With the passing of every new week, we get a clearer picture of exactly how the coalition government intends to proceed regarding the economy. The implications are very serious for whatever savings, pensions or other assets you may still have, including your job, pension fund and even your family home.
Time ran out for Ireland Inc last November when the last government handed over our freedom to make our own financial and economic decisions to the EU, ECB and IMF in exchange for a way to delay admitting bankruptcy.
Acting in concert with the government, the troika are now forcing not just austerity on the country but the shrinking pool of taxpayers to repay virtually all the private bank debt plus the huge and growing national debt (from ongoing loans and overdrafts from the ECB). The combined debt is estimated to be in the region of €230 billion; the interest that must be met on the c€80 billion part of the of bank debt is 5.8%.
The new government could have called a halt to the insane course that Fianna Fail began in September 2008 with the blanket bank guarantee but it will now follow the same course.
We are now “in receivership”, as Minister Ruari Quinn describes it and are reduced to stealing pension savings to pay for a jobs stimulus plan that no one has costed or can guarantee will work.
We will stay in receivership only with the cooperation of our bankers and creditors, who can otherwise ‘liquidate’ us at any point by cutting off our overdraft and shutting down the Irish bank ATMs and the chequebook that pays public service salaries.
Even this semi-permanent indentureship will only last so long as there are no more economic shocks, like the chaotic default of Greece or even another serious stock market fall.
What had been national debt worth just 25% of our gross domestic product in 2007 has now jumped to 44% of GDP in 2008, to 65% in 2009, to 93% last year and to a projected 113% of GDP this year. (In euro terms GDP is €156 billion.) Back in 2007- 2008 the euro value of our national debt was €38bn and €50 billion respectively.
I am becoming genuinely frightened by the “ah sure, it’ll be grand” attitude of the new batch of government ministers.
“We are not Greece,” they claim - again. “We are meeting all our commitments to the EU/ECB and IMF”. Yet, three years into our economic depression, the government is continuing to add more debt to our already unpayable amount of debt, to further raising taxes and levies but will not prioritise their own excessive spending over and above what we raise in taxation. The annual spending deficit is projected to be €18.2 billion in 2011.
Public sector pay and pensions account for c€18 billion of the c€57 billion national budget, the social welfare bill, €20 billion and about €14 billion for the health sector. A six year old can work out that those three great items of expenditure alone exceed the entire annual tax take of about c€35 billion.
Last Thursday night, the government rolled out the junior minister for Europe, Lucinda Creighton – the Sarah Palin of this administration - on PrimeTime to repeat that there would be no defaulting on the the EU/ECB/IMF bail out package. On the same day, the Minister for Finance suggested that income tax will be announced in the December budget, contrary to election promises. We already know that water and property levies will be introduced from next year.
The economy, with the exception of multinational exports, continues to weaken.
Property values and incomes in the private sector are still falling. Unemployment and emigration is still rising as is price inflation. Bank lending and spending are both lower.
Despite the chirpy denials of Ms Creighton, every credible commentator outside the government believes we must renegotiate our debts, including defaulting on a large portion of it. We also need to live within our means, which means cutting our ties to the inappropriately priced euro, and prepare for many difficult years as we rebuild devastated state and personal balance sheets.
This is what happens when a state, company or person goes bankrupt but it’s also a chance for a new start. In the short to medium term it means that Irish based savings, pensions and other assets will be devalued compared to the euro or other currencies.
Price inflation will be huge as the cost of foreign and imported goods soars against our new devalued currency, but a large amount of the value of fixed interest capital debts like mortgages will be inflated away.
And all this will last for several years.
You should try and protect some of your more liquid assets (like cash) from risks that could include loss of capital (if banks go bust); currency instability and devaluation; confiscation through taxation and levy, and price inflation.
Action involves everything from opening off-shore accounts, currency and asset diversification including stocks and shares, the holding of real money – gold and silver, proper inheritance and estate planning. Good tax and pension planning also needs to be a priority. Access to capital – real savings – will be the key to the long term recovery of this country. Living off debt will not be an option.
A good, well-informed, fee-based advisor should be able to lay out those options for you and assist you to take action.
Next week – where do you go for such advice? How much does it cost? How far can you trust such a person with your money?
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