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The PIIGS Nations' Problems Are Structural Not Cyclical, Thus Bailout Loans Simply Pave the Way For Asset Confiscation Down the Road
As illustrated in Why The Taxpaying Populace Of Greece Better Get Some Grease,
a visual representation of Greeece's gross government debt easily
demonstrates that their problems are structural in nature, and not
cyclical...
What
does this mean? Well, first of all, bailout loans only help in cyclical
situations where the loan recipient is in a downtun in its ecconomic
cycle, but expects upticks to allow it to earn its way out of both its
current economc situation and the added debt service from the bailout
loans. As you can see from the chart above, Greece's expenditures have
literally been a permanent fixture hanging considerably above its
revenue, considerably above. For twenty years, Greece has been kicking
the inevitable can down the road. Now, after a global credit implosion,
with:
- asset values plunging
- and economic activity stagnating
- with the promise of even more stagnation down the pike in the form of intense austerity programs
- material push back from the labor forces, unions, and the few legit taxpayers there are
- and collapsed asset values that were perpetually overstated in and attempt to sell to fill the void left by the credit crisis
- an
insolvent banking system stuffed to the gills with bonds trading at 50
cents on the dollar held at par at 40x leverage, NPAs bulging and
mismarked, - rates about to spike
- trading partners undergoing their own austerity programs reducing exports and tourism
- and most importantly tens, if not hundreds of billions of Euro in bailout funds with collateral strings attached...
Greece is somehow expected to earn its way out of this 20 year hole that was made lethal by the Pan-European Sovereign Debt Crisis.
Does anyone really think this will happen, or is Greece getting set up
to have its assets confiscated at firesale prices. Is the Greek culture
up for highly discunted volume sale, Walmart style?
A Quick Backgrounder
Advanced
economies continue to face challenges as they deal with the
juxtaposition of a huge public finances, mounting debt rollovers, a
still-impaired financial sector at a time when economic growth is at
snail’s pace, and unemployment levels & social unrest are at
unprecedented levels. Expansionary fiscal policy in the wake of the
financial crisis has helped banks repair their balance sheet and reduce
leverage. Indeed, the public indebtedness has replaced private
indebtedness. Current budget deficits, partly cyclical were also swollen
by policy responses to the crisis, and are large in relation to GDP.
Notable
decline in national incomes as a result of slower growth and increased
government expenditure, thanks to huge bail out packages, have caused a
dramatic deterioration of fiscal positions in many industrial economies.
Growth in Public debt is unlikely to be halted any time soon as
economic recovery will be slow, tax revenues will be lackluster, and
expenditures are expected to continue their march north. Tax revenue is
not expected to reach pre-crisis levels sooner as most of the tax
revenue was windfall, thanks to the boom in financial, credit, real
estate & construction markets. With aging populations many
industrial countries are expected to face rising pension and health
costs, beyond 2011.
In addition, rising interest rates will
exacerbate interest payments. In short, deficits are expected to remain
at unsustainable levels not just in the near-term but also in the medium
term posing a heightened risk of L-shaped economic scenario in the
entire Western world. In addition, the deterioration of fiscal balances
could also impede central banks’ task to keep inflation at stable
levels. The ultimate cost of cleaning up the financial system is still
unknown, but we do know this – it is significantly larger than nearly
all policy makers anticipated and it morphs and transforms as if it were
a sentient being attempting to avoid capture.
Banks in several
large and strategically pertinent countries are still fragile while
being exposed to volatile financial markets and a deteriorating
commercial real estate market at the same time that global interest
rates are poised to enter a nearly unprecedented period of volatility.
This “perfect storm” of ingredients leave the FICC businesses of these
fragile banks open to significant ruin, as detailed in our article The Next Step in the Bank Implosion Cycle???
To
make matters worse, the financial intertwining of European economies
over the past decade has only increased the costs of such spill over.
The dominant theme within the credit market currently is the fears over
the solvency of peripheral European sovereign.
The
market focus on $12bn debt roll over by Greece is myopic. Even if
Greece is able to restructure $12bn of debt, the next trance would not
be more than a year away, and an even greater need the following year,
with a greater portion of debt the year after that. Overall, Greece has
$55bn of debt maturing over the next 12 months and $195bn over next five
years. To give a perspective, Greece has to roll over debt equating to
17% of its GDP (a number which is most likely overstated)
over next 12 months compared with 14% for Spain, 12% for Portugal and
6% for Ireland. Total debt rollover over the next five years is c60% of
GDP for Greece, 43% for Portugal, 34% for Spain and 24% for Ireland.
CNBC reports European Banks Increasingly Angry Over Stress Tests.
Yer damn skippy. Look what really happens when Greece needs the Grease,
As excerpted from It Should Be Obvious To Many That The Risk Of Defaulting Sovereign Bonds Can Spark A European Banking Crisis
If
you think those charts look painful, imagine if the Maastricht treaty
was actually respected. Our models haven’t pushed passed 80% debt to
GDP, but if you were to put the treaty’s debt ceiling in you would see
the very definition of contagion. The following chart represents the
first order consequences of a 62% haircut on Greek debt…
Despite
the fact that the only way out of this is a true default and
destruction of the debt capital proffered during profligate times, TPTB
will try their best to find a workaround, because what's best for the
people of Greece, Portugal, Ireland and as we have already seen -
Iceland, is absolute anathema to the bankers that binged on this stuff
at 40x leverage ans sitting on 50% devaluations as we speak. You simply
do the math: 40 x (-50%) = what kind of returns? Insolvency, first and
foremost!
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Greece Public Finances Projections
Sovereign Contagion Model - Retail (961.43 kB 2010-05-04 12:32:46)
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As always, very nice work Reginald... albeit, you've inadvertantly[?] introduced some puzzling new terminology, "highly discunted" to the lexicon of capital markets/sovereign debt. ;)
That's right HP
"highly discunted* volume"
*Not for pussies
LMAO
LMAO,
I have been laughing about your definition off an on all day. Very useful new word, for instance:
'The junior mining sector is highly discunted at these levels.'
'The junior mining sector is highly discunted at these levels.'
Indeed and may I add, so is shorting oil.
Already now I find the term "discunted" very useful and broadly applicable. Not for pussies, No pussy, whatever combination with a pussy-negative really.
e.g.
Timothy: "Ben, shall we double date the Parton twins with the big jugs?"
Ben Shalom: "Sorry Tim, I'm discunted (Gay) and I don't think Barack would approve of it"
2 days later in the White House.....
Barack: "Did you hear about Timmays' effort to pull a DSK on one of the Parton twins? . . . . hahahaha"
Ben: "Yeah, you should have seen the look on his face when he found out she was actually discunted (transsexual).......giggles"
Thanks a bunch Reggie, excellent Freudian slip I must say.
LMAO
What we are seeing the start of is the great asset and sovereign stripping of the debt slaves by the global banking cartel. America has always been on the agenda; but TPTB need to solve that pesky 2nd Amendment thingey first. But give credit to Hillary for signing up the US on the UN proposal to ban small arms worldwide. (I didn't vote for it, did you?) If she is the next World Bank President, I'm sure the one world currency will occur ASAP. She and her husband, both extreme NWO proponents, should be hung for treason.
It was very interesting to go back and reread the 2009 articles from Roubini and Reggie. The carry trade and the derivatives market (JP Morgan and Tyler's article regarding the fed's dabbling in this market betting on very low long term interest rates) etc..
I wonder what TPTB will do next to kick the can down the road for a bit longer? What "creative options" do they have at this point in the game?
That this is unsustainable is not in question. The real question is how and when will it self implode and what “financial investments” will survive?
As always Reggie your work is a pleasure to read.
They refused to follow the Swedish model of blowing the goddamn banks and clean them for future sale to more responsible bidders.
There's our problem, right there.
Incredibly frustrating to see powerful people suck the asses of the money fuckerswhile ordinary people suffer all the consequences.
But hey! Let's keep at it like in the good ol' times: after all, it worked out very well for the kleptocracy...until 1789!
epic
The IMF and the political (leftist / facsist) elite of Europa can never admit that they were wrong, because if they do all Europe has as an alternative, political policy is outright socialism.
They will print Euro trying to fill that black hole until the printing press can't keep up. Then they will blame the US banks and "greedy speculators".
Geez, kinda sounds like Obama bin Barry and his pack of snivelling jackals.
The title says it all, Reggie--and it's not just the PIIGs or Europe.
the only thing that it fails to mention is that "Asset Confiscation Down the Road"...was the plan all along.
And whats more the sheeple know what needs to be done Reggie. But unfortunately all the neo-liberal mainstream parties are in the pockets of the financial elite. Elections wont work unless the sheeple vote in the fringe parties, which will take time. The icelandic president is the only politician who had enough sense to know that the people must decide their future.
and even she did everything she could to get the people to vote for the bailouts (and repotedly, though I doubt the figures 45% actually did veot for them)
I think we're 3-5 years away from politicos swinging from ropes
Let's stop calling these bailouts "loans" (which are instruments that are eventually repaid) and instead refer to the EZ countries as putting their nations in hock.
I'm still puzzled why we are not calling these bailouts theft.
After all, it is finding its way from public-owned debt ledgers into someone's else's pockets.
"THE SYSTEM", will never admit the problems are structural. that would expose the system to it's failures and the system isn't allowed by the public to be seen as having failed. to admit or show the failures would place in danger the positions of those who lead the system. that's why we will always have the endless bailouts at taxpayer expense. the primary goal of those connected in the system is preservation of the system at all costs. As long as they can get away wih it and there isn't revolt they will do so. In greece on can see that even in revolt they will maintain the system in a democratic society. Therefore I conclude these people are in fact a danger to democracy. the issue will be how willing the troops are to shoot their own people. the only thing in question is the time frame.
Beautiful Headline! You set yourself apart (further) from the other contributer's and their rotten headlines that only ask a stupid question, then DON'T answer it anywhere in the post.
Normally i explain the entire Continent of Europe by saying "who the hell knows?" (i wrote an entire paper entitled "why the EU is like General Motors...20 years ago!) Whenever i read you however "i knows (sp?) more"....which of course only enforces the former. I would take great comfort from the ECB if it TOLD Greece "we are now going to dollarize you." If the center is "so offended that they can't afford to be in the club" why do they keep giving them hundreds of billions of euro's? Right?
The past is now the future.
Resistence is feudal. You will be penuriated.
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