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.
Hillary Clinton and Donald Trump prepare for the final sprint to Election Day.
It’s Thursday, October 27—the election is now less than two weeks away. Hillary Clinton holds a lead against Donald Trump, according to RealClearPolitics’ polling average. We’ll bring you the latest updates from the trail as events unfold. Also see our continuing coverage:
I generally enjoy milk chocolate, for basic reasons of flavor and texture. For roughly the same reasons, I generally do not enjoy dark chocolate. *
Those are just my boring preferences, but preferences, really, won’t do: This is an age in which even the simplest element of taste will become a matter of partisanship and identity and social-Darwinian hierarchy; in which all things must be argued and then ranked; in which even the word “basic” has come to suggest searing moral judgment. So IPAs are not just extra-hoppy beers, but also declarations of masculinity and “palatal machismo.” The colors you see in the dress are not the result of light playing upon the human eye, but rather of deep epistemological divides among the world’s many eye-owners. Cake versus pie, boxers versus briefs, Democrat versus Republican, pea guac versus actual guac, are hot dogs sandwiches … It is the best of times, it is the RAGING DUMPSTER FIRE of times.
Services like Tinder and Hinge are no longer shiny new toys, and some users are starting to find them more frustrating than fun.
“Apocalypse” seems like a bit much. I thought that last fall when Vanity Fair titled Nancy Jo Sales’s article on dating apps “Tinder and the Dawn of the ‘Dating Apocalypse’” and I thought it again this month when Hinge, another dating app, advertised its relaunch with a site called “thedatingapocalypse.com,” borrowing the phrase from Sales’s article, which apparently caused the company shame and was partially responsible for their effort to become, as they put it, a “relationship app.”
Despite the difficulties of modern dating, if there is an imminent apocalypse, I believe it will be spurred by something else. I don’t believe technology has distracted us from real human connection. I don’t believe hookup culture has infected our brains and turned us into soulless sex-hungry swipe monsters. And yet. It doesn’t do to pretend that dating in the app era hasn’t changed.
Even as the Republican launches a purported African American outreach campaign 12 days before the election, his aides say their goal is to depress turnout in the bloc.
It would be unfair to call Donald Trump’s interaction with black voters a love-hate relationship, since there’s little evidence of African American enthusiasm for Trump. But the Republican campaign has pursued a Janus-like strategy on black voters—ostensibly courting them in public while privately seeking to depress turnout.
This tension is on display in the last 24 hours. On Wednesday, Trump delivered a speech in Charlotte, North Carolina, advertised as an “urban renewal agenda for America’s inner cities.” Trump told the audience, “It is my highest and greatest hope that the Republican Party can be the home in the future and forevermore for African Americans and the African American vote because I will produce, and I will get others to produce, and we know for a fact it doesn’t work with the Democrats and it certainly doesn’t work with Hillary.”
Political, social, and demographic forces in the battleground of North Carolina promise a reckoning with its Jim Crow past.
In 1901, America was ascendant. Its victory over Spain, the reunification of North and South, and the closing of the frontier announced the American century. Americans awaited the inauguration of the 57th Congress, the first elected in the 20th century. All the incoming members of Congress, like those they replaced, were white men, save one.
Representative George Henry White did not climb the steps of Capitol Hill on the morning of January 29 to share in triumph. The last black congressman elected before the era of Jim Crow, White, a Republican, took the House floor in defeat. He had lost his North Carolina home district after a state constitutional amendment disenfranchised black voters—most of his constituents. That law marked the end of black political power in North Carolina for nearly a century.
Electroconvulsive therapy is far more beneficial—and banal—than its torturous reputation suggests.
For a boy who needs routine, this day is off to a bad start. It’s early, just before 8 a.m., and unseasonably warm for June. Kyle, 17, has been up since 6:20 a.m., which isn’t all that unusual. But already, enough has happened to throw him off balance. His mother has driven him to Johns Hopkins University, in Baltimore, as she does every week. But today she is wearing makeup and fancy clothes rather than her usual exercise gear. When they get to the hospital, the hallway is not empty as it usually is, and his mother walks away from him to talk to someone else.
A century ago, widely circulated images and cartoons helped drive the debate about whether women should have the right to vote.
It seems almost farcical that the 2016 presidential campaign has become a referendum on misogyny at a moment when the United States is poised to elect its first woman president.
Not that this is surprising, exactly.
There’s a long tradition of politics clashing spectacularly with perceived gender norms around election time, and the stakes often seem highest when women are about to make history.
Today’s political dialogue—which often merely consists of opposing sides shouting over one another—echoes another contentious era in American politics, when women fought for the right to vote. Then and now, a mix of political tension and new-fangled publishing technology produced an environment ripe for creating and distributing political imagery. The meme-ification of women’s roles in society—in civic life and at home—has been central to an advocacy tradition that far precedes slogans like, “Life’s a bitch, don’t elect one,” or “A woman’s place is in the White House.”
The best treatment for obsessive-compulsive disorder forces sufferers to confront their fears. But for many patients, the treatment is far out of reach.
Some days, Molly C.’s brain insists she can’t wear her work shirt. She realizes this is irrational; a uniform is required for her job at a hardware store. Nevertheless, she’s addled by an eerie feeling—like, “If you wear this shirt, something bad will happen today.” Usually she can cope, but a few times she couldn’t override it, and she called in sick.
She can’t resist picking up litter whenever she spots it; the other day she cleaned up the entire parking lot of her apartment complex. Each night, she must place her phone in an exact spot on the nightstand in order to fall asleep. What’s more, she’s besieged by troubling thoughts she can’t stop dwelling on. (She asked us not to use her last name in order to protect her privacy.)
A dustup between Megyn Kelly and Newt Gingrich shows why Donald Trump and the Republican Party are struggling to retain the support of women.
The 2016 presidential campaign kicked off in earnest with a clash between Megyn Kelly and Donald Trump over gender and conservatism at the first GOP debate, and now there’s another Kelly moment to bookend the race.
Newt Gingrich, a top Trump surrogate, was on Kelly’s Fox News show Tuesday night, jousting with her in a tense exchange stretching over nearly eight minutes. Things got off to a promising start when Gingrich declared that there were two “parallel universes”—one in which Trump is losing and one in which he is winning. (There is data, at least, to support the existence of the former universe.) After a skirmish over whether polls are accurate, Kelly suggested that Trump had been hurt by the video in which he boasts about sexually assaulting women and the nearly a dozen accusations lodged against him by women since. Gingrich was furious, embarking on a mansplaining riff in which he compared the press to Pravda and Izvestia for, in his view, overcovering the allegations.
In the next few months, the company will stop supporting the Vine mobile app, the primary venue of Vine production and consumption. Facing a stubborn lack of profits and a seemingly unending crisis of confidence, Twitter has chosen to shutter its weirdest and most distinctive product.
In a post on Medium, Vine promises that its videos will stay online after the shut-down. “We’ll be keeping the website online because we think it’s important to still be able to watch all the incredible Vines that have been made,” says the release.
“Thank you. To all the creators out there — thank you for taking a chance on this app back in the day. To the many team members over the years who made this what it was — thank you for your contributions. And of course, thank you to all of those who came to watch and laugh every day,” it continues.