Re: Re: Why did Ireland bother? Don’t they have Trojan horses?

#101796
adiep
Participant

Logan, the chances are that Ireland and Greece will default – its not the other way around.

Both countries are likely entering “debt deflation”. Not sure what you know about that — im no expert — but quite simply the debt repayments cause a contraction of the economy, which in turn makes the debt a greater percentage of GDP, and hence payments as a percentage rise, which in turn causes a contraction of the economy, which… and onwards it goes spirals downwards…

http://en.wikipedia.org/wiki/Debt_deflation

The common routes out of such a scenario are not available to Ireland, 1) debt forgiveness/restructuring/default, 2) inflation. 3) fiscal stimulus.

This is what the fuss is all about and why the bailouts are not making the fuss go away. The bailouts are not free money, it is just more debt at an interest rate of between 5-6%. Ireland’s repayments in a couple of years are going to be a very high percentage of its total tax revenues, The Irish government may have to increase taxes to pay back the debt — increasing taxes in an already broken economy will just make it sicker.

Until someone starts paying Irelands bills for it, then the chance of this debt deflation spiral looms large and along with that, a default.