Spain Plunders 90% Of Social Security Fund To Buy Its Own Debt

Tyler Durden's picture

With Spanish 10Y yields hovering at a 'relatively' healthy 5%, having been driven inexorably lower on the promise of ECB assistance at some time in the future, the market has become increasingly unsure of just who it is that keeps bidding for this stuff. Well, wonder no longer. As the WSJ notes, Spain has been quietly tapping the country's richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds - with at least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt. Of course, this is nothing new, the US (and the Irish) have been using quasi-government entities to fund themselves in a mutually-destructive circle-jerk for years - the only difference being there are other buyers in the Treasury market, whereas in Spain the marginal buyer is critical to support the sinking ship. The Spanish defend the use of pension funds to buy bonds as sustainable as long as it can issue bonds - and yet the only way it can actually get the bonds off in the public markets is through using the pension fund assets. The pensioners sum it up perfectly "We are very worried about this, we just don't know who's going to pay for the pensions of those who are younger now," or those who are older we would add.

Via Wall Street Journal: Spain Drains Pension Fund In Borrowing Spree

Spain has been quietly tapping the country's richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds, raising questions about the fund's role as guarantor of future pension payouts.

 

Now the scarcely noticed borrowing spree, carried out amid a prolonged economic crisis, is about to end, because there is little left to take. At least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt, according to official figures, and the government has begun withdrawing cash for emergency payments.

 

Although the trend has drawn little public attention or controversy, it has become a matter of concern for the relatively few independent financial analysts who study the fund, which is used to guarantee future payments of pensions.

 

...

 

In addition, there are worries that Social Security reserves for paying future pensioners are running out much quicker than expected.

 

In November, the government withdrew €4 billion from the reserve fund to pay pensions, the second time in history it had withdrawn cash. The first time was in September, when it took €3 billion to cover unspecified treasury needs.

 

Together, the emergency withdrawals surpassed the legal annual limit, so the government temporarily raised the cap.

 

"We are very worried about this," says Dolores San Martín, president of the largest association of pensioners in Asturias, a small region that has one of the highest percentages of retirees in Spain. "We just don't know who's going to pay for the pensions of those who are younger now."

 

...

 

After the crisis began, some of those countries began using the pension reserves for other contingencies, such covering a drop in foreign demand for their government bonds. Since the collapse of Ireland's property boom, for example, most of its pension fund has been used to buy shares of nationalized banks and real estate for which no foreign buyers could be found.

 

"Most of the [Spanish] fund is an accounting trick," said Javier Díaz-Giménez, an economics professor in Spain's IESE business school. "The government is lending money to another branch of government."

 

Spanish officials defend the heavy investment of the Social Security Reserve Fund in their government's high-risk bonds. They say the practice is sustainable as long as Spain can continue borrowing in financial markets, and they predict the economy will start to recover late in 2013, easing the debt crisis.

 

...

 

"With foreign investors staying away from the Spanish debt market, you're going to need all the support you can get from domestic players," said Rubén Segura-Cayuela, an economist with Bank of America-Merrill Lynch.

 

...

 

Spain's commercial banks already have increased their Spanish government-bond portfolio by a factor of six since the start of the crisis in 2008, and now own one-third of government bonds in circulation.

 

The percentage of Spanish government debt held by the Social Security Reserve Fund stood at 55% in 2008, according to official figures; by the end of 2011 it had risen to 90%. Analysts say the percentage has continued to rise, even as international agencies have lowered Spain's credit ratings.

 

Spain's continued use of those reserves to buy its own bonds appears to violate a rule set by government decree that mandates their investment only in securities "of high credit quality and a significant degree of liquidity."

 

...

 

But with unemployment now above 25% of the workforce and fewer wage earners paying in, the Social Security System is about €3 billion in deficit, according to government estimates.

And in other news, and completing the picture, if not the circle jerk, is news from Libremercado that according to the Spanish Confederantion of Employer Organizations, some 60% of the Spanish companies are now losing money. Via Google translate:

The President of the Spanish Confederation of Employer Organizations (CEOE) has estimated that "60 percent of the companies are in losses. Thing is that entrepreneurs are more thoughtful and went outside."

 

Joan Rosell responds well after being asked if he receives "Spanish citizens too negative" in an interview with the newspaper La Razon, who heads a special titled "2013, the recovery begins," and says that "social unrest is evident and business world is no exception. "

 

The president of the CEOE has considered that the private sector "has already made ??all the restructuring that had to do and the decline in employment in the private sector has virtually stopped. now is the restructuring of the public sector."

 

After defining the first year of Mariano Rajoy in government as a year of shock, Rosell has considered that the Spanish economy remains "superfluous fat by many sides.'s Central government, regional and local. Avoid duplication. We are a country hiperregulado ".

It is not exactly clear why google translate had a problem with that last word...

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Omen IV's picture

there is no truth......there are only interpretations

Snakeeyes's picture

They already plundered SS to waste on insane political favors and wars.

 

Manthong's picture

"We just don't know who's going to pay for the pensions of those who are younger now."\

It's just a good thing those who are older don't have anything to worry about. 

HurricaneSeason's picture

Yeah, we don't even pretend the money has to come from somewhere, now.  We just have the Federal Reserve claim that all the trillions of mortgage back securities that they are backstopping or given by the banks are capital for them to write checks for money they dont even have. Translate that into Chinese and see what happpens. #winning

NoDebt's picture

Well they plundered it, that's for sure.  The US SS Trust Fund is stuffed with nothing but a bunch of IOUs from Congress (not Treasuries, but a unique debt marker that is a distinction with little difference).  The minute SS goes negative (which I think it did slightly in the last year or so for the first time) it starts becoming a drag on CURRENT tax revenues.  Not 2033, when the "surplus" is estimated to be exhausted.  Now.

Add that on top of other myriad entitlements that don't even PRETEND to have a reserve fund and you've got a recipe for a decline far more rapid than the average citizen thinks is possible.

And it's all trending in the wrong direction with 10,000 baby boomers retiring EVERY DAY.  If it's any consolation, not even all the boomers will see the promised benefits.  The HUNDRED TRILLION OR SO of "unfunded liabilities" (primises of futrue benefits payments) as they are called, are not fiction, although many pretend they are.  They are about to become very real in the next handfull of years, thanks largely to demographics and helped along by the downturn in the economy.  You could tax everyone at some astronomical rate and still never be able to pay for them all.

FYI- SS didn't always have a trust fund.  It used to be "pay as you go" for decades.  What were they thinking putting all that money in the hands of politicians who could so easily "steal" it?  You gotta be nuts to think that was ever going to work out.

westboundnup's picture

Great post.  BTW the minute SS goes negative, SS ends.  There is no trust fund.

Beam Me Up Scotty's picture

Sorry, it won't go negative.  Ben can print money to pay the bills, even better he can hit the zero key a few times on his keyboard and like magic, they have the money to pay the benefits.    But gas and food will double or triple in price, and your SS benefits will be capped at 2% by their ever changing magical COLA formula.  Most idiots will blame the food producers and the oil companies for gouging, but it will just be a magical slight of hand the Fed uses to shift the blame off of the government.

willwork4food's picture

I need to lern how to spell now???? Dam.

boogerbently's picture

No one "put it in their hands."

Just like now, a bill was passed, and the money disappeared.

Wait until you see all the damage from obamacare. (which YOU allowed !)

NoDebt's picture

True.

Actually, it was accumulated for a while and then it got disappeared.  I think the "trust fund" was set up around 1982-ish (don't quote me on that) but it got disappeared when Bill Clinton used that surplus to offset the deficit.  One of the main accounting gimmicks he used to get us to the "balanced budget" (slight surplus) during his 2nd term.  A trick you can only pull once.  Then you end up where we are now- recognition that like all Ponzi schemes before it, only those in early make out.  Everyone who comes later just has their money taken.

Like me.  And probably most of you.

If I could opt-out of SS I would do it in a cold minute.  The payoff is years past break-even for most people.  By the time I retire I would have to live to almost 100 to hit break-even on what I put in.  My grand parents who retired in 1981 only needed 3 years to hit the break-even point, FYI.  This is made worse by the fact I'm self-emplyed so I'm paying the 6.2% employee side (it just went back to that rate on Jan 1 from the temporarily lower 4.2% of the last 2 years) AND the 6.2% employer-paid side (which has been 6.2% for a long time and was not affected by the temporary 2% cut 2 years ago). That's almost 13% of my take-home that I would have IN MY POCKET if I could totally opt out of the SS system.  THIRTEEN FUCKING PERCENT.  How many people you know who save 13% of their income for retirement??  Gimme that 13 and let me take my chances.  I suspect I'll be able to easily outrun my expected future SS benefit, even if by some miracle I get every dollar owed me, which I won't.

To say this is the Mother Of All Ponzi Schemes is massive understatement.  Anyone not getting it right now or in the near future is getting screwed so bad it's difficult to wrap your brain around the enormity of the ass-pounding.

Oh, and as for Spain.... all I can say is "welcome to the party, pal."  The European welfare state is in as bad or worse shape than we are.  For years libs pointed to Europe as the model.  They seem to make it work just fine so what's wrong with the US??  NOTHING is wrong with the US.  They're as fucked up as we are, probably worse AND THEY DIDN'T EVEN SPEND NEARLY THE MONEY WE DO ON THEIR MILITARY. 

THE WHOLE GODDAM WELFARE STATE IS GOING TO COME DOWN IN OUR LIFETIMES.  The weight of demographics alone is more than adequate to crush the Ponzi.  Add in some graft, corruption and stupidity along the way and it's game over, insert coins (a FUCKING LOT of coins).

 

Sam Houston's picture

THE WHOLE GODDAM WELFARE STATE IS GOING TO COME DOWN IN OUR LIFETIMES.  The weight of demographics alone is more than adequate to crush the Ponzi.  Add in some graft, corruption and stupidity along the way and it's game over, insert coins (a FUCKING LOT of coins).

End quote.

I truly believe that is the whole wicked plan.  Then what follows?  That is "their" goal. 

Then what will we do? 

They are organized.  We are separated from one another and only offer our impotent comments.   

How shall we organize?  Is that not our best chance to fight back?

Anusocracy's picture

It's not a plan.

They are just incapable of thinking otherwise.

donsluck's picture

You can, actually, kinda, opt out. Plant a garden, live within walking distance of work, get solar power. Reduce your income to what you actually need (not want). This reduces all taxes. This is the future, embrace it. A penny saved is actually about two pennies earned. You don't need as much as you think.

tabasco71's picture

Problem where I am (London) is that in order to have a garden big enough to harvest sufficient food to survive, I'd need to stay about 2 days walk away... 

I've opted out of paying my TV license... apparently that's a fight I can win... we'll see.

Deacon Frost's picture

Coming soon to a ‘Theatre’ Country near you.

I think I need to buy a gun's picture

i didn't think the u.s had a social security fund to take?

 

 

stocktivity's picture

I was wondering for weeks how the interest rate on Spain got down to 5%.

Thomas's picture

Can't see how this differs from our system.

cranky-old-geezer's picture

 

 

They've looted SS dry. 

Your 401k is next.

tabasco71's picture

Where are you?  In the UK?  Oh well, too late... Gordon Brown already plundered that cookie jar...

El Oregonian's picture

Shit peddler Alert!

We need all available septic trucks to go help the Fed move all that shit their printing!!!

Remington IV's picture

Good thing we don't do this in the USA ... right . .   . ? ? ?

SAT 800's picture

I have no idea why people downvoted your comment; it seems like an innocent piece of sarcastic irony. Does your avatar name refer to the infamous thermonuclear test shot? That was practically a world record piece of stupidity at the time.

Ignatius's picture

Dig deeper, friend.  Germany, et al lent them the money to buy what they knew they could not afford.  But in the meanwhile, exports were up and all looked good.  'Blaming the victim' only goes so far.  Same game here, of course.

 

DaveyJones's picture

"game" is the right noun

Mr Pink's picture

They could've at least spent the SS fund on something good...like killing brown people

Rat Patrol's picture

I thought the Spanisgh were brown people. This pc shit gets confusing after a while.

Mr Pink's picture

They are... but the US hasn't invaded them........yet

SAT 800's picture

AArrgh. You made me spit up my tea on my desk. LOL. Yes, French Toast too. You have to laugh, really, you couldn't make this shit up.

chaartist's picture

Germans are not so productive in my opinion. They used the EU structure to trick smaller countries into tax evasion scheme where they profited on their expense for trillions of EURos besides the policies they had written for themselves and their corporations. Their banks stand on water and so will be their productivity in my opinion. Only if military production will take a lead.

samcontrol's picture

yep, all those cars and tech are made in Belgium ...or was it Portugal?

chaartist's picture

yep, look at all those tech things coming out of Japan. And then look at their country from economic perspective. 

stinkhammer's picture

where's the fucking money shithead?!

IvyMike's picture

"Whoever gives his labor for money sells himself and puts himself in the rank of slaves."
~Marcus Tullius Cicero

HurricaneSeason's picture

I like that. Was Cicero from the New Jersey mob or New York?

El Oregonian's picture

I believe Chicago... Where all those growing noses congregate.

Bawneee Fwank's picture

You mean "Where all those pole smokers/salad tossers congregate"

EmmittFitzhume's picture

Are you a slave to Soros? who pays you to lurk around here?

IvyMike's picture

Are you a slave of Soros? He's a City-State (Civilization) slicker like you.

Likstane's picture

Maybe you should hang around and read the articles for awhile before you start carpet posting.  Newbies(no matter how smart they are), usually get their asses handed back to themselves here.  I know it's proper to fight first time out, but after an initial ass-kicking, a break and re-grouping is in order.  This isn't Yahoo finance chat; there are some smart dudes here. 

tabasco71's picture

I think this advice should be framed...

After my initial ass-kicking (which wasn't even too severe) I'm still relegated to posting subservient collusional comments like this one.

+1 for the humour anyway

Likstane's picture

I propagate this advice after having my own lunch taken a couple of times early on.  AKAK and Francis_sawyer both sent me home hungry; even after I hung around ZH for a year before even getting a login.  Now I'm with you; just getting a jab in once a week, and that not very effectively! 

bunnyswanson's picture

"The last official act of any Government is to loot the Treasury".
-George Washington

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
-Thomas Jefferson

"Unless you become more watchful in your states and check the spirit of monopoly and thirst for exclusive privileges you will in the end find that... the control over your dearest interests has passed into the hands of these corporations."
- Andrew Jackson

"I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuff­­­­s of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal, (bringing his fist down on the table) I will rout you out."
-Andrew Jackson

"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration."
-Abraham Lincoln

The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government's greatest creative opportunity. The financing of all public enterprise, and the conduct of the treasury will become matters of practical administration. Money will cease to be master and will then become servant of humanity."
-Abraham Lincoln

“A great industrial nation is now controlled by its system of credit. We are no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”
- Woodrow Wilson

"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration."
-Theodore Roosevelt

It has become entirely clear that we must have government supervision of the capitalization, not only of public-service corporations, including, particularly, railways, but of all corporations doing an interstate business
-Theodore Roosevelt

There can be no effective control of corporations while their political activity remains. To put an end to it will be neither a short nor an easy task, but it can be done.
-Theodore Roosevelt

There can be no effective control of corporations while their political activity remains. To put an end to it will be neither a short nor an easy task, but it can be done.
-Theodore Roosevelt

These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power. Our allegiance to American institutions requires the overthrow of this kind of power. In vain they seek to hide behind the Flag and the Constitution. In their blindness they forget what the Flag and the Constitution stand for.
-Franklin Delano Roosevelt

For too many of us the political equality we once had won was meaningless in the face of economic inequality. A small group had concentrated into their own hands an almost complete control over other people’s property, other people’s money, other people’s labor, other people’s lives. For too many of us life was no longer free; liberty no longer real; men could no longer follow the pursuit of happiness...
-Franklin Delano Roosevelt

"The test of our progress is not whether we add to the abundance of those who have much : It is whether we provide enough for those who have too little."
-Franklin Delano Roosevelt.

“The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government of the U.S. since the days of Andrew Jackson.”
-Franklin Delano Roosevelt.

"Republicans approve of the American Farmer- but they are willing to help him go broke. They stand 4-square for the American Home, but not for Housing. They are strong for Labor- but they are Stronger for Restricting Labor's Rights. They favor Minimum Wage - the Smaller the minimum Wage the Better. They endorse Educational opportunity for all - but won't spend money for Teachers or Schools. They think modern Medical care and hospitals are fine - For People who can Afford Them. They consider electrical Power a great blessing - but only when the Private Power Companies get their rake-off. They think the American Standard of Living is Fine - so long as it doesn't spread to All People. And, they Admire the Government of the United States So Much - THEY'D LIKE TO BUY IT."
-Harry S. Truman

we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.
-Dwight D Eisenhower

Anusocracy's picture

"Bacteria are prior to, and independent of humans. Humans are only the fruit of bacteria, and could never have existed if bacteria had not first existed. Bacteria are the superior of humans, and deserve much the higher consideration."

Abraham Lenin

Anusocracy's picture

"The usurpation of creating and issuing money is not only the supreme prerogative of the Fed, but it is the Fed's greatest pilfering opportunity. The financing of all public enterprise, and the conduct of the FED will become matters of private administration. Money will cease to be master and will then become servant of the Elites."

Abraham Lenin

TWSceptic's picture

 

"Whoever gives his labor for money sells himself and puts himself in the rank of slaves."

~Marcus Tullius Cicero

 

Cicero is overrated. He believed his political career was his most important achievement... You're selling (not giving) your labor (product/service) not yourself. There's a clear difference.