"It's official - there is not enough money to bail out Spain" - U2 Feedback

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Old 11-24-2010, 08:22 PM   #1
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"It's official - there is not enough money to bail out Spain"

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It seems that the European bailout buck will stop with Portugal for one simple reason: when Europe created the EFSF it did not think it would need to serially bail out everyone; now the EFSF does not have enough money to cover a bailout of Spain. From Dow Jones: "The European emergency fund, promoted as having the financial firepower to douse a financial crisis in the euro zone, may not even have enough money to cover a bailout of Spain. "[The fund] will be very close to the line, it will be precarious and it won't leave anything for anybody else," said Whitney Debevoise, a sovereign-debt lawyer with Arnold Porter and former World Bank executive director." Of course, if and when Spain is bailed out, other bail outs will be irrelevant, as at that point the vigilantes will focus squarely on Germany. At that moment, nothing less than a complete dissolution of the currency union and an unmitigated monetization ala Weimar will save what is left of the productive powers remaining in Europe.

From Dow Jones:

The EU has EUR440 billion committed from member countries to its European Financial Stability Facility, the fund being used to extend bailout aid to Ireland. Requirements by European officials that the bailout bonds have a triple-A rating lowers the EU's lending capability to EUR250 billion, in addition to EUR60 billion available in the EU budget. The International Monetary Fund has said it will lend an additional 50% to European countries.

If Ireland requires between EUR80 billion and EUR100 billion--as officials indicate--and Portugal needs an estimated EUR50 billion to cover its sovereign debt refinancing needs, that barely leaves enough to cover Spain's sovereign debt rollover requirements over the next three years. Greece's EUR110 billion package was arranged before the bailout fund was set up.

The problem, said an IMF official, is that Portugal and Spain may also ultimately need to fund banks' recapitalization or wholesale liabilities, and the European bailout mechanism just doesn't have the capacity to cover those financing gaps.

"The [bailout fund] as it is currently structured does not have the firepower without a much, much larger contribution from the IMF," said Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics. "But how much does the IMF as a global institution want to be exposed to Europe as a region?," he said.

Although only Ireland has so far requested aid from the joint European Union-International Monetary Fund program, fears that Portugal and Spain may need external assistance have already spiked the cost of borrowing in both countries' sovereign and banking debt markets as perceived risks rise.

Both the EU and the IMF declined to comment for this article.

The last is not too surprising: an admission that the EMU is over due to lack of foresight to add one extra zero may not be to most politically correct thing to do. But luckily, there is always the IMF, which courtesy of its recent amendment now has infinite capital. And if Europe needs bailing out that means Europe won't be paying for that particular multi-trillion rescue. Which leaves guess who. Hopefully, Bernanke's foolproof plan of ultimately flooding the world with US dollars is starting to be perceived by everyone.

So what does happne when domestic sources of funds are exhausted? Nothing pretty:

Alternative funding could come through bilateral loans from countries heavily exposed to Spain or extra International Monetary Fund support. But tapping out the EU's emergency financing mechanism would leave nothing for other countries and may force Brussels to try to boost the funding cap to save the euro zone and leave Europe stretched critically thin.

Aside from direct bilateral loans, such as those being considered for Ireland from the U.K., Sweden and Denmark, Debevoise says EU countries may have to boost the cap on their bailout program, a politically difficult task for a raft of reasons.

"At that point, it will be to save Europe, saying, 'this is your political duty,'" he said.

Notice how they don't call it patriotic... Because don't forget that the EMU has been around for a decade: it a modestly difficult to engender patriotic affiliation with a monetary union, whose sole purpose just like the CNYUSD peg by the way is to keep the German "currency" undervalued, which everyone hates.

The endgame? Unbridled printing:

"The willingness of the political sector to overcome what I believe will ultimately be proven to be an irrational liquidity squeeze by the market cannot be underestimated," he said.

That commitment to the euro zone is so strong, Kirkegaard says, "The European Central Bank would purchase outright with printed money Spanish debt before the Spanish government was forced into a disorderly default."

....which is one thing Bernanke will not allow. And should there be a liquidity crunch, every single European bank will need dollars. Many trillions of dollars. Which will be unavailable in the open market, leaving just the FRBNY's FX swap as a viable option. Of course, should Europe pursue a monetary policy in true independent isolation, and should the tsunami of dollar buying actually occur, the resulting historic surge in the USD may just end up being the most poetic end to the currency bottom...
Tick, tock.

Good time to buy dollars.
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Old 11-24-2010, 08:41 PM   #2
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Iceland went under and we survived, Ireland messed up, so what if Spain goes under.


We talk about countries, economies like they are all equal.
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Old 11-26-2010, 06:58 PM   #3
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Putin: Russia will join the euro one day - Telegraph

anything goes
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Old 11-26-2010, 07:06 PM   #4
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Quote:
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The first comment:

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irishstudent
Better do it soon Vladimir cos the euro is fucked
Vlad's comments may prompt a short term rally in EUR/USD when the markets re-open Monday, before the slide downwards recommences. I'm glad I closed out my profitable trade shorting EUR/USD before leaving work today. Wait for the short-term bounce, then short the f**** all the way down.
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Old 11-26-2010, 07:23 PM   #5
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Wait for the short-term bounce, then short the f**** all the way down.
And how far down would that be? Half of the current value? And what when your predicted crisis does not happen on such a scale?
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Old 11-26-2010, 07:42 PM   #6
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And how far down would that be? Half of the current value? And what when your predicted crisis does not happen on such a scale?
I am not giving predictions over the medium term. But, actually, you may have missed the point. Lack of a crisis means the Euro continues to drop, as of necessity, it means the ECB printing money. It is not possible for the Eurozone to continue in the medium term without quantitative easing.

A crisis developing whereby, say, Germany and France stick to the Euro and other countries are forced out, means that the Euro will probably appreciate.
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Old 11-29-2010, 05:01 PM   #7
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NYTimes (Paul Krugman, Nov. 28)
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...What’s striking about Spain, from an American perspective, is how much its economic story resembles our own. Like America, Spain experienced a huge property bubble, accompanied by a huge rise in private-sector debt. Like America, Spain fell into recession when that bubble burst, and has experienced a surge in unemployment. And like America, Spain has seen its budget deficit balloon thanks to plunging revenues and recession-related costs.

But unlike America, Spain is on the edge of a debt crisis. The US government is having no trouble financing its deficit, with interest rates on long-term federal debt under 3%. Spain, by contrast, has seen its borrowing cost shoot up in recent weeks, reflecting growing fears of a possible future default.

Why is Spain in so much trouble? In a word, it’s the euro. Spain was among the most enthusiastic adopters of the euro back in 1999, when the currency was introduced. And for a while things seemed to go swimmingly: European funds poured into Spain, powering private-sector spending, and the Spanish economy experienced rapid growth. Through the good years, by the way, the Spanish government appeared to be a model of both fiscal and financial responsibility: unlike Greece, it ran budget surpluses, and unlike Ireland, it tried hard (though with only partial success) to regulate its banks. At the end of 2007 Spain’s public debt, as a share of the economy, was only about half as high as Germany’s, and even now its banks are in nowhere near as bad shape as Ireland’s.

But problems were developing under the surface. During the boom, prices and wages rose more rapidly in Spain than in the rest of Europe, helping to feed a large trade deficit. And when the bubble burst, Spanish industry was left with costs that made it uncompetitive with other nations. Now what? If Spain still had its own currency, like the United States—or like Britain, which shares some of the same characteristics—it could have let that currency fall, making its industry competitive again. But with Spain on the euro, that option isn’t available. Instead, Spain must achieve “internal devaluation”: it must cut wages and prices until its costs are back in line with its neighbors.

And internal devaluation is an ugly affair. For one thing, it’s slow: it normally take years of high unemployment to push wages down. Beyond that, falling wages mean falling incomes, while debt stays the same. So internal devaluation worsens the private sector’s debt problems. What all this means for Spain is very poor economic prospects over the next few years. America’s recovery has been disappointing, especially in terms of jobs—but at least we’ve seen some growth, with real GDP more or less back to its pre-crisis peak, and we can reasonably expect future growth to help bring our deficit under control. Spain, on the other hand, hasn’t recovered at all. And the lack of recovery translates into fears about Spain’s fiscal future.

Should Spain try to break out of this trap by leaving the euro, and re-establishing its own currency? Will it? The answer to both questions is, probably not. Spain would be better off now if it had never adopted the euro—but trying to leave would create a huge banking crisis, as depositors raced to move their money elsewhere. Unless there’s a catastrophic bank crisis anyway—which seems plausible for Greece and increasingly possible in Ireland, but unlikely though not impossible for Spain—it’s hard to see any Spanish government taking the risk of “de-euroizing.” So Spain is in effect a prisoner of the euro, leaving it with no good options.

The good news about America is that we aren’t in that kind of trap: we still have our own currency, with all the flexibility that implies. By the way, so does Britain, whose deficits and debt are comparable to Spain’s, but which investors don’t see as a default risk. The bad news about America is that a powerful political faction is trying to shackle the Federal Reserve, in effect removing the one big advantage we have over the suffering Spaniards. Republican attacks on the Fed—demands that it stop trying to promote economic recovery and focus instead on keeping the dollar strong and fighting the imaginary risks of inflation—amount to a demand that we voluntarily put ourselves in the Spanish prison.
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Old 11-29-2010, 06:15 PM   #8
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Quote:
Good time to buy dollars.
Renminbi - Wikipedia, the free encyclopedia
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Old 11-29-2010, 06:19 PM   #9
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It's a good time to buy physical allocations of precious metals. Period.

(Well, it was an ideal time for the last 2 years.)
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Old 12-02-2010, 08:41 PM   #10
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Old 12-04-2010, 03:10 PM   #11
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they should allow more mexicans to immigrate as cheap labor.......gets the economy right back on track
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Old 12-05-2010, 08:28 PM   #12
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The spirit of resistance to government is so valuable on certain occasions that I wish it to be always kept alive. It will often be exercised when wrong, but better so than not to be exercised at all.

~Thomas Jefferson
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Originally Posted by kramwest1
It's a good time to buy physical allocations of precious metals. Period.

(Well, it was an ideal time for the last 2 years.)


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Old 04-06-2011, 05:08 PM   #13
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GlobalPost, April 6
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The Portuguese government threw in the towel on Wednesday and followed Greece and Ireland in requesting a bailout from the European Union.

Plunging confidence in Portugal's bonds has pushed the country to the brink of bankruptcy. "I've always viewed a request for external aid as a last resort...but now if we don't take this decision we will be taking risks that the country can't afford to run," said Prime Minister Jose Socrates in a televised address to the nation.

It was not immediately clear how much Portugal would be asking for to keep its public finances afloat, but previous estimates have suggested a bailout would likely be about 75 billion euros, including a first emergency slice of 15 billion euros. Greece and Ireland asked for rescue plans totaling 195 billion euros.

...The concern now is that market attention will turn to Portugal's much larger neighbor Spain. In recent weeks pressure has eased on Spain, with economists recognizing that its finances are in much healthier shape than Portugal's. The Spanish government has a stable majority in parliament to support plans to bring down the deficit. However, Spain is suffering record unemployment at over 20% and many of its savings banks are looking fragile after the bursting of a property bubble.
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Old 04-07-2011, 08:32 AM   #14
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Costco has had a tasty Portuguese wine for sale for $7.99 (USD). I've been doing my part in helping their economy.



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Old 04-07-2011, 04:56 PM   #15
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^ I remember all the wines I tried in Lisbon being very pleasant. That was definitely one of my favorite cities in Europe...it reminded me of San Francisco, what with the hills and the cable cars and the suspension bridge and all the tile, though of course the architecture is far more impressive.
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