Monday 19 August 2019

Donal O'Donovan: 'A crash, like death and taxes, is inevitable - so let's be ready'


‘Mountain of debt: NTMA chief executive Conor O’Kelly
‘Mountain of debt: NTMA chief executive Conor O’Kelly
Donal O'Donovan

Donal O'Donovan

There's no arguing with the fact there is a "100pc" chance of recession. Just like there is a 100pc risk we are all going to die.

National Treasury Management Agency (NTMA) boss Conor O'Kelly knows just as well as the rest of us that his comments at the Dáil's Public Accounts Committee (PAC) was a statement of the bleeding obvious.

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In a Dáil licking its lips for spending increases in the coming Budget, and against a background of near all-time low unemployment, O'Kelly risks being a voice crying in the wilderness - and falling on deaf ears.

Recession, like death, is inevitable. The next one is going to happen. It might be useful to know when, although there's something to be said for living in ignorance - certainly when it comes to mortality.

A crash-out Brexit might tip us into a crash, although signs so far are the economy in the round can ride out that particular storm. But Mr O'Kelly's point is that the "when" doesn't really matter when the next crash comes, or what the specific cause.

For, Ireland bobbing on an ocean of global trade, the imperative is to be always ready for those waters to get choppy. That said, the timing isn't an accident.

On the face of things O'Kelly's day job has gotten a lot easier. One of the NTMA's main jobs is to borrow for the State. The latest swings on the bond markets mean in real terms his team could go out and raise billions of euro at little or no costs. Ireland has never really been in that position before.

The availability of cheap debt can turn heads and a growing chorus - including well respected experts - now argue that big national debts like Ireland's pose less of a risk to long-term economic well-being than used to be the case, or was long assumed.

Former International Monetary Fund chief economist Olivier Blanchard sparked a big debate this year saying warnings about high indebtedness among rich nations were overblown. With interest rates set to remain low for a long time, debt can now be racked up without necessarily meaning tax hikes to pay for it down the line.

Politically, that relatively blasé attitude will become louder. Borrowing at almost nothing to build infrastructure that supports growth or quality of life feels like a no-brainer.

The European bond market is awash with money from the ECB, the cash is there - in theory - to stimulate investment and greater risk taking in order to fuel growth.

But markets are fickle. Cheap debt borrowed this year would be added to the €205bn burden from the last crash. That much debt is expensive at any price.

O'Kelly is warning that barring a crisis, the imperative for Government is to shrink the national debt, perhaps slowly but surely, in order to be better positioned when the inevitable happens. Then - to stick to the Biblical theme - it doesn't matter that we know not the day nor the hour when fickle markets inevitably turn against us.

Irish Independent

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