Spanish oil company nationalised in Argentina
YPF, a subsidiary company of the giant Spanish oil company Repsol, has been nationalised by the Argentine government. A delegation from the government of Cristina Kirchner went to the offices of YPF, expelled various Spanish personnel, and changed the security system. Valencia reintroduces Patrimonio Tax
Foreign property owners in the Valencia region have been asked to save the region from bankruptcy. The Regional President, Albreto Fabra (who took over from the tatters Francisco Camps) is facing a deficit of 2,500 million euro, and has only been able to save 71 millions in the two first months of the year. Now he has decided to reintroduce “Patrimonio Tax”, a wealth tax, which especially affects home owners, both Spanish and foreign.
The regional government hopes to collect more than 100 million euros by the reintroduction of the regional part of this tax.
Inflation down to 1.9%
Inflation in March was to 1.9% compared with the same month last year. However, compared with February, due to more expensive gasoline and clothing, it increased 0.7%.
27 Directors of Banco de Valencia accused
Minority shareholders in the failed Banco de Valencia are suing 27 former Directors of the bank, including Jose Luis Olivas, a former president of the regional government, for mismanagement and fraud, an the prosecutor has asked the magistrate to demand more information from the bank.
Property prices down 7,2%
The government reports that prices for dwellings have fallen 7,2% in the first quarter of this year, bringing the price level down to what it was in 2004.
More unpaid debts in the banks
Bank of Spain informs that the percentage of unpaid debts in the banks has now reached 8,16%. It is the first time in 18 years that this percentage passes the level of 8. In euros the debts amount to 143.815 million.
Plusvalia – yes and no
In November last year the Supreme Court ruled that buyers of dwellings were exempted from paying the plus valia tax, it being the responsibility of the vendor. Now the same court has explained more clearly what they meant: The tax cannot be attributed to the buyer unless the contract was negotiated privately between the vendor and the buyer and agreed by them. If a promoter tries in a general contract with all buyers to slip the plus valia responsibility to the buying part, “this is a transgression of good faith in a contract.”
Toll on all motorways
Spain has 15,000 kilometres of motorways, in the main built with financing from the European Union (the Feder programme) but only 3,000 kilometres is there a toll charge. The Regions are now finding they are unable meet the maintenance costs of the toll free roads.
Andalusia has 1,376 kilometres of free motorway, Catalonia only 335 kilometres. Catalonia is now advocating that there should be a charge on all Spanish motorways.
Drastic cuts in health sector
The minister of public health has proposed to the regions that retired persons shall pay 10% of the cost of medicaments and active people shall pay 50%. The government intend to save 3.700 million euros with those measures.
The government also intends to control the so called ‘health tourism’ by controlling more the Europeans living in Spain as well as the tourists.
Only 2.500 euros in cash payments
Prime minister Rajoy has announced a plan to limit cash payments to 2.500 euros for private persons, and warned of a fine of 25% of the payments made, in case of surpassing this amount.
Go north, young man!
The number of Spaniards living in Germany increased by 4.5% during 2011 to 4,792. The immigrants are mainly young and well educated, who are not able to find employment in Spain.
Costa del Sol, subterranean oil-slick
An enormous amount of oil is moving subterraneously south from Campanillas. The source, a leak in an oil pipe, which occurred in October. The oil is poisoning wells, which supply water to the city of Malaga and part of the Guadalhorce valley.
The authorities are not giving any information on the oil slick, but are trying desperately to stop it.
Pilot strikes continue
The Iberia pilots strikes against the creation of a low cost airline called “Iberia Express” are continuing. In a meeting of the pilots and Iberia management in the Ministry of Development, the pilots proposed there be obligatory arbitration, but first demanded that the pilots who were sacked be reinstated. The pilots accused the
Iran stop oil exports to Spain
In an attempt to put pressure on the European Union not to enforce a planned embargo aiming at stopping Iran from developing nuclear weapons, Iran has cut all exports of crude oil to Spain. Ironically, Spain, which depends heavily on Iranian oil imports, is not supporting the embargo, which is planned to start on 1st July.
King breaks hip on elephant hunt
During a stay in South Africa to hunt elephants, King Juan Carlos slipped and fell on a staircase, breaking his right hip in three places. He was taken by private plane to Madrid where he was given a new hip and is recovering well.
Syrian magnate Kayali, resident in Spain, financed the 30,000 dollars trip, to ‘murder elephants’ which has now resulted in the World Wildlife Fund of Spain ‘sacking’ the King as its honorary president.
Mayor of Santiago quits due to tax problems
The mayor of Santiago de Compostela, Gerardo Conde Roa (PP) has resigned from his post after being notified by a judge in the town that he will be accused of tax fraud for avoiding payment of 291,000 euros in IVA (VAT) on the sale of 61 dwellings, which should have been included in his tax declaration in 2010.
The weekly crisis
In the Yearly Report for this year we gave the following prediction, amongst others:
“Spain will have increasing difficulties in finding new money to repay soaring public debt and subsequently the ‘country risk’ will rise and Rajoy may be forced to ask for a rescue package”
After a lull in the first months of the year, over Easter the financial crisis hit Spain again. Interest rates on its public bonds went above 6% (considered to be the level where a country needs a rescue) the country risk hit 440 points and the Ibex fell and fell, to under 7,200 points.
At this point, both politicians and financial experts cried for assistance from the European Central Bank “to contain the crisis and avoid the collapse of the banking system”. The leaders of the ECB responded to the SOS by investing large sums in Spanish bonds. But, what don’t we know about the deal !
The ECB has been criticised for buying bonds from euro zone countries, even by members of its own directorate. Germany and other northern countries have warned against this practice, which is contrary to the aims of the bank. They consider the massive sums invested as a hidden rescue package.
Spain is being rescued
No doubt Spain is being rescued by the ECB. The intervention by the European Central Bank made it possible for the Spanish treasury to place a bond issue on the market, at a higher interest rate than previously, and it stopped the blood letting on the Ibex. But on Monday, the country risk still stood at 416 points. We can expect further movements in the days to come ?
The rating agency Egan Jones has reduced the credit rating for Spain to BBB, just one step above rubbish.
The International Monetary Fund has predicted that Spain will not be able to reduce its deficit to 3% (aim of EU) before 2018 and expects the recession will hit 1.8% this year.
‘The New York Times’ has in a leading comment written that Spain may be the next country to collapse due to ‘bad management’.
Ladies and gentlement, fasten your safety belts!
Municipalities in bankruptcy
By Per Svensson
Albaida is a municipality of 6,000 inhabitants in the Valencia Region. Over the lifetime of the last two Administrations it has accumulated debts of 18 million euros, or 3,000 per head. The main source of income for the town hall used to be from charges and licences connected with building activity. When the property bubble burst, the income dried up leaving debts from free spending on fiestas and events, and an in-door swimming pool, but without attending to basic services or providing for ‘tomorrow’.
An independent review has found unpaid bills from as long ago as 2007 and a municipal company which dabbled in the building business, which is now bankrupt. The maintenance of the swimming pool amounts to 150,000 euro per year, and the new mayor has decided to close it, He has also reduced his own salary by 25%. Nevertheless, income this year will be only 5.5 million euros, but costs amount to 6 million. The town council now is considering reducing the 130 municipal workforce.
The mayor has declared that the municipality is in a state of bankruptcy, and has asked for urgent assistance from the regional and national government, but they too are in a similar state and have received requests for assistance from many other struggling town halls.
The mayor expects the crisis in the town will continue beyond the next two or three Administrations.
XXX
The office of the Spanish Ombudsman has accused several town halls of using the economic difficulties as an excuse for not correcting the deficiencies in land management. The office refers to a number of incomplete urbanisations, which for several years have not had basic services like drainage and clean water. In many cases the town councils point to private promoters, many in bankruptcy and whose whereabouts are unknown, as being responsible.
The office mentions, as an example, the urbanisation Equinzo-Marabu on Fuerteventura, which diverts residual water into a nearby river. This case was reported in 2008, but is still not resolved. The municipality refers to its economic difficulties.
XXX
In a public vote, the village of Rasquera in the Province of Tarragona, has decided to grow substantial quantities of Marihuana as a way out of the crisis. The town of 600 inhabitants have, up to now, mainly cultivated olives and almonds.
Rasquera has public debts of more than 1 million euros. The mayor got the novel idea to lease 7 hectares of land to a 5,000 member club for smokers in Barcelona, for use as a controlled plantation for growing hemp in hot houses. This will provide work for 40 people and the debts would be eradicated in two years time.
Since Spanish law permits the production of Marihuana for private use and100 clubs like the one in Barcelona already exist. Spain has, after the Check Republic and Italy the largest consumption of Marihuana in Europe.
Spanish economy politically untenable
Raj Badiani from IHS Global Insight
Spain’s industrial output is sliding at an accelerating rate, as is entirely predictable if you enforce draconian fiscal tightening on an economy in deep recession with no offsetting monetary stimulus or exchange rate devaluation.
The latest data show that output fell 5.1% (y/y) in February, after 4.3% in January and 3.5% in December.
Durable goods fell 14.8pc, the sixth successive monthly fall. Capital goods output fell 10.6pc, according to Raj Badiani from IHS Global Insight.
This is politically untenable. Unemployment is already 23.6pc on the Eurostat measure. David Owen from Jefferies Fixed Income expects this to reach 27.5pc by the end of the year (which is roughly 32pc using the old measure from the 1990s, based on a Bank of Spain study).
Prof Jesus Fernandez-Villaverde says the German-imposed drive to cut the budget deficit from 8.5pc to 3pc over two years in a slump is a «recipe for disaster». It will not fly in a country where the two main trade unions are «living in the 19th century» and where there is no national consensus on the nature of the problem at hand. There will be a revolt.
Indeed, the interior minister today introduced new measures to prevent plots using «urban guerrila» warfare methods to incite protests that pose a grave threat to public order. Is this the start of coercion? I hope not. Spanish democracy is worth more than a mere currency.
The professor told me that Germans were «crazy» to try to impose such self-defeating austerity. The EU dictates should be resisted. Premier Mariano Rajoy should take a leaf from David Cameron’s book and risk a full-fledged showdown, instead of quibbling over details in mini-spats that achieve little. «What is the EU going to do? Send in the army?»
In a joint oped piece with other Spanish economists in El Mundo he said EU-IMF rescues for the eurozone are pointless because they don’t go to the root of the crisis. They do not restore lost competitiveness through devaluation.
They argue that Spain’s is sliding towards a full-blown crisis and an EU bail-out on the current policy settings. This must be avoided at all costs because the terms of these packages are shaped and enforced by the EU creditor states with their own interests at stake, not by a neutral IMF acting as an honest broker.
Spanish epiphany as depression deepens?
By Ambrose Evans-Pritchard in The Telegraph
Having followed the Spanish press closely over the last five years or so, I am surprised by the sudden change of tone – as if the country has gone through an intellectual epiphany.
Articles calling for Spain to withdraw from EMU – or at least exploring the idea – are no longer rare. They are appearing every day. Here is one today by Federico Quevedo in El Confidencial: «The only alternative for Rajoy: take Spain out of the euro».
Loosely translated, he says «the only way out for Rajoy is to force Brussels and above all Berlin to make the ECB act as it should act – as a lender of last resort for economies with problems such as ours – by threatening to leave the euro, and even if the threat becomes reality it would surely be the least of our problems and might even be the solution».
What is striking is the response on the comment threads of such pieces. My impression over the last month is that a large bloc of informed Spanish opinion has reached the conclusion that EMU is dysfunctional, and increasingly destructive for Spain. Many posters seem extremely well-informed, using terminology such as «debt-traps», «internal devaluations», and «relative unit labour costs».
Many point the finger directly at Germany, correctly stating that Berlin seems to think it can lock in a current account surplus with Club Med in perpetuity. Clearly, such as an arrangement is mathematically impossible within a currency union – unless Germany is willing to offset the surplus with flows of money for ever, either through fiscal transfers or loans or investment. These flows have been cut off.
Opinion is divided, of course. The pro-euro camp is still a majority. But the smothering conformity of past years has been obliterated.
The Spanish reading public now has a very good grasp of the fundamental realities of EMU. This will have consequences. Spain is not on the fringes of the Balkans, terrified of being cast into Ottoman banishment. It is not a small country that can be pushed around for year after year.
How and when all this will end is anybody’s guess but I have suspected for a long time that Spain is the lynchpin of the system. The intellectual atmosphere has changed entirely. Politics must surely follow.
Rajoy to oversee major shake-up in healthcare funding
The government of Mariano Rajoy is preparing to make radical changes in the way Spaniards pay into their health system.
According to sources close to the government, the administration believes that the current system is not economically viable. To defend their argument, government officials say that the public healthcare system is some 20 billion euros in debt. Regions administer healthcare using money suplied by central government.
Ana Mato, the health minister, has commissioned several studies to look at alternatives and help come up with a new financing model. The studies will be presented to all the regional health officials before the end of the month, government sources say.
One of the proposals, say government sources, aims to look at a co-payment plan, whereby Spaniards will pay a nominal fee for medical examinations, doctors’ visits and prescription drugs.
Even though Prime Minister Rajoy doesn’t favor the idea of making all Spaniards pay for healthcare, government sources say that the administration plans to leave the final decision on co-payment to each region.
Catalonia is the first and so far only regional authority that has ruled that its residents should pay a nominal fee — one euro — for prescriptions.
Because of the political costs involved, the government doesn’t want to publicly address what could become a question of cutbacks in healthcare. Instead, the administration’s policy is to refer to the changes as “transformations in the healthcare model.”
Government sources say that Rajoy has been discussing the changes from day one of his administration.
The changes will entail a complete new concept in financing, say sources.
However, the opposition Socialists are not keen on changing the way Spaniards pay into their health system. Elena Valenciano, the deputy secretary general of the Socialist Party, said that her members won’t approve any cutbacks to either health or education. “Education and health are the two areas that are not negotiable, and we will defend them to the end,” she said.
At the same time, government sources say that the Rajoy administration is prepared to announce new measures in an effort to calm the markets.
Last week, Spain endured one of its most volatile market sessions in months. The country’s risk premium rose to more than 400 basis points as investor confidence dropped. Financial analysts predict that Spain won’t be able to meet its goal of reducing its deficit from 8.5 percent of GDP to 5.3 percent by the end of the year.
In an interview last week with a leading German daily, the Frankfurter Allgemeine, Economy Minister Luis de Guindos hinted that far-reaching reforms will be made in “all public services, but above all in health and education.” He added that the Rajoy government is also proposing changing business laws, including rules governing professional services.
Several regions have already petitioned the government to draft changes to the laws affecting the manner in which they provide health coverage and allowing them to increase university fees.
As for the financial institutes, De Guindos has said that in the coming weeks the government will put Banco de Valencia and Catalunya-Caixa on the auction block. All of these reforms, De Guindos says are aimed at winning back investor confidence.
On Thursday, the Ibex 35 saw one of its most volatile sessions in weeks. After dropping to more than 100 points, the Spanish blue-chip bourse closed at its lowest level since March 2009.
Spain needs pre-emptive action
April 12, 2012 12:44 pm by Gavyn Davies.
The wobble in risk assets in the past week has followed the Fed’s shift towards hawkishness, weaker US jobs data and the budget announcement in Spain. The fact that eurozone equities have once again underperformed US equities suggests that the Spanish budget was probably the dominant factor.
As the first graph shows, Spain’s sovereign bond yields and bank CDS spreads have recently widened to near their worst readings since the crisis started in 2010. What is even more worrying is the consistent upward trend which is apparent in the data. The eurozone rescue operation, mounted by the ECB and heads of government last December, reversed this deterioration only temporarily, and markets now seem to have resumed their earlier adverse trends. Everyone is asking whether this will trigger a new, and larger, eurozone crisis in 2012.
The latest problems have arisen for three main reasons:
1. The Budget
The budget adopted by the new government seems to have satisfied few investors outside Spain. This is not because the budget contained “insufficient” austerity measures in 2012 to satisfy the markets. In fact, more austerity in the near future would have inflicted so much immediate damage on the economy that it might well have undermined, rather than bolstered, confidence in long run fiscal sustainability.
Markets know that higher GDP growth is essential if Spain is ever to emerge from its current parlous state. The combined effect of the budgetary measures announced by the new government in December and April will be to tighten the fiscal stance in 2012 by 3.5 per cent of GDP. The aim is to reduce the budget deficit from 8.5 per cent of GDP in 2011 to 5.3 per cent this year, but few outside observers believe this is credible.
The government now expects real GDP growth to be -1.7 per cent in 2012, compared to a projection of +2.3 per cent made only last summer. A contracting economy is the main reason why independent economists think that the official targets will not be hit. For example, Andrew Benito at Goldman Sachs, forecasts that the deficit will miss the official 2012 target by 1.5 per cent of GDP. That would mean that the public debt ratio will rise by about 12 percentage points of GDP this year, taking it above 80 per cent. The speed of deterioration is alarming.
More front-ended fiscal austerity will not work. A better approach would be to commit credibly to much longer term cuts in public spending, and higher sales taxes, while also reducing marginal rates of income and corporate taxation.
2. The Banking Sector
The second problem, which is closely linked to the first, is the state of the banking system. Spain has made remarkable efforts to address this problem in recent years. With most of the bad debts apparently situated in the regional savings institutions or cajas, the strategy has focused on cleaning up this mess, without calling very much on public funds to grease the wheels. The cajas have all been converted into commercial banks, and have undertaken a wave of mergers, cost cutting and capital injections which bode well for the future.
However, the downward correction in real house prices in the years after the construction bubble was fairly minor, at least by US standards. This has accelerated in recent months, and the renewed recession in 2012 is causing concern that the country’s largest banks, which the Bank of Spain has repeatedly said are in good shape, may after all, require further injections of new capital. The central bank governor admitted as much in what was otherwise an optimistic speech this week.
The accompanying graph, taken from the IMF, shows various estimates of the impact of renewed recession on bank balance sheets, made by outside analysts. The hit under “stressed” economic conditions seems likely to be at least 5-10 per cent of GDP, and there are concerns about how this money can be found, given that the government continues to rule out state aid for banks. The rest of the eurozone could certainly help here. Surely that is what the ESM is for ?
3. The Labour Market
The rigidity of the Spanish labour market, well summarised by the OECD here, has long been recognised as the core structural problem facing the economy. Once again, the government has been active in this area, but the sheer scale of the change which is needed has not necessarily been recognised. The third graph shows the unemployment rate, compared to the IMF’s most recent estimates of the output gap. With unemployment standing at 23 per cent of the labour force, the output gap is estimated at only about 3 per cent. The logic of this implies that the structural rate of unemployment in the economy is extremely high, probably higher than the long term average unemployment rate of 15 per cent.
The first and most important task which is still facing the Spanish government is to create growth by bringing this structural unemployment rate down by a huge amount. If this could be done by forcing much more radical labour market reforms through the political process, many of the economy’s other problems would soon melt away.
However, the chronic shortage of aggregate demand in the economy certainly makes all this far more difficult to achieve. To state the blindingly obvious, Spain needs a strategy which recognises the need for growth, as well as short-term budget consolidation. This will require a different, longer-term plan for fiscal sustainability alongside growth-friendly tax policies, a means of financing the banks through their growing crisis, and previously unthinkable labour market reforms.
The rest of the eurozone has a choice. It can either help Spain through its current difficulties, with support from the ECB in the form of bond buying via the SMP, and from the ESM in the form of capital injections into the banks. Or it can wait until the crisis gets much worse before it is forced to act.
Co-ordinated and pre-emptive action, by Spain and the eurozone together, is urgently needed. There are few signs from either party that it will be forthcoming.
Michael Snyder: The economic crisis in Europe (NYSEARCA:VGK) continues to get worse and eventually it is going to unravel into a complete economic nightmare. All over Europe (NYSEARCA:IEV), national governments have piled up debts that are completely unsustainable. But whenever they start significantly cutting government spending it results in an economic slowdown. So politicians in Europe are really caught between a rock and a hard place. They can’t keep racking up these unsustainable debts, but if they continue to cut government spending it is going to push their economies into deep recession and their populations will riot. Greece is a perfect example of this. Greece has been going down the austerity road for several years now and they are experiencing a full-blown economic depression, riots have become a way of life in that country and their national budget is still not anywhere close to balanced. Americans should pay close attention to what is going on in Europe, because this is what it looks like when a debt party ends. Most of the nations in the eurozone have just started implementing austerity, and yet unemployment in the eurozone is already the highest it has been since the euro was introduced. It has risen for 10 months in a row and is now up to 10.8 percent. Sadly, it is going to go even higher. As economies across Europe slide into recession, that is going to put even more pressure on the European financial system. Most Americans do not realize this, but the European banking system is absolutely enormous. It is nearly four times the size that the U.S. banking system is. When the European banking system (NASDAQ:EUFN) crashes (and it will) it is going to reverberate around the globe. The epicenter of the next great financial crisis is going to be in Europe, and it is getting closer with each passing day.
The following are 27 statistics about the European economic crisis that are almost too crazy to believe….
Greece
The Euro’s Demise Has Been Set in Motion: Are you protected?
«Nationalism will emerge. Healthier countries will not see fit to spend their hard earned money to bail out their less responsible neighbors.»
CLICK HERE to get your Free E-Book, “Why It’s Curtains for the Euro”
#1 The Greek economy shrank by 6 percent during 2011, and it has been shrinking for five years in a row.
#2 The average unemployment rate in Greece in 2010 was 12.5 percent. During 2011, the average unemployment rate was 17.3 percent, and now the unemployment rate in Greece is up to 21.8 percent.
#3 The youth unemployment rate in Greece is now over 50 percent.
#4 The unemployment rate in the port town is Perama is about 60 percent.
#5 In Greece, 20 percent of all retail stores have closed down during the economic crisis.
#6 Greece now has a debt to GDP ratio of approximately 160 percent.
#7 Some of the austerity measures that have been implemented in Greece have been absolutely brutal. For example, Greek civil servants have had their incomes slashed by about 40 percent since 2010.
#8 Despite all of the austerity measures, it is being projected that Greece will still have a budget deficit equivalent to 7 percent of GDP in 2012.
#9 Greece is still facing unfunded liabilities in future years that are equivalent toapproximately 800 percent of GDP.
#10 In the midst of all the poverty in Greece, several serious diseases are making a major comeback. The following comes from a recent article in the Guardian….
The incidence of HIV/Aids among intravenous drug users in central Athens soared by 1,250% in the first 10 months of 2011 compared with the same period the previous year, according to the head of Médecins sans Frontières Greece, while malaria is becoming endemic in the south for the first time since the rule of the colonels, which ended in the 1970s.
Spain
#11 The unemployment rate in Spain (NYSEARCA:EWP) is now up to 23.6 percent.
#12 The youth unemployment rate in Spain is now over 50 percent.
#13 The total value of all toxic loans in Spain is equivalent to approximately 13 percent of Spanish GDP.
#14 The GDP of Spain is about 1.4 trillion dollars. The three largest Spanish banks have approximately 2.7 trillion dollars in assets and they are all on the verge of failing.
#15 Home prices in Spain fell by 11.2 percent during 2011.
#16 The number of property repossessions in Spain rose by 32 percent during 2011.
#17 The ratio of government debt to GDP in Spain will rise by more than 11 percent during 2012.
#18 On top of everything else, Spain is dealing with the worst drought it has seenin 70 years.
Portugal
#19 The unemployment rate in Portugal is up to 15 percent.
#20 The youth unemployment rate in Portugal is now over 35 percent.
#21 Banks in Portugal borrowed a record 56.3 billion euros from the European Central Bank in March.
#22 It is being projected that the Portuguese economy will shrink by 5.7 percent during 2012.
#23 When you add up all forms of debt in Portugal (government, business and consumer) the total is equivalent to approximately 360 percent of GDP.
Italy
#24 Youth unemployment in Italy is up to 31.9 percent – the highest level ever.
#25 Italy’s national debt is approximately 2.7 times larger than the national debts of Greece, Ireland and Portugal put together.
#26 If you add the maturing debt that the Italian government must roll over in 2012 to the projected budget deficit, it comes to approximately 23.1 percent of Italy’s GDP.
#27 Italy (NYSEARCA:EWI) now has a debt to GDP ratio of approximately 120 percent.
So why hasn’t Europe crashed already?
Well, the powers that be are pulling out all their tricks.
For example, the European Central Bank decided to start loaning gigantic mountains of money to European banks. That accomplished two things….
1) It kept those European banks from collapsing.
2) European banks used that money to buy up sovereign bonds and that kept interest rates down.
Unfortunately, all of this game playing has also put the European Central Bank in a very vulnerable position.
The balance sheet of the European Central Bank has expanded by more than 1 trillion dollars over the past nine months.
The balance sheet of the European Central Bank is now larger than the entire GDP of Germany and the ECB is now leveraged 36 to 1.
So just how far can you stretch the rubberband before it snaps?
Perhaps we are about to find out.
The European financial system is leveraged like crazy right now. Even banking systems in countries that you think of as “stable” are leveraged to extremes.
For example, major German banks are leveraged 32 to 1, and those banks are holding a massive amount of European sovereign debt.
When Lehman Brothers finally collapsed, it was only leveraged 30 to 1.
You can’t solve a debt crisis with more debt. But the European Central Bank has been able to use more debt to kick the can down the road a few more months.
At some point the sovereign debt bubble is going to burst.
All financial bubbles eventually burst.
What goes up must come down.
Right now, the major industrialized nations of the world are approximately 55 trillion dollars in debt.
It has been a fun ride, but this fraudulent pyramid of risk, debt and leverage is going to come crashing down at some point.
It is only a matter of time.
