The debt ratios of the key players illustrates well (first chart) that virtually everyone is courting fiscal crisis. The easy way out of turning to bigger, more solvent governments for bailouts has run its course. The chamber is empty. Government debt to GDP is running high everywhere. When a country (such as the U.S.) runs near 100% gross debt to GDP and household debt combined with huge future deficits, it’s already dead on arrival.
Looking at the next dead-on-arrival candidates leads us to Germany and France. Although superficially it appears as if those countries are running a tight fiscal ship, in reality they are highly exposed to enormous losses via the Troika mechanism they have set up to bailout the weak sisters of Europe. These sisters continue to come for more manna from heaven (tranches), which in turn further weakens the so-called core countries. How many more tranches can France absorb? Finally, France, with a debt to GDP of 88%, is being warned on its bogus, inflated, top-notch credit rating. The mere revelation and recognition of the Troika losses taken by France in particular as well as Germany puts these countries into the tar pit.
The farce is played out as nations already in the tar pit, like Ireland, beg to take the extra weight placed off of them by having Irish banks take the loss, which in turn nails French and German banks. France and Germany refuse, as if refusing somehow changes the reality of the loss their banks already have. Meanwhile, the nasty austerity program set up for Greece to receive more heroin-drip tranches from the core are kicking in, resulting in a 10.9% drop in retail sales. In the meantime, the Rube Goldberg machine that has been set up to deliver these tranches is belching and vomiting, as now Italy indicates it may no longer participate in the next outlay to Greece. Portugal’s banks get all their funding from the ECB and, in turn, fund the Portuguese government while doing almost no lending within that country. The word, clusterfuck comes to mind. This system is almost akin to having Germany paying war reparations to banksters in the 1920s. It can’t end well. The over-the-counter, shadow-banking, counter-party risk in all this is beyond the imagination, and well beyond the ability of the pseudo-government bailout response.
As if the tar-pit reality of dealing with Greece, Portugal and Ireland was not enough, these pseudo stronger Euro nations and their pseudo solutions will next be challenged with assisting in buying overpriced Italian debt. Round one of the Troika’s shock-and-awe program last week, has already been completely reversed.
Italian ten year:
This will add further to the losses of the Troika. As I have been reporting, U.S. money market funds have been withdrawing (some, much more to go) from Eurozone bank commercial paper, leaving Eurozone banks, and most importantly in Spain and Italy (and increasingly France), with a big gap in availability of short-term funding and a severe shortage of dollars. These dollars have jumped from the frying pan into the fire by fleeing into the pseudo safety U.S. Treasurys.
This post is reprinted from Russ’s premium service, Russ Winter’s Actionable. Click here for information.