All that debt Obama acquired, and all the stimulus did work to redistribute wealth and income — it worked to redistribute wealth and income toward the well-connected crony capitalist groups that funded Obama into office. Obama can talk all he likes about cutting taxes for the middle class; the data shows who Obama’s redistribution policies have overwhelmingly favoured. Of course, leftists and statists often end up favouring the super-rich. That’s been the underlying reality of communism — politburos, bureaucrats, technocrats, party members all benefit at the expense of everyone else (in spite of all that proletarian rhetoric). Inviting the state to carve up national income and redistribute it is an invitation to corruption, and graft. Obama talks an updated version of the old communist rhetoric about redistributing wealth to the working class — he even adopted Stalin’s slogan “forward” — yet just like Stalin the reality of his policies is more wealth for the richest and most well-connected. What a surprise.
At the high level, our global economic plight is quite simple to understand says noted Australian deflationist Steve Keen. Banks began lending money at a faster rate than the global economy grew, and we're now at the turning point where we simply have run out of new borrowers for the ever-growing debt the system has become addicted to. Once borrowers start eschewing rather than seeking debt, asset prices begin to fall -- which in turn makes these same people want to liquidate their holdings, which puts further downward pressure on asset prices.
Well that didn't take long. The ink on the #Spailout is not dry yet (well technically there is no ink, because none of the actual details of the Spanish banking system rescue are even remotely known, and likely won't be because when it comes to answering where the money comes from there simply is no answer) and we already have an answer to one of our questions. Recall that mere hours ago we asked: "We also wonder how will Ireland feel knowing that it has to suffer under backbreaking austerity in exchange for Troika generosity, while Spain gets away scott free." We now know. From the AFP: "Ireland wants to renegotiate its rescue plan to benefit from the same treatment as Spain, which looks set to win a bailout for its banks without any broader economic reforms in return, European sources said on Saturday." And with Ireland on the renegotiation train, next comes Greece. Only with Greece the wheels for a bailout overhaul are already in motion and are called a "vote of Syriza on June 17." And remember how everyone was threatening the Greeks with the 10th circle of hell if they dare to renegotiate the memorandum? Well, Spain just showed that a condition-free bailout is an option. Which means Syriza will get all the votes it needs and then some with promises of a consequence free bailout renegotiation. In other words Syriza's Tsipras should send a bottle of the finest champagne to de Guindos - he just won him the election.
Mark Carney announced a few days ago the Bank of Canada will keep its benchmark interest rate steady at 1%. This announcement comes despite his previous warnings over the enormous increase in Canadian private debt. But of course the run up in debt couldn’t have occurred if interest rates were determined by market factors only. Had supply and demand been allowed to function freely, interest rates would have risen as a check on the swell in debt accumulation. Carney won’t admit this though. Like all central bankers, he has made a habit of boasting the positive effects of his low interest rates policies while avoiding blame for the negative consequences. He is a bartender who gleefully takes the drunk’s cash while replying with “who, me?” when said drunk drinks himself to death. Carney’s decision to keep interest rates suppressed is yet another instance of a central banker unable to face reality. The malinvestments will continue to accumulate and will have to be liquidated at another date. What Carney has done to mitigate the looming debt and housing bubble is effectively kick the can down the road. He has revealed through his actions the undeniable truth which holds for all central bankers: that they have no other card to play but the printing press.
"When it becomes serious, you have to lie", Jean-Claude Juncker
Mariano Rajoy from May 28, or 12 days ago: "No va a haber ningún rescate de la banca española." Or, more conveniently for the America-based readers: "There will be no rescue of Spanish banks." We have finally found the official Jean-Claude Juncker (and of course Tim Geithner) replacement.
On Thursday, it was all Merkel's fault when #StopMerkel took Spain by storm. Well, whatever it was that Merkel was supposed to stop doing now no longer seems to matter in the aftermath of the unprecedented Spanish bailout. And as a result the Spanish public's fury has shifted 180 degrees, and instead of blaming Germany, it now is accusing its own leaders of cowardice. Presenting #RajoyCobarde (or Coward Rajoy).
The Eurogroup supports the efforts of the Spanish authorities to resolutely address the restructuring of its financial sector and it welcomes their intention to seek financial assistance from euro area Member States to this effect. The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favourably to such a request....
Spain's economy minister Luis de Guindos will hold a press conference detailing the terms of the bank bailout shortly. It can be watched live, and without translation, at the link below. In summary, the Spanish bank bailout is apparently a loan targeting the FROB, and at rates better than the market. In other words, the cramdown of Spanish bondholders has officially begun.
For those curious what the latest and greatest estimate of the Spanish bank bailout, which at last count was €100 billion and growing fast, would look like in US terms, here is a rough and dirty comparison of the scale we are taking about here...
The wind picked up across the plains, the windmill began to turn and “The Ingenious Gentleman Don Quixote of La Mancha” rode out once more to do battle. The ever faithful Sancho Panza, not wishing to be left behind, was in attendance and the windmills were now the banks and the regional debt of the country. You see, the Troubadour, Mariano Rajoy, does not wish the country to take any responsibility. It is to be the banks, not to injure the pride of the nation, that are the culprits and the banks, run by the empanada consortium, who are to be blamed. The IMF has released a statement claiming the banks need about $46bn which is the typical posture of the IMF these days; underestimating liabilities and then finding that more money is needed later; which they already knew of course. “Under estimate the liabilities and over estimate the assets” is the mantra sung at the IMF these days at the morning prayers as their credibility is as certain as the stature of the giants fought by Don Quixote. The extra money, suggested in the IMF report to ring wall the banks, is another gust of wind as it is directed to the regional debts of course which no one wants to mention as the faceless Men in Black ride into Madrid to claim their latest victim. The beating of chests can be heard in Andalusia as there is no ESM; it does not yet exist regardless of the panderings of the savants that ride the airwaves. Germany has not even voted on it yet so that that ballyhoo that the ESM is the “Saving Grace” is the stuff and fluff from which nonsense is composed.
The European financial ministers' meeting started at 4:00 pm CET. What are they discussing? According to the WSJ, nothing short of "a commitment to provide as much as €100 billion ($125 billion) in support for Spain's ailing banking sector." At least we now know that that Spanish bank trot so widely avoided by the mainstream media was just a little more kinetically-charged than previously expected, because for Spain to actually demand the money, even if implicitly, it means it has a capital shortfall, which can only arise from an outflow of liquidity, as mere real estate impairments do not have any impact on liquidity. So far so good. There is only one problem: Spain has yet to formally request the money! According to newspaper ABC, "Spain wants to convince European partners that IMF shouldn’t participate in aid for country’s banks because of potential stigma. Aim of talks taking place today is to agree legal framework and conditions for a potential rescue, newspaper says." Potential rescue you see: not an actual one. Just because, as we explained patiently to the 5 year old algos out there, Spain will have none of this "conditionality" that would be imposed on it by Germany, and the IMF, should it actually be formally a bail out target. Which of course would also have the unpleasant side effect of pushing its spreads tighter for a few hours, then blowing them out parabolically once carbon-based investors out there realize what has just happened. As for the ultimate question: just where will €1 of money come from in this broke continent, let alone €100 billion... why, better not to bother with details.
"Fortress Paper Ltd. announces that its wholly-owned subsidiary, Landqart AG, a leading manufacturer of banknote and security papers, has had a material banknote order reinstated. This order was unexpectedly suspended in the fourth quarter of 2011 which negatively impacted the financial results of Landqart's operations in the first half of 2012."
Spain is holding out for a better bailout deal. Spanish banks need an estimated €40 billion but will likely need much more than that. (see definition of ‘recipriversexcluson’) The ECB wants to lend the money to Spain so that it can then bailout it’s own banks but Spain wants the ECB to lend the money directly to the Spanish banks, in this way the ‘loan’ is not a Spanish sovereign liability but a liability of the banks themselves. The ECB, correctly, perceive that those Spanish banks don’t have an assured future even with a bailout, whereas, the country of Spain is unlikely to disappear from the map of Europe anytime soon, and they have a better chance of getting their money bank from Spain than if they bailed out the banks directly. This issue is at the heart of the negotiations which have taken place over the last week and look set to be concuded by teleconference this afternoon. I’ve written above that it’s the ECB negotiating with Spain but in reality it’s Germany and some other Northern Eurozone countries who are driving the ECB position.
All this wrangling appears rather interesting if you happen to be a Greek trying to decide who to vote for in the upcoming Greek election.