Since late 2016 we have entered the age of disclosures! Fasten your mental safety belt and enjoy the ride! Heretic

Sunday, February 22, 2009

A crash has just begun in Ireland!

Fasten your belts and brace for a crash landing!

Today's Irish Independent article :

The publication of the two reports coincide with the news that at least €10bn has been withdrawn from Ireland in the past week as the impact on Ireland's financial reputation emerges.

If the outflow of funds has begun as I wrote in my blog 3 months ago, if that is 10Beu/week then it is a matter of a few weeks before all Irish banks will run out of cash and the gov will have to either fork out that cash (if it has got any left), renege on the promise or let them all fail! In my back of the envelope estimate there is only 20-40Beu of cash reserves left with the Irish banks, perhaps even less!

Updated 19/04/2009

I was off by 2 weeks. The banks ran out of cash after 6 weeks instead of 4 as I thought. Irish government managed to save their bacon, for the time being by injecting 90B eu of fresh money into their system, in the first week of April. Irish banks ONE : Irish taxpayers ZERO, everybody happy, all love! This should last them about 3 more months assuming that the cash bleed rate stays the same. We should expect some more interesting news in the middle of the summer. So far so good, go to a pub, drink beer...


JC said...

Why don't they just print the money?Once the economy recovers that would lead to inflation but isn't that better than the alternative?

JC said...

Why not just print the money?

Stan (Heretic) said...

That's the problem - they can't!

They do not control the currency, they use euro! In order to inject more money into the local economy, the government could only borrow (not print) money. They might only try to sell bonds on the world market, which they can't really do (even assuming that they would find buyers) because they cannot afford servicing more debt at about 3% rate plus 4% premium plus some! CDS'es on the Irish gov bonds are now yielding ~400 basic points (400BP=4%). On the face of it, it looks like an insolvency the only option.

Another problem, from the investor's point of view is if you speculate in a volatile market, you have to get out of it when the market goes bad. It is imperative not optional. Problem is that the Irish oligarchy made everyone a captive property "speculator" - a guaranteed victim in fact because most middle class people were sure to buy-in but unable to leave and cash out!

Irish economy was a paradise for all property developers and their friends in the banking services plus some high ranking government officials. They made billions while many if not most other people and businesses lost almost all their paper "wealth" since they can't sell it now, and are saddled with debt which they can no longer (or will not shortly) afford to service.

JC said...

Around 2003 I remember Greenspan said that the US could buy treasuries with printed money to combat deflation or to take gov default off the table.Comments on this action?Seems it would generate significant inflation when the economy recovers.