EVERYBODY PAY ATTENTION TO IRAN AND NORTH KOREA; nothing to see here, move along.
If the trouble starts — and it remains an “if” — the trigger may well be obscure to the concerns of most Americans: a missed budget projection by the Spanish government, the failure of Greece to hit a deficit-reduction target, a drop in Ireland’s economic output.
But the knife-edge psychology currently governing global markets has put the future of the U.S. economic recovery in the hands of politicians in an assortment of European capitals. If one or more fail to make the expected progress on cutting budgets, restructuring economies or boosting growth, it could drain confidence in a broad and unsettling way. Credit markets worldwide could lock up and throw the global economy back into recession.
Anybody think any of these government officials can walk this tightrope without a misstep?
TEL AVIV (MarketWatch) – The Bank of Spain on Saturday took control of and appointed an administrator for CajaSur, a savings bank that was hurt by bad property loans, media reports say.
Based in the southern city of Cordoba, CajaSur has $16.36 billion of loans outstanding and holds $23.9 billion, or 0.6%, of the assets within Spain’s financial system, the reports say.
CajaSur on Friday determined not to go ahead with a plan reached in August to merge with a bigger lender, Unicaja of Malaga. The failure of that plan prompted the authorities to take over CajaSur, reports say.
For 2009, CajaSur posted a net loss of 596 million euros ($750 million). Bank of Spain officials estimate that restoring the bank to solvency will require about 500 million euros of fresh capital, reports say.
CajaSur, which had been controlled by the Roman Catholic Church, was the second Spanish bank failure in a bit more than a year, reports say. In March 2009, the Spanish central bank seized control of Caja Castilla-La Mancha.
The seizure of CajaSur comes against the background of international concern about Spain’s creditworthiness. This month, the European Union put in place a financial backstop against the prospect that Spain and other countries could default on their debt.
You know it’s bad when the longest running continuous government in the world (The Vatican) takes a hit like this.
May 24 (Bloomberg) — The euro dropped the most versus the dollar in four days after the Bank of Spain took over a failing regional lender.
The pound rose versus the euro as the U.K. announced $9 billion in spending cuts to contain the budget deficit. Yuan forwards rose the most in four days as President Hu Jintao said China will move gradually and independently in making changes to its exchange-rate mechanism. The euro fell against all of its most-traded counterparts as investors sold the currency to fund trades in higher-yielding currencies.
“We are headed for a softer patch of growth, which is hurting the euro today, and is unfavorable for risk assets going forward,” said Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ in London. “Risk currencies, such as the Australian dollar, are overvalued.”
The euro fell 1.5 percent to $1.2384 at 6.41 a.m. in New York, from $1.2570 on May 21. It touched $1.2144 on May 19, the lowest level since April 17, 2006. Japan’s yen strengthened 1.3 percent to 111.48 per euro and was little changed at 90.05 per dollar.
The 16-nation euro dropped toward a four-year low against the dollar after the Bank of Spain said on May 22 it appointed a provisional administrator to run CajaSur, a savings bank crippled by property-loan defaults. The lender, based in the city of Cordoba, Spain, and controlled by the Roman Catholic Church, will be run by the government’s bank restructuring fund, the regulator said.
Just three years earlier, Roubini had been the object of derision in the economics community as he prophesied a US housing market crash, financial crisis and partial collapse of the banking sector. Today, as an adviser to governments and central bankers and much feted in the media, he’s well aware of the power of being right.
“In my line of business your reputation is based on being right,” he says. “The publicity is just noise. Certainly with a global crisis, the dismal scientists are having some prominence, even if most of the economics profession actually failed to predict it.”
As eurozone leaders panic and markets continue to dive, Roubini believes Greece will prove to be just the first of a series of countries standing on the brink.
“We have to start to worry about the solvency of governments. What is happening today in Greece is the tip of the iceberg of rising sovereign debt problems in the eurozone, in the UK, in Japan and in the US. This… is going to be the next issue in the global financial crisis.”
It already is. And Roubini claims to have foreseen it as far back as 2006.
“I was writing about the PIGS [Portugal, Italy, Greece and Spain] six to nine months before everyone else, I was worried about the future of the monetary union back in 2006,” he says. “At the World Economic Forum I outraged a policy official by suggesting the monetary union might break up.”
We are so proverbially screwed, and what do we have in Washington? The District of Criminals.
THIS is NOT sustainable, which is most likely why Obama, Harry, Nancy, Timmie, and Barney are pushing for increased debt instead of fiscal sanity. As average Americans, we know that the $105 Trillion that our government owes is an amount we will NEVER be able to pay back in even 3 generations; the real math does not lie. We also know that we are headed for dark days, and have been waiting for one of the big boys to step out on stage and say it out loud. In the past year, we have seen countries all over the world spend themselves silly with fiat money and deepen the problem of unsustainable debt past the point of no return.
I believe that when Hank Paulson said that we were headed for economic collapse in September,2008, he was lying because the big banks ARE NOT the base of the economy, we are. Would it not be more probable that Hank was trying to get some breathing room for himself and his buddies to divest, diversify, and protect their assets? Paulson has an estimated $700 Million net worth. What’s a few trillion of someone else’s money to protect your own? Now to the big boy on the stage.
Société Générale is one of the biggest banks in the world, and has produced a 68 page “worse case scenerio’ report for their clients on how to protect assets if the global economy crashes.
I do not think Société Générale is lying because they appear to be using real math.
I know many of you may recognize this bank’s name from when AIG gave them $6.9 Billion of our hard earned taypayer dollars via that particular $186 Billion bailout, but did you know that this bank has been around the block quite a few times since it’s inception in 1864? One has to wonder just how much more than the average American this bank knows with the kind of history that it has seen.
Just a bit from Wiki:
On March 15, 2009, AIG disclosed that, among its counterparties, Société Générale was to date the largest recipient of both credit default swap (CDS) collateral postings ($4.1 bn) and CDS payments ($6.9 bn), paid in whole or part by U.S. taxpayers.
Société Générale is the 3rd largest Corporate and Investment bank in the Eurozone by net banking income and the 6th largest French company by market capitalization. It employs 120,000 people, of which 75,000 in Europe, and maintains a presence in 80 countries. The bank is active in the finance, investment and asset management markets.
In France, Société Générale is active in retail banking with more than 2,700 branches (including its Crédit du Nord banking division).
SG CIB Société Générale Corporate and Investment Banking, the Corporate and Investment Banking arm of the Société Générale Group, is the 3rd largest corporate and investment bank in the euro zone by net banking income. Société Générale Corporate and Investment Banking serves corporates, financial institutions and investors in over 45 countries across Europe, the Americas and Asia. It provides value-added integrated financial solutions and is a reference bank in its three specialist areas: Euro Capital Markets, Derivatives and Structured Finance.
In a report entitled “Worst-case debt scenario”, the bank’s asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.
Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of “deleveraging”, for years.
“As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse,” said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.
Under the French bank’s “Bear Case” scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.
Does that not sound like what we are expecting considering we still have 4 more years of residential home mortgage interest rates resetting? And what about that commercial real estate? I shudder every time I think about it because I do not think our economy is going to last even that long. Our economy is on freakin’ life support right now, meanwhile, back in Washington, D.C., Congress wants to spend trillions more on healthcare reform getting their piece of the healthcare pie. When they ram this one through too, that’ll be all folks. Our proverbial goose will be cooked financially. When have you ever heard of paying for something now and not seeing the benefits until a later date?
It’s called a burial plot.
Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade.
(UK figures look low because debt started from a low base. Mr Ferman said the UK would converge with Europe at 130pc of GDP by 2015 under the bear case).
The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Ageing populations will make it harder to erode debt through growth. “High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt,” it said.
Inflating debt away might be seen by some governments as a lesser of evils.
If so, gold would go “up, and up, and up” as the only safe haven from fiat paper money. Private debt is also crippling. Even if the US savings rate stabilises at 7pc, and all of it is used to pay down debt, it will still take nine years for households to reduce debt/income ratios to the safe levels of the 1980s.
The bank said the current crisis displays “compelling similarities” with Japan during its Lost Decade (or two), with a big difference: Japan was able to stay afloat by exporting into a robust global economy and by letting the yen fall. It is not possible for half the world to pursue this strategy at the same time.
I can think of only one way to stop these teenagers from wrecking everything we have worked for. It has everything to do with cutting up their credit cards, and controlling the purse strings once again.
Otherwise, stock up now: guns, ammo, food, water, medicines, gold, silver, etc. You know the drill.