Greek depression

Greece now in "Great Depression", PM says

Greece is in a "Great Depression" similar to the American one in the 1930s, the country's Prime Minister Antonis Samaras told former U.S. President Bill Clinton on Sunday.

Reuters,

22 July, 2012

Samaras was speaking two days before a team of Greece's international lenders arrive in Athens to push for further cuts needed for the debt-laden country to qualify for further rescue payments and avoid a chaotic default.

Athens wants to soften the terms of a 130-billion euro bailout agreed last March with the European Union and the International Monetary Fund, to soften their impact on an economy going through its worst post-war recession.

By the end of this year Greek GDP is expected to have shrunk by about a fifth in five consecutive years of recession since 2008, hammered by tax hikes, spending cuts and wage reductions required by two EU/IMF bailouts. Unemployment climbed to a record 22.6 percent in the first quarter.

"You had the Great Depression in the United States," Samaras told Clinton, who was visiting Greece as part of a delegation of Greek-American businessmen. "This is exactly what we're going through in Greece - it's our version of the Great Depression."

Athens must reduce its budget deficit below 3 percent of GDP by the end of 2014, from 9.3 percent of GDP in 2011 - requiring almost another 12 billion euros in cuts and higher taxes on top of the 17 billion successive governments have cut from the budget shortfall.

Greece wants its lenders to give it two more years to achieve the budget goal to avoid an even deeper economic slump but its lenders have opposed the idea because it would imply even more financial aid.

Highlighting growing frustration with Athens, German magazine "Der Spiegel" reported on Sunday, citing high-ranking representatives in Brussels, that the IMF may not take part in any additional financing for Greece.

The German and Greek finance ministries declined to comment on the report, which suggested additional support required for Athens could range from 10-50 billion euros.

NO MORE

Officials have already indicated there would be a shortfall on the current bailout. How much is likely to depend on the extent by much Greece continues to miss its fiscal targets and the extent of support needed to keep its major banks afloat.

German economy minister Philipp Roesler told ARD public television he did not expect Greece could fulfill its requirements and that that would mean no more money to Athens.

"I am more than skeptical," Roesler, who is the head of the junior party in Germany's ruling coalition and often outspoken on euro zone issues, said in an interview.

"If Greece does not fulfill its requirements, there cannot be any more payments to Greece," added Roesler, whose views often do not reflect those of Chancellor Angela Merkel or Finance Minister Wolfgang Schaeuble.

The inspection team of the international "troika" of the EU Commission, the IMF and the ECB will focus on the 11.7 billion euros of spending cuts Athens needs to take in 2013 and 2014.

Clinton criticized Greece's lenders for focusing excessively on austerity, saying Athens will be more likely to repay its debt if its manages economic recovery first.

"(It) is self-defeating... if every day people are saying this may or may not work to give us back 100 cents on the dollar, so give us more austerity today," he told Samaras.

"People need something to look forward to when they get up in the morning - young Greeks need something to believe in so they can stake their future out here," Clinton said.

IMF To Stop Further Aid Tranches To Greece, Spiegel Says

The International Monetary Fund will stop paying further rescue aid to Greece, making the country’s insolvency in September more likely, the Der Spiegel magazine said. citing unidentified European Union officials..

Bloomberg,

22 July, 2012

While a review of Greece’s progress in meeting terms of its rescue is unfinished, it is “already clear” to the reviewing body of the IMF, the EU Commission and the European Central Bank that Greece will not be able to fulfill its promise to cut debt to 120 percent of annual economic growth in euro terms by 2020, Der Spiegel said.

Missing the target means Greece needs between 10 billion euros and 50 billion euros ($60.8 billion) in additional aid, a potential outcome that the IMF and several unidentified euro- area states are not prepared to accept, the magazine said, citing the review.

Euro-area leaders regard Greece’s exit from the euro as manageable even though they want to prop up the country’s finances until the new and permanent rescue fund called the European Stability Mechanism is in operation, the magazine said, citing from the same sources. Germany is holding up the inception of the ESM as it awaits a court ruling on the fund’s constitutionality on Sept. 12, Spiegel said.

The ECB may step in to help Greece in the meantime, said the magazine, citing some 3.8 billion euros the government needs to pay back to the central bank on August 20. The government may sell debt of that amount as short-term “T-Bills” to Greek banks, which in turn would deposit the bonds as security at the ECB, securing further aid, Spiegel said.

IMF Seeks to Halt Aid to Greece; September Bankruptcy Awaits; Dominoes Will Fall

Mish's Global Economic Analysis,

22 July, 2012

According to Der Spiegel, the IMF Wants to Stop Aid to Greece as soon as the ESM is up and running in September. At that time Greece would become bankrupt.

This is a Mish-modified translation from German: 

 The patience of the International Monetary Fund (IMF) with Greece comes to an end: According to to information obtained by SPIEGEL, senior IMF officials told EU leaders in Brussels that the IMF was no longer willing to provide additional funds for Greece.

The Troika estimates that Greece needs between ten and 50 billion € to meet targets, but many governments in the euro zone are no longer willing to shoulder new burdens. In addition, countries like the Netherlands and Finland, have linked their support because the IMF was involved.

The risk of withdrawal of Greece from the monetary union is now held in the countries of the Euro-zone control. To limit the risk of contagion to other countries, governments want to wait for the start of the new bailout ESM.

The judgment of the German Constitutional Court regarding the ESM on September 12th will come into play.

Dominoes Will Fall

I picked this story up from Raul at Automatic Earth. Here are some interesting point of view from Automatic Earth that I generally agree with. 

 It’ll be a lot of fun seeing the IMF, and European leaders, try to deny the article and its implications. From what I understand, they want to wait until the ESM is effective, and then dump Greece. The article may trump any such intentions. Some things only work in secret, and once Pandora's box is open, they no longer do.

I still think it would be curious that the ESM, supposedly good for €700 billion or so (if not more), would be used to "save" Spain and perhaps Italy, but not Greece. For countries like Portugal and Ireland, dumping Greece would mean they need to get very nervous about being the next one thrown under the wheels and off the back end of the wagon.

The message might become that any and all reform and austerity measures demanded must be adhered to very strictly or else. Politicians in these other "borderline" countries might go along with it all, but will the people? Do the Irish really enjoy the idea of being strangled into submission? And will Spain really be "saved" once real debt numbers are known?

It seems far more likely that getting rid of Greece will be merely the first step in dissolving the entire eurozone. The rest of the dominoes can then fall in rapid succession.

There's more in the AE article including a discussion of the resignation of Peter Doyle, former division chief in the IMF's European Department, who, upon resigning, shared a few of his thoughts on the fund: "After twenty years of service, I am ashamed to have had any association with the Fund at all..."

Everyone Prepared to Pull the Plug

DW has a bit more information in IMF to provide no new funds to Greece  

 In an article published on its website, Spiegel cites unnamed senior European Union sources in Brussels who told the news magazine that the International Monetary Fund (IMF) had signaled it would not contribute to any further aid for Greece.

The  report comes ahead of a planned visit to Athens by a team of auditors from the troika of the European Commission, the European Central Bank (ECB) and the IMF. They are to conduct another inspection of the new government's economic program to determine whether Greece is doing enough to comply with the terms of its second international bailout to merit receiving the next tranche of funds.

Just this past week, leading Greek politicians pushed back talks on how to cut almost 12 billion euros ($14.6 billion) from the budget after it became clear that they were far from reaching a comprehensive agreement.

On Friday, the ECB increased the pressure on Greece to comply with the terms of the bailout when it announced that it would stop accepting the country's bonds as collateral in return for ECB funding, at least until after a positive verdict from the troika.

In a further indication that patience may wearing thin among Greece's paymasters, German Foreign Minister Guido Westerwelle on Saturday ruled out the possibility of relaxing the conditions of Athens' second bailout.

Many signs suggest that everyone is finally ready to pull the plug on Greece. Hundreds of billions of euros have been wasted in the last three years attempting to stop the unstoppable.

Tsipras predicts Greek

default

Athens News,

21 July, 2012

The leader of the main opposition Radical Left Coalition (Syriza) party, Alexis 

 Tsipras, was quoted as predicting the country's default, while also forecasting that the government will "soon present" a return to a national currency (drachma) as a national success.

In an interview published with Real News newspaper on Saturday, Tsipras said any re-negotiation of a memorandum signed by Greece with its EC-ECB-IMF creditors ended on the night of the June 17 election, while charging that any payment extension is "essentially a longer rope with which to hang ourselves."

He also criticised the government for abandoning, as he said, any discussion over restoring cuts made to pensioners receiving low pensions, re-instituting collective bargaining talks and increasing the tax-free ceiling for individual taxpayers.

He even attacked Finance Minister Yannis Stournaras, for whom he had spoken positively of during the vote of confidence discussion in parliament, saying he is the definition of a finance minister that the EC-ECB-IMF 'troika' would have chosen. (AMNA)

Capital controls in Spain

Capital Controls Hit Spain: Government Laws Prohibit Cash Transactions Over €2,500; Minimum Fine of €10,000 for Failure to Report Foreign Accounts

Mish's Global Economic Analysis,

24 June, 2012

If Spain is seeking further instability, a new law on financial transactions is sure to do just that. Via Google Translate, Spain passes a law limiting cash payments to 2,500 euros.Key Provisions

• Minimum fine of  €10,000 for taxpayers who do not report their foreign accounts.
• Fine of  €5,000 for each additional account
• Cash transactions greater than €2,500 prohibited
• Cash transaction restrictions apply to individuals and businesses

The US requires reporting of foreign accounts as well, supposedly for the same reason, preventing tax fraud.

In Spain however, consumers and businesses are already very nervous  (and rightfully so), of a Spain exit from the euro with a  return to the Spanish peseta accompanied by an immediate devaluation.

In that context, these controls are only going to make consumers and businesses even more nervous, if not outright suspicious about what is going on. 

"We Are About To Have Another 2008-Style Crisis"

Chris Martenson: "We Are About To Have Another 2008-Style Crisis"

Chris Martenson,

17 May, 2012

Well, my hat is off to the global central planners for averting the next stage of the unfolding financial crisis for as long as they have. I guess there’s some solace in having had a nice break between the events of 2008/09 and today, which afforded us all the opportunity to attend to our various preparations and enjoy our lives.

Alas, all good things come to an end, and a crisis rooted in ‘too much debt’ with a nice undercurrent of ‘persistently high and rising energy costs’ was never going to be solved by providing cheap liquidity to the largest and most reckless financial institutions. And it has not.

Forestalled is Not Foregone

The same sorts of signals that we had in 2008 are once again traipsing across my market monitors. Not precisely the same, of course, but with enough similarities that they rhyme loudly. Whereas in 2008 we saw breakdowns in the credit spreads of major financial institutions, this time we are seeing the same dynamic in the sovereign debt of the weaker European nation states.


Greece, as expected and predicted here, is a right proper mess and will have to leave the euro monetary system if it is to have any chance at recovery going forward. Yes, all those endless meetings and rumors and final agreements painfully hammered out by eurocrats over the past year are almost certainly going to be tossed, and additional losses are going to be foisted upon the hapless holders of Greek debt. My prediction is that within a year Greece will be back on the drachma, perhaps by the end of this year (2012).

Greek default spectre turns material

The weekend Greek revolt against the austerity measures imposed on its economy in return for eurozone funding has elevated the prospect of a Greek default on its debts or a chaotic exit from the eurozone.

The collapse in support for the mainstream parties that had reluctantly accepted the austerity program and the vehement opposition to the measures by the radical left party that finished the runner up in the weekend’s elections has made it almost impossible for a coalition to be formed that would persevere with the program.

It is likely new elections will have to be held next month but given the degree to which Greeks have protested against the harsh eurozone prescriptions – and the 20 per cent shrinkage in GDP and 20 per cent-plus unemployment that has accompanied them – it is improbable that Greece will continue with the reforms it agreed in return for the next $300 billion tranche of eurozone funding.

If it does walk away from that commitment there will be chaos in Greece and, to a lesser extent, elsewhere. Greece would inevitably default on its debts and could be forced to quit the eurozone.

(Source)

There really is no choice for Greece but to leave the euro, and the sooner, the better. Even then, there is a lot of hardship coming their way. But in my estimation, that’s better than the imposed austerity that is a guaranteed torture chamber. The institutions that avoided taking losses on their Greek debt on the first pass through, due to their preferred status in the process (the ECB among them), are almost certainly going to eat big losses this time, perhaps a full 100% of them.


Leaving the euro is going to be quite a process, and the ripple effects are going to be large and somewhat unpredictable. I found this description of what will happen within Greece and its banking system to be well on the mark:

The instant before Greece exits it (somehow) introduces a new currency (the New Drachma or ND, say). Assume for simplicity that at the moment of its introduction the exchange rate between the ND and the euro is 1 for 1. This currency then immediately depreciates sharply vis-à-vis the euro (by 40 percent seems a reasonable point estimate). All pre-existing financial instruments and contracts under Greek law are redenominated into ND at the 1 for 1 exchange rate.

What this means is that, as soon as the possibility of a Greek exit becomes known, there will be a bank run in Greece and denial of further funding to any and all entities, private or public, through instruments and contracts under Greek law. Holders of existing euro-denominated contracts under Greek law want to avoid their conversion into ND and the subsequent sharp depreciation of the ND. The Greek banking system would be destroyed even before Greece had left the euro area.

There would remain many contracts and financial instruments involving Greek private and public entities denominated in euro (or other currencies, like the US dollar) that are not under Greek law. […] Widespread defaults seem certain.

Euro area membership is a two-sided commitment. If Greece fails to keep that commitment and exits, the remaining members also and equally fail to keep their commitment. This is not just a morality tale. It has highly practical implications. When Greece can exit, any country can exit.

As soon as Greece has exited, we expect the markets will focus on the country or countries most likely to exit next from the euro area. Any non-captive/financially sophisticated owner of a deposit account in that country (or in those countries) will withdraw his deposits from banks in countries deemed at risk - even a small risk - of exit.

Any non-captive depositor who fears a non-zero risk of the future introduction of a New Escudo, a New Punt, a New Peseta or a New Lira (to name but the most obvious candidates) would withdraw his deposits from the countries involved at the drop of a hat and deposit them in the handful of countries likely to remain in the euro area no matter what - Germany, Luxembourg, the Netherlands, Austria and Finland.

The ‘broad periphery’ and ‘soft core’ countries deemed at any risk of exit could of course start issuing deposits under English or New York law in an attempt to stop a deposit run, but even that might not be sufficient. Who wants to have their deposit tied up in litigation for months or years?

(Source)

The Greek banking system will be destroyed immediately upon Greece’s exit from the euro, but the banking system there is already all but dead anyway. Best just to sweep the floor clean and start over.  The idea is easy enough to understand; if your bank is about to go under, it is best to get your money out before that happens.


The only mystery to me is why so many people have left their money in the Greek banks this long. I suppose they were waiting for a clearer signal? Well, it would seem that the signal has now been sent and received:

Greek Depositors Withdrew $898 Million From Banks Monday

Greek depositors withdrew €700 million ($898 million) from the country's banks on Monday, fueling fears of a bank run amid the growing political disarray.

With deposits falling, Greek banks become even more dependent on the European Central Bank to meet their funding needs, exposing the central bank to potentially huge losses if Greece leaves the euro area.

Monday's deposit withdrawal far outpaced Greek banks' steady decline in deposits since the start of the country's debt crisis in 2009, as depositors withdraw cash and transfer funds overseas. In the past two years, deposit outflows have generally averaged between €2 billion and €3 billion a month, though in January they topped €5 billion.

The latest data from the Greece's central bank show that total deposits held by domestic residents and companies stood at €165.36 billion in March.

(Source)

Again, the real mystery to me is who still has 165 billion euros in Greek banks at this stage of the game?  Also a mystery is why Greece has not yet imposed a withdrawal moratorium and capital controls?  It is only a matter of time, perhaps days, before they do.  


Of course, it is the contagion effect that most worries the market, because the same dynamic of utter insolvency leading to the intractable nature of Greece’s dilemma applies to Spain, Portugal, and Italy.


Indeed, the market is already adjusting to this possibility, as evidenced by the spikes in the yields of those country’s bonds:

Contagion Fears Hit Markets

LONDON - Investors battered European stocks, dumped the bonds of Spain and Italy, and bid the euro down against the dollar Monday after the collapse of weekend coalition talks in Greece edged that country closer to an exit from the euro zone.

The sweeping market action dealt a blow to hopes that the damage of a Greek exit, should it occur, could be comfortably contained.

In the market carnage, Greek stocks fell to two-decade lows, and Spanish bond yields leapt to levels not seen since the panic of last November. Shares of a big Spanish lender dropped 8.9% on the Madrid bourse, pulling the benchmark index down 2.7%. The Italian market also fell 2.7%, and the euro slid to $1.2845 late Monday in London, its lowest level in four months.

(Source)

The worry and the carnage are both running deep. And they should. Everything is now interlinked to such a degree that there is no possible way for a run on Greek banks or continued declines in the value of sovereign debt to be anything other than exceptionally destructive.


Everybody owes everybody, and there’s not enough productive economy to mask the insolvency of the system any longer.


We saw this as Spain’s sovereign yields vaulted, Spanish bank shares plunged, a not-so-happy linkage courtesy of the LTRO funding which enabled (and encouraged) Spanish banks to load up on Spanish debt. A virtuous circle morphed into a vicious spiral, each element weakening the other all the way down.


That the US stock market is only down less than 5% from recent highs is a testament to the power of the liquidity that the Fed and US banking system have directed at keeping things elevated. However, this cannot last, at least not without another big quantitative-easing (QE) injection from the Fed. Without such an infusion, I am calling for another 2008-2009-style market rout of at least -30% but possibly as much as -50%.

QE, stat!

The reason we need another QE injection is that the same dynamic of debt destruction is again stalking the markets. As expected, the Fed has been waiting for a clear signal that it is time for more thin-air money, and again they are going to wait too long to prevent more damage from occurring.


This time I am expecting a coordinated central bank action that will involve most or all of the major central banks of the OECD: Japan, UK, US, and Europe.
One day, we will wake up to find some global message about the need for a coordinated response to a major crisis, and each of the central banks will be issuing some massive new amount of thin-air money. Of course the programs will be called something fancy that will require shortening to an acronym and will involve buying some form of debt (sovereign debt, but maybe also bank debt), and we’ll track this via central-bank balance-sheet expansion.


Perhaps we’ll see this line go up a little steeper, or perhaps the same trajectory will be maintained a little longer:

Regardless, more printing is on the way, because the alternative is the utter collapse of the entire Western banking system. And quite probably a few governments, too.


To me, that is an unthinkable outcome, and one that I have every faith will be avoided at any every cost. It is the main reason that I am quite content to hold onto all of my gold at this juncture. Anybody selling physical gold here is either broke (and needs the money) or is just not paying attention.


To drive the point home, consider this picture posted on Zerohedge taken from a German television production purported taken of the Ministry of Finance in Athens. A picture is worth a thousand words:

(Source)

By the time the Ministry of Finance is storing records in garbage bags and shopping carts, perhaps, just maybe, one might become a little concerned about loaning money to the Greek government. One hopes.

If You Think Greece is Bad

Greece, of course, is tiny compared to Spain or Italy. The situation in Spain -- which is big enough to matter -- is truly dire, very large, and getting worse.
Spain has been playing fast and loose with the numbers, and that fact has now been revealed to the world. It’s not a pretty picture.

Spain Underplaying Bank Losses Faces Ireland Fate

May 10, 2012

Spain is underestimating potential losses by its banks, ignoring the cost of souring residential mortgages, as it seeks to avoid an international rescue like the one Ireland needed to shore up its financial system.

The government has asked lenders to increase provisions for bad debt by 54 billion euros ($70 billion) to 166 billion euros. That’s enough to cover losses of about 50 percent on loans to property developers and construction firms, according to the Bank of Spain. There wouldn’t be anything left for defaults on more than 1.4 trillion euros of home loans and corporate debt.

Taking those into account, banks would need to increase provisions by as much as five times what the government says, or 270 billion euros, according to estimates by the Centre for European Policy Studies, a Brussels-based research group. Plugging that hole would increase Spain’s public debt by almost 50 percent or force it to seek a bailout, following in the footsteps of Ireland, Greece and Portugal.

“How can you only talk about one type of real estate lending when more and more loans are going bad everywhere in the economy?” said Patrick Lee, a London-based analyst covering Spanish banks for Royal Bank of Canada. “Ireland managed to turn its situation around after recognizing losses much more aggressively and thus needed a bailout. I don’t see how Spain can do it without outside support.”

(Source)

And this is just the losses that Spanish banks face on their real-estate portfolios. They are also now facing losses on all the Spanish sovereign debt that they bought with their LTRO funding as well. Very simply, Spain now needs a massive rescue, and soon.


Meanwhile German citizens are all done with helping their southern neighbors. Merkel has used up all of her political capital on the rescues performed to date, and it is far from clear that any more help is politically doable here. The only way that I can see such help coming is under some terms other than drawing upon the savings of Germany’s citizens. Printing, perhaps, but even that is a dicey political proposition here.


If Spain drops here, then you can just set an egg timer for when Italy will go. And then France. The dominoes will rapidly fall from there.

Why I Am Nervous These Days

In describing JPMorgan’s recent $2 billion (or is it $20 billion…or more?) trading losses and Jamie Dimon’s (the CEO of JPM) awkward explanation of how certain hedging operations went wrong, the author of this next piece asks the obvious question:

Does Jamie Dimon Even Know What Hedging Risk Is?

But wait a minute? If you’re hedging risk then the bets you make will be cancelled against your existing balance sheet. In other words, if your hedges turn out to be worthless then your initial portfolio should have gained, and if your initial portfolio falls, then your hedges will activate, limiting your losses. That is how hedging risk works. If the loss on your hedges is not being cancelled-out by gains in your initial portfolio then by definition you are not hedging risk. You are speculating.

(Source)

We still don’t know the exact dimensions of JPM’s losses here (my expectation is that more bad news will follow soon enough), but we can be sure that the big banks have not learned from the mistakes of the past and are still engaged in risky practices involving derivatives.


Whatever JPM was up to (and I am still not entirely clear on what that was), it was not classic hedging, which serves to minimize losses, but something far more speculative.


The reason this gives me such cause for concern is that it once again exposes a small portion of the derivative monster that will certainly be awakened when the European situation goes into full meltdown over the Greek, then Spanish, the Portuguese, then Italian situations.


While derivatives are, in theory, a zero-sum game, and therefore could, in theory, be forgiven and forgotten in a pinch, the reality is that they’ve been used to pretend that risk did not exist and therefore losses don’t exist.


The ugly truth here is that we are at the tail end of a most unfortunate credit bubble -- four decades of global excess by the OECD countries -- and there are massive losses to account for. Just as the offsetting counterparties involved in the subprime CDO and CDS mortgage crisis did not zero out because the losses they were allegedly papering over were all too real, the same will prove true of the derivative paper allegedly covering sovereign and corporate debts.


Remember, the biggest holder of derivatives is the company that just demonstrated that it doesn’t really understand the concept of hedging.

(Source)

Overall derivatives, especially interest-rate-linked derivatives, have increased by over $100 trillion since the crisis began. As JPM just evidenced, and as hinted at by the interminable hand-wringing over allowing Greece’s paltry $78 billion in credit-default swaps to be triggered, real dangers lurk here.


I wish I could analyze the situation better than the rest of the crowd that either screams catastrophe looms or coos that everything is safe, but I cannot. The situation is too opaque, too convoluted, and too complex to tease apart. I simply don’t know what the true nature of the risk really is -- and the truth is, nobody really does. You might as well ask these analysts to tell you the exact size and shape of the first ten waves that will hit Laguna Beach exactly one year from now beginning at 12:05 p.m.


Instead, what I can offer to you is the idea that instead of reducing (let alone eliminating) risk, all that derivatives have done is mask risk. This means that whatever losses are resident in a system with four decades of debt-fueled malinvestment and overconsumption are still there just waiting to be realized.
It is this certainty that the losses remain, the risk is masked, and the bets have only grown larger that makes me very nervous these days as I contemplate the possible implications and repercussions of a Greek exit from the euro.

To Sum Up Part I

Given this environment of massive, rapidly-accelerating, and obfuscated risks, the prudent among us are undoubtedly wondering, How the heck is this going to play out? And how do I prepare for it?


In Part II: What To Do When the Central Banks Blink, I lay out my forecast for how low asset prices will sink before the central banks once again attempt to ride to the rescue with gargantuan liquidity measures.


But this next time won't work as it did in 2008, in my estimation. I see central banks being near the end of their ability to influence developments at this point. More liquidity will affect different asset classes differently, and for the first time raise real (and valid) concerns about the widescale debasement we are witnessing across the world's major fiat currencies.


Putting your capital into those resources best positioned to appreciate most as the result of money printing and hold or increase their purchasing power in such an environment should be a top priority for every concerned investor.
Click here to access Part II (free executive summary; paid enrollment required for full access).

'Hopeless situation in Spain'

"Bad news upon bad news keeps piling up in Spain as the government still insists it can meet deficit targets without needing a bailout. Anyone with any common sense knows there is no can left to kick."

Hopeless Situation in Spain: New Wave of Defaults as Home Prices Crash; Bad Loans Highest Since Oct '94

Bad news upon bad news keeps piling up in Spain as the government still insists it can meet deficit targets without needing a bailout. Anyone with any common sense knows there is no can left to kick

Mish's Global Economic Analysis,

18 April, 2012

.

Reuters reports Spain banks' bad loans highest since Oct '94

Non-performing loans rise to 8.2 pct of portfolios

House prices fall 7.2 pct in Q1

Defaults to keep rising on back of budget cuts

Spanish banks' bad loans rose to their highest level since Oct. 1994 in February, to 8.2 percent of their credit portfolios, Bank of Spain data showed on Wednesday, as the sector continues to battle sliding house prices and a looming recession.

Banks are facing a new wave of loan defaults as an economic crisis deepens and analysts say some may not survive as the government implements sweeping budget cuts that will only add to Spanish households' problems with repaying debt.

Non-performing loans increased by 3.8 billion euros ($4.99 billion) to 143.8 billion euros in February from the previous month. They totalled 7.9 percent of total debt portfolios in January.

That picture - driven by the collapse of a housing boom in the global financial turmoil of 2008 - is at the heart of problems for Spanish banks that have seen other institutions refuse to lend to them and forced some to rely on the European Central Bank for funding.

Hopeless Situation

Back on March 28, my friend Pater Tenebrarum on the Acting Man blog pinged me with the following comments.

The situation is totally hopeless. If banks were to raise their puny loan loss provisions by just 1% of total loan exposure, it would eat 12% of their tangible net asset value.

These banks are completely insolvent. I actually think all of Spain is bankrupt at every level of its society, from households to banks to the government.

Apart from their exposure to €200 billion in 'problem loans' (to developers, consumers and in the form of already foreclosed loans), they have an additional exposure to €1.6 trillion in 'other loans', including mortgages, of which they say only 2.4% are delinquent (a certain bridge in Brooklyn comes to mind).

It looks to me like Spain will become a huge problem for the eurocracy.

Yes indeed, it already has.

New Zealand economy 'on a crash course with doom'

Since before I started this blog a year ago there has been an awareness of the growing debt mountain and that New Zealand faces the same bursting of the bubble as the rest of the world while the mainstream media has repeated the same mantra that everything is OK.

Here, at last is some recognition of the problem in a fairly minor article in the Business section of the paper.

NZ: Crash course to debt doom

New analysis confirms what most of us already fear - the New Zealand economy is on a crash course with doom if big changes aren't made soon.

Stuff,

13 April, 2012

Projections by The Economist show that by 2050 New Zealand would have the second highest debt as a percentage of our GDP.

If changes aren't made soon then the country's economy would be in a crisis and government funding would be heavily restricted.

Japan would have the highest debt, but countries which are currently in a dire economic state - such as Spain, Greece and Portugal, would fare better than New Zealand, the United States and Britain, according to The Economist.

The data analysed what countries are doing to adjust spending and revenue with the aim of bringing public debt down to safe levels by 2050.

Big changes need to be made in New Zealand now, not in 10 or 20 years time, if we want to avoid being crippled with debt, New Zealand Institute of Economic Research principal economist Shamubeel Eaqub said.

Eaqub said New Zealand's debt was comparative to that of other countries "but when we look out to 20 years we've got a problem in the pipeline".

"To be sustainable we need to change something and those changes need to be around reducing debt and operating balance. We're going to have a massive problem if we don't change."

The ageing population plays a big part in why Japan, New Zealand and the United States are predicted to be in the worst positions in regards to debt come 2050, Eaqub said.

"It reinforces the view that ageing is a real big problem in New Zealand and we need to have a clear discussion about it and that doesn't seem to be happening in the political scene."

Changes need to be made to superannuation, the retirement age and to health care, Eaqub said.

While it was a nice ideal to have free healthcare, the reality was that it was untenable.

Baby boomers were starting to reach retirement age which meant that decisions needed to be made now, before the country's debt reaches "crisis point".

And the chart from the Economist

What the crisis has done to rich-world public finances

the Economist,

12 April, 2012

ASK most people to name the rich-world countries with the worst public finances and they will single out Portugal, Italy, Greece and Spain (aka the PIGS). But viewed in terms of adjustments to spending and revenue required to bring public debt down to safe levels by 2050 (the fiscal gap), those countries do not fare too badly. Instead, another quartet of countries comes to the fore: Japan, New Zealand, the United States and Luxembourg (commonly known as the NULJ). That these countries are not on the tips of the tongues of those forecasting economic doom is down to two factors. First, most people don't think with such long horizons in mind. Second, all these countries (apart from Luxembourg, which is small and rich) have their own currencies, and so have the option of inflating debt away if the necessary consolidation becomes too painful.