Friday, October 19, 2012

19/10/2012: Tail Risk and Basic Investment Markets Models


For Investment Theory course: some additional slides on the topic of tail risks and applicability of the models we covered in class (note: these are just supplementary readings, so no exam-focused material):

Here are few of my slides from the 2009-2010 Advanced Quantitative Portfolio Management course. You can enlarge each slide by clicking on it.
















Thursday, October 18, 2012

18/10/2012: ARMs - compounded effects of austerity and banks deleveraging


As the Irish banks are hiking ARMs, it is worth reminding us as to why this is a bad news for Irish economy:


Now, here's the Catch22.

  1. Irish banks funding costs are joined at a hip with the Sovereign funding costs, thus reducing these costs will require reducing Sovereign costs, which in turn means taking in more taxes and cutting back more Government spending.
  2. The former part of (1) means that households on the ARMs will be bearing all of the burden of the high funding costs for the banks.
  3. The latter part of (2) means that households on the ARMs are going to experience, alongside all other economic agents, the cost of Government deleveraging.
(2) + (3) means that in our 'fairness-concerned' society, ARMs holders will be paying twice the rate of the fiscal adjustment that any other group of agents.

Good luck, Michael Noonan, bankrupting the ARMs.

18/10/2012: Summit/Dinner+Dinner Commencing


With the start of the 2-day summit (cross-out: series of dinners) at the EU, here's what JPM research team we should expect from the meetings:


In brief: expect nothing much... With that, may I wish good 'news hunting' for the army of media folks besieging EU buildings...

Sunday, October 14, 2012

14/10/2012: Shadow Economy


An interesting chart based on OECD data:


The above captures data for 2010 latest so we can expect the 'Latest' metric to come up as the crisis and rising tax burdens continue to push more and more activity into the Black Economy. Still, at ca 15% of GDP in Shadow economy, the problem of extra-legal economy is non-negligible. Another point to make is that since Shadow economy does not apply to the MNCs activities, Ireland figure should be adjusted for GNP/GDP gap. Which would put us right at Sweden's level. Performing the same for mid-1990s figure implies that Ireland's Shadow economy has declined over the period covered by lower percentage points than any other economy (save Austria's, US' and Germany's - where Shadow economy share rose).

Saturday, October 13, 2012

13/10/2012: China's Property Bubble



Some interesting insights into China's economy dependency on property markets from the ECB Monthly Bulletin (link: http://www.ecb.int/pub/pdf/mobu/mb201210en.pdf). Italics are mine:

"Housing investment has been an increasingly important source of growth for China in recent years". Most notably:

  • Real estate investment accounts for about 25% of total fixed asset investment, with the latter having driven 50% of GDP growth since 2006. So overall, over 12% of China's economic expansion is now due to property boom directly. Associated activities, e.g. construction, construction materials, banking services and planning & development services probably means that good 17-20% of the overall growth in China since 2006 has been due to the real estate investment boom.
  • "In terms of its share in GDP, real estate investment rose from 10% in 2006 to 16% in 2011".
  • "Construction and real estate services together employ over 10% of the workforce and contribute to 13% of total added value". 
  • "Real estate investment also has strong linkages to other industries such as machinery and equipment".


"House prices in China have risen sharply in recent years and are high compared with incomes'. 'High'? Judge for yourselves:

  • Average price per sqm of housing "across a sample of 35 large and mid-sized Chinese cities nearly tripled between 1999 and 2011, although this average masks great disparities." 
  • "The price of a 100m2 house expressed in multiples of the annual disposable income of an average family of 3.3 persons also varies widely, from 4.4 times yearly income in peripheral cities (Hohhot, Inner Mongolia), to close to 16 in large, booming cities such as Beijing and Shenzhen (see Chart A)."

  • "On average, the ratio fell between 1999 and 2011 as disposable income rose faster than the square metre price (11% compared with 9% annually – see the red dotted line in Chart B). However, when one considers the increase in the size of the average house, a different picture begins to emerge. Over recent years, living space has increased from an average of 19.4 m2 per capita in 1999 to 32.7 m2 in 2011,  while the average household size has decreased from 3.6 persons to 3.1, implying that the average house has grown from 70 m2 to 101 m2. As a result, the price of the average house (expressed in multiples of income) rose from 6.4 in 1999 to 8.6 in 2011 (see the blue line in Chart B)." 


13/10/2012: ECB study on fiscal (non)sustainability in OECD 1970-2010



An interesting study (ECB Working paper NO 1465 / AUGUST 2012) titled "REVISITING FISCAL SUSTAINABILITY: PANEL COINTEGRATION AND STRUCTURAL BREAKS IN OECD COUNTRIES" by António Afonso and João Tovar Jalles (link http://ssrn.com/abstract_id=2128484 ) attempts to identify if "fiscal imbalances in a number of OECD countries need to be curtailed before they become economically unsustainable, leading to insolvency situations". The study covered 18 OECD countries over the 1970-2010 period. Italics are mine, throughout.

Per authors: "In our empirical approach we perform a systematic analysis of the stationarity properties of the first-differenced stock of government debt as well as, on the one hand, the relation between government revenues and expenditures and, on the other hand, the relation between primary balances and debt. These approaches provide us with an indirect test on the solvency of public finances in these countries. We conduct this analysis on a country-by-country basis, …as well as for the country panel as a whole."

The study results show that "the first-differenced debt series for most countries is non-stationarity suggesting that the solvency condition would not be satisfied".

In addition, the authors find "the existence of one cointegrating relationship in only 6 countries between revenues and expenditures. However, the overall test results allow the rejection of the cointegration hypothesis in both relationships under scrutiny. In other words, government expenditures, in half of the countries, exhibited a higher growth rate than government revenues, challenging therefore the hypothesis of fiscal sustainability."

"... the cointegrating coefficients for the revenues-expenditures relationship are positive (but less than one) and statistically significant, meaning that for each percentage point of GDP increase in public expenditures, revenues increase by less than one percentage point of GDP."

In terms of causality, the study finds "...stronger effects running from revenues to expenditures and most countries are not able to generate the revenues required to finance the planned expenditures. We find Granger-causality from government debt to the primary balance, which can be seen as evidence of the existence of a Ricardian regime."

Finally, "panel data results corroborate time-series findings, and even though we find that long-run causality seems to run from lagged debt to the primary balance, on average the marginal long-run impact is zero."

Core conclusion: "All in all, we cannot say that fiscal policy has been sustainable for most countries in our sample."

In effect, there has been systemic, long term overspending by the states incapable of backing expenditure hikes with revenues. Living beyond their means is a long-term thing in the sample and is a prevalent modus operandi for the majority of the states over the period of 40 years.

13/10/2012: Irish corporate tax haven in the news flow



Some links I collected over time on the case of irish corporate tax haven:

Here's a list of recent articles on 'Tax Haven' Ireland:




EU noticing that our manufacturing is largely a 'fake' : link here http://www.irishexaminer.com/business/eu-irish-output-is-distorted-210505.html

Canada's estimated tax exhales via Ireland = CAD23.5bn in 2011, 3rd largest : link here http://www.huffingtonpost.ca/2012/08/17/tax-havens-canadian-banks_n_1797331.html


And priceless non-Ireland related (so far…) case of HuffPo hypocrisy : link here http://order-order.com/2012/10/12/introducing-huffpo-luxembourg/
Though do keep in mind that AOL is in Ireland too.

And some more from earlier dates:

Here's Financial Secrecy Rankings from 2011 referencing Ireland's lack of transfer pricing regulations as the core driver for turning "Ireland into a source of loopholes in international tax": link here http://www.secrecyjurisdictions.com/PDF/Ireland.pdf



Why ireland is an EU Corporate Tax Haven post (search the page for February 21st, 2011 post) : link here http://treasureislands.org/progressive-tax-blog-reloaded/


The link above also mentions Boston Scientific case

The case if WPP group: link here (search the site page for "Don't be fooled by WPP's" phrase http://treasureislands.org/progressive-tax-blog-reloaded/

Updated:
Another link on the latest MNCs effective tax rates: http://www.independent.ie/business/irish/dell-pays-just-15m-tax-despite-sales-of-96bn-3276711.html

Yet more on the story of Google in Ireland:
http://www.irishtimes.com/newspaper/world/2012/1101/1224325978868.html

Updated 05/11/2012: Now it's Apple's turn: http://www.businessinsider.com/apple-tax-rate-2012-11

And more today - this one on Bain Capital: http://www.businessinsider.com/bain-capitals-dutch-tax-plan-2012-11

Updated 06/11/2012: More on Apple: http://www.independent.ie/business/irish/apple-used-ireland-to-pay-just-2pc-tax-on-nonus-profits-3285168.html

And latest idea of UK-German cooperation on cracking down on MNCs tax avoidance: http://www.guardian.co.uk/business/2012/nov/05/uk-germany-tax-loopholes-multinationals

Updated 12/11/2012: Telegraph on US trio of UK tax 'optimizers': http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9673358/Starbucks-Amazon-and-Google-admit-using-favourable-tax-jurisdictions.html

Updated 16/11/2012: Two items both via Michael Taft:
Article on Irish corporate tax rate and budgetary policy:
http://www.thejournal.ie/readme/corporation-tax-budget-674461-Nov2012/?utm_source=shortlink

Statement from the EU Congress identifying Ireland as one of tax havens (from 2004):
http://www.gpo.gov/fdsys/pkg/CPRT-112SPRT70710/pdf/CPRT-112SPRT70710.pdf
see bottom of page 30.

Updated 18/11/2012: Dutch Sandwich Tax Scheme and google: http://arstechnica.com/business/2012/11/dutch-sandwich-with-a-side-of-tax-relief-may-soon-be-off-googles-menu/

13/10/2012: Euro area debt crisis and fake targets


My article for the Globe & Mail on euro area debt targets (link here).

13/10/2012: Big Data, Fast Data, Protected Efficiencies


A very interesting (and revealing in terms of future strategies scope) set of videos from Goldman Sachs' Co-Head of Internet Banking (link here). Basic idea is that data analytics and efficiency drive - both via innovation - are the core sources of value in years ahead.

Main factors:

  • Data supply/generation - high volume of generated data is an opportunity (nothing new here, though) for 'bifurcation' of the business models that will grow and those that won't.
  • Proprietary data is the king
  • Internal human capital (knowledge) to capture this advantage is the king-maker
  • Enablement of this data via consumer-provider links is the battle ground

Frankly speaking, these are received wisdoms.

  • Capacity utilization drives efficiency
  • The rate of this drive/change/disruption is massive
Worth a watch!

13/10/2012: Europe's Banks are now Global Growth Zombies



Back in 2011 the IMF was concerned that in the current crisis, the European banks will withdraw / deleverage from/out Asia Pacific and other emerging regions, thus reducing the supply of credit there. 

I thought the concern to be completely misplaced. My view is currently for accelerating maturity of the credit and financial services markets in the middle income economies and emerging markets, leading to increasing independence of these regions from funding from the West and rising self-sufficiency of internal markets. In contrast to the IMF, I posited the proposition that the deleveraging of the European banks out of Asia Pacific will (1) lead to enhanced credit activity in the region itself, as regional players exploit economies of scale from buying out European operations assets, and 2) result in the reduced supply of credit in Europe, as Asian and other middle income economies' banks focus more their efforts in internal Asia Pacific markets, while using Latin American and African markets as the platforms for deploying home-grown expertise in financing rapid growth activities.

I said this then… and the evidence is coming in now to show that I was right. Today's data from the Euromoney Credit Risk analytics shows that European banks are pulling out of the merging and middle-income markets, globally, and that "the real surprise is not the pace of retreat but the speed at which the gaps are being plugged".

Per ECR: "As [the European banks] slink home to shore up capital and preserve their dwindling reserves of credibility, they leave yawning gaps that are in most (but not all) cases quickly and happily filled by non-European rivals. …Is this, in terms of long-term global reach and relevance, curtains for Europe’s battered banks, and if it is, will anyone really miss them?"

Here's some evidence: 

  • "In the first eight months of 2007, the last calendar year of growth before the financial crisis, the global syndicated loans market was dominated by European banks. Eleven filled the top 20 rankings, according to Dealogic, with five in the top 10 alone. Scroll forward five years and only two names, Barclays and Deutsche Bank, sneak into the global top 20."
  • "In the first eight months of 2007, nine European lenders jostled for position at the sharp end of the pan-Asia Pacific syndicated loans markets. By 2012, just two names, HSBC and Standard Chartered, featured in the top 20, and both, it can be argued, are emerging markets specialists with their roots and futures fixed firmly in Asia."
  • "The most notable national absence involves France’s leading standard bearers: the likes of BNP Paribas, Société Générale and Crédit Agricole, names that once bestrode Asia, particularly in areas like trade and project finance. In just five years, all three have disappeared almost entirely from every conceivable bank ranking."
  • "In Africa, the pace of [European banks] extraction is slower but just as systematic. In Latin America, some European names are selling off the silverware piece by piece; others simply cannot appear to get out fast enough."
  • In Africa's banks league tables, "just three European names sneak in, while the top-20 table is a cultural sprawl of names and geographies. Four African banks – against none in 2007 – make the rankings, along with lenders from Japan (three of them), Russia (one), and the Middle East (three). Perhaps the most compelling two names, however, squeeze quietly into the table at eighth and 15th: China Construction Bank and Industrial and Commercial Bank, Beijing’s third-largest and largest lenders by market cap respectively. This is the first time over the past five years that any Chinese lender has made it into the top 20 in the pan-African syndicated loan table, but given Beijing’s apparently unstoppable rise and the seemingly inexorable waning of Europe’s financial star, surely not the last."


But the departure of European banks is being compensated for by growth of domestic finance:
  • "Europe’s mass departure has been treated with a mixture of unrestrained glee and raw opportunism across Asia; whenever a European financial asset has been on the block, buyers – mostly Asian – have flocked to buy it. …Western lenders, reckons RBS Capital Markets, sold $12 billion worth of equity stakes in emerging markets in the 24 months to end-June 2012 – and over half of that sell-off has taken place in Asia."
  • "In January 2012, HSBC sold its credit card business in Thailand to Bank of Ayudhya for $115 million." 
  • In May 2012, "Malaysia’s CIMB completed a deal to buy most of RBS’s Asia investment banking and cash equities business for $142 million.. giving the group instant global scale."
  • Dutch ING is "seeking to shed assets as fast as it possibly can: it is currently trying to sell its €43 billion Asian funds business, it has already divested a majority stake in its Chinese life insurance joint venture, Pacific Antai, to China Construction Bank, and is now looking to exit its 26% stake in an insurance joint venture with Indian battery producer Exide Industries."
  • ANZ is absorbing its $550 million acquisition of the bulk of RBS’s Asia retail banking assets, and the Australian banking group "is hungry for more deals."

European banks' deleveraging – lasting from mid-2009 to the present day – has been led "… by what critics called short-sighted regulators in Brussels, Paris, Frankfurt and London desperate to boost liquidity to avoid a repeat of the financial crisis":
  • Basel III rules insist on tier-one capital levels of at least 9%. 
  • Political pressure is "brought to bear on, say, French banks by French politicians to ensure that French banks, first and foremost, lend French money to French clients. The same reverse-protectionism move is being played out by lenders in the UK, Belgium, Spain and the Netherlands. Pressures were put by the UK government on nationalized RBS and Lloyds to lend more to British companies, while Belgium’s KBC, which has received state aid, has sold non-core assets to focus more on its home market. Spanish Santander and other big banks are buying Spanish government bonds, according to dealers, while ING’s biggest exposure is the Netherlands, some analysts say."


The contrasting story is now with the US banks, with little evidence of these aiming to deleverage by reducing their emerging markets exposures:
  • Citi "remains a top 10 player in the syndicated loans market in the first eight months of 2012 in both Latin America and Asia Pacific, just as it was in the same time period five years ago, while retaining its number one position in Africa syndicated loans."
  • "JPMorgan, Citi and Bank of America Merrill Lynch filled out the top three spots in global syndicated loans for the first eight months of 2007; fast forward five years and those same players now rank first, second and fourth, separated only by Japan’s Mizuho."
  • "Non-US developed-world banks are also boosting their presence in key markets at Europe’s expense."


Asia Pacific story is now also playing out in Eastern Europe and Latin America:
  • "A few non-European lenders are pushing into the eastern half of Europe in search of bargains" 
  • Russian Sberbank "…snapped up Volksbank International, the CEE and central Asia division of Austria-based Oesterreichische Volksbanken, for €505 million ($710 million)." 
  • "… in 2011, SocGen sold its booming consumer finance, ProstoKredit, to Eurasian Bank, owned by three Kazakh and Russia oligarchs."
  • Latin America "…is a region crammed with outperforming economies as well as banking groups transformed, in less than a decade, from lepers to would-be global leaders, notably the likes of Itaú Unibanco and BTG Pactual, both Brazilian, and Davivienda and Grupo de Inversiones Suramericana (Grupo Sura), both Colombian. All are ramping up their presence around Latin America, mostly at the expense of retrenching European names."
  • "RBS was the first to cut and run, exiting Brazil last year, followed in short order by its withdrawal from Chile, Venezuela, Colombia and Argentina."
  • Grupo Sura in 2011 completed a deal "to buy the entire Latin American operations of ING, in another blanket deal."
  • HSBC sold its operations in Costa Rica, El Salvador and Honduras in September last year to Davivienda for a shade over $800 million. 
  • "Spain’s Santander, one of Latin America’s biggest banking groups… shed its operations in Colombia, where it was a peripheral player, pocketing $1.225 billion."
  • "In September, Mexico’s Grupo Financiero Banorte (GFB) announced it was formally running the rule over pension fund assets owned by Spanish lender BBVA in Chile, Colombia, Mexico and Peru. BBVA is open, even eager, for a sale; in a statement to the Mexican Stock Exchange, GFB announced its intention to explore “opportunities to generate greater scale in the pension and retirement fund business”. BBVA manages $70 billion-worth of assets in the four countries, generating a combined profit of $300 million."
  • "Again, deleveraging in Latin America appears to be the sole purview of twitchy European lenders. Scotiabank is quietly gaining strength in Latin America: the Canadian lender shelled out $1 billion last year to buy a majority stake in Colombia’s Banco Colpatria, its 20th acquisition across the region in the past six years. Citi remains solid across the region, while UBS, an investment bank more global than Swiss by nature, pumped $500 million into Grupo Sura before its ING raid."


The core problem with this is that quick deleveraging out of growth-focused regions spells diminished prospects for future profits growth for European banks and loss of access to rich deposits rapidly growing on foot of rising incomes in the regions outside sick Europe. As I warned a year ago, contrasting the IMF alarmist views, Asia, Africa, Latin America and Eastern Europe will probably be fine in the short run as European banks run for the exit. In the long run, these regions' banking systems are likely to be strengthened by the current processes. Instead, the real risk is for the European lenders who are likely to be relegated to the back water of credit growth - the stagnant pool of the euro area economies. 

Thus, the real question about the future is not 'What if Europe's banks stop lending in Asia?' (as posited by the IMF), but rather 'What if the Asian banks won't care for lending in Europe?'

Friday, October 12, 2012

12/10/2012: Irish Savings Myths


Last night at the Dublin Chamber dinner, Taoiseach Enda Kenny made a rather common, but egregious in its nature statement that Ireland has the highest savings rate in the OECD at 12% GDP. Speaking before him, the President of the Dublin Chamber, Patrick Coveney, made a similar statement, but referenced 14% savings rate. Both speakers were identifying a high savings rate as being an impediment to consumer spending and recovery.

In addition to the above, the Chambers President made another startling juxtaposition. In his speech he said that:

  1. Savings are too high and we need to 'do something' to reduce these;
  2. Investment is too low
  3. In the future, investment (via bank lending) will remain low.
Let me deal first with the last set of claims. In the Irish economy, savings are used to pay down debts (thus supporting deleveraging of the households and companies, and preventing collapse of our banks) and invest in economic activity. Reducing the debt-repayment component of savings would require a default/restructuring of private debts. The remainder of our savings goes to finance investment (direct equity & direct lending to businesses) and deposits in the banks (which in turn normally finance lending). So which part of our savings would Patrick Coveney like to cut? The banks bit (precipitating collapse of the banks) or the investment bit (precipitating further decline in investment)?

I am not even going to ask Mr Coveney as to what he might suggest that the Government should do to cut our savings rate. Impose huge wealth taxes, or go straight to a large-scale expropriations of 'excessive' savings? Both will do wonders to Ireland's reputation abroad, let alone to the dynamics of future investment at home.


Instead, lets move on to the myths both speakers were keen on repeating - the myths of our allegedly massively high savings rates. All of the data below is taken from the IMF WEO database.

Let us rank Ireland's gross savings rate compared to all other advanced economies (higher rank means lower savings rate):


Contrary to what our Taoiseach and Mr Coveney were saying, Ireland's savings rate in 2010-2014 is estimated by the IMF to be... the 5th lowest in the sample of 33 advanced economies around the world. May be it is the highest in the Euro zone? Oh, no - it is actually the fourth lowest in the Euro zone.

So what about this year then? Oh, that would be exactly the same as for the 2010-2014 average:



But wait, you might say, surely we are saving as an economy more today than in the past? Oops...


As above shows, during the 1980-2011 period, average savings rate in Ireland stood at 18.63% of GDP. In 2012 it will be 10.82% of GDP. In 2011 it was 10.59%, in 2010 11.53% and so on. Not even close to the historical average! And not close to our peers all of whom have much higher rates of savings: Israel at 18.94%, Finland at 19.84%, Belgium at 21.38%, Austria at 25.23%, Netherlands and Hong Kong at 26.29%, Luxembourg at 26.57%, and so on.

And yes, Mr Coveney, savings and investment are linked in Ireland:


And the gap between savings and investment in Ireland - explained in part by the banks claims on our savings via loans repayments:


... well that gap is currently at the advanced economies average and it was below that average during the crisis so far. 

In other words, there is no 'excess' savings in Ireland. As this economy continues to struggle with the banks debts (ah, the Chambers dinner was sponsored by one of the Pillar Banks) our savings-investment gap is forecast to rise above the advanced economies average in 2013-2017. That is the illustration of the Taoiseach's famous dictum that he won't have 'defaulter' written on his forehead. So clean forehead for our Taoiseach means no investment for businesses. Simples...

Wednesday, October 10, 2012

10/10/2012: Irish Real Economic Debt - Busting Records


Last night I came across the latest data from the IMF on the overall levels of indebtedness and leverage across a number of countries. Here's the original data:


Much can be taken out of the above. For the purpose of discussion below, I define real economic debt as a sum of household, non-financial corporate and government debts, excluding financial firms' debts. This real economic debt is liability of the Irish economy: households, private enterprises and public sector providers of goods and services.

First up, total debt levels:

Ireland's total real economic debt runs at a staggering 524% of our GDP and 650% of our GNP. In fact, I use 24% GDP/GNP gap as a basis for adjustment which is significantly less than the current gap, but is consistent with 2011-2012 (to-date) average. Put into perspective:

  • Our economy's overall indebtedness is 1.73 time higher than the euro area levels in GDP terms and if GNP is used as a basis it is 2.14 times higher
  • Our real economic debt is 14.4% ahead of that of Japan (second most indebted country on the list) if GDP is used and is 41.9% ahead of Japanese debt if GNP is used.

Our real economic debt can be decomposed into the following three components contributions:


In other words, the above chart clearly shows that Ireland's core debt overhang arises not from the Government finances, but from accumulation of liabilities on the side of the companies. More than that:

  • Ireland's Government debt levels are 25.5% ahead of the euro area
  • Ireland's Household debt levels are 64.8% above the euro area
  • Ireland's corporate debt levels are at 209% of the euro area levels.
Thus, with the Government policy firmly focused on taxing households to save own balancesheet, we have a perverse situation that the economy is dealing with debt overhang in Government debt that is more benign than the debt overhangs in the sectors the Government is obliterating. Households faced with increased taxation to pay for Government debts and deficits implies lower spending on goods and services and lower ability to repay household debt. Thus higher taxes on households (direct and indirect, including aggressive extraction of income via semi-states' charges) imply growing burden of the debt overhang in the private sectors (firms and households).


Adding financial debts to the overall real economic debt in the economy forces Ireland into a truly unprecedented position vis-a-vis other countries in the sample. (Note - adjustment for IFSC is mine).


Using the bounds for debt of 90% (consistent with upper range for Checchetti, Mohanty and Zampolli (2011) and Reinhart, Reinhart & Rogoff (2012)), the levels of cumulated real economy debts that are consistent with reducing future long-term potential growth in the economy are taken to be 270% of GDP. Hence:


and


In the above, the larger the size of the bubble, the greater is the drag on future economic growth from debt. The further to the right on the chart the bubble is located, the greater is the problem associated with Government debt (as opposed to other forms of debt). What the above shows is that Ireland's debt crisis is truly unique in size, but it also shows that the most acute crisis is not in the Government debt, but in private sectors debt.

Now, at 4.5% per annum cost of funding overall debt, irish economy interest rate bill on the above levels of real economic indebtedness runs at ca 29.2% of our GNP. Do the comparative here - interest rate bill equivalent to the total annual output of the Irish Industry (that's right - all of our Industrial output in 2011 amounted to less than 29.3% of our GNP. This is deemed to be 'long-term sustainable'... right...


Note: In my presentation at a private dinner event yesterday I referenced by earlier estimate of the total economic debt in Ireland at 420% of GDP. My 2011 estimate was ca 400% GDP. These figures have been published by me in the Sunday Times and also correspond closely to the 2010 figures cited by Minister Noonan in the Dail and made public here on this blog. They also were confirmed by Peter Mathews TD. My estimates were based on publicly available data which is less complete than data available to the IMF.