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Europe's EUR500 Billion Quasi-Quantitative Easing
Submitted by Mark J. Grant, author of Out of the Box,
Five Eurozone countries now have loans for half a trillion Euros.
These members of the Euro currency union are receiving loans from the one of two bailout funds which are financed by the other 12 Eurozone members. On top of that are the emergency loans from the International Monetary fund (IMF) and bilateral loans from the solvent countries to the bankrupt nations.
Cyprus is set to receive 9 billion Euros from the bailout fund
The European Stability Mechanism (ESM) will transfer the first 3 billion Euros of the agreed 9 billion Euros to Cyprus this month. The ESM, the permanent bailout fund of the euro currency union, bears the brunt of this most recent bailout. Cyprus will receive another 1 billion Euros from the International Monetary fund. Cyprus, as of now, has financial obligations totaling 23 billion Euros. The odds are that soon they will line up for more.
Greece is currently on the hook for 243 billion Euros.
With several mismanaged bailouts, the European Union, various individual countries and the IMF have obligated themselves to Greece for 243 billion Euros. This bailout is being handled by the European Financial Stability Facility (EFSF), the temporary predecessor to the permanent ESM. According to the European Commission, the EFSF bailout fund has so far paid out 116 billion Euros, with 28 billion Euros still to be paid. To date, the IMF has paid out 20 billion Euros. The current rescue program is scheduled to be completed by the end of 2014. By 2020, Greece is projected by the EU/ECB and the IMF to reach a level of debt that is considered sustainable. These projections are a mockery of common sense.
It is going to have to be debt forgiveness, additional capital or a combination of these two schemes which will be required for Greece to be able to pay their debts. Given the continuing deterioration of the Greek economy it is impossible for Greece to finance their current debts. I predict the country is going to go bankrupt again before this botched process is completed.
Ireland has given 85 billion Euros to rescue its banks
The rescue program for Ireland expires at the end of 2013 at which point the country is hoped to be able to raise capital on financial markets again. Of the 85 billion Euros required to put its troubled banking sector, Ireland has raised 17.5 billion Euros itself from state assets and pensions. Of the remaining 67.5 billion Euros, 22.5 billion is coming from national funds of all EU member states, 12.8 billion from the EFSF bailout fund, 20 billion from the IMF and 3.8 billion from a loan from the United Kingdom. Whether Ireland will be able to sustain itself is a 50/50 proposition, given their economic numbers, regardless of all of the hype that is spread around by the EU.
Portugal is obligated for 78 billion Euros.
The approved 78 billion Euros is currently impossible for Portugal to pay unless their economy improves dramatically which I would not count on. The loan program for Portugal expires at the end of 2014. Portugal has received more than 60 billion Euros from the rescue program to date. The pledges are evenly distributed among the EFSF, the EU and the IMF, at about 26 billion Euros.
Spain went bankrupt but the money was loaned to their banks.
Spain, in fact, hit the skids but the EU and the IMF did not want to admit the problem. They feared that any sort of stability in the Eurozone might crack. To create a charade the Troika then lent money to the Spanish banks which then lent money to the sovereign. This also hid the real debt to GDP ratio for Spain which does not have to count contingent liabilities as part of their balance sheet. One hundred billion Euros from the ESM bailout fund has been pledged to the Spanish banks in this fantasy. Spain has so far taken about 41 billion Euros of the available 100 billion Euros. The government of Spain is liable, however, for this debt.
The Convoluted Rescue Funds
Eurozone members receiving assistance from the two European rescue funds do not pay into it. That means the higher the assistance, the higher the obligations of the healthier countries. Germany already guarantees 27 percent of the loans, France 20 percent and Italy 18 percent. Not all of this money has been paid in to the funds however and it is another case of contingent liabilities that are not counted towards the debt to GDP ratios of Germany, France and Italy. The rescue funds have now distributed 205 billion Euros, of which the EFSF has provided 155 billion Euros and the ESM 50 billion Euros.
The rescue funds borrow capital, guaranteed by nations of the European Union, in the financial markets and then hand the money to the indebted countries. In doing this they engage in a kind of Quantitative Easing where money is printed based upon the various guarantees. Again, none of these guarantees are counted against the liabilities of any country when the debt to GDP ratios are made public.
As we near the end of these programs there are a number of new factors that are coming into play. Various governments no longer have the political will to lend their citizen’s money to other troubled nations. Cyprus was a severely botched process where 90% of bank depositor’s money is now tied up in worthless bank equity, the confiscation of funds and the freezing of the balance.
There is a new scheme underway where bondholders would have to pay for the vast amount of any losses with the money of depositors also in question. There is no agreement yet on this plan. What can be said is that the playing field is being tilted with much more risk now placed in the hands of bond owners and depositors. Since Cyprus and Greece involved the minimization of the due process of law I would say that the ownership of Eurozone bonds is far riskier than owning American credits. Yields have gone down as caused by the various forms of Quantitative Easing and the liquidity that has been provided but the risks remain. To not identify them may prove to be a very costly mistake.
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I see the ten year at 2.35% by the end of the month. Give me a greenie if you agree and a red if you disagree. I'm curious to see where we stand on here.
Going to get interesting, that's for sure. But I digress, there are no "markets", bonds or otherwise. Fraud is the status quo and there is no mechanism for true price discovery. This will end as it has before, hedge accordingly.
It's baffling Laws. A good buddy of mine in credit says another wave in selling is going to come. My best friend is a real estate attorney. Two weeks ago he said clients who were in contract but had not locked in a rate were flipping out. This week he says he is swamped with buyers and sellers because of the move up.
Indeed. Similar stories around me. Many developers I know could be in trouble should rates really take off (housing crash 2.0) as they will be unable to raise rents too much. Fraud is the status quo, possession quickly becoming 100% of the law in the property "market". Looks like the red arrows are winning, because, like me, most recognize that deficits do indeed matter when you have to actually pay interest (fuck you Krugman, you horse's ass of a useful idiot).
and just to be consistent before I check out (busy day).
Tick tock motherfuckers...
http://www.marketwatch.com/investing/bond/10_year
Right, how can there even BE a 'bond'....when everyone knows tomorrow another $500 billion or whatever will come flooding in from Imaginary Bank?
Correct, this has actually killed innovation and new/small business. Why would I start a new company and take that risk when a competitor who waits gets access to even cheaper credit?
Yep, and they're all crying because there's no 'entrepreneurs' around....well why do all that when they can just sit at home and get free monee and stock wealth effect?
What? I didn't know private sector companies are getting any credit at any rate.
Seems it all goes to govts now. Ok, banks too. Ok, crony "green" corps too like Solyndra.
Want credit? Start a "solar panel" mfg, get a half billion loan, kick 20% back to democrats (and repubs too probably).
See, easy peasy.
There is a Bond; in the sense of a nicely printed piece of paper; but it's good to understand that what a Bond is now is an instrument of guaranteed confistication.
Don't ask me, ask Ben.
I agree with where you're going, but think the damage is already done, so a sinking market will keep treasuries from soaring for now.
30-year mortgages +50bp in a month! Hey, let's buy real estate.
The buyers are buying with cash, in bulk of 1000 units.
The rates should not affect them.
bingo, insiders with freshly printed fiat. This will end in WWIII, history very clear on this.
Bluma needs a light.....be careful that crap burns really fast.
http://www.youtube.com/watch?feature=player_embedded&v=gzBLFnzC19M
They are destroying all sovereignty through debt slavery: The United States of Europe. This is the only end which makes sense of what the Brussels Bastards are doing. Middle Eastern people are swarming in as the Latin Americans and Chinese do in the US. This decreases the chance of nationalism, a stumbling block to the acceptance of a world government, and keeps the barrel of public focus off the perpetrators and on itself.
Maybe booking that flight to Mars isn't such a bad idea.
Exactly. In a nutshell, the earth is awash with hundreds of trillions in paper promises and the energy/resources to delivery on those promises simply isn't there.
I find it interesting that you are so supportive of nationalism. It merely leads to central control as "anything can be achieved in the name of nationalism"
It also poses an interesting thought - do you consider yourself an 'American' or 'German' or 'Brazillian' before you class yourself as a human?
You will find a problem with that philosophy as borders are man made and you are trying to apply man made defintions to a world that is not man made.
By doing that you are encouraging 'man' to control your life - as he has already defined your borders.
3 negative votes - so I presume there are at least 3 people out there who count themselves as a 'national' - as defined by a MAN - before they count themselves as HUMAN (as defined by God, Mother nature, primordial soup etc.)
...and they think this is going to end well - look what we're up against!
the whole purpose of this financial crisis is to allow the emerging dawn of world governance under Oligarchy; then nation states become bankrupt surrogates run by a technocracy on the same page as the Oligarchy; thats what the EU commission of EZ is.
Its the victory of the Chinese corpo-state fascist model over the western nation/welfare state model. Both EU and USA are heading there. That ping pong game taught Dear Henry and Richard Nixon that awesome truth : they have a better model for the future than us assholes drowning in Watergate! Lets ask them to join us as part of the gang! And it worked with Deng tsiao Ping Pong! Now Chindia is world factory for hard n soft feeding the US Oligarchy of Apple-Walmart.
A world run by the rich for the rich at the expense of the 99% poor, with a technocracy that builds the norms to fit the global framework for those oligarchies to enmesh. And we the people of each continent become the adjustment variables in debt slavery and labour arbitrage meme.
That is the NWO and it was spawned, irony of ironies, in the land of the free, under Ronald Reagan; with the kind help and assistance of CIty Queen, Maggie the Great.
Thats now history, written in concrete like for those Hollywood kings and queens.
This is a well thought out plan, for a smooth transition from a western nation state dominant world, viisibly too expensive to feed for the local Oligarchs during Kennedy-Johnson/de Gaulle/Harold Wilson years, that visibly morphed since Bretton Woods revoke of 1971 and subsequent Oil hike all accepted and condoned by Oilgarchy, as part of the plan, into what subsequently became the Reaganomics age.
A magnificent reexpropriation of riches of welfare state by the new aristocracy of global "happy few" that wiped out, in one fell stroke, the achievements of the Enlightenment and we the people democracy meme, dominant since 1776/1789 on both sides of the pond.
Bravo! For forty years of Bilderberger type sleight of hand under the very noses of those welfare states!
"new world order"
"new financial institutions"
"level the playing field"
"updated global rules"
http://www.youtube.com/watch?v=V3Sic_ALtaI
yep party line, grand phrases; but its not win win; its they the 1% win, we the 99% lose; thats the true lesson of NWO.
Snowden has shown us truly how "level" those playing fields are!
Must....Push Forward....with...Failed One World Govt...Plans......Must Succeed....or die....
Die would be good.
This situation is very similar to the insurance scheme that the UK Government brought in during the banking crisis.
The Government agreed to insure the bad loans of the banks in return for a fee - fortunately for the UK government they did not have to pay out on this insurance and there were many loonies who claimed the scheme 'made a tidy profit for the Government'
However these people are the same people who mis-understand risk. It's not whether or not the event happens - but whether the return is worth the risk they took. Most people assume that because "they got away with it" - they made a good decision.
It's a bitlikeme insuring the people of Oklahoma against tornado damage - for years it will seem like I am a brilliant investor - until it goes pear shaped like last month. This is why real insurers do not cover actsof god - or why they spread the risk they're taking on.
You cannot explain to these people as they are merely gamblers who see a win as 'risk free' and will continue to take bigger and bigger risks until they are found out.
I expect the Eu to do the same - there wil be claims of a 'great move' as the loan payments come flooding in - without a single care for the fact that the countries paying were already broke - and you're applauding the payments which make them even more likely to default (again)
The biggest laugh is Italy is guaranteeing the loans to Greece - I mean how absurd is that? I suspect the realisation that italy is a broke country lending to another one will be the catalyst that sparks the downfall of this flawed plan.
All true, a good overview of the pathetic euroclown zone.
But.... EU markets are largely green, SPX futures are green too, it's all good.
Cause? A 0.4% uptick in some stupid indicator in France. Makes perfect sense!
wait till oil falls to 80 euros:bbl is what they all pray for.
Good luck with that. With 7+ billion people (and growing) all competing for a better standard of living and the calories to make that happen, oil remains the most fungible source of calorie-dense material on earth.
Imagine a global slowdown for two to five years in Chindia under crisis; its all the time required for the first world oligarchy to adjust its structural sights. The current shale boom even with its depletion rates will allow conventional oil prices to fall under knock on effect if there is a temporary glut. In the current crisis these guys don't have a planning horizon for more than TWO years, as all they want is to get reelected.
A two year slowdown in China and a two year softening of energy allows the west to recharge its structural guns and bring back some jobs to the homeland, thus allowing them to attack the next phase in better conditions.
This is a major wealth transformation of immense proportions under way and its planned that way, where the western middle class has to eat humble pie. Thats the game plan already in operation and it has to be handled so that the Oligarchy does not lose their control. That is the long term objective; avoid irretrievable breakdown, all the while decreasing wealth in fat west to lean east, making the world more balanced as labour arb model over the long term.
Bullshit, so long as the liabilites remain and grow, so does the demand. Just like gold, oil may be listed in the "market" at a cheap price, in reality, actually acquiring the physical commodity will be nearly impossible. Been to Brazil/Argentina lately?
Liabilities are now considered as assets by combined CB control of the monetary spewing gun; all over the world.
That's kicking the can, thats the statist WMD, to keep Oligarchy on the same page as them. Bail ins, more taxes, whatever it takes : you scratch my back I scratch yours. State and Oligarchs own the world prodction cake 50/50 and the 99% are subservient suckers, as all our savings are in the banks, all our salaries go as taxes or as consumption to feed either state or Oligarchy.
The physical world is now subservient to the virtual world under the CB gun. Only 15% of new money feeds the real economy. Until they can write off cumulative state+ Oligarchy debt in the structural rebalance between east and west, north and south, they will keep going down that road. Throttling the real economy and feeding the Oligarchy banksta beast and inflation to fight debt cancer by currency adjustments.
Not saying it will work. Just saying this is what they PLAN to do as Joint Venture Partners in this world order.
If Argentina burns thats just too bad; these guys are like Napoleon on the march : what do I care if a million soldiers die to get the job done?
That is their mindset.
I'm just the messenger, as I see this awesome game plan unwind, hiding in the entrails of a horse on the battle field of Napoleon's army.
So, just like me, you have arrived at the obvious conclusion that I arrived at in 1994 after doing a lot of business in Russia - When fraud is the status quo, possession is the law. Know your tribe and exactly what physical resources you control.
There is talk that the new sources of pseudo oil (condensate) have such high decline rates that the response to pricing is near instantaneous as to suspended drilling/fracking.
A lot of holes are now predrilled, in that drilling is cheap, but the frackers don't go to a new pre drilled hole if the price hiccups down. The decline rates on the other wells is so steep that loss of production is instant in the pipelines. Almost no delay. Only when the price ticks back up do the frackers make that trip to the next-in-difficulty (cost) predrilled hole.
With decline rates that high and response that high, you can have a fracker truck flat tire start to influence NYMEX.
Perhaps the 'modus operandus' presented above is the next step for the BoJ in dealing with any bankrupt local government entities in Japan?
http://nipponmarketblog.wordpress.com/
Are you telling me that I will wake up one day and be cyprused? I am in a PIIGS country btw. My shiny metal just got shinier!!! Having said that ... GOLD bitchez!!!
Hey Mark:
You need to show some journalistic integrity here!
1. Cyprus's troubles started after the Greek bonds they bought, under pressure from the EU, got shredded by the EU write downs.
aka Haircuts;
2. Ireland got in trouble because long gone politicians bailed out a big bank, without asking the voters if more debt to solve a debt problem made sense!
You are in a unique position/obligation to show the Truth in your writings.
Once again Grant (and some commenters here) are successfully distracted by price and yield talk, ignoring the exponential growth of bond issuance by sovereigns, massive currency printing to fund it, and insane legalized accounting fraud to hide it.
Hopelessly bankrupt euro nations got half a trillion loaned to them? And still get more? And guaranteeing nations don't have to show those liabilities on their balance sheets because they're merely "contingent", not "real" liabilities, just "kinda-sorta" liabilities?
Oh wait, I get it, they're just "arm's length" liabilities thru ECB who would never print and buy anything less than AAA stuff. No worries, those guarantees will never trigger, so they're not liabilities really. ECB will roll those bonds over no problem, and print and buy any more issued, no problem. Technically those "guarantees" will keep growing, but only technically, kinda-sorta, so they don't have to be on balance sheets. Plus guaranteeing nations have boatloads of CDS to hedge those "kinda-sorta" guarantees, so they really net out to zero anyway.
Yep, that monsterously huge ...and rapidly growing... sovereign bond bubble never will burst, it's all good, no worries, just watch price and yield, sell the highs, buy the dips, play the game
...while the currency is printed right into the toilet, losing way more value than any profits made.
Of course currency debasement never counts, it's never "figured in", just nominal profits ...small as they may be.
"Whoop-te-doo, we made 3.58% this year, kicking ass! No, we don't count that 10% currency loss of value this year ...or is it 13%? Noboby cares, doesn't matter, ignore it, nobody else counts it, so we won't either."
Yep, a Euro sovereign bond bubble massively larger than the American housing bond bubble ever was.
I can just hear Merkel: "No worries, it's not mortgages, it's rock-solid sovereign AAA stuff, and ECB has our back too, no, we don't even have to show it on our balance sheet, it's like it doesn't even exist, and that pesky constitutional court of ours really shouldn't throw a wrench in it, no good reason to put some silly arbitrary cap on it, we gotta do our part to save the Euro."
Is EVERYBODY ignoring the word "RESCUE"? Meaning somebody is in deep financial TROUBLE? Several "somebodys" apparently?
Whatever.
Like I said, kiss the Euro goodbye, it'll be printed to oblivion.
How can France "guarantee" anybodies' loan, when they're broke?
Thanks to interest rates for long-term government bonds
Here are the figures for June 13th (maturity ten years):
Portugal : 6,521%
Spain : 4,618%
Italy : 4,360%
USA : 2,183%
France : 2,163%
UK : 2,122%
Germany : 1,561%
However, not only France, but everybody's broke (Germany included) ...