Archive for the 'Economics' Category



Budget 2012

Here’s a summary of Budget 2012. Thanks to Ms. Casey.

What are bonds?

There has been a lot in the news recently about “bonds” and “bond yields”.

The following is an article from the Sunday Business Post that explains what these are.

What is a bond?

A bond is a unit of debt. The bonds we’re all talking about these days are sovereign bonds, or units of government debt. But companies sell them too.

It’s just a contract by which an investor agrees to loan money to a company or government in exchange for a predetermined interest rate and generally for a predetermined period of time (two years, five years, ten years).

Why is it bad when bonds rise?

When we say a bond has risen, we mean the yield – or interest rate – on that bond has risen. Effectively yields and prices move in the opposite direction. A rising bond yield is a falling bond price.

As yields rise, it indicates investors won’t buy that country’s debt unless they get a better return. The higher the level of risk they perceive to their investment , the higher the interest rate which investors demand.

Right now investors fear that if they lend to Italy they may eventually not get all their money back – so they are demanding a higher interest rate to compensate for this perceived risk.

Right. And seven per cent is a high yield is it?

Yes it’s very high, particularly when a German bond is yielding two per cent, which means investors want a five per cent premium from Italy (this is an enormous gap in sovereign debt terms).When yields in Ireland and Portugal hit that level, it was time for a bailout.

OK, so why doesn’t Italy just stop selling bonds for a while until it all blows over?

It might have to, but then it has to worry about how to pay its bills. It needs to repay some maturing bonds later this year and has to raise a hefty €300 billion in 2012.The EU/IMF could offer funds to Italy – but they probably do not have enough in the kitty to bail Italy out for a period of years, as they have done with Ireland, Greece and Portugal.

The full article is available here.

Words of wisdom from the late Steve Jobs

Worth watching.

Trader on the BBC says Eurozone Market will crash

Watch the following BBC interview with a stock trader in London on what he thinks will happen to the Eurozone.

Do you agree with him?

Business Library

Some new additions to our Business Library this term:

  • The Intelligent Investor by Benjamin Graham – this is one of the most influential books on investing in shares.
  • The Undercover Economist by Tim Harford – worth reading if you are interested in Economics and how economics is all around us in our daily lives.
  • A Mobile Fortune – The Life & Times of Denis O’Brien – an excellent book on how Denis O’Brien started Esat Digifone and is now expanding his empire in developing countries.

You can borrow these books and other magazines, books and DVD’s in the Business Library by calling into EXT2 or by completing the online booking form here.

 

How would you reduce the Budget Deficit?

Budget 2011 will take place on Tuesday December 7th. In the next few weeks, Brian Lenihan and the Department of Finance will be looking at their options to reduce the budget deficit of €20bn per annum.

This annual deficit of €20,000m means the government is spending €20bn more than it receives in revenue from taxes.

So, if you were the Minister for Finance, what would you do first in order to cut the deficit?

Bonds in Plain English

Last Tuesday, the Irish government borrowed another €1.5bn. You may have heard a lot about bonds in the news early this week. So what are bonds and why are they important to Ireland?

Bonds are used by the government to raise money. The Irish government needs to borrow about €20bn per annum in order to run the country i.e. our total expenditure exceeds our total income by €20,000m.

Each bond is usually sold for €100 and has a fixed rate of interest.

An example would be:

€100 4% April 2014

€100 is the price of the bond. The bond will pay 4% interest per year. This is a fixed rate. In April 2014, the bond “matures” i.e. the government repays the €100 to the investor who bought the bond.

The government is borrowing the €100 until April 2014 and pays 4% interest per year.

The reason why bonds were in the news this week is that Ireland now has to pay a higher interest rate to the people who buy our bonds because they view Ireland as more of a risk i.e. will we be able to pay the interest each year and the €100 in 2014?

This is the same as a bank would do when lending money to a risky customer i.e.  charge them a higher interest rate.

Question: Why is Ireland now more of a risk than last year?

Give your reasons by commenting on this post.

Was George Lee right to resign?

Have your say on whether George was right to resign?

Shane (Leaving Certificate Business) interviewed George in October. Read the full interview here. He was happy in Fine Gael then and had no regrets.

The Love of Money

RTE are currently showing a series, previously shown on BBC2, on what really happened during the “credit crunch” in 2008. It’s worth watching.

The Love of Money

George Lee – The Interview

George Lee InterviewAs a follow up to our earlier post on your questions for George Lee, here is the interview in full. Thanks to Shane from Leaving Certificate Business for doing the interview. It’s well worth reading.

Q. What changes would you propose to the education system?

A. Well one of the things in terms of 3rd level education is obviously free-access at the point of entry. I think in the current environment when there’s such pressures on the public finances that to achieve that would be a pretty big thing, and I think that Fine Gael’s policy on that would be to ensure that that happens, which is to ensure that it is free at the point of entry and ultimately I suppose it’s like a graduate tax, because graduates end up earning money, and they do, all of the evidence shows that they earn much more than they would if they never went to college and a third of the cost of the education is clawed back. If we could achieve that, it would be a very good outcome in this environment when the pressures are on to take away the 3rd level free education.

The second thing I would like to do, is to ensure that in the whole educational area, that when we get the economy fixed up, is to continue to reduce class sizes. At the moment they’re going in the opposite direction, which I think is a pity. In so far as they are going in the opposite direction, I think that there’s an onus on us to ensure that the standard of teaching keeps improving, because it’s really the standard of teaching rather than class sizes that effects pupils the most, so I think we will have to ensure that teachers get continued access to up-skilling, in-service days etc, not enough attention is paid to that at all levels across the education system.

Q. How would you go about getting the general public spending again?

A. I think one of the main problems is credit, credit is like the blood flow of the economy, it keeps it going, and I think the whole issue on that is that the banks are broke. So I think the most important thing to get people spending again is to make sure credit is available. Once it gets flowing we would talk about a National Recovery Bank, which could be set up in a matter of weeks which would ensure that the banks, if it gave new lending, to new produce, to new people, that the Recovery Bank would buy that asset off them, this would give the banks an incentive to engage in that lending, this would help to get credit flowing and people spending again.

The second thing I think you need to have to get people spending is to instil confidence. To instil confidence, I think you have to first of all ensure that there is a change of government,  because people are afraid of what’s coming down the line. You also have to create more jobs, we need to push ahead with that, we have a plan in Fine Gael for 100,000 jobs in areas like clean energy, and new semi-state bodies, we can re-jig some of the old ones, maybe sell some of them on. We are focused on new areas which we think are very important, such as waste energy, these things will give the economy a boost.

Q. Would you propose any changes to PAYE or PRSI?

A. Well, I think you can’t rule anything out in relation to the taxation system at the moment, because there’s so much missing. I think there hasn’t been enough support for families in the taxation system right throughout the years, and so we think that it’s important to deal with that straight away, the Irish family has been taken away from the centre of the tax system in Ireland and this needs to be addressed. I think it’s a very complicated system of taxation that we have at the moment, this government had simplified it, but they’ve gone backwards on that, they brought it down to two tax rates and are now talking about bringing in a third, they’ve brought in these levies, they have an income levy, a double-dependant levy, they have all sorts of these things, they’re talking about removing the ceiling on PRSI, they’ve just basically made it more complex and complicated. I think at the moment for the government it’s about getting as much money as possible, and that’s all they care about.

Q. When do you think the next general election will be?

A. [Laughs] Not soon enough! I think that obviously we’ll have to watch over the next 12 days to see how The Green Party vote, they have a “Programme to Government”  vote as well as the vote on NAMA, so we need to see how that goes. The thing is though, even if they get past that, the reality is they will have to get a budget through the Dáil. This budget will probably be a very difficult budget because they are talking about massive cuts in spending, the likes of which we’ve never seen before. A lot of people who are independents, for example Michael Lowry, might have difficulty with that, so the government are going to have difficulty in getting the budget through, but if they manage to get it through they might hang on a while longer. I don’t think this is good for the country either way, which is why we need clarity on a new Government, with a new mandate, who are going to do things right, so the sooner the better.

Q. What do you think the implications are for Ireland returning a Yes/No vote on Lisbon?

A. I think they’re huge. For me, I think the whole thing about Ireland and Europe is that we need to punch above our weight, and we’ve always done that, whether it was when we had a Commissioner for Agriculture or when we were getting all the money from funds, or at world-trade talks in Ireland, we have been taking seriously because we were important. If you look at the likes of Luxembourg, their population is one tenth the size of Ireland’s, but they have a massive clout in terms of Finance, mainly thanks to their excellent Finance Minister Jean Claude Juncker. Luxembourg is a perfect example of a country punching above it’s weight, this is where we need to be, and to do that, you need to be central to Europe. Multi-national companies are saying to us all the time, day-in, day-out,  that the impression Ireland gives off is critical in regards to where they need to invest, and I think that if we vote No, that it will damage that perception, which is terribly important. It’s just one of those things that you just cannot measure, the importance of the message that we send out internationally. We would be shooting ourselves in the foot if we vote No.

Q. When do you think the current recession will end in Ireland?

A. I think we’re going to be in it for a while, I think it’s going to be a very slow recovery,  I don’t think we’re at the bottom of it yet in fact. One of the problems is that economists always talk about the recession ending when we return to increasing GDP or GNP growth, but that’s only a statistic, which you can have for lots of different reasons. For me, the recession ends when unemployment comes down, which is a very difficult thing to achieve. (To full employment?) Not necessarily full employment but when we start getting more jobs, it will take a long time to get back to full employment until we turn the corner. One of the lessons of all recessions, is that when you get economic growth going again, that it takes a long time until you get unemployment falling, so I think we’ll be dealing with this for a long time. That is the big challenge we face, how we’re going to deal with that.

This is the first significant recession we have had where we don’t have our own currency to help us, that we could adjust to give the economy a competitive boost to get ourselves out of it. It’s the first time that it’s purely and only the labour market that the adjustment needs to come, so we need an effective labour market anyway, but we are facing huge challenges. So I think they are the reasons, I don’t think it’s going to be soon. I think in terms of the economic environment and economic phase we’re in, I mean the economic phase and not the recession,  the phase that goes past, that it will be 2015. I think it will be 7 years, it has always been a 7 year cycle. ’73-’80 where we had the 2 oil crisis’,  ’80-’87 where we buggered it up, that was a 7 year cycle, ’87-’94 where we began to put in place social cohesion and cleaning up the mess, another 7 year cycle,  ’94-’01 the real Celtic Tiger, then came September 11th, mad-cow disease, dotcom bubble and all of those things, leading to 2001-2008, a 7 year period which was a credit fuelled binge, which ended in disaster. We are in the next 7 year period now, after which I think we will get out of the phase, but that doesn’t mean the recession will last that long, but the phase will.

Q. What career advice would you give to a current  Leaving Cert student? Where do you think the biggest growth areas will be in the Irish economy?

A. I think you’ve firstly got to stay and educate yourself for as long as possible, [laughs] it’s the greatest way of hiding out until this recession is over. Just stay in a course, whatever course, and another course until you get it. I think that when you look forward, the future jobs will be a lot different to the past. In the 6 or 7 years up to 2006, 60% of all new jobs for young men, were actually in construction, that won’t happen again, it will be different types of jobs. I’d be looking towards the energy area in particular, the new energy areas like renewable energy, new technologies, export services. I think we can export energy, if we’re really clever about it we can really decide to harness the renewable energy, so I’d really be looking at that as a growth area. Also, the internet related stuff, I think that Irish people are great, we have a knack for that kind of thing. So all-in-all I’d be looking towards the whole scientific/technical area. I wouldn’t put anyone off construction or farming or anything like that, some people say about “Green Jobs”, and that “we only want Green Jobs” you know? I’ll have a green job, a black job, a red job, a blue job, I’ll have any job, don’t put anyone off any job, but I do think the growth areas will be the key areas.

George Lee in CastlebarQ. Which was better? Winning” Irish Journalist Of The Year” in 1998, or getting elected to the Dáil?

A. Haha, gosh, they’re so different, I forgot about that ’98 thing. Obviously your only as good as your last meal aren’t you? I think the election was better, I thought that was fantastic.

Q. Which do you prefer? Being a TD or working for RTE?

A. Very early days yet, [laughs] you’ll have to ask me that in about 12 months time, because I’m still on a very significant learning curve, so it’ll take me a while to get to grips with it. It’s a huge challenge, but I have to say going into RTE was also a huge challenge. When I went into RTE first I knew about economics, I thought that that would be the job but it wasn’t, it was about communicating, it was about doing television, and suddenly I realized about broadcasting, I got broken down completely, it took 3 years to turn that corner, and I’m not under any illusions that this is a learning curve that can’t break politicians, so it’s too soon to say which I prefer.

Q. So any regrets leaving RTE?

A. [Laughs]No, not yet, I’m too busy to be having regrets. I’m not looking down and I’m not looking back.

Q. So who was the funniest person you worked with in RTE?

A. The funniest? The funniest person was Colm Connolly,  he used to work in the newsroom, he could make a cat laugh. He’s gone off to Cyprus doing other things now, so I’m sure there’s plenty of Cypriot cats laughing. He done all the Arts and Media stuff in RTE so he was always good fun.

Q. Who’s the funniest TD?

A. The funniest TD?  Is there a funny TD? [Laughs] I don’t know who’s the funniest TD yet, I don’t find any of them funny I’ll tell you that! You know? No way,  there’s 166 of them and not many are comedians, you know?

End of Interview.

So what do you think? We would like your comments on this interview.


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