Prof. Terrence McDonough on the Irish Promissory Note Deal – Galway 12 Feb 2013


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Audio recording of Prof. Terrence McDonough’s talk in Galway tonight, 12th of Feb, “What the !$%! just Happened? A Discussion on the Recent Debt Deal.” Thanks to Vicky Donnelly of Galway Debt Justice for organizing the event.

Main Talk

Mcdonough12-02-13-talk by Conormccabe on Mixcloud


McdonoughQ&A-12-02-13 by Conormccabe on Mixcloud


7 Responses

  1. Gewerkschaftler

    February 17, 2013 4:03 pm

    Just got a chance to listen – very clear audio – thank you Conor.

    So here’s what I took away:

    a) There is a possible saving (assuming there is not a general default on private and public debt before the payment date) of 4 billion in the long term.

    b) This was paid for by the exchange of the weak and legally dubious requirement to pay embodied in a Promisary Note for the conventionally much more rigourous instrument of the Government Bond. No wonder the ECB ‘took note’.

    and c) Most importantly this ‘scam’ (Prof. McDonough’s words) will not lead to any reduction of the austerian collective punishment of the Irish people.

  2. Neil

    April 29, 2013 7:30 am

    Prof. McDonough seems to repeat the mistaken theory that 90% debt to GDP (80% as he says) leads to slow growth, the same mistaken premise of the Reinhart & Rogoff paper that was recently debunked (not that it matters either way as we know austerity will continue regardless of the facts).

  3. Donagh

    April 29, 2013 9:46 am

    Prof. McDonough’s discussion of the debt to GDP ratio is framed around how much of the current debt comes from the banking crisis. As he mentioned, Irish people have paid 42 percent of the total cost of the European banking crisis, which amounts to 25% of Irish GDP. He also suggested, because of the way that these comparisons for the cost of European banking crisis are calculated, its more than likely that the amount paid through the pension reserve fund isn’t included in that. In addition, the figures often quoted are minimums so the amount Ireland has paid, and will pay, is far higher.

    He also provides a little more context around the debate which informs the 80% level which associates high debt to GDP levels with a drag on growth. He says that people who make this argument claim governments should have no debt and that it’s essential to get the deficit down etc.

    However, he does follow through by saying that high levels of debt are a problem. Not 80 but 120%. Something which Terrence doesn’t mention but is an obvious additional factor is the structure of the Eurozone, where EZ governments must borrow from the private money markets and that the interest rate is dependent on the level of debt sustainability of the economy. Now there is a particular ideological reason for that, but it means that high levels of debt is more expensive. The ability of governments to borrow money for internal investment in order to boost growth is severely restricted and the recent two pack and six pack have made that even more difficult. Acknowledging that doesn’t mean that you agree with the thesis (which Reinhart and Rogoff have been trying to distance themselves from) that high borrowing leads to low growth, so austerity is necessary to reduce debt so as to boost growth.

    Given that so much of Ireland’s debt at the moment is due to the banking crisis, I think its fair enough to suggest that paying this high level of debt, at an interest rate demanded by the private money markets is unsustainable. It is an entirely different matter if that borrowed money is being used to invest in the real economy, one which is not being plagued by austerity.

    Anyway, here is Prof. McDonough at 3min 20secs in the talk:

    Before it got to 100%, the discussion was that 80% is when the debt starts to become a problem – some people think that debt is a problem for the government no matter how much of it there is, as the government should have no debt. Well if the government had no debt there would be all sorts of problems. It would be very difficult for people to park their money if they couldn’t invest it in government debt and also all of this talk of debt, deficit and we have to get the deficit down to zero that’s basically nonsense econmically. Governments can in fact handle substantial amounts of debt. But substantial amounts of debt means amounts up to 80% of GDP which is the entire economic output of the entire society. Once it gets above 80%, it starts to create a drag on the economy, primarily because the government has to pay interest on this and so a big percentage of your tax dollar or tax euro ends up as being paid on interest to all kinds of banks and hedge funds – so between 80% and a 100 is a serious problem- well its gone above that, it’s gone from 100 to 120%. It’ll probably top up at around 120%. So here the talk is, is 120% sustainable? And people have been responding yeah maybe it is. Well, no it isn’t. If it was 80% maybe it would be sustainable but 120% is not sustainable. If you’ve got a deal which doesn’t bring the total debt down. It’s a failed deal.

    The other important factor behind the RR debate is causation. They said that high debt leads to low growth, where as in Ireland, because of the cost of paying for the banking crisis and the complete absence of investment there is very low growth. After more than 5 years of austerity this has increased government debt.

    Incidentally, the self-professed marxist economist Michael Roberts has been quoting Reinhart and Rogoff for sometime, to argue that Keynesian style investment doesn’t work.

    The ultimate problem remains, however. As you correctly say, those advocating austerity have used the RR paper as intellectual justification for a program that is sponsored by private banks to reduce the political power of workers and ensure future profits. They have been using the less than critically aware mainstream economics to do this for years, and just because some of those economists have been discredit (as so many were when the crash happened) doesn’t mean they are going to change the program.