Friday 24 November 2017

Seamus Coffey: David McWilliams’ analysis of private debt is stark ... but it also 100pc wrong

DAVID McWilliams wrote an article for Wednesday’s Irish Independent under the heading "Private debt so enormous that default is only option". The conclusion is stark: In Ireland, given the magnitude of the debt, it is very clear to me that only a fraction of this household and corporate debt will be actually paid off. The figures scream default.

The figures in the piece do indeed scream default, but the figures are wrong. 100pc wrong.

Studies have shown that an appropriate maximum ratio of mortgage debt to gross household income is around four. The data provided in the McWilliams article indicate that total debt in Ireland is more than eight times Gross National Product, a widely used measure of national income. For countries it has been argued that they should not have a debt greater than three times national income.

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