1. the pain in spain is mainly very plain*
twelve days ago, when questioned about his country's increasingly fragile banking sector, the prime minister of spain, one mariano rajoy, stated, unequivocally and emphatically,
There will be no bailout.
eleven days ago, after a meeting with spain's deputy prime minister, who had just-so-serendipitously happened to find herself in the US on long-planned, unrelated business that day, the managing director of the IMF, one christine lagard, dismissed the possibility of an imminent bailout of the spanish banks by stating, unequivocally and emphatically,
There is no such plan.
early this past week, as things deteriorated further, the general consensus arrived at by the financial masterminds who know such things was that it would cost $40 billion to safeguard the integrity of the spanish banking system. everybody then sat back and waited for the real number to emerge, which, when the bailout everyone knew was coming was announced over the weekend (which is when all such announcements are made), turned out to be more like $125 billion, or one-tenth the GDP of spain.
from whence will this money come, you might ask? well, that's an interesting question. the bulk of it is to come from two emergency funds set up last year called the ESM and the EFSF, respectively, which have been funded by the various countries which make up the european union. the good news is that the ESFS alone has almost $200 billion set aside, which will more than cover the spanish bailout. the bad news is that $93 billion of this $200 has been pledged by, well...spain.
after you've tried to wrap your minds around that a minute, consider the following:
this is an "unconditional" bailout--i.e., none of this "austerity" nonsense for spain that ireland and greece were subjected to, which pretty much ensures that there is not even the pretense of an expectation that spain will ever be able to repay this loan. this is, unsurprisingly, not sitting well with the irish, who are already loudly clamoring for a renegotiation of their deal--or, most especially, the greeks, who in one week will hold a special election which will decide whether their new prime minister will be the pro-austerity candidate, or the radical left-winger who has pledged to tell the european central bank to shove their austerity up their collective asses (hmm, i wonder which one will win?).
this is also a "primed" bailout, which means that the ESM and EFSF will jump to the head of the line of creditors, pushing the existing spanish bondholders outta their rightful, legal position as first to be repaid. this should do wonders for the already-shaky esteem in which private-sector bondholders regard, oh, italian, portuguese and french bonds.
finally, this "bailout" in no way fixes anything--the spanish banks' assets are still as worthless as they were on friday, if not more so--but it serves the purpose of providing them the liquidity to continue making their interest payments and thus stave off the inevitable a little longer.
which will be enough for the markets, no doubt. thus freshly assured that all is well once more, i fully expect a marvelous rally tomorrow. it's as if no one remembers what, almost a year ago to the day, the prime minister of luxembourg, one jean-claude juncker, had to say about the way crisis is managed by the powers that control such things:
When it gets serious, you have to lie.
2. hopefully it's 2-ply, and quilted for comfort.
so the other day a friend of mine, who always sends me interesting things, passed along, without comment, a press release from a...paper company?
took me a minute.
VANCOUVER, BRITISH COLUMBIA--(Marketwire - June 7, 2012) - Fortress Paper Ltd. ("Fortress Paper" or the "Corporation") (TSX:FTP), 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.
so, basically, a subsidiary of a canadian company (a swiss subsidiary, to be exact) that makes money-printin' paper got a cancellation from some government with money-printin' aspirations late last year on an order of sufficient size that it materially impacted said company's profits--but, glory be to god, said money-printin' entity has changed its mind and decided to go for it, so it's happy days again, at least at landqart AG.
who will this money-printin' entity turn out to be? i dunno, but i figure it's a safe bet it'll be the one who denies it the loudest.
While the government struggles to save one crumbling enterprise at the expense of the crumbling of another, it accelerates the process of juggling debts, switching losses, piling loans on loans, mortgaging the future and the future's future. As things grow worse, the government protects itself not by contracting this process, but by expanding it.
________________everything, 1974
*sorry, couldn't resist
1 comment:
Well, here's a sense of perspective.
In merry old England, the King was the sovereign for generations. QEII is still the sovereign, but everyone knows she is more of a figurehead than a real sovereign.
In any case, back when the King's power was real, there were constant struggles with money -- often requiring lenders to the Crown. Lending to the Crown was a risky business because the King could just throw you in the Tower of London if you did not agree to more favorable terms.
But, in any case, the point is this: The English Government then borrowed heavily and often and was in a constant state of needing additional money for wars to be fought and other expenses.
It is hardly different today.
Governments continue to be run usually in a perpetual crisis mode. It is the only way things get done I suppose.
So, what is the impact now? If a government prints money, inflation occurs. We have plenty of examples of high inflation economies (Iran for example has had a big wallop of inflation and so has Venezuela)....older examples include Brazil and other of course Weimar Germany.
I think guttermorality's point is that if everyone is printing money, then there is no value to any currency so you should buy something that will maintain its value like gold.
I say that there are serious economic issues that cannot be dismissed, but the world has always been in a perpetual state of crisis, so these times are not too far out of line.
I don't see a Mad Max like world coming anytime soon. But if it does, I'm moving in with guttermorality.
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