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PIIGS / Europe's Debt Troubles

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Read a couple of posts at deflationite that take a wider view than many commentators. I've found lots of commentators talk about what is happening in their part of the world and tend to ignore macro events happening elsewhere.

 

http://www.deflationite.com/blog/?p=282

Squeezing the Balloon

 

If you squeeze a balloon in order to make it smaller the amount of air in the balloon stays the same. The end you squeeze will get much smaller, but the area you do not squeeze will expand.

 

At the moment we have a global game of squeeze the balloon going on.

 

The countries faced with deflation problems are squeezing the balloon, and the countries without deflation problems are faced with the consequences.

 

To really simplify it, the U.S. is squeezing the balloon and China will be the recipient of the expansion. Namely inflation.

 

The game that is being played now is one of brinkmanship because everyone knows what is going on. One party is quite deliberately trying to help themself at the direct expense of another party.

http://www.deflationite.com/blog/?p=272

Hyperinflation Will Not Happen In the United States

 

I have been reading predictions of hyperinflation in the United States for such a long time I finally have to voice my opinion. Hyperinflation will not happen in the U.S. Even the highest estimates of quantitative easing made by market pundits has no way of causing hyperinflation within the U.S. The United States is currently a depressed economy by any measure. Unemployment measured in U6 terms, real terms, is upwards of 16%, there is no shying away from that.

 

Politicians can choose to pump printed money at the problem but they are like Liza trying to stop the hole in the bucket. You can keep filling it but the water (money) is going elsewhere.

 

The money has been going to one main place and one main place only. China.

 

This money does not hide, it does not go away, it has to be used somewhere.

 

So what happens, the economy is growing but is still immature in terms of capital. These huge inflows of money have got limited areas where they can go.

 

So inevitably they just flow to the areas that are available.

 

In China’s case it has been property.

 

The money flowing out of western economies had to go somewhere and it went into Chinese property ‘investment’.

 

The property bubble is already near bursting in China.

 

The Chinese government does not want it to burst.

 

Yet more and more money keeps pouring into the country.

 

What to do with it?

 

Well, what will happen eventually is this money is all going to spill into non property areas and cause inflation in nonproperty parts of the economy as well.

 

The money will keep flowing, because the western countries will still keep printing money, trying to devalue against each other to cheaply get out of their debt hell holes.

 

The pressure on China will become immense and hyperinflation will occur where the money is going, China.

 

But even this guy doesn't talk about what is happening with respect to Japan and Euroland wanting to QE / continue QE

 

 

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The money flowing out of western economies had to go somewhere and it went into Chinese property ‘investment’.

This is complete nonsense, because property is paid for in Yuan, but the question is: "where are the US Dollars going?"

 

The pressure on China will become immense and hyperinflation will occur where the money is going, China.

Now, this makes more sense. And the spill-over effect will be HI in the US Dollar, because these here are the alternatives:

 

(i) China goes hyper, but keeps a fixed peg to the USD.

 

That means that Chinese will have incredible buying power in terms of USD. They will able to import anything paid for in USD cheaply (ALL commodities, like oil, gold, wheat, cars), hence anyone using USD will see prices going up big time.

 

(ii) China threatens to go hyper and therefore unpegs from USD to mitigate via exchange rate.

 

Same effect as in (i).

 

That's how HI from China spills over into USD lala-land. TOTALLY unexpected of course. I am looking forward to the Bloomberg headlines.

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WOW THAT WAS QUICK. :lol::lol:

 

THE PROPOGANDA MAKES YOUR EYES WATER.

 

http://www.bbc.co.uk/news/business-12007016

 

 

Irish economy returns to growth

 

The Irish Republic's economy returned to growth between July and September, expanding by 0.5% on the previous three months, official figures have shown.

 

The figure was slightly below analysts' expectations.

 

The Republic's economy shrank in the second quarter after exiting recession in the first three months of the year.

 

Earlier this month, the Irish parliament passed the toughest budget in the country's history, designed to slash spending and raise taxes

 

"Today's figures show that the economy has stabilised and is now on an export-led growth path," said Finance Minister Brian Lenihan.
:rolleyes:

 

"The budget day forecast for economic growth of 1.7% in 2011, which is in line with the consensus forecast, remains on track."
:blink:

 

 

AND THEN FROM THE BEEB

 

IMF agrees 22.5bn euro loan for the Irish Republic

 

http://www.bbc.co.uk/news/business-12014420

 

 

The International Monetary Fund (IMF) has approved a three-year loan of 22.5bn euros ($30.1bn; £14.4bn) for the Republic of Ireland.

 

The funds form the first part of the IMF's contribution to the EU and IMF rescue package totalling 85bn euros being received by the Irish Republic.

 

About 5.8bn euros of the IMF funds will be immediately available for Dublin.

 

Irish MPs voted to accept the EU-IMF bail-out this week, as the government seeks to restore its finances.

 

The Irish Republic is trying to reduce its high public deficit and large overall debt.

 

It is also having to shore up the country's banks, which have been left with significant bad debts following the collapse of the country's property market.

 

YOU COULD'NT MAKE THIS STUFF UP.UNBELIEVABLE.

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WOW THAT WAS QUICK. :lol::lol:

THE PROPOGANDA MAKES YOUR EYES WATER.

 

http://www.bbc.co.uk/news/business-12007016

Irish economy returns to growth

The Irish Republic's economy returned to growth between July and September, expanding by 0.5% on the previous three months, official figures have shown.

And then... DOWNGRADE !

 

(Reuters) - Ratings agency Moody's gave a resounding thumbs-down on Friday to Europe's efforts to resolve a rolling debt crisis, slashing Ireland's credit rating by five notches despite this month's EU/IMF bailout.

 

The rare steep downgrade came during a European Union summit intended to restore market confidence by creating a permanent financial safety net for the euro zone from 2013 and by vowing to do whatever it takes to preserve the single currency.

 

Moody's cut Ireland's rating to Baa1 with a negative outlook from Aa2 and warned further downgrades could follow if Dublin was unable to stabilize its debt situation, caused by a banking crash after a decade-long property bubble burst.

 

"While a downgrade had been anticipated, the severity of the downgrade is surprising," Dublin-based Glas Securities said.

 

News of the latest blow to confidence broke as the 27 leaders held a second day of talks on how to stop contagion spreading from Greece and Ireland to other high-deficit euro zone countries such as Portugal and Spain.

 

"The recent events have demonstrated that financial distress in one member state can rapidly threaten macrofinancial stability of the EU as a whole through various contagion channels," a draft final summit statement seen by Reuters said.

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France's AAA Grade at Risk as Rating Cuts Spread: Euro Credit

 

France risks losing its top AAA grade as Europe’s debt crisis prompts a wave of downgrades that threatens to engulf the region’s highest-rated borrowers, with Belgium also facing a possible cut.

 

Moody’s Investors Service said Dec. 15 it may lower Spain’s rating, citing “substantial funding requirements,” and slashed Ireland’s rating by five levels on Dec. 17. Standard & Poor’s is reviewing its assessments of Ireland, Portugal and Greece. Costs to insure French government debt rose to a record today with the country’s credit default swaps more expensive than lower-rated securities from the Czech Republic and Chile.

 

“It would be a big deal if France was to have its AAA rating stripped. I don’t think the likelihood of a downgrade is reflected in the market.

 

France’s credit rating is susceptible unless the country makes “meaningful reductions” to its deficit

 

Costs to insure French government debt trebled this year, rising to an all-time high of 105.5 basis points today, according to data provider CMA. Credit default swaps tied to Czech securities gained 1 basis point to 91 and Chilean swaps were little changed at 89 basis points.

 

The credit default swaps tied to the French bonds imply a rating of Baa1, seven steps below its actual top ranking of Aaa at Moody’s, according to the New York-based firm’s capital markets research group.

 

Contracts on Portugal imply a B2 rating, 10 levels below its A1 grade, while swaps tied to Spanish bonds trade at Ba3, 11 steps below its Aa1 ranking, data from the Moody’s research group show. Derivatives protecting Belgian debt imply a rating of Ba1, nine steps below its current rating of Aa1.

 

In Belgium, seven political parties involved in coalition talks are sparring over whether to grant more fiscal autonomy for the country’s regions after inconclusive elections in June left it without a government. The public debt of Belgium is close to 100 percent of gross domestic product, and 65 billion euros ($87 billion) of the nation’s bonds and bills are due to mature next year, according to data compiled by Bloomberg.

 

The European Union agreed in October to establish a European Stability Mechanism to deal with nations struggling to meet debt payments. The finance ministers of the 16 nations sharing the euro said Nov. 28 that “an ESM loan will enjoy preferred-creditor status, junior only” to International Monetary Fund loans.

 

The statement, which means bondholders rank behind those emergency loans, prompted S&P to warn it may lower the BB+ rating on Greece and A- long-term rating on Portugal. The decision also deepened the crisis, Morgan Stanley analysts said.

 

“The current stage of the global sovereign debt crisis is the consequence of a demotion of government bonds in the liability structure of governments,” Arnaud Mares, an executive director at Morgan Stanley and former senior vice president at Moody’s, said in a Dec. 6 investor note.

 

Spanish funding needs for “regional governments and the banks make the country susceptible to further episodes of funding stress,” Moody’s analyst Kathrin Muehlbronner said in a Dec. 15 report.

 

 

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Spain can't pay it's electricity bill... literally!

 

http://noir.bloomberg.com/apps/news?pid=20...TOSJc&pos=3

Spain Power Debt Infects Enel With Sovereign Woes: Euro Credit

By Alessandra Migliaccio and Ben Sills

 

Dec. 22 (Bloomberg) -- Europe’s spreading sovereign debt crisis is making it tougher for Spain to pay electricity bills, and that’s infecting corporate bonds beyond its borders.

 

Enel SpA, the Italian owner of Spanish power company Endesa SA, was put under review for a possible downgrade last week by Moody’s Investors Service because the Spanish government’s surging financing costs led it to freeze plans to repay 14.6 billion euros ($19.2 billion) owed to its utilities. Enel bonds were the worst performers this month among the 50 biggest non- financial issuers in Bank of America’s EMU Corporate Index.

 

“The contagion between corporate and sovereign is already happening,”

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Fitch has now downgraded Portugal,

 

...and...

 

http://www.bloomberg.com/news/2010-12-23/i...-two-years.html

Ireland Takes Control of Allied Irish, Fourth Bank in Two Years

...

Ireland’s High Court said Allied Irish Banks Plc can be taken over by the government without shareholder approval as the lender became the fourth bank to fall under state control since 2008.

 

Finance Minister Brian Lenihan secured approval from the Dublin-based court today to inject 3.7 billion euros ($4.8 billion) into the lender by Dec. 31 and raise its stake to 92 percent from 19 percent,

...

“We wouldn’t have had Allied Irish Banks on the 1st of January if this investment wasn’t made,” Lenihan said in an interview with Dublin-based broadcaster RTE Radio after the ruling.

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http://www.telegraph.co.uk/finance/finance...dit-crisis.html

European debt markets 'face second credit crisis'

...

Banks alone must refinance about €400bn (£343bn) of debt in the first half of the year, but add in the more than €500bn European governments must replace over the same period, as well as further hundreds of billions of euros of mortgage-backed debt maturing and there is the potential for chaos in the credit markets.

 

"What we are looking at here clearly has the potential to become a second credit crunch. However, this time it would be much worse than before," said Celestino Amore, founder of IlliquidX, which specialises in trading hard-to-price debt.

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http://www.telegraph.co.uk/finance/finance...dit-crisis.html

"What we are looking at here clearly has the potential to become a second credit crunch. However, this time it would be much worse than before," said Celestino Amore.

 

Not "potential", rather : "an near certainty".

What can stop it?

 

The Can is getting heavier, and harder to kick down the road.

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Greek_Games.gif

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Not "potential", rather : "an near certainty".

What can stop it?

 

The Can is getting heavier, and harder to kick down the road.

How much has the UK to rollover during the first half, including the bank turds?

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How much has the UK to rollover during the first half, including the bank turds?

i am sorry - i cannot answer that.

 

Sean David Morton is predicting big defaults in Europe (Greece, Ireland, and Spain) and also in US states like

California and Ohio in the first 6 months of 2011.

 

I think the troubles will spread to the UK, and take the form of restricted credit, and probably rising rates

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http://www.bloomberg.com/news/2011-01-06/s...uro-credit.html

Soros Mistrusts EU Aid as Irish Default Risk Soars

...

“We’re in a cul-de-sac,” said David McWilliams, a former central bank economist and the author of three books on the Irish economy. “You want to avoid defaulting on sovereign debt, so we need to cut the link with bank debt.”

...

Soros called the protection of senior bank bondholders “politically unacceptable’,’...

...

Greece unofficially informed EU officials and the European Central Bank that after 2013 it will seek an extension on all outstanding debt and a reduction in interest, Ta Nea newspaper reported last month, without citing anyone. :o

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UK Debt maturity profile (old - 2009)

It looks as if this year is gonna be pretty bad then. A lot to roll over.

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Here we go again.....

 

ECB forced to step in to calm market fears over Portugal

The European Central Bank (ECB) was forced to step in as market fears grew over Portugal's ability to solve its debt crisis.

 

http://www.telegraph.co.uk/finance/finance...r-Portugal.html

 

Once bond yields go over 7%, as they just have in Portugal, its a game changer. Portugal will now have to apply for an Irish/Greek style bailout.

 

I'll give Portugal a month before the IMF sign a cheque. But who has a cheque book big enough for Spain?

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... But who has a cheque book big enough for Spain?

Apparently China thinks they have. And then there is the moneyflood from the ECB...

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Apparently China thinks they have. And then there is the moneyflood from the ECB...

 

 

The ECB is no Fed. So far they have avoided creating new money. And if Germans were nervous about bailing out Greece and Ireland, there is no way they'll stand for Spain geting a bailout. And i don't blame them.

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Here we go again.....

ECB forced to step in to calm market fears over Portugal

The European Central Bank (ECB) was forced to step in as market fears grew over Portugal's ability to solve its debt crisis.

http://www.telegraph.co.uk/finance/finance...r-Portugal.html

EXCERPT:

With Portuguese debt maturing in April and June, the bond markets, which fell for a third day in succession, have grown nervous.

 

José Sócrates, Portugal’s prime minister, played down concerns over the steep rise in bond yields, stating that the government would achieve its 2010 budget deficit target without needing help from the EU.

 

The government has promised to cut its deficit to 7.3pc of GDP in 2010, down from 9.3pc in 2009. Portugal’s announcement this week that it will issue its first bonds of the year next Wednesday is seen as a key moment for Lisbon.

 

The government has also issued 1bn euros of 2.5-year notes through a private placement in a bid to narrow its budget gap.

 

Question:

How does issuing " 2.5-year notes through a private placement" ... "narrow its budget gap" ??

In truth, such effort does not 'narrow" the deficit, it "finances" it ... only temporarily.

 

These PIIGS have been relying on smoke and mirrors so long, they have lost sight of reality

 

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Once bond yields go over 7%, as they just have in Portugal, its a game changer. Portugal will now have to apply for an Irish/Greek style bailout.

 

I'll give Portugal a month before the IMF sign a cheque. But who has a cheque book big enough for Spain?

 

After reading the article you just get a sense that Portugal is very close to the edge....i.e. rising bond yields, frantic denials by the government etc, just as we saw before Greece and Ireland went under

 

I agree, maybe next week or by the end of the month at the latest?

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OK, so Portugal is essntially done, it seems.

 

Who's next?

 

XYZ = done

XYZ = soon anticipated

XYZ = waiting in line

XYZ = last line of defense

[XYZ] = non-EURO country

XYZ = rogue state with high meltdown potential

 

-1. [Dubai]

0. [The Baltics]

1. [iceland]

2. Greece

3. Ireland

4. Portugal

4.5 [Hungary]

5. Spain

6. Italy

7. Belgium

8. Austria

9. France

9.5 [UK]

10. Netherlands

11. Germany

----------------

Europe

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Is China's European Rescue Just A Big "Bait And Switch"?

 

 

Something interesting happened on the way to China's bailout of Europe. After recently China stepped up its Eurosupport rhetoric, and even put a token amount of money where it mouth is, €1.1 billion in directly placed Portuguese bonds specifically, and who knows how much in secondary market purchases, many of the clouds over Europe, and specifically the Euro, have been lifted temporarily, resulting in a modest jump in the EURUSD from just under 1.29 last week to nearly 1.32 today. Which makes sense: after all the EU is China's second biggest trade partner, and as a habitual importer, China needs the EU's currency as strong as possible to preserve its imports. Yet what is odd, is that over the past 24 hours we have received numerous notifications that it is none other than Chinese banks that have been selling the EURUSD! Which makes one wonder: is China's European "rescue" just one big bait and switch distraction?

 

Keep in mind that it was just announced that Chinese FX reserves swelled to an unprecedented $2.85 trillion, jumping by a massive $199 billion in Q4, the biggest amount on record. And of course, this is not all USD denominated. In fact, according to estimates, the euro accounts for 25% of the total amount, or about $710 billion. Seen this way, it suddenly becomes far more clear why China is much more focused on the EURUSD, and why every marginal change in the pair actually has a far greater impact on the country's asset allocation decisions.And China is the best when it comes to strategically allocating FX reserves.

 

Here's the math: assuming roughly €510 billion in EUR-denominated holdings, just the last 5 day jump in the EURUSD from 1.29 to 1.31 means that the USD value in a static pool of €-holdings has increased by about $11 billion (on paper). But here's the kicker: it is not on paper, and if the rumors are true, China is actively converting EUR holdings to USD. It appears that the mid-1.31 range is one appropriate exit point. So from an IRR standpoint, China invests €1.1 billion in Euro peripheral bonds knowing full well that the biggest backstopper is the ECB, in essence letting the country frontrun Europe's taxpayers. And in return it gets a marginal improvement in its FX holdings to the tune of $10 billion. In other words, every 100 pips improvement in the EURUSD results in a ~$5 billion boost to the USD valuation of EUR-denominated holdings. And if the latest €1 billion investment allowing the country to "buy" $10 billion in FX gains is any indication, China sure knows what it is doing.

 

Furthermore, with it allegedly actively selling EURs as a result, it appears that the country is in effect betting against Europe, and is continuing to reduce its 25% EUR allocation, with the USD as a beneficiary.

 

This is certainly not Euro-positive, but it means that every time the EURUSD drops below 1.30 China will ramp up the rhetoric of its European support, and do an occasional €1-2 billion direct investment, which allows the country to offload another several billion in EUR at a higher fixing.

 

To those who see this as a great bait and switch, you are not alone. Yet this is nothing more or less than perfectly permitted FX-warfare, in a world in which countries like China with a pegged currency will do all everything in its favor to preserve exposure in whatever currency it finds strongest.

 

The only question then remaining is at what new low threshold level in EUR-denominated FX reserves will China say enough and pull back the rhetoric... and its wallet?

 

http://www.zerohedge.com/article/chinas-eu...bait-and-switch

 

So it had nothing to do with propping up China's best buyers of short-life socks & generators after all :(

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Is China's European Rescue Just A Big "Bait And Switch"?

http://www.zerohedge.com/article/chinas-eu...bait-and-switch

So it had nothing to do with propping up China's best buyers of short-life socks & generators after all :(

Dies anyone else find the logic here to be a tad "strained"?

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http://www.bbc.co.uk/news/business-12180272

 

Spain sees strong demand in latest bond auction.

 

Spain has raised 3bn euros ($3.9bn; £2.5bn) in an auction of five-year government bonds.

 

The average yield on the bonds was 4.542%, which was nearly one percentage point higher than the rate reached in the last auction in November.

 

European Commission President Jose Manuel Barroso said the European Financial Stability Facility needed to be extended from its current 440bn euro ($571bn; £366bn) level. :o:o

 

I wouldnt have 'purchased' those bonds at 10 % let alone 4.5%. :lol::lol:

 

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