Tuesday, November 16, 2010

PIIGS Roast


Well the escalating crisis in Ireland has gone unsolved; fellow EU member states are pushing the Irish Gov't to accept a bailout. The Irish, who indeed have the cash to endure until next summer, are resisting becoming wards of the IMF and thus condemn it's citizenry to indentured servitude. But make no mistake.. the situation is unbelieveably bad. Irish banks are wildly overleveraged and hemorraging badly, with the Irish state guaranteeing the debts. To put this in perspective: Here in the US, our Gov't borrows one dollar for every three it spends. Ireland's Gov't has revenues of roughly €36 billion.. with projected expenditures of €87 billion, so in effect they have to borrow five out of every eight dollars they spend. Worse, the interest rate is hitting all time highs.. today {again} the Irish Ten Year Bond settled above 8%.. which essentially means Ireland is unable to borrow on the open bond markets. The reason the EU is putting pressure on the Irish to accept a bailout is out of fear that the Irish will simply default.. and this would be insanely bad for European banks, beginning with the ECB itself, which has been lending huge sums to Irish banks, which then turn around and purchase Irish Govt bonds, which are then repo'd back to the ECB. For perspective on just how much the Irish Govt (and their banks) owe foreigners, the figure put out by the CIA just last year lists Ireland's External Debt at $2.287 Trillion {this compares to Greece's $552 billion}. And yes.. Ireland is a small country and this equates to.. get this.. $515,000 per Irish citizen: http://3.bp.blogspot.com/_5JJarCb6DPo/TOK_Y_vIj8I/AAAAAAAABnY/01i2zgc-LJM/s1600/external+debt.png

Speaking of our good friends the Greeks, a new report out by Eurostat (they do the accounting in the EU as well as national governments) states that Greece's statistics were.. shock.. wrong for a fifth (or sixth ?) time and that the situation is.. you guessed it.. much worse than what the Greeks are saying it is. Eurostat said that the Greek Gov't deficit is 9.6% of GDP (right about what ours is). They also revised the 2009 figure to 15.4%. These figures are well above the EU bailout guidelines. Saving Greece looks increasingly like an open ended commitment instead of the three year plan they all greed upon. But.. will the Greek people put up with more austerity in order to pay off bankers ? That's a big if in my opinion.

Then we come to Portugal, who is waiting on the sidelines for their turn at the bailout trough. Portugal's Finance Minister Dos Santos said yesterday: "The risk is high because we not facing just a national problem. It is the problems of Greece, Ireland and Portugal together.. this has to do with the stability of the Eurozone, and that is why contagion in this framework is more likely.. markets look at this together because we are all in the Eurozone". Mr. Dos Santos hit the nail squarely on the head; look for Portugal to follow Ireland at the EU bailout trough. Portugal's budget deficit last year was 9.7% of their GDP, roughly what our is this year. This year they were to slim this down to 7.3%, but this is looking very unlikely. The markets are thusly punishing Portugal, though not nearly as badly as Greece and Ireland.

But will the other Eurozone members be there to support their brethren ? Today Austria came out and said that since Greece did not meet their budget targets, Austria will not be participating in another Greek bailout package. Within the hour, Finland was rumored to have nixed any aid to Ireland. This was very badly timed to say the least on both of their parts, and a very ill omen. At the hour of greatest need for unity, it appears a few links in the chain are weakening.

The EU's President, Herman Von Rompuy, had this to say yesterday: "We're in a survival crisis. We all have to work together in order survive with the Eurozone, because if we dont survive, the European Union will not survive. But I''m confident we will overcome this". Unfortunately, the Austrians and Finns missed this speech.

Any solution will require large amounts of cash to be made available. In the past, the call was made across the Atlantic to Ben Bernanke, who then opened up what are known as "swap lines", which essentially amount to us printing money to help the EU. In addition, the US is on the hook for what amounts to 20% of any IMF bailouts. Were the EU to make the call again, they might not find us nearly as accomodating; it would put enormous pressure on Bernanke and Obama, though in the end I see them riding to the rescue, but not with the support of the Republican House of Reps, where opposition to this would be intense.

We are slowly approaching a critical moment in the EU. In the end, I see Ireland and Portugal getting bailed out, the US opening the swap lines again and the financial system as a whole surviving this mini crisis. But if Spain and her 9.3% of GDP budget deficit were to falter, the odds of success drop below 50% in my very humble opinion. Given enough time and the fact that none of these nations can solve a problem of debt with more of it in combination with austerity, the chances of the Euro surviving are grim indeed.

In addition to the misery on the Olde Continent, something wierd is happening here; the Muni Bond markets, perhaps spooked by the impending bankruptcy of Harrisburg PA, are seriously tanking.. over 10% in two days: http://1.bp.blogspot.com/_J8L-e47yFE0/TOLAT3Y4sVI/AAAAAAAAAqE/PhBadIH1uA4/s1600/munis.png

12 comments:

  1. Maybe WWIII will be a financial war. Instead of bombs and bullets the EU will go down in a burden of debt. We can rescue them all again. My fears are that when desperation sets in the despots rise to power. The offer safety and a world vision that the lemmings flock to. Can the Fed bail out the entire world?

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  2. "In the end, I see Ireland and Portugal getting bailed out, the US opening the swap lines again and the financial system as a whole surviving this mini crisis."
    ------------------------------------
    We have all been kicking the can down the road; at some point in time this can will become immobile and we will then have to finally deal with it.

    What is to say that this is not the final stopping point?

    -Mammoth

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  3. Mr. K and Mammoth look at the interview that Mugabe posted in the comment section of The Hive. Jeremy Grantham is really intelligent and presents a great argument in regards to the Fed and all market manipulation.

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  4. The Eurozone sovereign debt shocks and US Quantative Easing have light the fuse for Götterdämmerung

    I relate that the May 2010 EU Finance Ministers’ Summit announced a sacrifice of national sovereignty to preserve the integrity of the Euro. The Leaders’ announcement established a unified economic, political, fiscal, monetary and seigniorage cash aid package for Greece.

    Now that assistance appears to be in peril, and the risk of sovereign debt default, and of failed national Treasury auctions, as well as rising interest rates for both corporations and governments looms large. And the risk of substantial competitive currency devaluation, at the hands of currency traders is intensifying by the day.

    Ambrose Evans Pritchard in a recent Telegraph article, used the word “Götterdämmerung“, a particularly apt word, to describe the apparent fatal wound to the world’s financial, economic and political systems which is coming soon, as bond traders continue calling interest rates higher, such as the US mortgage rates, and the Interest Rate on the US Government 30 Year US Treasury bond and the Interest Rate on Portugal, Italy, Ireland, Greece And Spain sovereign debt; and as currency traders continue a global sell off of the world’s currencies, as both conduct a war for sovereignty against the world central bankers and world leaders.

    God was gracious to provide Revelation 13:3, which reveals that the soon coming apparent fatal wound to the world’s economic and political systems will be healed.

    But that it will come at the cost of the rise to power of a world Sovereign and also a world Seignior, the latter comes from Old English and means top dog banker who takes a cut.

    Out of the coming investment “flame out”, a global leader and a global banker will rise to establish order: a Sovereign and a Seignior will ascend to govern the world.

    According to bible prophecy, their word, will and way will be the law of the land superseding constitutional law and traditional rule of law that comes with national sovereignty.

    Perhaps Herman Van Rompuy will rise to be The Sovereign as the Afteramerica website relates that he has called for global governance: nation states are dead … The EU chief relates the belief that countries can stand alone, is a ‘lie and an illusion!’

    And perhaps Tony Blair, because of his business connections, will rise to be The Seignior.

    Or perhaps the Seignior will be Olli Rehn, one known for calling for calm as related by Ambrose Evans Pritchard in article Telegraph article Greek Rescue Frays as Irish Crisis Drags On.

    And yet again, The Seignior might be the co-chair of the Council on Foreign Relations, the CFR, Robert Rubin, who was US Treasury Secretary during the Greenspan era as related by The New York Times.

    All seigniorage will come and go through The Seignior: all sovereign wealth funds, and banks will report to him, as there will be unified regulation of banking globally as referred to, in the James Politi and Gillian Tett Financial Times article, NY Fed Chief Timothy Geithner In Push For Global Bank Framework

    Soon there will be no national seigniorage anywhere as sovereign debt interest rates will explode to the point where there will be no buyers.

    This is already the case for Portugal, Italy, Ireland, Greece and Spain, as they have lost their seigniorage authority. Their fiscal needs are provided for by the ECB which buys their bond issues, as well as debt from their banks. The ECB is the sole lender to these nations. Currently the ECB is The European Seignior.

    Sovereign nations and their constitutions will be history, as principles of global governance working through regional economic and security pacts and leaders’ agreements will serve as the basis for regional currencies or a global currency.

    The Seignior’s financial and economic power will complement the military and political power of the Sovereign; and between the two they own the world “lock, stock and barrel”

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  5. What a great comment Yenguy. Yes it is only a matter of time before we are all subservient to the MIC and those who control it. I am afraid that we are beyond the point of no return and although people are waking up, it may be too late. I hope I am wrong.

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  6. YenGuy: I'm not too convinced about all of that conspiracy stuff.. CFR, MIC etc. In my opinion, the world is not so easily controlled, especially if a number of nations melt down. Those who have nothing have nothing to lose. Those who seek to control it need order to do so. Ask the Russians {or Obama} how managing Afghanistan is going.

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