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Will Spain Default? The Answer Is Not Hard To Determine If You Take An Objective Look At The Numbers And Recent History!
Having provided ample arithmetical evidence of the inevitability of a default or restructuring of the debt of
- Ireland (Here’s Something That You Will Not Find Elsewhere – Proof That Ireland Will Have To Default…),
- Portugal (The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog),
- and Greece (What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates),
it is now time to turn to Spain. Spain is unique among the
aforementioned group in that the amount of capital necessary to bail out
this country is likely beyond the ken of the EU/IMF, and will likely
assure a contagion effect. While it is true that Spain is not as
indebted as the smaller periphery countries from a proportionate
perspective, it is likely that it is not on a sustainable path and the
efforts to make said path sustainable will may require
restructuring/default, particularly if the smaller periphery states
default. Of course, Spain doesn’t necessarily see it his way, at least
according to the mainstream media. From CNBC:
Spain Not Next in Line for EU Bailout: Finance Minister
Spain will not be next in line for a
rescue package from Europe but a common economic policy is needed to
support a single currency, Spanish Economy Minister Elena Salgado told
BBC Radio on Friday.
This is a current snapshot of Spain as it stands now (excerpted from our subscription report
Spain public finances projections_033010 and the online restructuring model - The Spain Sovereign Debt Haircut Analysis for Professional Subscribers):
vAs it stands now, the government expects to increase its debt from
55.2% of GDP in 2009 to 74.3% in 2012. In absolute terms, the government
debt is expected to grow from €580.4 billion in 2009 to €848.3 billion
in 2012. However, we expect the debt to increase much more owing to a
shortfall in government’s targeted fiscal consolidation, primarily on
account of lower-than expected economic recovery. Spain is expected to
reach a debt/GDP ratio of over 100%, and that is using its highly
optimistic numbers – numbers that have, to date through the most recent
crisis, failed to come anywhere near anything that could even be
considered a simulacrum of reality. See Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! or let use excerpt the subscription-only report, Spain public finances projections_033010:
So, even taking a considerable amount of Spain’s unbridled optimism
for granted (some adjustments had to be made in order to get anywhere
near a realistic scenario analysis), projecting Spain’s finances out
into the future STILL shows significant shortfalls and a debt to GDP
ratio that STILL breaks the 100% barrier. Just imagine if the truth be
told!
Remember, according to the Maastricht Treaty (the agreement that allowed sovereign nations admittance into the Euro), “The ratio of gross government debt
to GDP must not exceed 60% at the end of the preceding fiscal year.
Even if the target cannot be achieved due to the specific conditions,
the ratio must have sufficiently diminished and must be approaching the
reference value at a satisfactory pace.” Not only is Spain nowhere
near that number as of next year, even according to its own numbers,
but they are rapidly shooting much farther away, whether one uses
reality or their highly optimistic and unlikely projections.
Wikipedia on the sustainable debt to GDP ratios:
In economics,
the debt-to-GDP ratio is one of the indicators of the health of an
economy. It is the amount of federal debt of a country as a percentage
of its Gross Domestic Product (GDP). A low debt-to-GDP ratio indicates
an economy that produces a large number of goods and services and
probably profits that are high enough to pay back debts. Governments aim
for low debt-to-GDP ratios and can stand-up to the risks involved by
increasing debt as their economies have a higher gdp and profit
margin. The level of public debt as % of GDP around 2008 in Japan and
Germany was around 60%,[which was also close to the EU's criteria for member states to participate in the Euro]. As of 2010, the United States holds a debt-to-GDP ratio of around 94% [readers should be aware that the US has control of its own currency, though].[1]
…The debt-to-GDP ratio is generally expressed as a percentage, but properly, has units of years, as below.
By dimensional analysis these quantities are the ratio of a stock (with dimensions of Currency) by a flow (with dimensions of Currency/Time), so[note 1]
they have dimensions of Time. With currency units of US Dollars (or any
other currency) and time units of years (GDP per annum), this yields
the ratio as having units of years, which can be interpreted as “the
number of years to pay off debt, if all of GDP is devoted to debt
repayment”.
This interpretation must be tempered
by the understanding that GDP cannot be all devoted to debt repayment –
some must be spent on survival, at the minimum, and in general only
5–10% will be devoted to debt repayment, even during episodes such as
the Great Depression, which have been interpreted as debt-deflation
– and thus actual “years to repay” is debt-to-GDP divided by “fraction
of GDP devoted to repayment”, which will generally be 10 times as long
or more than simple debt-to-GDP.
However, in the presence of significant inflation, deflation, or particularly hyperinflation, GDP may increase rapidly in nominal terms; if debt is nominal, then it will decrease rapidly.
Consider much of the EU to be in a deflationary state as we speak…
Spain’s Government Officials Have Apparently (a polite way of
saying unkonwingly) Declared That The Country Is On The Path To Crisis
There is no hard an set formulaic equation or template to indicate
whether a country is going to default or not from a historical
perspective, save one. Each and every recent historical default was the
result of a very rapid increase in public debt to GDP, often after a
banking or credit crisis and deterioration in both public finances and
access to private debt markets. This has Spain’s (or any nation in the
area, it is literally a game of pick a PIIGS) name written all over it.
Here is the historical and projected Debt/GDP numbers using the Spanish
Government’s projections (not our scrubbed for reality calculations):
Higher debt paired with reduced market access typically generated
debt servicing difficulties, ultimately culminating in either default
or the urgent need for a preemptive restructuring to avoid a
default.
Source: IMF
As quoted directly from the IMF, “… over the past 30 years,
60 percent of sovereign debt crises occurred when debt levels in the
year preceding the crisis had been higher than 39 percent of GDP.
Moreover, a 50 percent probability of being in a debt crisis is
associated with a debt-to-GDP ratio of 80 percent.”
So, where does Spain stand??? The Spanish government says it expects
debt/GDP to be 74% by 2012, with a fiscal deficit of 5.3%. We say
rubbish, and have calculated both a debt/GDP and fiscal deficit level
materially higher than Spain’s government alleges, and above that 80%
line of demarcation mentioned above. Look at their track record
illustrated above in the excerpts from Spain public finances projections_033010 and compare it to ours and it is easy to see who’s word holds more water.
Basically, the best way out is a restructuring. We have applied an
“Argentina Restructuring Scenario” to the Spanish debt below, and
compared it to the current state of affairs. As you can see, bondholders
will take a nominal hit via haircut, and as well as a more substantial
hit via the decrease in NPV of expected cashflows. Of course, this is
better than certain alternatives…
This is what the Argentinian bonds looked like when they were restructured…
Price of the bond that went under restructuring and was exchanged for the Par bond in 2005
Price of the bond that went under restructuring and was exchanged for the Discount bond
I don’t believe the Argentina scenario is the most fitting here,
since Spain can create more of a win-win scenario, although pain will be
felt by the debt holders regardless. Below is a description of
the various scenarios calculated and made available to all professional
and institutional subscribers. See The Spain Sovereign Debt Haricut Analysis for Professional/Institutional Subscribers. Click here to subscribe.
Even if Spain were to receive assistance in the form of a bailout
from the IMF/EU, the problem is simply kicked down the road, and not
rectified. Again, the year 2013 is the magic number and the day of
reckoning.
Next up, we will explore the contagion effects abound in Europe. Subscribers please review:
- Sovereign Contagion Model – Retail (961.43 kB 2010-05-04 12:32:46)
- Sovereign Contagion Model – Pro & Institutional
See The Spain Sovereign Debt Haricut Analysis for Professional/Institutional Subscribers for the complete Spain restructuring spreadsheet online. All others can click here to subscribe or upgrade.
Those of you who are curious to see what the complete restructuring
scenario looks like, I have made the Portugal restructuring analysis
available free of charge for the time being:
The Anatomy of a Portugal Default: A Graphical Step by Step Guide to
the Beginning of the Largest String of Sovereign Defaults in Recent
History
»
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SPAIN is in default BitchZZZZ and WitcheZZ¡¡
and Portugal,Italy,Belgium...
And Germany...
http://www.zerohedge.com/article/and-now-first-gloomy-economic-outlook-d... there is a 139 page report emphasis on the 2011 bond market in this report (in the actual report, not the TD commentary) it is stated with quite some confidence that SPAIN is a non-issue, not a show stopping chaotic disaster at all...SPAIN does have some near term debt that can't be paid, but that can be shifted forward....total SPANISH Debt LONG/SHORT is actually quite modest relative to GNP... Of course, i'd call this report "hopium for bankers" bond dealers, big brokers, etc....'all is well for 2011...in fact the LONG BOND rates, that had appeared to be exploding upward in yield, downward in price, will return to LOWER than 2010 coupon rates, and existing resales 'higher priced' !!!! i think you'd be an idiot to pay PAR, or current market discounts on long bonds...3% INSANE
the report indicates that between European Central Bank and Federal Reserve QE2 that enough open market buying of LONG BONDS will keep the prices HIGH, the yield low...despite the same report acknowledging that CORPORATE refinance of their legacy high rate bonds to low rate will be sold as much as the market can digest....WILL THE FED AND europe buy ALL THE LONG BOND NEW ISSUES FOR 2011, to keep the rates LOWER YET IN 2011 than 2010..thats what i read in the 'hopium'
anyway...just an example of suposedly ESTABLISHMENT thinking...all is well for 2011, no chance of a repeat of LEHMAN 2008, nor any other chaotic breakdown mode... hahahshdfasdfj lol well thats what it says...
appreciate the links
http://boombustblog.com/index.php?option=com_acctexp&task=subscribe&Item...
perhaps you could answer this quetion:
Do contributors to ZH who maintain their own subscritpion sites provide ZH with any remuneration? I would hope that ZH takes advantage of the incredible traffic and revenue that he must bring to sites such as yours. I will assume that that the answer is yes unless you indicate otherwise.
Reggie - Thanks for the analysis and insights.
I hope they do. I wouldn't mind buying a villa or at least some real estate on the cheap...
Hi.
Something veeeery big is going on in Spain.
In 2011 the country will have to finance/ roll over debt worth around 40% of GDP.
About 120 bn public debt rollover+
about 100 bn public deficit financing+
About 200 bn bank debt refinancing
With total gdp at around 1000.
In a situation in which banks are insolvent due to real estate loans of 320 bn which have gone sour and 180 bn total equity. The state ang government being a complete mess (local entities and "comunidades autonomas" totally out of control and with the financial markets virtually closed to piigs.
How will they manage this situation? With confidence, according to their president...
... The ECB and the FED will print massive amounts of euros and usd to save the day... And next will come hyperinflation.
Hi.
Something veeeery big is going on in Spain.
In 2011 the country will have to finance/ roll over debt worth around 40% of GDP.
About 120 bn public debt rollover+
about 100 bn public deficit financing+
About 200 bn bank debt refinancing
With total gdp at around 1000.
In a situation in which banks are insolvent due to real estate loans of 320 bn which have gone sour and 180 bn total equity. The state ang government being a complete mess (local entities and "comunidades autonomas" totally out of control and with the financial markets virtually closed to piigs.
How will they manage this situation? With confidence, according to their president...
... The ECB and the FED will print massive amounts of euros and usd to save the day... And next will come hyperinflation.
Keep it simple buy PM.
Bank and gouverment in trouble means they
want to steal your money.Everybody in history
of mankind knew by instinct what to do and
that is go to bank and change paperpromise
for real money.Hide your hard earned money
from creepy,greedy hands of gouverment.
Just learn from lessons from history and
keep what is yours this is your property rights.
Spain is a fine country and will survive and will
outlive these fuckuped IMF,ECB.Just like Iceland,
Potugal,Greece and Ireland.
Debt free gold and silver money for the people;
zero for crimanal banker institution,just a fuck you
and die or please kill yourselfs.
I thought the stress tests said Spain was in good fiscal health.
When will we see a similar article about the U.S.?
No, remember the "US has control of its own currency". Apparently in our Schrodinger money world it matters not if sovereigns issuing their own currency are completely illiquid.
Imagine if Reggie didn't have all this time on his hands, where would all this stuff go to live?
If they do so in the next 6 months, taking a vacation in Spain will be a lot cheaper!!!
Great stuff Reggie, thank you.
Do you want a proofreader? The "historical and projected Debt/GDP" has a couple of doozies. I don't care - but people looking to discredit you or take pot-shots would point to those.
I'd take the job but you are so prolific I fear I wouldn't be able to keep up.
Great analysis, I wholeheartedly agree with your conclusions.
Isn't this the same type of insanity as the Housing/CDS bubble? Making speculative leveraged investments based on completely unrealistic expectations and "mark to fantasy" accounting?
I'd like to believe that the FED has a time machine that will allow them to go back and steal Spanish Doubloons to melt down and make into Double Eagles to sell to the Chinese but...
REGGIE'S FAUX NAIVETE GIVES ME A PAIN. I MEAN, HE'S JUST TALKING HIS BOOK. BLAH BLAH BLAH. HE NEVER TELLS YOU WHAT IS ACTUALLY GOING ON.
JOHN SCHOEN OF MSNBC MADE SOME SOME COMMENTS TODAY. MY RESPONSES ARE BELOW, AND SINCE MY RESPONSES ARE THE RESPONSES OF THE U.S. GOVERNMENT, YOU SHOULD PAY ATTENTION INSTEAD OF BEING A GOOBER:
The Fed itself is not unanimously in favor of the idea of flooding the system with money.
WELL, IF YOU CONSIDER THE ‘SYSTEM’ TO BE MONEY GOING FROM THE TREASURY RIGHT BACK TO THE TREASURY, THEN IT IS ‘FLOODING’ THE SYSTEM. BUT ALL IT REALLY IS DOING IS MAKING PRIVATE, MONEY WHICH BEFORE THE TRIP FROM THE TREASURY TO THE FED AND BACK AGAIN, WAS PUBLIC. THIS IS MELLONESQUE LOOTING. THIS IS OUR POLICY, BECAUSE SUBURBIA IS NO LONGER A PROFIT CENTER–IT IS A LOSS CENTER. NO MORE AMERICAN ECONOMY, SO ALL REMAINING MONEY MUST BE LOOTED ASAP. THE QUESTION IS, DO YOU HAVE A QUICKER WAY TO LOOT THAN THIS ‘FLOODING’? PLEASE LET US KNOW IF YOU DO. WE'D ALL LOVE TO SEE THE PLANS.
During the run-up to the latest “quantatative easing” announcement last month, Kansas City Fed President Thomas Hoenig warned of the risks of higher inflation and the formation of another bubble like the housing market that precipitated the 2008 credit crash.
YES, THERE WILL BE INFLATION BUT IT WILL BE BECAUSE OF SUPPLY CHAIN COLLAPSE. EVERYONE IGNORES INDUCED SUPPLY CHAIN COLLAPSE AS A TECHNIQUE OF MELLONESQUE LIQUIDATION, BUT WE ARE PURSUING IT VIGOROUSLY, AND IT IS WORKING VERY WELL. BUT YOU WOULDN’T KNOW ANYTHING ABOUT THAT, BECAUSE YOU DON’T KNOW ANYTHING ABOUT INDUCED SUPPLY CHAIN DETERIORATION. JUST CONSIDER IT A CURRENCY RACE TO THE BOTTOM, BUT FOR POTATOES.
“I worry that by pumping in significant amounts of dollars we then build the inflationary pressures for the future,” he said. “And we do encourage then an easier credit environment that helped create this problem in the first place.”
AS MELLONESQUE LIQUIDATION HAS INCREASED, THE CREDIT ENVIRONMENT HAS GOTTEN TIGHTER, NOT EASIER. IT WILL CONTINUE TO TIGHTEN, BECAUSE EASY CREDIT IS NOT A POLICY OF MELLONESQUE LIQUIDATION.
The recently unveiled Obama administration-congressional Republican tax plan also dealt a setback to the Fed’s strategy. Just weeks after the Fed pledged to buy $600 billion in bonds, the tax compromise added $900 billion in new bond sales to pay for the plan, more than offsetting the flood of new cash. That prompted Fed Chairman Ben Bernanke to hint that the latest round of quantitative easing might not be the last.
IT ISN’T A ‘FLOOD’ OF NEW CASH. THE POINT OF THE BILL IS THIS: DO NOT, UNDER ANY CIRCUMSTANCES, AROUSE SUBURBIA. THEY HAVE SEVERAL TRILLIONS WE CAN STILL LOOT BEFORE THEY ARE UNEMPLOYED. WE WANT THAT MONEY, AND WE CAN’T GET IT IF THEY’RE HIDING ROLLS OF SILVER UNDER THE BED.
OF COURSE, YOU ARE SO STUPID THAT YOU DON'T REALIZE THAT INDUCED UNEMPLOYMENT IS A TECHNIQUE OF MELLONESQUE LIQUIDATION. CRAZY YOU.
Critics like Roach think that would just mean throwing more good money after bad.
“Why haven’t we tried to unclog the system of credit and get that first QE money in the hands of small and medium sized business who are desperate for credit and who do the bulk of hiring and can make a difference to Americans?” he said. “I just think we’re going about this completely the wrong way.”
YOU THINK THIS CLOWN WOULD KNOW BETTER. UNCLOGGING THE SYSTEM OF CREDIT RETARDS THE ADVANCE OF TWO TECHNIQUES OF MELLONESQUE LIQUIDATION: INDUCED SUPPLY CHAIN DETERIORATION AND CARTELIZATION. CAN ROACH DENY THIS? OF COURSE NOT.
Defenders of the Fed’s historic spree of bond-buying say it helped prevent a much wider financial meltdown and has helped get the economy back on track. To be sure, many economists have recently upgraded their growth forecasts for next year. But many credit the stimulative effect of planned tax cuts and extended unemployment benefits, not the Fed’s easy money policy.
BLS BACHELOR’S+ UNEMPLOYMENT WILL BE ALLOWED TO RISE AS THERE IS LESS MONEY TO LOOT AMONG THAT CLASS. NOVEMBER IT WAS 5.1%, OCTOBER IT WAS 4.7%. SO IT IS RISING. WHAT’S YOU’RE HURRY? LIKE EVERYONE ELSE, YOU ARE YOUR OWN ONE-MAN SHADOW GOVERNMENT. THERE ARE LOADS OF SHADOW GOVERNMENTS. WHY SHOULD WE LISTEN TO YOU?
WITH REGARD TO THE PROPAGANDA WE'RE PEDDLING, IT IS WORKING: MIDDLE CLASS PEOPLE STILL BELIEVE IN ‘GROWTH,’ IN THE ‘ECONOMY,’ IN ‘MONEY.’ BAILOUTS WILL CONTINUE UP TO $70 TRILLION–NO HAIRCUTS, NO DEFAULTS, NO WAY.
AND WHY SHOULDN'T THESE CREATURES BELIEVE IT? DON'T THEY TRUDGE OFF TO THE CUBICLES EVERY DAY? THAT'S THEY'RE PROOF. IT'S NOT BARBARA BUSH'S PROOF, BUT HEY, THEY'RE NOT BARBARA BUSH.
The prolonged use of printed money to buy more government debt may drive up the cost of borrowing faster than the Fed can try to rein it in. As worries rise about the government’s ability to pay back all this debt, so too does the return that bond investors demand to cover the increased risk.
IT IS THE POLICY OF THE GOVERNMENT TO DRIVE UP THE COST OF BORROWING. THIS ADVANCES TWO TECHNIQUES OF MELLONESQUE LIQUIDATION: CARTELIZATION AND INDUCED SUPPLY CHAIN DETERIORATION. HOW DUMB ARE YOU?
Credit rating agency Moody’s highlighted those fears Monday by warning that if the proposed tax plan is approved, Moody’s could move a step closer to cutting the U.S. government’s top-notch Aaa credit rating. The lower the credit rating, the more companies and governments typically have to pay to attract investors to buy their bonds.
BUT IF THE FED IS THE BUYER, THAT MEANS THAT THE LOOTERS OBTAIN A HIGHER RATE OF INTEREST. SO, ONCE AGAIN, IT IS THE POLICY OF THE GOVERNMENT TO LET INTEREST RATES RISE.
WRAP YOUR HEAD AROUND THIS TRUTH, THE NEXT ONE TO BE LAUNCHED:
YIELDS DON'T MATTER.
KINDA MADE YA GRAB FOR YOUR PEPTO-BISMAL, DIDN'T IT? WELL SUCK IT UP.
The Fed’s plan has also hit another major snag: much of the nearly $2 trillion the central bank has printed since the start of the financial crisis simply isn’t getting where it’s supposed to go — to households and the small businesses that account for more than half of all new jobs. Bankers complain that in such a weak economy, there isn’t enough demand for loans; borrowers say banks are being too picky about to whom they lend.
THIS IS A FALLACY. THERE IS NO ‘SNAG.’ THERE WAS NEVER ANY INTENT THAT THE $2 TRILLION GET TO HOUSEHOLDS AND SMALL BUSINESSES, NOR IS THERE ANY INTENT TO CREATE NEW JOBS. NOR WOULD THERE LIKELY BE ANY INTENT TO CREATE JOBS IN MELLONESQUE LIQUIDATION. I NEVER HEARD ANDREW MELLON SAY THAT EMPLOYMENT WAS A BIG CONCERN OF HIS. THE UNITED STATES GOVERNMENT HAS PLENTY OF CLERKS AND DIGICLERKS RUNNING AROUND THE SOCIAL MACHINERY, THANK YOU VERY MUCH.
For whatever reason, lending to U.S. small businesses continued to drop in the third quarter, by $163 billion, the seventh consecutive quarterly decrease, according to Fed data.
FOR WHATEVER REASON? IT SEEMS TO US IT WOULD BEHOOVE YOU TO FIND OUT THE REASON. WHAT IS YOUR JOB, ECONOMIST OR HEAD-SCRATCHER? THIS IS GOOD–THE RESULT HAS BEEN BOTH SUPPLY CHAIN DETERIORATION AND CARTELIZATION.
The result is a large pile of money stuck in the system. About $1 trillion of it is sitting in the Fed’s vaults, stored there as “excess reserves” until bankers can find loans they want to make. Another $1.9 trillion is sitting on the balance sheets of hunkered-down American companies. That’s the highest level since the Fed began keeping track of corporate cash in 1952.
‘STUCK’? YOU ARE STUCK WITH IDEAS WHICH DO NOT REFLECT REALITY. TANT PIS. THE FIGURES YOU CITE SHOULD TELL YOU THAT THE POLICY OF THE GOVERNMENT IS MELLONESQUE LIQUIDATION. MULTIPLY BOTH FIGURES BY 25. IDIOT.
While the Fed’s cash flood has failed to create jobs, it is helping create wealth for some. According to the latest Fed data, the value of stocks held by American households jumped $978 billion in the third quarter.
‘FAILED.’ WHEN IT WASN’T TRIED, HOW CAN YOU SAY IT FAILED? SILLY. THE STOCK ‘VALUE’ IS NOT VALUE, IT IS PROPAGANDA. IT EXISTS TO ENABLE FURTHER LOOTING OF THE BACHELOR’S+ CLASS. WHEN THERE IS NO MORE MONEY TO BE LOOTED FROM THIS CLASS, THE STOCK MARKET WILL COLLAPSE. THIS IS ALSO PLANNED.
But those gains were offset by a $747 billion loss in real estate wealth, as falling home prices continued to eat away at the biggest nest egg for most American households. So far, the Fed’s easy-money policy isn’t helping the dismal housing market, one of the biggest roadblocks to economic recovery.
PROPAGANDA IS THE MEANS, NOT THE END. AS LONG AS THIS TRASH IS TRUDGING OFF TO WORK, THAT IS THE IMPORTANT THING. THEY KEEP THEMSELVES GOING SO THEY CAN BE LOOTED--YOU CAN'T ROB AN EMPTY WALLET. THERE IS NO HOUSING ‘MARKET’ ANYMORE, ASSUMING THERE EVER WAS ONE. HOUSING IS AN INSTRUMENT OF MELLONESQUE LIQUIDATION--EACH AND EVERY SOCIAL INDICIUM IS NOW AN INSTRUMENT OF MELLONESQUE LIQUIDATION. THAT FRIGHTENS YOU. ANTIDOTE? COUNT ALL YOUR FRIENDS IN THE POWER STRUCTURE.
“Owners’ equity in housing is still shrinking, and it will shrink further,” said Richard Berner, chief economist at Morgan Stanley. “Unless we address the problem of one in four homeowners underwater on their mortgages, housing is going to languish.”
IT IS NOT ‘LANGUISHING.’ WHAT YOU ARE SEEING IS GOVERNMENT CONTROL OF HOUSING, WITH THE PURPOSE OF MELLONESQUE LIQUIDATION. IF YOU WERE TO CONSIDER HOW TO ENFORCE MELLONESQUE LIQUIDATION THROUGH HOUSING, THEN THE SITUATION YOU SEE IN HOUSING TODAY IS EXACTLY THE POLICY YOU WOULD PURSUE.
There was a small bit of good news on that front Monday when data firm CoreLogic said the number of underwater homeowners fell for the third straight quarter this summer. About 22.5 percent, or 10.8 million, of all mortgaged homes were underwater in the summer, down from 23 percent in the second quarter.
AGAIN, THIS IS PROPAGANDA.
Reggie has an excellent grasp of the Political/Economic framework within which his calculations are made....this backdrop is a 'given' which he does not iterate every single post he makes, you'd want to look in the archives and read EVERY Reggie posting, and see that..
Of course the Mellon bank and the Mellon son indeed made the famous 'liquidate everything' statement...typical of the legacy of the Gilded Age just prior...THAT WAS the attitude, and STILL is, but better said...
Today the Mellon legacy has been honed to perfection...no more taxes, or at least no more taxing the RICH just to transfer THEIR money to the poorer classes of the USA...sounds 'familiar' it is the official core Republican Party formulation.. = Liquidate liquidate until the rot is gone...the lower classes, the slum classes, the white trash...you know...like that...
Just as Bold as Mellon, but said in a clever clever manner today...with a smile, a feeling of righteous indigation at the lazy louts of the lower class, nary a feeling of EVIL...
you see THAT IS THE BANALITY OF EVIL...there is no guilt whatsoever, indeed guilt is replaced by a form of disgust at the lazy, useless eaters..
Enough with the fucking all CAPS already...sheeeesh.
I was starting a response that included bankers and fire and lampposts and so on.
You know, like something from a LL Bean or Sears Christmas catalogue.
The Australian is in jail and that is setting a precedent for what we can and should say online.
Of course the entire system is built on methadone because heroine is too expensive. The surrogate must do for the masses, the real stuff is reserved for the privileged few.
Before this century is over, the tables will have turned again at least once.
OK David,
I think you may well be onto something, but the fact that YOU FEEL STRONGLY AND LET US KNOW WITH YOUR CAPS LOCK KEY (and take a lot of time getting to the point) is counterproductive to making your case.
Having read up on "Mellonesque liquidation" it seems this is a reference to what Andrew Mellon recommended http://en.wikipedia.org/wiki/Andrew_W._Mellon to Hoover http://en.wikipedia.org/wiki/Andrew_W._Mellon#The_Great_Depression
So it appears what you are arguing is that we are in the midst of a great deflationary selloff?
I think I agree with you, but I expect that there will be dollar repudiation via hyperinflation in early 2012, as the Fed will buy all those inflated assets for cash (deflation is the midwife of hyperinflation).
That depends on what best facilitates Mellonesque liquidation. Remember what Mellonesque liquidation is: it's what power does once it has decided to remove government from society because society has become a loss center.
This does NOT mean that government becomes:
1. smaller
2. less intrusive
3. spends less.
It's simply power using government to get out of the society whatever remains in it.
Sometimes that means you push inflation, sometimes it means you push deflation. It depends whatever advances Mellonesque liquidation.
That's why it's such a shame that there is no book on Mellonesque liquidation as a phenomenon. It's a VERY complex phenomenon: think anaconda swallowing something large--very tricky, slow operation if it is all to go well without any damage to the anaconda.
People are so stupid and ignorant that they assume powerful people just use grand gestures, wave a wand, unleash tsunamis, blah blah blah.
But they don't. Looting involves day to day monitoring. Just think: do you really want to send suburbia scurrying into bunkers before you have looted every single last penny out of them? Of course not! You have to continually lure them in, sucker them in, give them illusions--even as you withdrawing the conditions of all their optimism.
It's a complex phenomenon and a complex task. Who knows? Maybe power will decide at a certain point that inflation will be useful (why would that be? how would it facilitate looting suburbia?).
However, given that it's a statist economy now and unemployment in the Bachelor's class is only 5.1% (10% real underemployment) the point is that that tool--inflation--is there.
People get so hysterical that they feel, "Well, QE2 [or 4, or 4], must be the end of it. That will end everything. That will be endgame. Everything will collapse."
No it won't. Not as long as I read the printout in Table A.4 of the monthly BLS statistics and that Table tells me at Bachelors+unemployment is under 20%.
I think that at 20%, yes, everything will collapse (among other things, think how horrendous unemployment will be in the underclass if it's officially 20% among the Bachelors+ class).
But we're not there yet, by any stretch of the imagination, and as long as we're not, Mellonesque liquidation has a full range of tools with which to loot. Are you claiming it does not have these options? Ridiculous. It has a full tray of surgical weapons to carry out liquidation:
1. inflation
2. deflation
3. cartelization
4. race to the bottom currency gambits
5. monetization
6. loan guarantees
7. outright purchases
8. spending
9. cutting spending
10. high interest rates
11. low interest rates
You can't seriously tell me that as long as Bachelors+ unemployment is 10%, power cannot use one or some of these tools. That's naive and silly.
The process of looting will continue without any interruption. I think we will ultimately have $70 trillion of bailouts before we reach BLS 20%. In the meantime, I doubt you will see any haircuts or defaults, because that would scare the middle class into not spending, not going to work, they'd go on tax strikes, blah blah blah.
Don't frighten the sheep you are fleecing--you want them to run away? No, you want them to STAND STILL.
Hello Mr. Ryskamp. We know who you are. And we have found you.
And you are in good hands.
IMO you're mischaracterizing what a Mellonesque Liquidation is.
Mellon was IMO recommending not only letting the system 'reset' itself, but encouraging this (sell everything and thus purge the rot).
This is not something that any entity has control over. If it was a small country (e.g. Burma), maybe they could pull it off with brute force, but this is global. There's too many moving parts, too many people to manage. You can either fight it or go with it, they have chosen to fight it.
IMO the only thing the middle class has of value to "loot" are land & business titles and perhaps a piddling amount of precious metals. The first two are dependent on government to set tax rates (if you can't pay the land tax, you don't "own" it) and enforce contracts (can't do much business w/o contract enforcement unless it's all cash on the barrelhead). The second the middle class in the US doesn't have enough to really bother with.
So what's their game? I personally think their aim is control, and they are failing miserably. Most of their fear-based control memes (war on terror, global warming) are falling apart.
Things can't get too much worse before things start to really fall apart IMO. Unemployment is actually around 22%, and as cost push inflation raises food prices much more, people will be forced to house/apartment share just to stay fed. This pushes rents down, tax revenue down, states default, muni bonds crash, Fed buys those too, cost push inflation raises, corporate profits get pinched, people get fired, stock gets sold to make ends meet, Fed buys that too... Etc.
Deflation will be met with continued money printing, every scrap of debt will be paid for with fresh Fed cash until the Fed owns the majority of assets... At some point the world repudiates the dollar in a hyperinflationary collapse as all dollar-based assets are dumped and all those overseas dollars come home to roost.
I don't see so much looting as a last-ditch desperate attempt to preserve a broken system.
In the midst of this all there will be some massive political changes out of necessity, IMO along the lines and scope of the Tanzimat Reforms: http://en.wikipedia.org/wiki/Tanzimat
...Or what many will call the Second American Revolution.
Perhaps I'm missing something, but that's how I see it.
PROPAGANDA IS THE MEANS, NOT THE END. AS LONG AS THIS TRASH IS TRUDGING OFF TO WORK, THAT IS THE IMPORTANT THING. THEY KEEP THEMSELVES GOING SO THEY CAN BE LOOTED--YOU CAN'T ROB AN EMPTY WALLET. THERE IS NO HOUSING ‘MARKET’ ANYMORE, ASSUMING THERE EVER WAS ONE. HOUSING IS AN INSTRUMENT OF MELLONESQUE LIQUIDATION--EACH AND EVERY SOCIAL INDICIUM IS NOW AN INSTRUMENT OF MELLONESQUE LIQUIDATION. THAT FRIGHTENS YOU. ANTIDOTE? COUNT ALL YOUR FRIENDS IN THE POWER STRUCTURE.
Dude, sounds like you have a liquid mellon here. You may want to lay off sniffing the White-Out for a while.
Me think it will be ECB bond purchases....
So Bernanke's Helicopter will start making Trans-Atlantic runs now? Joyous!
So party on in 2011 unless Spain throws out some negative surprises. They are in that corrupt southern European culture. Keep an eye on those boogers.
no numbers or charts are needed here. governments always default. it's the nature of government.
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