Guest Post: Confidence And Ruin Amongst The PIIGS

Tyler Durden's picture

Submitted by The World Complex

Confidence And Ruin Amongst The PIIGS

For today's installment we'll take a look at the debt:gold ratio for the PIIGS countries to see who puts the IG in PIIGS (perhaps you've already guessed).

I am using the same methodology used in these postings. The data come from the World Gold Council, the World Bank (albeit indirectly, for instance here), and here.

We'll start off with a look at the biggest of them--Italy.

And just for comparison's sake, here is the American plot, over a somewhat longer timeframe.

Once again--the ratio represents the multiple by which the country's debt exceeds its gold holdings. To an optimist, a high ratio means that the rest of the world has great confidence in the economy of the country in question. To a pessimist, a high ratio means the country is ruined.

At a quick glance, it appears that Italy is no worse off than America--assuming that both countries actually have the gold the World Gold Council claims they have. Italy may have trouble getting theirs from New York, if that is where it is.

Notice the decline in the ratio over the past decade--that is a reflection of the rising price of gold, not a decline in these nations' debts. Debt has increased over the past decade. The price of gold has apparently risen more. So does this mean these countries are becoming solvent? Can a rising price of gold solve our economic woes?

Historically, a decline in this ratio can been used by governments to justify monetary expansion, particularly if it happened during an episode of such expansion. Why not? The improvement of the ratio suggests that the government isn't printing enough. The destruction of the value of the currency (and the country's debt) begins to occur faster than the rate of monetary creation (thus the label in the US graph "Ben proposes, the Market disposes"). The government counters this by printing faster, but the destruction of the currency's value is faster still.

Here we see Spain. They aren't as well off as the Italians, but I've seen worse. Canada, for instance. Or Japan. And we'll see some others later.

We notice that the confidence ration hasn't declined that much for Spain in the last decade. A good part of the reason is that the Spanish sold off over half of their gold since 1998. However the Spanish were a little more shrewd than Gordon Brown--their biggest sale was in 2007, so it wasn't quite at the bottom. Still regrettable, though.

Now this is a county! I know where I'm relocating. It'll be convenient for getting to my various African projects too.

Why, why, why, oh why did Portugal let the escudo die? It looks like it might have been the greatest currency in the world in the 70's and 80's. Oh sure, the economy was small. But why do we think this is a country with serious economic troubles? Their only real problem is the fact that their gold is probably all in New York.

It's hard to believe, but there are PIIGS countries worse off than the US.


Here are our winners--the Irish and the Greeks. They are the IG in PIIGS.

The Greeks have been getting the bad press, but look at the Irish! Their problem is that they have never really had any gold. But who needs gold when you've got booming real estate?

Bad as things look in Europe, there are worse.

Stupendous! And it kind of makes Harper's recent boasting about Canada's solvency darkly humorous.

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Ghordius's picture

"Why, why, why, oh why did Portugal let the escudo die?" Oh yes, why?

Perhaps because if they still had the escudo they would face an inflationary nightmare?

With all the free money banks and hedge funds have, how would the speculation crowd handle the escudo? Lovingly?

Seriously, this is sickening. All those economists yapping about currencies without remembering how the FX market was before the EUR.

Already forgotten, the currency wars of the past...

Eally Ucked's picture

Just distraction from real problem which is coming shortly, US. Portugal+Greece population together is less than Iraq or Afghanistan, if EU spent as much as US wasting for those two countries you would not see any problem.

And yet Europe still retained its manufacturing base, its GDP (fake numbers anyway) is bigger than US, population wise Europe is bigger than US, where is the comparison? In will to print? 

Maybe we should add some expenses for future war with Iran, with its 75 mln population and oil reserves?

Ghordius's picture

Ben has the "will to print". Our Draghi has no "will to print" at all.

Just to give nearly free infinite funding to our dear banks, but hey, banks know better what to do with it... ;-)

regarding "war in Iran": so we go to war with a country that produces the oil that China needs to make the products for which we gave the technology and the funding so that we can buy them with fiat money? somewhere in this equation is something wrong but I can't put my finger on it... perhaps I'm not thinking patriotically enough today? ;-)

Eally Ucked's picture

You're doing good job, and you know very well where to put your finger on.

China is happy, just drain opponents in fast (history wise) way or slow mode if you consider lenght of our lives.

I think we, here in N.America, are fucked up because of imperial dreams supported by 60 or 70 year of successful implementation of policy - "colonization by print". Lets continue the dream! 

paulie's picture

And this is nothing yet.
Wait a few months for Italians to get pissed enough that we will flush Monti down the waste, repudiate our debt (sorry for the foreign brothers who bought it, we just have to do it) and finally live as free people.

Ghordius's picture

and which political formation are going to "flush Monti down the waste"?

The Partito Comunista Italiano?

have you seen Monti's approval rates, lately?

GeneMarchbanks's picture

'At a quick glance, it appears that Italy is no worse off than America--assuming that both countries actually have the gold the World Gold Council claims they have. Italy may have trouble getting theirs from New York, if that is where it is.'

Italy and everyone else. You think Germans will be able to pull a Chavez?

Ghordius's picture

ah, you are ahead of the game, as usual. well, short of sending a fleet to collect the worthless metal from the basements of the NY-FED, I'd say the barbarous relic will stay where it is...

Irish66's picture

We have meat and potatoes

Alex Kintner's picture

I have confidence in the liddle people and their pots of gold.

mattu13048's picture

Awesome video on what is going to happen soon:

MFL8240's picture

It would be nice to end this charade and know for sure if we have Gold at Fort Knox or not. What I have read is that Robert Rubin during the Clinton years while he was under the desk leased all of the US Gold and we own nothing.  Hope its not true but, sure would be conforting to know.

Non Passaran's picture

If it's leased, then don't you still own it?
Of course it may be impossible to get it back but that's another issue.

falak pema's picture

Many things come to mind : the shark markets treat Portugal spread at +20%, UK @2.5%, USA@ 0%; figure that out in never ending debt mountain country! 

So market hopium and invisible hand utopium come face to face with shark fin dystopium. Keeping in mind Portugal is Tiny Tim in this market binge. Confidence charts can be confidence tricks like an enchanted  flute Swami and his ever rising Rope. 

But are we all fed on dope to take the rope at face value? 

And is the REAL pig sty just the place of PIIGS or of Oligarchical swine drinking their fine wine in SYStem D land?

REAL MADRID and real Rome-DC, as not that far away from each other. In fact they are all playing same ponzi financed game! Ask Florentino Perez big boss of Real M and biggest RE build magnate as head of ACS empire, now in doldrums as Spain RE burns...Along with BAnco Santander he will sizzle if the PIGs fry on market meltdown frying pan. 


Alex Kintner's picture

USA@ 0%
That appears to be based on tonage of steel rather than gold -- In the form of aircraft carriers and tanks. Of course, ruinious spending on military will eventually destroy a country, as the Russians know well from the end of the Cold War. In other news, the MIC is doing well.

gmak's picture


Gold is just one asset class among many. TO divide debt by a single asset puts in play the grand assumption that gold is the only thing of value in the country that any creditor would want. I would argue that, while gold has its place, barring the breakdown of the financial system there are many other assets that are fungible with credit and paper money.

Re Canada: Canada has many fungible assets. How about dividing debt by oil reserves?  Or  fecund and cultivatable land? or other minerals and metals. 


mickeyman's picture

It is important to distinguish between the assets you need for day-to-day living and the ones you can use to reduce a debt already incurred. Canada wouldn't sell oil or agricultural land to reduce debts any more than a carpenter would sell his tools. These things are needed for ongoing survival. Only non-productive assets should be used for debt reduction.