public debt position is not so dire frequently point out that the State was similarly burdened in the 1980s and it managed to avoid default then. But this argument carries little weight, because both domestic and external circumstances are utterly different now.
...

At home, nominal GDP growth is much lower than it ever was in the 1980s, and it may continue to stagnate given the existence of a number of growth-inhibiting factors not present a quarter of a century ago. These include battered household balance sheets and a shattered credit provision mechanism.
...
But the manageability of Ireland’s public debt will depend not only on what happens to the economy here. Access to international capital markets, and the price of that access, will also be a factor.




... In the 1980s, only Belgium, Italy and Ireland had public debt to GDP ratios in excess of 100 per cent among developed countries. By 2012, the OECD believes the US, France and Britain will be there or thereabouts. With Japan and Italy already supporting burdens well above 100 per cent, five of the six biggest advanced economies are highly indebted. This is unprecedented in peacetime.


Even if the bond market were to return to its behaviour of the past decade, when it was indiscriminating in its treatment of rich country debt instruments, the sheer volume of new debt issuance is bound to push long-term interest rates up for everyone.



The risks attached to allowing public debt to accumulate at the rate it has over the past three years are increasingly seen to outweigh the risks of tightening. The way in which markets turned against some sovereigns, including Ireland, could happen to others. The situation is very fragile and looks set to remain so for the foreseeable future.

 

[Purple]

Brendan, I don't know how personal debt figures compare between now and the 80’s but that's the big difference I see. If it really is not as bad as some say then I'll be a lot happier.

 

[Brendan Burgess]

[broken link removed]by Yvonne Mc Carthy and Kevin McQuinn of the Central Banks

 

[onq]

Let's see.

In the 1980's we had corrupt and incompetent administrations that couldn't balance the books and high taxes and high emigration and no real plan.

Now the whole world is in difficulty, reducing the immigration option, we have no market to sell houses on to fund the move and we are closer to Europe.

Hard call.

ONQ.