Tuesday, November 30, 2010

Apparently, Sarah Palin REALLY hates Wikileaks!

Here is a quote published on Monday November 29th regarding the Wikileaks publication of 250,000 Department of State diplomatic cables:

"First and foremost, what steps were taken to stop Wikileaks director Julian Assange from distributing this highly sensitive classified material especially after he had already published material not once but twice in the previous months? Assange is not a “journalist,” any more than the “editor” of al Qaeda’s new English-language magazine Inspire is a “journalist.” He is an anti-American operative with blood on his hands....Why was he not pursued with the same urgency we pursue al Qaeda and Taliban leaders?

What if any diplomatic pressure was brought to bear on NATO, EU, and other allies to disrupt Wikileaks’ technical infrastructure? Did we use all the cyber tools at our disposal to permanently dismantle Wikileaks?....Shouldn't they at least have had their financial assets frozen just as we do to individuals who provide material support for terrorist organizations?

Most importantly, serious questions must also be asked of the U.S. intelligence system. How was it possible that a 22-year-old Private First Class could get unrestricted access to so much highly sensitive information? And how was it possible that he could copy and distribute these files without anyone noticing that security was compromised?

The White House has now issued orders to federal departments and agencies asking them to take immediate steps to ensure that no more leaks like this happen again. It’s of course important that we do all we can to prevent similar massive document leaks in the future. But why did the White House not publish these orders after the first leak back in July? What explains this strange lack of urgency on their part?

We are at war. American soldiers are in Afghanistan fighting to protect our freedoms. They are serious about keeping America safe. It would be great if they could count on their government being equally serious about that vital task."

As much as I'd like to, it's hard to argue with bits and pieces of her logic but I do take issue with her, lack, of, the, use, of, commas.  I would say that it is well over the top to compare Mr. Assange with al-Qaeda but I guess one can always count on rallying the troops by invoking the spectre of Osama bin Laden.  As for accessing sensitive information, it's really not that hard to imagine how someone with a $20 eight gigabyte flash drive could download gigabytes worth of documents in a matter of seconds, stick the drive in their pocket and walk out the door of a Department of State office building.  Perhaps the Department needs to install its own body cavity search program similar to what is used by the TSA for the sweaty masses who chose to fly rather than take the bus.  I'm also not certain that the entire blame for this leak can be laid at the feet of the Obama Administration; it's pretty hard to plug all of the leaks in a sieve just as it was difficult for the Bush 2 Administration to predict September 11th with a great degree of certainty (Richard Clarke not withstanding).

Yes, Ms. Palin, America is at war and sadly American military personnel are dying painfully to protect freedom.  Sometimes there is no justice.  However, from what we've seen so far, the greatest pain is that inflicted on the reputation of the Department of State.  How many world leaders will now speak guardedly in the presence of State diplomats?  How much information is going to be gleaned from future conversations with Prince Andrew?

A question that Ms. Palin should be asking is "Why is the Department of State wasting energy on following the proclivities of world leaders, quoting the Royal Family and other matters that have absolutely nothing to do with the Department's Mission?  It’s quite apparent that the Department has strayed from its Mission as stated here:

Advance freedom for the benefit of the American people and the international community by helping to build and sustain a more democratic, secure, and prosperous world composed of well-governed states that respond to the needs of their people, reduce widespread poverty, and act responsibly within the international system.”  

In this time of multi-trillion deficits, would the financial resources used to procure and disseminate that information not been better used elsewhere?  Would that money have benefited some of the nearly 15 million unemployed Americans, 2 million of whom are about to lose their unemployment benefits simply because Congress is dragging its feet on extending benefits to the unfortunates who have been unemployed for more than 6 months?   That is the true crime that is being perpetuated on the American people.

Monday, November 29, 2010

Wikileaks: Tarnishing the Department of State?

Now that the rather unseemly and ugly underbelly of the United States' Department of State has been exposed for all to see by the Wikileaks diplomatic cable releases, I thought I'd take a bit of a deeper look at the Department itself.  

To start, here is the Department's Mission Statement which sets the tone for its operations:

"Advance freedom for the benefit of the American people and the international community by helping to build and sustain a more democratic, secure, and prosperous world composed of well-governed states that respond to the needs of their people, reduce widespread poverty, and act responsibly within the international system."

We'll get back to that later.

Here are the "values" of the Department as taken from their 2009 Agency Financial Report:

Lovely and inspiring motherhood statements.

From the State Department's 2009 Agency Financial Report (AFR), we find that in 2009, the State Department had 12,258 full-time, permanent employees in the Foreign Service, 9,614 full-time permanent employees in the Civil Service and 6,010 full-time Foreign Service Nationals for a total of 27,882 full-time employees, up slightly from 2008 when there were 27,609 full-time employees but up 2,600 employees from the year 2000.  For those who aren't aware, the Foreign Service employees are the officers who respond to the needs of Americans living or travelling around the world and the Civil Service employees are most often headquartered in Washington D.C. where they are involved in policy and management issues.  Foreign Service Nationals are employees from the countries where the Department is located.  One should be aware, however, that in the 2010 fiscal year budget, the Department requested an increase in Foreign Service staff by 25 percent by the year 2013.

Here are the activities that the Department of State is involved in as part of its mission:

 In the year ended September 30th, 2009, the Department's Total Budgetary Resources were $50.138 billion, up 29 percent from the previous year.  Their Total Net Cost of Operations was $21.613 billion, up 22 percent from the previous year.  Here is the chart from the AFR showing the Department's assets, liabilities and other pertinent data:

Here's where the money went:

 From the introduction section of the AFR, I have selected the following statement by the Secretary of the Department, Hillary Clinton:

"Today, the United States is facing a complex array of challenges, including our ongoing efforts to disrupt, dismantle, and defeat Al Qaeda and the Taliban; support long-term stability and prosperity in Iraq; create the conditions for peace in regions of the world torn apart by war; address the threat of climate change; fight pandemic disease and extreme poverty; and prevent the proliferation of nuclear weapons."

So that's what the Department is up to.

As well, from the AFR, are a few pointers showing us how the Department of State promotes and protects the interests of American citizens:

 We can't argue with any of those, can we?

Last, but not least, this is the Department bragging about how it is using social networking to let taxpayers in on their activities and the travel plans of Secretary Clinton:

Looks like the Department is current on the 21st century networking toys and the world will sleep better for it.

Enough of that.  Now we know what the Department of State is all about.  It's all wonderful and transparent.  It kind of gives me a warm cozy feeling that the Department of State is out there taking care of business, not spending too much money and ensuring the security of American citizens. 

Now, in light of the Wikileaks documents, I kind of wonder where the following fit into their mandate:

1.) Quotes from Prince Andrew about the corruption in Kyrgyzstan, complaints about the British newspaper the Guardian and his comments on curing oneself of anorexia as noted in the Guardian itself.

2.) Quotes from the Minister Mentor Lee Kuan Yew of Singapore about North Korea where he states that Japan might as well "go nuclear" and describes North Koreans as "psychopathic types with a "flabby old chap" for a leader" and that the next leader of North Korea may "not have the gumption or bile of his father or grandfather" and "may not be prepared to see his people die like flies.".

3.) As I noted yesterday, the gathering of and dissemination of information about Colonel Muammar al-Qadhafi and his "voluptuous blond" Ukrainian nurse.

4.) Quotes from Commonwealth Secretariat Director of Political Affairs Amitav Banerji where he states that "the heir apparent to the British Crown, Prince Charles, does "not command the same respect" as the Queen...".  I bet he doesn't get invited to Buckingham Palace once Charles becomes king!

While I definitely agree that a certain amount of government secrecy is necessary for state security, from what I've seen thus far, there seems to be a fair amount of "tabloid-like" gossip that passes for diplomacy.  What I also object to is the admonition from the Obama Administration that release of the State Department cables by Wikileaks could threaten lives.  Yes, that cannot be denied, but from what we've seen so far, the greatest casualty is the reputation of both the Department of State and the diplomats involved.  As well, we have to be careful that our governments don't invoke the "state security" moniker every time they want to keep something from the prying eyes of taxpayers.  This can prevent governments from being responsible to the people who put them into power in the first place.

As our mothers used to say, "Never say anything about someone behind their back that you wouldn't say to their face.".  Apparently, that was a lesson not particularly well-learned by some of the world's diplomatic corps.

At the very least, don't put it in writing.


Here's the link for the Guardian, a United Kingdom-based newspaper that is one the few media outlets around the world that were given access to all 250,000 diplomatic cables.  Their coverage of the Wikileaks documents is ongoing.

Sunday, November 28, 2010

Ireland - Now owned by the IMF and the rest of the EU!

Today, Ireland's Prime Minister Brian Cowen, announced details of the IMF/EU bailout package that is going to save the country's economy from collapse.  Here are the highlights:

1.) The bailout will total €85 billion; of the €85 billion, €17.5 billion will come from Ireland's National Pension Reserve Fund and other cash that the Irish government has lying around collecting dust resulting in a net loan of €67.5 billion.  Each of the European Financial Stability Mechanism, the IMF and the European Financial Stability Fund will kick in €22.5 billion.   A total of €50 billion will be allocated to run the country's operations (i.e. pay civil service and the all important politicians who really didn't help create this mess) and funds will be drawn down as required by the state. A total of €35 billion will go to run the banks.  An immediate investment of €10 billion will go to the banks because, after all, that's what created the mess in the first place.  The remaining €20 billion will be doled out to the banks on an "as need" basis, in other words, sooner rather than later.  The United Kingdom is kicking in €3.44 billion which they can ill-afford because they have their own debt demons to deal with

2.) The combined average interest rate for the funds will be approximately 5.8 percent but, in fact, will vary according to when the funds are drawn and market conditions at that time. 

It is now being acknowledged that Ireland may not meet the deficit to GDP target of 3 percent by 2014 that last week's National Recovery Program had originally targeted and that an additional year may be required because growth estimates for 2011 and 2012 were over-stated (other governments beware of your own overly optimistic projections for return to fiscal balance based on projections of economic growth!).  It is now anticipated that Ireland could reach the 3 percent deficit target by 2015, just in time for the next recession!  In order to meet this target, the country is cutting expenditures by €10 billion and increasing taxes by €5 billion as noted in last week's National Recovery Plan.

Interestingly enough, Ireland now gets to bail out of its assistance to Greece, its fellow fiscal eunuch.  Ireland's commitment to the Loan Facility to Greece would have totalled €1 billion to mid-2013.

Another interesting fact is that, according to the National Pension Reserve Fund website, the NPRF was not to be drawn down before 2025 since it was formed to provide security for Ireland's pension scheme.  In February 2009, the Minister for Finance announced that the Fund would provide €7 billion to recapitalize Ireland's banks.  Once again, Ireland's banks have come to the NPRF trough for a bailout.  Interestingly enough, as of October 2010, the fund totals only €24.5 billion as shown here:

Fortunately, the Cowen government planned ahead and raised the state pension age to 66 years of age in 2014, 67 in 2021 and 68 in 2028.  Who knows what it will be by 2035?

I'd say that between increases in VAT, cuts to the National Minimum Wage and the pillaging of their Pension Reserve Fund, that the taxpayers of Ireland have done plenty to bail out their banks, wouldn't you.  Heaven help us if other nations around the world reach the position where they are backed into the same fiscal corner.

Wikileaks: Muammar al-Qadhafi and his so-called eccentricities

As we've all been warned for the better part of a week, Wikileaks, the website famed for outing the government of the United States, today released confidential United States diplomatic cables.  Five major world newspapers, including the New York Times and the Guardian, were granted early access to some of the documents and have published or provided links to the documents.  One that caught my attention was this gem from September 29th, 2009 from the American Embassy in Tripoli.  It's restriction was listed as NOFORN (no foreign national) meaning that it was not to be looked at or shared with foreign governments or non-U.S. citizens no matter how high their level of clearance and its distribution caption was posted as SIPDIS (Secret Internet Protocol Distribution); a label used "for messages that are to be automatically published to the originating post's or office's website."  The SIPDIS label is used only for "informational messages deemed appropriate for release to the U.S. Government interagency community.".  Just in case you cared, here is a document from the United States Department of State giving instructions for the Information Management Specialist on how to handle messages within the State Department; the information is full of amusing little acronyms but makes those of us on the outside realize just what a self-perpetuating machine the so-called "intelligence network" is.

Now to the contents of the wire.  The subject of the document was "A Glimpse Into Libyan Leader Qadhafi's Eccentricities" and was classified by Gene A. Cretz, the United States Ambassador to Libya appointed in 2007 by George II as the first U.S. Ambassador to Libya since 1972.  From his first-hand experience with the Libyan leader and his staff, he felt that he had gained rare insight into the eccentricities and character of Muammar al-Qadhafi.  Here, under the heading "Qadhafi's Personality Reflected In His Phobias" are two of his supposed "proclivities":

1.) The Leader must stay on the first floor of any facility rented for him because he cannot climb more than 35 steps.  As well, he needs accommodations with room to pitch his Beddouin tent because it showed visitors that he was close to his cultural roots.

2.) The Leader does not like long flights of more than 8 hours duration and often overnights in Europe while on his way to America.  He also does not like to fly over water.

Under the heading "Dependencies: Reliance On A Select Group Of Individuals" we find the following:

1.) Qadhafi relies on his long-time Ukrainian nurse, 38 year old Galyna Kolotnytska, who has been described as a
 "voluptuous blonde".  He requires her aid because she alone knows his daily routine.  He has a staff of  four Ukrainian
 nurses that cater to his  health and well-being.

2.) The Leader is dependent on a small core of trusted individuals.  One of his confidantes carries a red phone which presumably connects to Qadhafi.  His National Security Advisor, his son Muatassim, is his father’s handler and confidante and is tasked with ensuring that his father’s image is well preserved through carefully planned media events.

Enough of Colonel Qadhafi's quirks and other personality issues.  Who among us would prefer to climb more than 35 steps to get anywhere?  Who among us does not like camping out?  Who among us really likes flying over long stretches of barren and foreboding ocean for hours at a time?  Who among us (males) would not like to travel everywhere with a voluptuous blonde Ukrainian nurse or travel with our own personal entourage of Ukrainian nurses?   Perhaps the United States could gain a strategic advantage over Libya by forcing Colonel Qadhafi to leave his nurse at home the next time he appears at the United Nations as it could dramatically increase their home field advantage!

All in all, I'd say that Colonel Qadhafi appears to be a pretty normal, red-blooded guy from the description of his "eccentricities" as given by Ambassador Cretz.  From what I've read in this particular wire, I'd say that the NOFORN security designation should be used out of embarrassment rather than any real need to hide this information from foreign states.

As an aside, how much did this "intelligence" work cost United States taxpayers and exactly what is the value of this information to those who pay Mr. Cretz's salary?


Saturday, November 27, 2010

Germany: A bastion of fiscal responsibility in the EU?

With Ireland's debt crisis still brewing, I thought I'd take a look at Germany's fiscal situation since they always appear to be a bastion of fiscal responsibility in a sea of many nearly bankrupt Eurozone debtor nations.  Once again, all of the data used in this posting is taken from original government sources wherever possible.  I'm warning you, there are a lot of numbers but the conclusions can be found just below the "Summary" header.

The German government passed its 2011 budget back in early July 2010.  In that budget, Chancellor Angela Merkel's government made an attempt to rein in spending by cutting its total budget to €307.4 billion.  Public spending in 2011 will be cut by 3.8 percent or €11 billion.  As well, Germany's borrowing should be reduced to €48.4 billion in 2011 from €65.2 billion in this fiscal year.  The government also proposes to cut spending further to €301 billion by 2014.  As of mid November, the budget has passed through Merkel's coalition cabinet (Christian Democrat and Free Democrats) and through the Bundestag, the German lower house of parliament.

Despite the cut in new debt to €48.4 billion (compared to the €57.5 billion originally proposed by Finance Minister Wolfgang Schaeuble in early 2010), the additional debt will be added to what is already a relatively large overall government debt of €1093 billion.

Germany's population of 82 million people is suffering from the same permanent shift in demography as most other industrialized nations.  Life expectancy is rising and the birth rate is dropping and it is projected that within a few years, there will be more people aged 65 and over than there are people aged 15 and under despite growth in immigration.  This will make servicing the public debt more difficult since the elderly tend to consume more social service programs.

From the Economic and Financial data page on the Destatis (Germany's Federal Statistics Office) website, the 2009 budget deficit stood at €79.32 billion with GDP for Q3 2010 standing at €638.6 billion.    Germany's GDP for 2009 stood at €2397.1 billion (non-seasonally adjusted).  In October 2010, there were 2.946 million unemployed workers in Germany, down from 3.031 million the previous month.

According to the November 2010 Federal Ministry of Finance's Monthly report found on the Bundesfinanzministerium website, the federal debt stood at €1096.8 billion at the end of September 2010.  This is up €4.8 billion from the end of the previous month.  For the first 10 months of 2010, the deficit stands at €54.793 billion, up from €39.15 billion for the same period in 2009 and is estimated to come in at €80.6 billion for the entire 2010 fiscal year although the government feels that current trends in the monthly growth of the deficit could result in new net borrowing of only €50 billion (a new record for Germany).

Here's a chart showing the deficit for 2009 and 2010:

Interest on the debt for the first 10 months of the year (January to October) stands at €32.325 billion, down slightly over €3 billion from the previous year and is estimated to total €36.751 billion for the entire fiscal year.  These interest payments consume 12.7 percent of the entire federal fiscal year budget down from 14.6 percent in 2009.

Now, let's look at my favourite number debt per capita.  Germany's total debt of €1096.8 billion ($1.4928 trillion) is divided amongst its 82,110,097 citizens.  This works out to per capita debt of $18,180 and puts Germany well into the low range of the G8 members of the EU as found in this posting.

As well, let's look at the debt in terms of GDP.  For 2009, Destatis records Germany's GDP at €2397.1 billion.  At the end of 2009, Germany's debt stood at €1053.686 billion.  This results in a debt to GDP ratio of 44 percent, well below most other EU countries and below the EU cutoff of 60 percent.  Its deficit last year was €34.5 billion or 1.4 percent, well below the EU limit of 3 percent although, according to Destatis, if the deficits of all public budgets is taken into account, the total deficit for 2009 stood at €105.5 billion and the debt of public budgets had risen to €1.692.2 billion at the end of 2009, putting the deficit to GDP at 4.4 percent and the debt to GDP at 70.6 percent.  Note that both ratios are well above the EU cutoff guidelines.


To summarize, it does appear that Germany does have at least some firm ground to stand on when it comes to criticizing its EU partners for fiscal mismanagement, at least by comparison.  While the country does have a rather large public debt of €1096 billion, its per capita (€18,180) and debt to GDP level (44 percent) are among the lowest in the G8.  What is concerning is its debt growth in the past two years (€79 billion last year and €54 billion so far this year), its aging population and the fact that its population has not really grown in the past 20 years and is projected to drop from 82 million to 72 million by 2050.  Interest on the debt is estimated to reach €36.751 billion for fiscal 2010 and will consume 12.7 percent of the entire budget, down 1.9 percentage points from the previous year.  These factors, when summed, will make it increasingly difficult for Germany to service a growing debt and will definitely affect the country's ability to offer further fiscal assistance to other EU Member States as their economies implode.

As an aside, at the end of September 2010, Germany made its final payment of $94 million towards its debt/reparations imposed on the country by the Allies at the end of World War One.  This put a final end to the financial obligations Germany acquired after the war 92 years ago.  The Treaty of Versailles was signed on June 28th, 1919 and for its part in the conflict, the Allies assessed a penalty of $31.4 billion (equivalent to $382 billion in 2010)   The whole debt would have been paid off earlier but Hitler refused to pay and, in part, it was the crippling economic burden of the reparations led to his rise to power.  As well, when Germany was divided into East and West, payments were suspended until reunification in 1990.

Thursday, November 25, 2010

Coming soon to a country near you - tax increases and pay cuts!

In yesterday's National Recovery Plan 2011 - 2014 issued by the government of Ireland at the behest of the IMF as a condition of their bailout loan, a couple of key items caught my attention.

In the first, the government of Prime Minister Brian Cowen will reduce the Ireland's minimum wage by €1 per hour to €7.65.  The government claims that the current level of the National Minimum Wage (NMW) created "a barrier to employment".  Here is the direct quote from the Plan:

"Where a NMW is imposed at a level higher than the equilibrium wage rate, unemployment will result. Some workers will be willing to work for a wage lower than NMW but employers are restricted from providing these job opportunities. Other negative effects include:
Acting as a barrier for younger9 and less skilled workers to enter the labour force and take up jobs;
Preventing SME’s from adjusting wage costs downward in order to maintain viability and improve competitiveness; and
Reducing the capacity of the services sector to generate additional activity and employment through lower prices for consumers.

The NMW was introduced during a period of sustained economic growth and rapid wage increases. Our circumstances have changed dramatically in the last three years. Price levels have reduced and earnings have adjusted downwards to help to preserve jobs. A reduction in the minimum wage level – as proposed by the OECD10 - can also be expected to remove a barrier to job creation. Therefore the Government have decided to introduce legislation to reduce the rate of the minimum wage by €1 per hour, or 12% to €7.65"

So, basically, the government is now stating that they erred by allowing the minimum wage (which was set in 2000 at €5.59 and has increased 55 percent over its original subsistence level to a new subsistence level) to rise out of sync with local price increases.  That would never do!  They state that the new NMW rate will still keep Ireland in the top tier of EU minimum wage rates.

What is particularly galling about this move is that the elite (and highly paid) leadership of the country is asking those at the bottom of the economic ladder to bear a rather large disproportionate share of the misery that they had no part in creating.  That is not fair!

As an aside, Prime Minister Cowen's salary for this year was €228,446, a cut of 11 percent from the previous year.

But, on the other hand, corporations still benefit from the largesse of government.  Here's a quote from the Plan:

"Finally, it is important that we look at revenue raising measures across all areas – income, capital, indirect, expenditures, reliefs and incentives. The Government remains steadfastly committed to the maintenance of our 121⁄2% corporate tax regime as the cornerstone of industrial policy. Research by the OECD34 points to the importance of low corporate tax rates to encourage growth. In ranking taxes by their impact on economic growth, corporate tax was found to be most harmful. In other words, governments seeking additional tax revenues would be advised to consider increasing all other types of tax (property, consumption and income) before increasing corporate taxes."

Here's a chart showing the corporate (and personal) tax rates for all EU Member States taken from the European Commission Taxation and Customs Union website:

Note that the corporate tax rate arithmetic average (on the top line) for all 27 member states in 2010 was 23.2 percent.  Ireland is third lowest after Bulgaria and Cyprus who are both tied at 10 percent.  I'd say that the Cowen government really likes big business far more than they like those who get paid the National Minimum Wage, wouldn't you?  As voters, we hear far too often that corporate taxes must remain low to create jobs.  Look how well the 12.5 percent corporate tax rate has worked out for the 13.6 percent of Irish workers who were out of work in October 2010.

Secondly, Ireland will raise its VAT rate from 21 percent to 22 percent in 2013 with a further increase to 23 percent in 2014.  As it stands now, 23 EU Member States have VAT rates in excess of 19 percent including the United Kingdom where the rate will rise to 20 percent on January 4th, 2011.  This additional tax burden is expected to yield an additional €620 million in a full fiscal year.

Now, back to where the rest of the world lives.  We see growing and alarming debts and deficits from many developed nations around the world; the United States, Japan, the United Kingdom, France, Belgium, Austria, Germany and Canada to name but a few nations with mounting debt levels and deficits that are becoming structural where, no matter how fast an economy grows, the government is simply unable to balance its budget.  As we all know, politicians are not particularly original thinkers; they look to other leaders around the world and mimic the solutions adopted elsewhere to suit their own local circumstances.  Now that Ireland has set a standard by lowering its minimum wage and raising its consumption tax to stratospheric and obscene levels, how far behind can the United States, Canada and the United Kingdom be?  To politicians, it looks like a very simple solution; cut the minimum wage and the jobs will magically appear.  Maintain low corporate taxes and even MORE jobs will appear!  Raise taxes and the debt and deficit will magically disappear.

Unfortunately, my suspicion is that wage cuts and tax increases (unless you happen to be a corporation) are going to happen sooner rather than later, particularly in the United States and Canada where corporate taxes are higher and consumption taxes are far lower than the EU.

Tuesday, November 23, 2010

'Til Government Debt do us part - Part 2 - The Irish Crisis

Update November 24th, 2010:

As part of the country's National Recovery Plan 2011 to 2014, the Government of Ireland today announced that it would further gouge taxpayers by increasing the standard rate of VAT from 21 to 22 percent in 2013 and to 23 percent in 2014.  This measure is expected to bring in an additional €620 million.  In other news, corporations will continue to benefit from a 12.5 percent corporate tax rate.  Oh yes, and a cut in minimum wage by €1 per hour to 7.65.  Nothing like hitting the helpless who had nothing to do with the mess Ireland is in, is there?

Original Posting:

Ireland has been all the talk in the mainstream media the past week or thereabouts.  While the information in this posting is not particularly new, I am providing readers with a summary of the entire Irish economic crisis in one place.  As well, I thought I'd compare their debt issues to that of the G8 nations from my previous posting found here.  As usual, I have gone to the original government sources for both fiscal and population data; if they are prevaricating, then I'm just passing it along so don't blame me!

From the Government of Ireland's Department of Finance, here's a look at their own national debt numbers, current to the end of fiscal 2009 from a report dated September 2010:

Here's a look at how much it is costing Ireland to service their national debt on an annual basis:

Now let's look at my favourite debt per capita number.  With a population of 4,470,700  and debt of $102 billion at the end of in April 2010, the per capita debt for the residents of the Republic of Ireland comes in at $22,815.  Note that this is well below that of the United States and Japan, somewhat lower than France and Italy and roughly on par with the United Kingdom.

From the Department's Monthly Economic Bulletin for November 2010, they announced the following:

1.) The revised estimate for the 2008 General Government Balance is a deficit of 7.3 percent of GDP.
2.) The revised estimate for the 2009 General Government Balance is a deficit of 14.4 percent of GDP.
3.) The forecast for the 2010 General Government Balance is a deficit of 32.0 percent of GDP.

Is it just me or is this ship heading in the wrong direction?

Here's more bad news:

1.) Ireland's ratio of General Government Debt to GDP at the end of 2008 is estimated to have been 44.3 percent.
2.) The revised estimate for General Government Debt to GDP ratio at the end of 2009 is estimated to have been 65.5 percent.
3.) The forecast for General Government Debt to GDP ratio at the end of 2010 is estimated to be 98.6 percent.

That puts Ireland in 12th place (in 2009) after such fiscally responsible nations as Portugal, Italy, France, Germany, the United Kingdom and Austria.  All hands abandon ship!

Here's an interesting chart from the Department's Monthly Economic Bulletin for November 2010 that pretty much summarizes the first part the entire problem:

 Notice how for at least the period of time from January 2004 to early 2008 that loans for house purchases grew by more than 20 percent year over year?  Notice how that slumped to near zero by the end of 2009?

...and here's the second part of the problem:

In Q1 of 2010, average new house prices fell by 11.3 percent and average second-hand house prices fell by 16.7 percent compared to Q1 2009.  In the capital city, Dublin, average new house prices fell by 14.8 percent and average second-hand house prices fell by 22.3 percent compared to Q1 2009.  All of this is on top of the fiscal 2009 drop in average new house prices of 20.7 percent and 21.1 percent in 2009.  From the peak in 2006, average national house prices have dropped by 36 percent as shown in this chart:

From a Central Bank of Ireland press release dated November 17th, 2010, it was announced that 5.1 percent of all mortgages in Ireland were in arrears by more than 90 days.  On the upside, the total value of the 789,000 outstanding residential mortgages dropped by €316 million to a total of €117.4 billion since Q2 2010.

The drop in real estate prices and rise in unemployment led to dramatically increased stress in Ireland's banking system.  The Irish government formed the National Asset Management Agency (NAMA) to acquire problem loans from banks in exchange for government bonds.  From a speech given on November 18th, 2010 by NAMA Chairman Frank Daly, to date, the original book value of the 11,000 loans acquired by NAMA is €73 billion and it has issued over €30 billion to the affected institutions.   It is estimated that at least €45 billion ($61.2 billion) (and possibly up to €60 billion ($81.6 billion - roughly 80 percent of Ireland's current debt) will be required to recapitalize Irish banks, roughly one-third of Ireland's GDP.  If the best case scenario bank bailout is put into a per capita perspective, the roughly 2 million taxpayers of Ireland will have to pony up $30,600 each (or $13,700 for each man, woman and child) to keep the banks afloat.  To put the $30,600 into perspective, the United States' Troubled Asset Relief Program (TARP), which allowed the U.S. government/taxpayers to purchase up to $700 billion in "troubled assets"  from financial institutions, had a maximum per capita cost of $2260.

Three letters: OMG!