VAT the hell?

As of the end of October this year Irish VAT receipts were down for the fifth consecutive month making them €383 million or 4.8% below target on a cumulative basis. Which is why I am still amazed that our esteemed Minister for Finance, Michael Noonan, has not come out and corrected the obvious reporting error that he will be increasing the top rate of VAT by 2% as a means of generating an extra €670 million in revenue.
I say it has to be a reporting error, as for it to be true Michael Noonan would have to believe that making retail prices more expensive during a time of economic stress will lead consumers to spend more. Retail spending to the year ending in September 2011 was down by 3.9% and only a drug addled lunatic could possibly think that a rise in prices will reverse this.
Clearly he meant that he would be reducing VAT (top rate or otherwise) by 2% leading to a drop in retail prices, an increase in domestic demand, an increase in employment in the retail sector thus an increase in income tax receipts to offset the decreased VAT income. Indeed the VAT receipts would probably hold steady as sales would increase and the newly employed workers in the retail sector would themselves be out spending their newly earned wages.
So come on Michael please say it ain't so and you really meant decrease all along. If not, well it's just too depressing to contemplate..

Ridiculous Numbers

There is much call these days for the ECB to start 'printing' euros to increase the size of the European Financial Stability Facility. This is the special purpose vehicle established and financed by eurozone members to combat the European debt crisis. Basically it is where countires in the eurozone can go to borrow money if they cannot raise it through bond issues as the markets demand to high an interest repayment.
Italy is now about €1.9 trillion in debt and France €1.6. If you add in just a few smaller countries, Greece,Belgium and two or three others you can, very quickly, get to around €4 trillion.
As investors have begun to realise that there is a very real chance their money will not be repaid they have sought to offload these eurozone IOUs (bonds) thereby making it more and more difficult for these countries to raise money as the market wants higher and higher interest on them to make the risk worthwhile. So we are back to the EFSF.
So if the Germans capitulate and increase the size of the fund to, say, €2 trillion (as many have demanded)  they really need to get the printing presses rolling soon. I say this as I did a little thought exercise and if the ECB were to start actually printing physical euro notes at a rate of, say,  €1 million a day, seven days a week, it will take them approximately 5,480 years to get the job finished.
Thankfully it is easier to just hit the zero twelve times on a computer .

Wall Street

I was spending time thinking about what I was going to post on my blog this week when I came across this succint and eurdite compatriot who summed up a lot of what is to be said. Please do not watch the video if you are offended by bad language and if you are p**s off I'm going for a pint.

What a Player!

Do not, ever,  play poker with this man he is stone cold! The man in the picture (if you did not know) is George Papandreau the, current, leader of Greece and in poker terms he has just 'pushed all-in'. That is, he has bet everything he has on one hand and forced the decision on what to do upon the other players. The timing of his strategy really has to be admired, if viewed in pure game theory. The impact of the move is increased the fact that it was unforseen.

Now this might seem counterintuitive, as it would appear that, by calling for a referendum on Greece's austerity measures, he has placed the decision on the Greek electorate rather than the Troika but I am guessing that this is not the case.

 Greece has binged on the excesses of government borrowing for many years but voting themselves out of the euro would be simply suicide. Despite what the polls say I cannot believe that, when faced with that ballot paper, the electorate would vote no, knowing full well that this is voting for default and expulsion from the euro.

The populous also knows that the Greek economy is in a poverty trap that it cannot escape under the current terms. The austerity measures will cripple, further, their appaling economy, making the tax take (little as it is)  worse, making it impossible to, ever, extricate from their debt burden or dramatically lower living standards.

On top of this they know that by commiting this economic suicide that they will bring down the rest of Europe.(The contagion effect is well explained elsewhere)

So it is put up or shut up the rest of Europe . Either, agree to the Greek debt reduction without imposing the required austerity measures, or they will take you down with them.

Of course the Troika could call their bluff and let them have their referendum but it is a pretty big gamble to make. Desperate peoples do desperate things.

Stone cold, George.