Via Mark J. Grant, author of Out of the Box,
“No matter where you stand, no matter how far or how fast you flee, when it hits the fan, as much as possible will be propelled in your direction, and you will not possess a towel large enough to wipe all of it off.”
-The Wizard
Coming Attractions
You thought it was tough; it is going to get tougher. You thought that Europe would not affect America and that we lived in some sort of bubble over here; think again. You thought that the liquidity provided by the world’s major central banks would carry us across the divide and intact; keep dreaming. We are at the cross roads, at breakpoint, where solvency is no longer overcome by liquidity because the politics is dysfunctional and because after you get to “unlimited” and “uncapped” there is nowhere further to go. We have arrived at that long dreaded moment where decisions will have to be made, will be forced to be made by the economic plights of Greece, Spain and Portugal that can no longer be shunned or twisted perversely under the banner of “More Europe” as Nationalism and self-preservation take root on the Continent and the effects of the austerity measures in Europe slows down and stops the economies in various nations which then impacts the earnings of American companies in a significant manner. Put succinctly; European austerity has arrived in the United States.
Riches to Rags
The situation in Greece is dire. The country is weeks away from being insolvent. The IMF and many European nations will not fund, the leaked Troika report, overly optimistic by any stretch of any rational mind, still puts Greece in a sinkhole that cannot be climbed out from no matter what scheme is suggested or utilized. Even using their fanciful projections it will require some $40 billion in immediate new funding when Germany probably can’t get the votes for it and when Austria, the Netherland and Finland have already said “No.” Meanwhile in Athens there has been no compromise and no agreement among the coalition parties so that the government may well topple and new elections would have to be called. The IMF wants the ECB and/or the EU to write off part of their Greek debt, which has been refused by the ECB and Germany so that the hours tick away, no resolution is found and the cash in Athens dwindles. If Greece actually defaults the shock will be systemic. More than $500 billion in sovereign debt obligations, $90 billion in sovereign derivatives and more than $1.3 trillion in total debt and if the plug is actually pulled either by a refusal to fund or a refusal to accept the terms and conditions of funding then I believe the correct phrase for the reality that will ensue is “Pop Goes The Weasel.”
Jack is Out of the Box
Spain is going nowhere and fast! The truth here is that the Spanish are twisting in the wind trying to find a way, any way, any possible way so that they can get money from the EU without having their finances audited or verified. The country is literally falling apart in the meantime with unemployment rising past 25% this morning while the talk and banter continues and while Germany, stuck in a Pandora’s Box of their own making, denies that Spain needs any help at all and that it is a matter of “readjustment.” The Germans must be kissing ostrich’s these days because there is no one else there with them in the hole in the sand where they have buried their head.
Just as Greece is about to run out of money; Spain is not far behind. In the end Spain will ask for the bailout because there will be no other choice and, a close examination of their finances will assure you; there is no other choice. Their calculation of their regional debt problems and of their bank problems has all of the accuracy of firing a canon at Bermuda and hitting some town in Latvia. I have been repeating this for over a year now but the top is about to be blown off the barrel and so I repeat it again; “Just because you do not count it does not mean that it is not there.” The actual, real debt to GDP ratio for Spain is over 200% when you count all of their liabilities and not just the ones that they wish to include. Payment is now coming due and a handout from Europe is the only way out so if Rajoy claimed “A great victory for Europe” in the last go round it must be that the Saints and Apostles are about to show up in Madrid when the next bailout is announced. However it will not be the “Saints That Come Marching In” but the Germans with calculators and computers and it will be the end of the siestas and of too much wine at lunch. Poor Don Quixote; his worst fears are about to arrive at the gates.
"Yet the first bringer of unwelcome news hath but a losing office, and his tongue sounds ever after as a sullen bell, remembered tolling a departing friend."
-William Shakespeare, Henry IV
So be it!