Yesterday I argued that Irish austerity doesn't really tell us much about what the US should do. Today it's worth talking about why, exactly, the Irish experience is such a poor model for the problems of the US. Luckily, fledgling think tank e21 has done the hardest part of the job for me: explaining the depth of the problems that Ireland faces.
For the U.S., there was never any question about whether the federal government had the capacity to arrest the panic. At its peak, the liabilities of the U.S. financial system were $17.1 trillion (D.3), or about 118% of GDP. Even if one assumed that assets were worth 20% less than liabilities - a highly aggressive and unlikely assumption - the cost of guaranteeing all of the financial system's liabilities would only be 23% of GDP, or equal to a one-time 50% increase in the debt-to-GDP ratio. Therefore, the implied guarantee of all financial system liabilities after TARP was highly credible.
For other countries with larger (relative) financial sectors, the arithmetic was much different. The most obvious example was Iceland, whose banking system's liabilities reached nearly 1,100% of GDP in 2007. When its banks could not access wholesale funding markets, the government lacked the fiscal capacity to intervene credibly. The result was economic collapse. For other nations, it was less cut and dry whether the government could backstop its banking system's liabilities without incident (see chart above). The United Kingdom and Switzerland's banking system liabilities exceeded 400% of GDP. Both nations took actions to recapitalize banks and provide implicit guarantees of their liabilities - TARP-like programs to stand behind banks and assuage concerns of creditors without legally obligating the government to ensure no bank creditor suffered any loss. Conversely, Ireland, whose banking system's liabilities were also near 400% of GDP, decided to formally guarantee its banking system's liabilities.
While the Swiss and UK guarantees seem to have succeeded thanks to their banking system's international activity and broad diversification, the Irish guarantee has not been as successful, largely because of its banks concentrated exposure to a bursting domestic real estate bubble. The result has been a deeply insolvent banking system that some believe will ultimately push the Irish government itself bankruptcy. Barclays was the latest to warn that the government will likely have to renege on its guarantee and seek concessions from bank creditors if it is to avoid sovereign bankruptcy. As of August, the Irish banking system owed €95 billion to the European Central Bank (ECB), which means about 12% of all Irish bank assets are now financed through official liquidity facilities. This is only slightly below the 17% of Greek assets funded through official channels and a sign that the private sector is no longer willing to fund Irish banks.
The problem for Ireland is that the tax revenue that could otherwise be pledged to cover its banks' debts has plunged for the same reason its banks are in such trouble: the collapse of the real estate bubble. Irish house prices have fallen by 34% from the peak and have yet to stabilize. Irish wealth fell by about €150 billion in 2009, which would be roughly equivalent to an $8 trillion decline for U.S. households. Unemployment has spiked in the very sectors most responsible for growth in the recent past - real estate construction and finance. The same factors driving the banks' insolvency are simultaneously depressing employment, household spending, and tax revenue. The deficit stands at 14% of GDP, due largely to an economic contraction that sliced 10% off of the size of the Irish economy since 2008. The government's gross debt has nearly tripled as a share of GDP, rising from 25.8% in 2006 to 64% at the end of last year and could exceed 75% by the end of the fiscal year.
There are no signs that any of this is temporary or that adjustments made to date are sufficient to maintain access to credit. The initial austerity measures taken by the Irish government - tax increases and large cuts to public employee wages - seemed ambitious, but they turned out to be a drop in the bucket relative to the cost of the bank rescue. The Irish government created the National Asset Management Agency (NAMA) to acquire property development and commercial real estate assets from banks at a sizeable discount to par. As with similar schemes, this government-sponsored fund faces a catch-22: overpay for assets and transfer losses directly to taxpayers or drive a tough bargain and further expose the banks' insolvency. To date, NAMA has recorded €30 billion of losses, or more than 10% of GDP. S&P estimates that ultimate losses will be between 29% and 32% of GDP. To put this figure in perspective, this would be equivalent to U.S. taxpayer losses on Fannie Mae and Freddie Mac of $4.2 trillion, or about 11-times the CBO estimate of $380 billion.
While some think Ireland could be saved through export growth given the number of international corporations that moved to Ireland to take advantage of the low corporate tax rate, the potential for export growth is limited by what the IMF suggests was a bubble in wages similar to the one in property prices. At the end of 2007, Ireland was proudly boasting that it had more Mercedes Benz per capita than Germany. The rise in wages brought about by a booming economy reduced competitiveness. Deflation has set in with prices falling by nearly 2% last year. Export growth will likely first require a period of prolonged deflation, which would result in a dramatic increase in the real cost of the large amounts of newly incurred debt. In short, the Irish economy is still reeling from a financial collapse that is several times worse than that of the U.S. Even the Spanish problems are mild by comparison, as only 4% of Spanish banking system assets are funded by the ECB and Spanish banks are more diversified and better capitalized.
Using Irish austerity as a dire warning to us relies on what I think are oversimplified comparisons. Folks point out that despite austerity, Ireland's tax revenues have collapsed, and their debt is trading at a huge premium to Germany's--much bigger than the premium paid by Spain, which hasn't tried such draconian measures. But Ireland's problems are really rather special. For various reasons, including favorable corporate tax rates and an educated, English-speaking population, capital poured into the country for more than a decade, leading to a banking sector that was grossly inflated compared to the underlying economy. The US banking sector is rather tame by comparison to most European nations--bank leverage at the beginning of the crisis was about equal to GDP, rather than the three to five times GDP found in many European nations. But Ireland is almost in a class by itself.
That meant that when the financial crisis hit, Ireland's contraction was much worse--and much less amenable to government interventions that worked in other countries. It's not surprising that their fiscal crisis is dire, their credit spreads rising.
In order to say that Irish austerity offers a grim lesson for us, you need to know the counterfactual: how bad would growth, tax revenues, credit spreads have been without the austerity? And because of the magnitude of their problems, it is far from clear that austerity has made things worse.
Now, even if austerity had made things better, that wouldn't necessarily be a guide for US policy--again, because their crisis is so much deeper. Attempting to borrow and spend their way out of the crisis might have led to total collapse, but that wouldn't mean that it would have the same effect here, where our fiscal issues are more manageable.
That's why I think it's just not useful to bring it up in the context of the American debate.
The American republic was long safeguarded by settled norms, now shattered by the rise of Donald Trump.
A long time ago, more than 20 years in fact, the Wall Street Journal published a powerful, eloquent editorial, simply headlined: “No Guardrails.”
In our time, the United States suffers every day of the week because there are now so many marginalized people among us who don't understand the rules, who don't think that rules of personal or civil conduct apply to them, who have no notion of self-control.
Twenty years later, that same newspaper is edging toward open advocacy in favor of Donald Trump, the least self-controlled major-party candidate for high office in the history of the republic. And as he forged his path to the nomination, he snapped through seven different guardrails, revealing how brittle the norms that safeguard the American republic had grown.
Science says lasting relationships come down to—you guessed it—kindness and generosity.
Every day in June, the most popular wedding month of the year, about 13,000 American couples will say “I do,” committing to a lifelong relationship that will be full of friendship, joy, and love that will carry them forward to their final days on this earth.
Except, of course, it doesn’t work out that way for most people. The majority of marriages fail, either ending in divorce and separation or devolving into bitterness and dysfunction. Of all the people who get married, only three in ten remain in healthy, happy marriages, as psychologist Ty Tashiro points out in his book The Science of Happily Ever After, which was published earlier this year.
Social scientists first started studying marriages by observing them in action in the 1970s in response to a crisis: Married couples were divorcing at unprecedented rates. Worried about the impact these divorces would have on the children of the broken marriages, psychologists decided to cast their scientific net on couples, bringing them into the lab to observe them and determine what the ingredients of a healthy, lasting relationship were. Was each unhappy family unhappy in its own way, as Tolstoy claimed, or did the miserable marriages all share something toxic in common?
Oregon, one of the whitest states in the union, also has one of the most generous safety nets. Is that a coincidence or something more troubling?
SALEM, Oregon—In much of the country, poor people are finding that there are fewer and fewer government benefits available to help them stay afloat. But here in this progressive corner of the Northwest, the poor can access an extensive system of state-sponsored supports and services.
In Oregon, a higher share of poor families is on welfare (now called TANF, or Temporary Aid to Needy Families) than in most states. The state has some of the highest food-stamp uptake in the country. It subsidizes childcare for working parents, asking the poorest of them to contribute as little as $27 a month. It helps people get off of welfare by linking them to employment and paying their wages for up to six months, and then allows them to continue to receive food stamps as they transition to higher wages. Families can be on welfare for up to 60 months, as opposed to 24 months in many other states, and once the parents are cut off due to time limits, their children can still continue to receive aid.
After a 4-year-old climbed into a gorilla’s pen, the internet unleashed its fury at his mother, showing a profound lack of empathy.
I remember losing my daughter at a park. I remember losing her sister at a restaurant. I remember losing their brother at a mall. “Losing” might be too strong: I lost sight of them briefly, and for a few horrifying moments wondered whether I would see them again. How could I be so stupid?
The answer is that I am human and I accepted the most important job of my life absolutely unprepared. No parent is perfect.
Here’s proof: A mother in Cincinnati allowed her 4-year-old boy to slip her attention and wander into a gorilla exhibit Saturday. After the 400-pound lowland silverback named Harambe dragged the boy roughly through in the exhibit’s moat, Cincinnati Zoo officials shot and killed the animal.
Unfavorable news reports on fundraiser money dogged the Republican nominee. Trump, it seems, couldn’t stand it anymore.
Donald Trump has a problem following through. He advocated for banning Muslims from U.S. soil, before qualifying all his policy proposals as “a suggestion.” He campaigned on the premise he would self-fund his race, before deciding to raise money after all. So when news reports suggested Trump hadn’t donated all $6 million he said he raised for veterans’ groups at an event this past winter, the revelation seemed to follow his pattern.
That is, until Trump went out of his way to defend himself, by holding a news conference Tuesday morning to describe the disbursements. He said the fundraising haul totaled $5.6 million—less than the $6 million he had claimed before, $1 million of which was supposed to come from his own coffers. The very public pushback he received for donation delays was not unlike pushback Trump has received for other controversial moves in his campaign. But it seems the risk of alienating veterans and their advocates was too much for Trump, after months of soliciting their support. He needed to mount a more vigorous defense to combat this particular strain of criticism.
This election will widen the distance between the class and racial composition of each party’s core of support.
One of the driving forces of modern American politics has been the kaleidoscopic reshaping of the electorate, as minorities have steadily increased their share of the vote while whites—particularly those without advanced education—have declined. But these trends have affected the two parties in strikingly different ways, likely to further diverge in 2016.
As the first chart shows, the change in the overall electorate has been steady—and profound. Since Ronald Reagan’s landslide reelection in 1984, working-class whites—defined as those whites without a college degree—have plummeted from around three-fifths of all voters in presidential elections to just over one-third in 2012. The share of the vote cast by whites with a college degree increased from just over one-fourth in 1984 to slightly more than one-third in the 1992 election (Bill Clinton’s first victory) and has largely stabilized there since.
Why do reality television’s most popular stars so uncannily resemble the heroines of the 19th-century writer’s work?
One of the more unconventional fairytales of our time involves a brilliant schemer, famous almost entirely for her physical attributes, who finds herself a single mother after her partner abruptly departs. Intent on bettering her situation, the woman pursues the wealthy and eligible son of a noted family, several members of whom she’s already intimately involved with. His relatives panic. But the man remains besotted with the woman, whose meticulous plotting and social savvy make him ever more intent on proposing marriage to her.
The person in question is, obviously, Blac Chyna. She’s also Susan Vernon, the antiheroine at the center of one of Jane Austen’s earliest works, Lady Susan. Their resemblance on the face of it might seem completely absurd: Blac Chyna, born Angela Renée White in Washington, D.C. in 1988, is a model and former exotic dancer best known for her romantic relationship with the rapper Tyga, her friendship with the reality-TV star Kim Kardashian, and the complications that have ensued (currently being televised on Keeping Up With the Kardashians) when Tyga started dating Kim’s sister and Chyna became pregnant with Kim’s brother’s baby. Lady Susan Vernon is a fictional character created by Austen in 1794 or so—an English widow in her mid-to-late 30s who idles away her hours in the stately homes of her aristocratic acquaintances and is described as possessing “an uncommon union of symmetry, brilliance, and grace.”
He lives near San Francisco, makes more than $50,000 per year, and is voting for the billionaire to fight against political correctness.
For several days, I’ve been corresponding with a 22-year-old Donald Trump supporter. He is white, has a bachelor’s degree, and earns $50,000 to $60,000 per year.
He lives near San Francisco.
“I recently became engaged to my Asian fiancée who is making roughly 3 times what I make, and I am completely supportive of her and proud she is doing so well,” he wrote. “We’ve both benefitted a lot from globalization. We are young, urban, and have a happy future planned. We seem molded to be perfect young Hillary supporters,” he observed, “but we're not. In 2016, we're both going for Trump.”
At first, we discussed Bill Clinton.
Last week, I wrote an article asking why Trump supporters aren’t bothered that their candidate called Clinton a shameful abuser of women who may well be a rapist. After all, Trump used to insist that Clinton was a victim of unfair treatment during his sex scandals. Either Trump spent years defending a man that he believed to be a sexual predator, even welcoming him as a guest at his wedding, or Trump is now cynically exploiting a rape allegation that he believes to be false.
Three Atlantic staffers discuss “Blood of My Blood,” the sixth episode of the sixth season.
Every week for the sixth season of Game of Thrones, Christopher Orr, Spencer Kornhaber, and Lenika Cruz will be discussing new episodes of the HBO drama. Because no screeners are being made available to critics in advance this year, we'll be posting our thoughts in installments.
The former president wants his fellow Christians to lead the country to reconciliation. But churches are in a period of profound uncertainty.
Jimmy Carter, 91, has a wish for his fellow Baptists: end racism. “Our country is waking up now to the fact that we still have a long way to go in winning a battle that we thought was over in the 1970s or ’60s,” he said in an interview. The longtime Sunday school teacher and former United States president wants to start this change within his own faith: He’s pushing churches to organize around social-justice issues, including racial discrimination.
But the future of progressive Christianity in the U.S. is fragile. Congregations are shrinking; young people who organize politically largely do so outside of the church. Carter is hoping for a new generation of institutional Christian leadership precisely at a time when Christian institutions are becoming weaker.