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.
When President Obama left, I stayed on at the National Security Council in order to serve my country. I lasted eight days.
In 2011, I was hired, straight out of college, to work at the White House and eventually the National Security Council. My job there was to promote and protect the best of what my country stands for. I am a hijab-wearing Muslim woman––I was the only hijabi in the West Wing––and the Obama administration always made me feel welcome and included.
Like most of my fellow American Muslims, I spent much of 2016 watching with consternation as Donald Trump vilified our community. Despite this––or because of it––I thought I should try to stay on the NSC staff during the Trump Administration, in order to give the new president and his aides a more nuanced view of Islam, and of America's Muslim citizens.
Meet the protesters who tricked conference attendees into waving Russian flags.
Two men made trouble—and stirred up a social-media frenzy—on the third day of the Conservative Political Action Conference by conducting a literal false-flag operation.
Jason Charter, 22, and Ryan Clayton, 36, passed out roughly 1,000 red, white, and blue flags, each bearing a gold-emblazoned “TRUMP” in the center, to an auditorium full of attendees waiting for President Trump to address the conference. Audience members waved the pennants—and took pictures with them—until CPAC staffers realized the trick: They were Russian flags.
The stunt made waves on social media, as journalists covering CPAC noticed the scramble to confiscate the insignia.
Long after research contradicts common medical practices, patients continue to demand them and physicians continue to deliver. The result is an epidemic of unnecessary and unhelpful treatments.
First, listen to the story with the happy ending: At 61, the executive was in excellent health. His blood pressure was a bit high, but everything else looked good, and he exercised regularly. Then he had a scare. He went for a brisk post-lunch walk on a cool winter day, and his chest began to hurt. Back inside his office, he sat down, and the pain disappeared as quickly as it had come.
That night, he thought more about it: middle-aged man, high blood pressure, stressful job, chest discomfort. The next day, he went to a local emergency department. Doctors determined that the man had not suffered a heart attack and that the electrical activity of his heart was completely normal. All signs suggested that the executive had stable angina—chest pain that occurs when the heart muscle is getting less blood-borne oxygen than it needs, often because an artery is partially blocked.
You can tell a lot about a person from how they react to something.
That’s why Facebook’s various “Like” buttons are so powerful. Clicking a reaction icon isn’t just a way to register an emotional response, it’s also a way for Facebook to refine its sense of who you are. So when you “Love” a photo of a friend’s baby, and click “Angry” on an article about the New England Patriots winning the Super Bowl, you’re training Facebook to see you a certain way: You are a person who seems to love babies and hate Tom Brady.
The more you click, the more sophisticated Facebook’s idea of who you are becomes. (Remember: Although the reaction choices seem limited now—Like, Love, Haha, Wow, Sad, or Angry—up until around this time last year, there was only a “Like” button.)
Thomas Perez has defeated Representative Keith Ellison in a battle to lead the party in the age of Trump.
Former Labor Secretary Thomas Perez—the candidate backed by the Democratic Party’s establishment—was elected chairman of the Democratic National Committee on Sunday, as its members chose a close ally of both Barack Obama and Hillary Clinton to lead the out-of-power party in the era of Donald Trump.
Perez defeated Representative Keith Ellison of Minnesota, the favorite of many progressives, and a collection of lesser-known candidates in a vote of the 435 committee members who participated in the balloting in Atlanta. Perez won on the second ballot after coming a single vote shy of capturing the simple majority needed in the first round of balloting. The final two-way vote was 235-200. In a bid to head off a revolt from Ellison backers, Perez immediately moved to name his rival as deputy chairman, which the party members ratified by acclamation.
Since the middle of last year, a group of Filipino reporters, photographers, and cameramen have been at the frontline of Philippine President Rodrigo Duterte’s war on drugs. They are a different type of war correspondent, and the drug war, a different type of war.
The correspondents work what they call the “night shift,” the unholy hours between 10 p.m. and 5 a.m., when the dead bodies are found. They wait at Manila’s main police station and rush from there to the site of the most recent kill. They keep count of the corpses, talk to witnesses and families, interview the police, attend wakes and funerals. A lot of what the world learned about the carnage, especially in the early months, is due largely to the night shift reporters.
“No… it’s a magic potty,” my daughter used to lament, age 3 or so, before refusing to use a public restroom stall with an automatic-flush toilet. As a small person, she was accustomed to the infrared sensor detecting erratic motion at the top of her head and violently flushing beneath her. Better, in her mind, just to delay relief than to subject herself to the magic potty’s dark dealings.
It’s hardly just a problem for small people. What adult hasn’t suffered the pneumatic public toilet’s whirlwind underneath them? Or again when attempting to exit the stall? So many ordinary objects and experiences have become technologized—made dependent on computers, sensors, and other apparatuses meant to improve them—that they have also ceased to work in their usual manner. It’s common to think of such defects as matters of bad design. That’s true, in part. But technology is also more precarious than it once was. Unstable, and unpredictable. At least from the perspective of human users. From the vantage point of technology, if it can be said to have a vantage point, it's evolving separately from human use.
The preconditions are present in the U.S. today. Here’s the playbook Donald Trump could use to set the country down a path toward illiberalism.
It’s 2021, and President Donald Trump will shortly be sworn in for his second term. The 45th president has visibly aged over the past four years. He rests heavily on his daughter Ivanka’s arm during his infrequent public appearances.
Fortunately for him, he did not need to campaign hard for reelection. His has been a popular presidency: Big tax cuts, big spending, and big deficits have worked their familiar expansive magic. Wages have grown strongly in the Trump years, especially for men without a college degree, even if rising inflation is beginning to bite into the gains. The president’s supporters credit his restrictive immigration policies and his TrumpWorks infrastructure program.
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Ambitious young Republicans at CPAC are torn over embracing the new nationalism of the president.
OXON HILL, Maryland — If you want to take the temperature of the conservative movement at CPAC, you need to know where to stick the thermometer. It’s not in the onstage speeches, or the myriad policy panels, or the boozy after-parties—it’s inside Exhibit Hall D on the ground floor of the Gaylord National Resort and Convention Center.
Here, in what conference organizers have dubbed “The Hub,” hundreds of blue-blazered and high-heeled young conservatives roam the cavernous hall—crammed with booths set up by right-wing think tanks, media outfits, pressure groups, and publishers—shopping for future careers. The general vibe is that of a trade show, with attendees perusing pamphlets about D.C. internships, swapping Twitter follows, and taking selfies with minor cable news celebrities. They buy t-shirts with cheeky messages on them (“God is great, beer is good & liberals are crazy”), and the lucky ones make off with a satchel full of swag (the Sheriff David Clarke bobblehead was a particularly hot item this year).