Real estate

Europe also allows for sovereign debt to be counted as risk-free assets and not marked-to-market. Many nations, Spain is one example, allow for Real Estate loans, mortgages and even commercial loans to be carried at face value as a matter of financial engineering. I think it is a bad joke but the bite has come. This occurs when the loans no longer pay and the revenues are no longer present no matter how you carry them on your books. Then, if the banks try to off-load the properties they have assumed they take losses which are real losses and have to be accounted for on the books or they are securitized and placed as collateral at the ECB which then hides the problem for a while but not indefinitely and the “indefinite” has run out of time which is why any number of banks are calling “Uncle” and why the sovereign nation nations are crying “Uncle” and trying to deflect their problems first back to the ECB and then to find some new scheme so that the country does not fall victim to the Men in Black. All fine, all dandy, but, once again, the central issues are not dealt with and all of the schemes like all of the King’s men and horses cannot put Humpty back together again.

Humpty has fallen off the wall.

You should do the following.

1. Maintain significant bank and brokerage accounts outside your home country. Consider setting up an offshore asset protection trust. These things aren't as easy to do as they used to be. But they'll likely be much less easy in the future.
2. Make sure you have a significant portion of your wealth in precious metals and a significant part of that offshore.
3. Buy some nice foreign real estate, ideally in a place where you wouldn't mind spending some time.
4. Work on getting official residency in another country, as well as a second citizenship/passport. There's every advantage to doing so, and no disadvantages. That's true of all these things.

One more thing: Don't worry too much. All countries seem to go through nasty phases. Within the lifetime of most people today, we've seen it in big countries such as Russia, Germany and China. And in scores of smaller ones – the list is too long to recount here. The good news is that things almost always get better, eventually.

"Private Debt Doesn't Matter" Because "Banks Can't Create Money Out of Thin Air"

Just read.

What's more tiresome than a hastily rehearsed soap opera that replays the same boring plots again and again? Re-Runs of that soap opera. The Eurozone "drama" is now in re-runs and I for one am switching channels. Nothing will change until some critical part of the worm-eaten, corrupt construct of artifice and denial collapses in a heap. Until then, all we have is replays of the same boring plot lines:

Put-upon Greece: We were just minding our business here in the sunny south, living happily on borrowed billions in a thoroughly corrupt Status Quo, and suddenly we're debt-serfs squeezed by rapacious Eurozone enforcers of the banking cartel. What did we do to deserve this? It's not fair.

Put-upon Germany: We were just minding the store here, racking up 40% of our GDP in exports and raking in bank profits loaning money to our Eurozone compatriots, when suddenly everyone who's lived beyond their means demands that we refinance their debts because we're rich. Excuse us, but did anyone look at how we got rich? Hard work, cuts in spending, high taxes and a tight lid on wages. What did we do to deserve this? It's not fair.

Married couple in counseling: France and Germany: It's all his/her fault. They never bothered to understand me, etc.

Remember, both as my research and the past 5 yrs have made clear, counterparty induced banks runs are the most damaging and Spains banks are hit from both RE and Sovereign debt crises. Who wouldn't run from this?

All you can read.

While we await the Moody's downgrade of the Spanish banking system, which we can only attribute to a lack of outsourced Indian talent, since three banks are now rated higher than the sovereign, Moody's decided to give a little present to our Dutch readers by downgrading 5 of their biggest banks: Rabobank Nederland, (2 notches to A2) for ING Bank N.V., (2 notches to A2) for ABN AMRO Bank N.V. (2 notches to A2), and for LeasePlan Corporation N.V. (2 notches to Baa2). The long-term debt and deposit ratings for SNS Bank N.V. were downgraded by one notch to Baa2. And yes, this means that the US banks (looking at your Margin Stanley) are likely next.

For all the news out of Spain: tumbling sovereign bonds, bailed out banking sector, there really is just one driver of everything: the same one many have been warning about for years: the artificially inflated valuation of the Spanish housing sector. Because the only reason why banks are suddenly finding that their assets are worth much less than previously expected, is because it is now impossible for local banks to keep the real-estate "assets" on their books at marks-to-model (read par) as the bulk of them have long since become impaired, delinquent or outright defaulted.... Which is the worst news for holders of Spanish bonds, now that the entire banking sector is effectively pari passu with the sovereign debt courtesy of priming ESM debt: recall that every incremental dollar, or in this case, euro, of bank capital deficiency will be one more priming bailout euro behind. Effectively there is now an inverse relationship between the Spanish housing sector and the country's sovereign bonds. And for those who are still naively are clutching to Spanish bonds, even as they tumble to all time lows (that's the local law, as opposed to the legal arbitrage trade we have been promoting and which today is making even more money), we have some bad news: that perpetual of optimists, S&P, just said that the Spanish housing sector has, wait for it, another 25% to drop!

This means a comparable drop in store for Spanish bonds and all the related securities in Europe, which courtesy of the bailout are all now daisy-chained.

Has the Spanish bank bailout set a precedent for all other insolvent EMU member countries to follow? Of course. The only question is when is the stigmata of demanding a bailout (which Europe now has no choice but to grant courtesy of set precedent, be it via ESM or otherwise) less relevant than national pride, than preserving one's banking sector, and preferably preempting the kinds of bank runs that pushed Spain to demand a bailout in the first place. For one small Eurozone member country the answer may be if not now, then very soon. Slovenia's Dnevnik asks a simple question: "How serious is the situation of Slovenian Finance - are we on the way of Spain?" The answer, in not so many words: very likely yes.

All you need to know.

While a welcome development (and probably even more welcome on the other side of the Atlantic) it doesn’t make up for the fact that the explosive price increases during the boom years were never included. And it isn’t just real estate — equities was another market that massively inflated without being counted in official inflation statistics. It would have been simple at the time to calculate the effective inflation rate with these components included. A wiser economist than Greenspan might have at least paid attention to such information and tightened monetary policy to prevent the incipient bubbles from overheating. Of course, with inflation statistics calculated in the way they are (price changes to an overall basket of retail goods) there will always be a fight over what to include and what not to include. A better approach is to include everything.

Yesterday, Austrian finance minister Maria Fekter ruffled the unelected Italian PM's feather by saying "forget Spain, Italy is next in the bailout line" - a statement which as expected was promptly loudly refuted, mocked, and scorned by everyone possible: the type of reaction that only the truth can possibly generate in Europe. So far so good: after all the typical European reaction to any instance of the truth is loud screams of "lies, lies" and promptly sticking your head deep in the sand. However, this time around Italy may not have the benefit of the doubt, nor the benefit of some sacrificial replacement of a prime minister: Silvio is long gone, and at this point switching one banker figurehead with another will do precisely nothing. Which is why this morning's assessment from Bloomberg economist David Powell is spot on: "Italy would probably be forced into receiving a bailout if it were to face another two weeks like the last seven days." But the punchline: "The bad news for Italy is the country’s stock of debt is already as large as Spain’s may become after years of fiscal turmoil. In other words, Italy already is where Spain may be heading."

All you can read.

Incentivize debt, and you end up relying on debt as a sustitute for productivity and income. Increase debt, and there's not enough income left for productive investments that might boost income. Incentivize debt via making interest tax deductible, and you create a self-reinforcing feedback of a rising share of declining income being devoted to interest payments. With demand and borrowing both suppressed by debt-serfdom, demand for housing, goods and services declines. Borrowing more to consume simply speeds the cycle of rising interest and falling net incomes. Incentivize debt and you create multiple overlapping death spirals. We are seeing the death-spirals play out in a fractal manner, from households to nations to entire regions. High debt levels lead to high interest payments which lead to low investment and savings rates which lead to lower productivity which leads to stagnation of income, consumption and investment: in other words, a death spiral.