The Day Austerity Died

Tyler Durden's picture

Via Peter Tchir of TF Markert Advisors,

Austerity is dead!  Long live Spending!

Futures are up, Italian and Spanish bonds are up, CDS spreads on them are at least 10 bps tighter, and MAIN is 3 bps tighter on the day (though I have this feeling I better type fast as we are starting to fade off the best levels).

Lots of little things seem to be contributing to the strength, TXU earnings, no economic data, auctions that raised the required money, etc., but there does also seem to be a belief that Germany finally “gets it”.  That Germany is finally going to relent on their demands for austerity.

The first question is “what is defined as austerity?”  Programs that are providing money today, that is quickly re-circulated into the economy because it is paying for people to live should not be cut – that is bad austerity.  Raising taxes in general is probably bad austerity, but what about actually collecting taxes on all those who have avoided paying what they owe?  Plans to reduce long term benefits must go forward, minimal current cost to the economy, but necessary for any long term solution.  So while “austerity” hasn’t worked, it is not all bad, and some forms need to be maintained to have any hope that the situation can be turned around in the future.

The second, and more important question, is “why does any sane person think spending for growth will work?”  Just pause for 1 moment.  How were these massive deficits built up? Was all the spending frivolous?  I don’t think so.  A lot of spending was meant to target growth in certain areas.  It is just very difficult to achieve.  If spending to get growth was so easy in a global economy, the U.S., the current king of spending, would have Chinese like GDP growth.  It is not that easy to spend your way to growth.  I’m sure at some level, Solyndra received money because there was a real belief somewhere that it was a good investment for growth.  GM might be used as an example, but I’m not convinced that the government spending did anything more than private capital would have done in the wake of a real bankruptcy.  The excitement over “spending for growth” is almost mind-boggling, because it basically goes against a decade of history showing the inability of governments to spend and achieve real growth.  But, there is one part that does make sense, at least from a Wall Street perspective.

So the final question is, “who will finance all that spending?”  Ahhh, the real reason Wall Street is enthusiastic about spending for growth.  The only way a spending for growth campaign can begin, is with another massive round of balance sheet expansion by central banks.  That has been great for banks and wall street, while less clear what it has done for the economy, or anyone without a significant portion of their wealth in stocks.  If Spain announced a big new spending campaign, would anyone really believe it would work?  What would they do?  Build more homes to get construction going?  How would that help when an unpopped real estate bubble is part of the problem (actually the bubble has burst, it just hasn’t been recognized on banks’ and cajas’ balance sheets).  Would investors who aren’t excited about lending 5 year money at 4.75% suddenly line up to buy all this debt thinking the new spending initiatives (which increase debt in the short term) will really work?  I don’t think so.  Buying new debt in an environment where countries feel free to spend and run deficits because austerity doesn’t work, will only frighten private capital.  So the central banks of the world will have to step up again and provide the funding.  I don’t think that is a good thing, but can see why some do, and can really see why some of those pushing the most for a return to debt issuance and spending and central bank intervention would want it – because they benefit, not because it will work.

The reality is that spending won’t solve anything.  It will grow debt faster than the spending can improve the economy.  Stopping longer term austerity programs will make the future debt to GDP ratios look even more horrific.  There will ultimately need to restructuring on a massive scale.

It is no co-incidence that more and more sovereign debt is being funded by institutions in that country.  It is specifically to make leaving the Euro easier.  An Italian pension plan for example has both its assets and its liabilities in Italy.  A conversion back to Lire is manageable in a situation like that.  Yes, the pension plan’s redenominated Italian Lire bonds may trade down because of the devaluation, but their pension obligations would also be redenominated at the same time, offsetting a lot, if not all of the pain.  The same is true in the banking sector.  Corporations won’t have that luxury as many are global, but it may explain why Italian and Spanish companies have been busy issuing debt.  So returning to traditional currencies has the least impact on the country and the Eurozone if the debt is largely held internally.  That is the direction the countries and the ECB have been moving, so don’t ignore this as a more likely real solution.

Debt restructuring in terms of coupon reduction, notional reduction, and maturity extension are all real possibilities too.  If countries learned anything from Greece, it is that by waiting too long, and accepting more Troika money than the private sector wrote-off, the problem doesn’t go away.  Restructuring early and harshly is far better than waiting and doing it in bits and pieces, and it has to affect ALL creditors.  One reason that the ECB hasn’t resumed its SMP just yet is that countries aren’t sure how much they want to owe the ECB.  The ECB has proven itself to be an unhelpful partner in restructuring.  Watch what the ECB does (or doesn’t do) and ask yourself why.

So “Austerity Now” may be over, but killing something that didn’t work, isn’t the same as solving the problem.  Going back to the norm that caused the problem in the first place, hardly seems like a solution either.  Currency reversion and/or debt restructuring will be the ultimate end-game.

We get a deluge of housing data out this morning.  I expect it to disappoint, but at this stage I’m not sure another housing disappointment does anything for the market.  It would merely confirm what is becoming a consensus view – that the actual weather actually played a role in making the winter numbers look better than they might otherwise have been.

Good luck with the rest of the day, though I suspect that once Europe goes home we will do nothing but watch every move in AAPL like we did yesterday afternoon.  In the meantime I hope I can get the Don Maclean American Pie song out of my head on “the day austerity died”….

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GetZeeGold's picture

 

 

 

You'll get nothing....and like it!

 

http://www.youtube.com/watch?v=0f6l1QljpMo

 

chubbar's picture

At least the U.S. Gov't has a plan, STEAL IT!

http://foodfreedomgroup.com/2012/04/23/obama-seizes-farmers-money/

"Monsanto’s Food and Drug Administration can’t close down small dairies and private food clubs fast enough, bursting on the scene with guns drawn as if the criminalized right to contract for natural foods we’ve consumed for millennia deserves SWAT attention.

Now, Obama has the Dept. of Justice going after small farmers under the post-911 “Bank Secrecy Act” which makes it a crime to deposit less than $10,000 when you earned more than that.

“The level we deposited was what it was and it was about the same every week,” Randy Sowers told Frederick News. The Sowers own and run South Mountain Creamery in Middletown, Maryland.

Admittedly, when the Sowers earned over $10,000 in February, and learned they’d have to fill out paperwork at the bank for such large deposits, they simply rolled the deposits over to keep them below the none-of-your-fucking-business amount, rather than waste time on bureaucratic red tape aimed at flagging terrorism or other illegal activities.

“Structuring,” explains Overlawyered.com, “is the federal criminal offense of splitting up bank deposits so as to keep them under a threshold such as $10,000 above which banks have to report transactions to the government.”

While being questioned, the Sowers were finally presented with a seizure order and advised that the feds had already emptied their bank account of $70,000. The Dept. of Justice has since sued to keep $63,000 of the Sowers’ money, though they committed no crime other than maintaining their privacy.

Without funds, they will be unable to make purchases for the spring planting.

When a similar action was taken against Taylor’s Produce Stand last year, the feds seized $90,000, dropped the charges and kept $45,000 of the stand’s money." ......

cossack55's picture

If you are not Big Agri, you won't soon be growing anything but old and hungry.  Gotta love nazis.

Badabing's picture

Man I feel great! Let’s see how I feel tomorrow with a hangover.

GetZeeGold's picture

 

 

Great James Bond movie......Tomorrow Never Comes.

 

Gully Foyle's picture

GetZeeGold

"Great James Bond movie......Tomorrow Never Comes."

Bond? I envision it more of a Zappa inspired porn flick. Like a renamed Dynamo hum.

I couldnt say where shes coming from,
But I just met a lady named dinah-moe humm

She stroll on over, say look here, bum,
I got a forty dollar bill say you cant make me cum
(yjes cant do it)

She made a bet with her sister whos a little dumb
She could prove it any time all men was scum

I dont mind that she called me a bum,
But I knew right away she was really gonna cum
(so I got down to it)

I whipped off her bloomersn stiffened my thumb
An applied rotation on her sugar plum

I pokedn stroked till my wrist got numb
But I still didnt hear no dinah-moe humm,
Dinah-moe humm

Dinah-moe humm
Dinah-moe humm
Where this dinah-moe
Comin from
Done spent three hours
An I aint got a crumb
From the dinah-moe, dinah-moe, dinah-moe
From the dinah-moe humm

I got a spot that gets me hot
But you aint been to it
I got a spot that gets me hot
But you aint been to it
I got a spot that gets me hot
But you aint been to it
I got a spot that gets me hot
But you aint been to it
cause I cant get into it
Unless I get out of it
An I gotta get out of it
Before I get into it
cause I never get into it
Unless I get out of it
An I gotta be out of it
To get myself into it

(she looked over at me with a glazed eye
And some bovine perspiration on her upper lip area
And she said...)

Just get me wasted
An youre half-way there
cause if my minds tore up
Then my body dont care

I rubbed my chinny-chin-chin
An said my-my-my
What sort of thing
Might this lady get high upon?

I checked out her sister
Who was holdin the bet
An wondered what kind of trip
The young lady was on

The forty dollar bill didnt matter no more
When her sister got nekkid an laid on the floor
She said dinah-moe might win the bet
But she could use a little ------- if I wasnt done yet

I told her...
Just because the sun
Want a place in the sky
No reason to assume
I wouldnt give her a try

So I pulled on her hair
Got her legs in the air
An asked if she had any cooties on there

(whaddya mean cooties! no cooties on me!)

She was buns-up kneelin
Buns up!
I was wheelin an dealin
Wheelin an dealin an ooooh!
She surrended to the feelin
She sweetly surrendered
An she started in to squealin

Dinah-moe watched from the edge of the bed
With her lips just a-twitchin an her face gone red
Some drool rollin down
From the edge of her chin
While she spied the condition
Her sister was in
She quivered n quaked
An clutched at herself
While her sister made a joke
bout her mental health
till dinah-moe finally
Did give in
But I told her
All she really needed
Was some discipline...

Kiss my aura...dora...
M-m-m...its real angora
Would yall like some more-a?
Right here on the flora?
An how bout you, fauna?
Ywanna?

Mmm...sound like ymight be chokin on somethin

Did you say you want some more?
Well, heres some more...

Mmm, sure...listen
Dyou think I could interest you
In a pair of zircon-encrusted tweezers?

Mmm...tweezers!
Here, lemme sterilize em...
Gimme your lighter...

I couldnt say where shes coming from,
But I just met a lady named dinah-moe humm

She stroll on over, say look here, bum,
I got a forty dollar bill say you cant make me cum
(yjes cant do it)

I whipped off her bloomersn stiffened my thumb
An applied rotation on her sugar plum

I pokedn stroked till my wrist got numb
An you know I heard some dinah-moe humm,
Dinah-moe humm

Dinah-moe
Dinah-moe
Dinah-moe
Dinah-moe

 

Shizzmoney's picture

There is a sequel: "Whatapussy" starring Ben Benanke as Dr.Douche!

Gully Foyle's picture

cossack55

"If you are not Big Agri, you won't soon be growing anything but old and hungry.  Gotta love nazis."

IDIOT!

While I'm not a fan of agribusiness, and I live rurally so have seen family farms go under, you responded to an article that had nothing to do with driving a family farm out of business. But everything with privacy.

More importantly the reasons family farms go under are complex, not enough profit/the kids don't want to be farmers/bad growing seasons.

What I'm not seeing are the Amish farms going under.

I'm not seeing a lot of independent farmers who rent, instead of own, property go under.

I'm not seeing the smart young farmers who actually have a busioness model go under.

 


KickIce's picture

From the link:

While being questioned, the Sowers were finally presented with a seizure order and advised that the feds had already emptied their bank account of $70,000. The Dept. of Justice has since sued to keep $63,000 of the Sowers’ money, though they committed no crime other than maintaining their privacy.

Without funds, they will be unable to make purchases for the spring planting.

mess nonster's picture

The Amish don't make any deposits, you idiot. They use cash and barter. Soon the way the Amish do business will be called terrorism, and they will all be locked up, just like you and me.

mess nonster's picture

Welcome to the Obama People's Republic. Take-home message- dont fucking make more than 10,000 dollars a year! Stay beneath the radar! Learn to see poverty as a lifestyle! The only crime these people committed was being successful and prosperous. Fucking kulaks! Line them up against the wall and shoot them, then starve the rest to death! Long live communism!

Gully Foyle's picture

chubbar

And here I got all wound up thinking small farmers were being shit on, then I discerningly read your post.

"

Admittedly, when the Sowers earned over $10,000 in February, and learned they’d have to fill out paperwork at the bank for such large deposits, they simply rolled the deposits over to keep them below the none-of-your-fucking-business amount, rather than waste time on bureaucratic red tape aimed at flagging terrorism or other illegal activities.

“Structuring,” explains Overlawyered.com, “is the federal criminal offense of splitting up bank deposits so as to keep them under a threshold such as $10,000 above which banks have to report transactions to the government.”"

They chose to break a law.

The goddamned thing has absolutely NOTHING to do with small farmers, except the ones who stupidly CHOOSE to break the law!

I know smoking dope is wrong and when I smoked dope I knew I was breaking the law. By your association, according to the posts logic, if I smoked dope on a family farm and got arrested BIGOV was targeting the farm and not me smoking dope.

But what you fail to grasp when you post this shit is it actually detracts from the REAL small farmers who are "targeted" for various offenses.

 

 

chubbar's picture

Hey Gully, fuck you. This in no way detracts from small farmers who are targeted for other offenses. Did YOU KNOW that if you make $11,000 and only deposit $9,000 that you are breaking the law? Did you?

 That the gov't can come in and steal your money without a hearing is fucking retarded and unconstitutional, not that it matters any longer! This family has every right to keep cash at home or do whatever the fuck they want WITH THEIR MONEY. This action by the gov't assumes tax evasion before it even happens. These laws were supposed to be all about stopping money laundering by drug sellers, not about forcing businesses to use the banking industry or arresting people for thought crimes. If they are going to evade taxes then they need to file a 1040 to make it official, not fail to put money into their account. This is one more example of passing a law that everyone knew was unconstitutional but for a good cause, only to find out that the gov't had no intention of limiting the application to what was advertised. Think NDAA and how that is going to morph over the next few years.

You calling me out on this because you feel it somehow detracts from other small farming issues is retarded. The gov't is hounding small farmers on behalf of big agri. They are using many tools to do so, this is one of them and no less significant than any of the others. 

XitSam's picture

You undoubtedly are in the legal profession. If it is The Law, it must be right. Have a crappy day, Judge Dredd.

q99x2's picture

Most of those people that the banksters say owe taxes were laid off years ago. They're only good for fighting in the revolution. They bought guns with their last dollars.

who will finance all that spending?

Rotheschildes, Bushs, Gates, Buffet (if the vultures leave any meat on the  bones,) Rockefellers and Warburgs after the revolutionary redistributation takes place.


TradingJoe's picture

AppleTini Everyone?!?!

cossack55's picture

As long as they don't do away with debt.  What kind of world would this be (other than irradiated) without debt. Sheeesh.

Sam Clemons's picture

Austerity died the day they started it.  I don't think any of these profligate European governments met anywhere near their "targets."

francis_sawyer's picture

Drove my Chevy (Volt) to the levee & THE BATTERY died...

& them good ol boys were drinkin whiskey & rye...

lolmao500's picture

Ask any Obamabot and they will tell you that austerity is bad and that Krugman is a genius.

Everybodys All American's picture

No one implemented austerity. Give me a break.

GetZeeGold's picture

 

 

Whatever Daddy is giving us.....we're taking it!

 

docj's picture

Indeed. The Narrative is that "austerity" has been tried and found wanting. Truth is austerity has been entirely untried and we all know it's been similarly unwanted.

DormRoom's picture

The Problematic of Europe can be summed up thus:

 

"ALL Europeans ARE EQUAL BUT SOME Europeans ARE MORE EQUAL THAN OTHERS"

 

see. North/South fault lines.

Liquidity, or should I say access to liquidity, reinforces the problematic.

 

fonzannoon's picture

I wonder if this Peter now understands what the other Peter (Schiff) means when he always says "we can take a lot of pain now or take apocolyptic pain later"

It's always going to be later

Sam Clemons's picture

Is Peter Schiff still bullish on European equities?

Vince Clortho's picture

Apocalypse Later 

starring B Bernanke.

the sequel to Apocalypse Now?

DosZap's picture

Jubilee!

 

Better not say that the Jew haters will be all over you.

rsnoble's picture

Today's probably going to be a DJ +200 Apple day. I say this because most stocks that have sold off into earnings end up surprising. And all the other euphoric bullshit. If this doesn't happen it will be totally out of character and may put an end to this "building a base" nonsense.

smb12321's picture

Austerity is a big deal ONLY because government became such a huge player in the economy.  Of course if the State is supporting half the population by some form of payment, cutbacks will be deeply painful.  But that very spending is the reason we are in the predicament we face.   The larger the involvement of the State with the economy, the less its intervention will affect things.   If our economic history has proved anything it is that the growth of government aligns with the growth of public debt.  

 

LongSoupLine's picture

Austerity is dead, hence...gold and silver. Period.

Quinvarius's picture

Austerity cannot possibly work in the real world of fiat currency.  You could write a book on it.  Austerity is the way they enforce a recession to keep you from spending all that money they are printing.  It is the only way to slow velocity and the advent of hyper inflation until they are ready for it.  I mean really--Print trillions for the banks and make the public starve?  How is that true austerity?  That is merely control freak ponzi desperation.   

Badabing's picture

Going to have to figure out another word for ending retirement benefits!

proLiberty's picture

Like so many things in life, just what do you mean by "austerity"?  

It appears that the working definition means government creating money out of thin air with which to transfer to an ever-growing dependent class, primarily those who are paid to "work" in government and those paid to be "taken care of".   But money is not resources, and this mirage is not "sustainable", no matter how if conforms to the Keynesian equation of C + I + G.

In the Keynesian reality, cutting air-backed money creation mechanically must lead to a reduction in economic growth.  But this is all a mirage.  And great will be the collapse thereof.  It works perfectly until it stops working.  And with electronic settlement, it can collapse faster than humans can move to stop the HFT flash crash.

 

 

 

falak pema's picture

The age of KRUGMANOMICS has arrived; print to infinity and damned be he that cries "hold enough!"

As a corollary to this fiat fueled empire with no holds barred, debase the denari of silver and gold; ad nauseum. Have to, the one eyed lead the blind, who have had their PM orbits pierced out! 

peekcrackers's picture

The IMF  have copy right on Austerity

 

nick howdy's picture

Does that mean I have to get permission before I starve?

peekcrackers's picture

sure dose ... you will be growing  food .. salve.  

Money 4 Nothing's picture

Who do you think the Treasury Dept. is? IMF.

peekcrackers's picture

Nope that would be the RIS  .. IMF is a part of the UN

disabledvet's picture

Spending by governments is done to create consumption...this is true even in China...which courtesy of "Marxism coming first" had/still has pensions, social welfare, etc. As a consequence ALL government money goes into the one "development project" humans love: real estate. Hence in the the USA and soon globally "trillion dollar deficits as far as the eye can see." why? Because real estate as the sin quo non of development is BEYOND BELIEF expensive. That's why I say "take the other side of that trade" (since the government money always pours in) and "invest in viability." nat gas, solar, cloud...even though prices have collapsed (since when is great stuff dirt cheap bad?) the government NEEDS these investment spaces "for their always unworkable plans" to succeed. In other words "you're securing the profit motive" and not (if you can of course) "just making money." Obviously "good luck making money in that space." of course "I'm the foremost advocate of Utilities" and NOt of the space directly "for all you home gamers out there." and they have been GREAT performers (best in class last year)...and should interest rates CONTINUE to plunge globally they could very easily end up being "the government itself."