The big news that the markets are attempting to digest this week is the €100 billion Spanish bailout. This action and the upcoming Fed FOMC meeting on June 19-20 will dictate the market’s action over the next two weeks and possibly for the remainder of the year. [That being said, given what has transpired in Spain this past month, it is evident that the philosophy is to “lie until you are about to die.” Let me explain.] Words: 640
So says Graham Summers (www.gainspainscapital.com) in edited comments from his latest article*.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Summers goes on to say, in part:
The first of these topics, the Spanish bailout, is an extremely complicated affair. The key takeaway issues that need to be considered are:
- How the bailout was performed: who was involved and who wasn’t.
- The details of the bailout structure itself.
- The financial implications of the bailout.
- The political implications of the bailout.
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Let’s dive in.
Spain has been denying the need for a bailout for months now. Indeed, a mere two weeks ago, Prime Minister Mariano Rajoy stated that Spain would not need outside assistance…What’s peculiar about this statement was that it was made when the Bankia nationalization was already underway. Indeed, two days after Rajoy’s comment, Bankia asked Spain for €19 billion in bail out funds. So we now know that:
- Spain’s political leaders will lie right up until the point of systemic collapse and that
- both Spanish banks and politicians are highly incentivized to not quantify the true extent of the risks inherent in the Spanish banking system (remember, Bankia was discussing paying its dividend in April… just one month before it requested a bailout and revised its 2011 €309 million profit to a €3 billion loss).
Thus, I would change the common phrase applied to the EU’s political/ financial policies from “extend and pretend” to “lie until you are about to die.” This notion is illustrated by the fact that on May 28th, a mere week before Spain requested a bailout, Prime Minister Rajoy continued to maintain that Spain would not need a outside funding, stating, “there will be no rescue of the Spanish banking sector.” At this point, Bankia had already requested its bailout and Spanish banks’ shares were in a free-fall. Moreover, Spain itself was just days away from requesting outside aid from the EU.
The timeline says it all:
- May 9th: Bankia requests €4.5 billion loan, Spanish Government states that the bank is “solvent”….
- Weekend of June 8-10th: Rajoy texts to his finance minister: “Aguanta, we are the fourth European power. Spain is not Uganda… If they want to force the rescue of Spain, they need to start getting ready €500 billion and another €750 billion for Italy, which will have to be rescued afterwards.”/ Spain informally asks for €100 billion bailout/ EU Finance Ministers OK the bailout.
- Sunday June 10th: Rajoy states that the bailout is a “victory” before commenting, “This year is going to be a bad one: Growth is going to be negative by 1.7 percent, and also unemployment is going to increase.”
Thus, in just one month’s time, Spain implements the largest bank nationalization in its history and requests €100 billion from the EU to recapitalize its banks – and yet, throughout this time, Spanish politicians maintain that Spain’s banking system is “solvent” or in great shape… right up until they get the €100 billion at which point the truth comes out: “This year is going to be a bad one.”
As I said before, “Lie until you are about to die.”
With that in mind, I fully believe the EU is on the verge of a systemic collapse. How can a €100 billion bailout for (from a currently non-existent entity, the ESM, no less) save Spain when even its Prime Minister admits the real needs could be in the ballpark of €500 BILLION.
*www.gainspainscapital.com (To access the above article please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
As the focus of the euro crisis shifts to Italy, IMF head Christine Lagarde has warned that European leaders have less than three months to save the euro. Meanwhile top economist Nouriel Roubini has called on Berlin to drop its obsession with austerity, proposing that the German government give every household a 1,000 euro [$1,250 US equivalent] voucher to spend on a vacation in Southern Europe. Words: 990
In every economic crisis there comes a moment of clarity. In Europe soon, millions of people will wake up to realize that the euro-as-we-know-it is gone. Economic chaos awaits them. [Let us explain why that is the case and how it will come about.] Words: 680
The media is rife with misrepresentations and analysis of the EU. Here’s the real deal, no BS situation with Europe – and its BAD! Words: 900
Introduction: “The crisis in the eurozone is the result of France’s persistent pursuit of the “European project,” the goal of political unification that began after World War II [with the hope] that a political union, a United States of Europe similar to America’s, would…prevent the types of conflict that had caused three major European wars…[and] also make Europe a power comparable to the United States, and thereby give France, with its sophisticated foreign service, an important role in European and world affairs.” [What went wrong and what does the future hold?]
Worries about an economic catastrophe in Europe are heating up again, and dramatic forecasts about doom are popping up everywhere. What’s important? How did we get here? Let’s put this all in perspective. Words: 2356
We still don’t have many political voices [in the European Union] that have the courage to say, ‘We’re headed for the rocks, and before we hit the rocks, let’s take a different course. Let’s try to break this thing up peaceably, before it ends in disaster….The establishment always supports the status quo…but actually, I think the only way we can avoid a depression is to break this (the EU) up.
I continue to see articles in the media claiming that Europe’s problems are solved. Either the folks writing these articles can’t do simple math, or they don’t bother actually reading any of the political news coming out of Europe [so let me present 3 data points that guarantee Europe will collapse at some point in the near future]. Words: 722
The Markit PMI data from Europe shows still more deterioration led by France, Italy, and Spain. Let’s take a look at a few countries.
As many of you know, my primary forecast regarding Europe is that the EU will be broken up and/or collapse within the coming months. The reasons for this are financial, monetary and political in nature [with much of the latter dependant on what happens in Germany. Let me explain.] Words: 516
Europe is heading off a cliff! From one end of the continent to the other, the numbers suggest a double-dip recession is striking with brutal force…and with the world as interconnected as it is these days, what happens in Europe WILL impact our companies and markets here so now is the time to position your portfolio to weather the storm. Words: 900
The European economic situation is explained very simply in the illustration below. Take a look.
The U.S. government has put us between the proverbial ‘rock and a hard place’. Cutting spending to improve our country’s financial situation would surely trigger rioting in the streets by those Americans most adversely affected yet not cutting spending will trigger much higher inflation – even hyperinflation – which will also result in rioting….Government cannot control how this ends. They may be able to tinker with the timing a bit and they still have the choice of poisons with which to destroy the country, [but] that the country is gone, that is no longer alterable. Words: 930
The European politicians are totally committed to keeping the eurozone together. It’s a bad idea, but they are committed to it – and they are willing to spend everybody else’s money – especially German money – to do that.
On the surface, Spain’s debt woes have many things in common with those of Greece – bad age demographics and a toxic bank system – but you’ll note that, as we tackle each of these, Spain is in fact in far worse fiscal shape than Greece. [Let’s take a look.] Words: 700
In this article I lay out precisely why the coming Crisis in Europe will be THE Crisis I’ve been forecasting for the last 24 months, why it will have dire consequences on the U.S. and why the Fed can do absolutely nothing to stop it this time round. Words: 1334
On the surface things may appear to be calm, but I don’t think the European crisis is anywhere near its conclusion. Losses still have to be taken from Ireland, Spain, Portugal and possibly even Italy…There are a number of ways out of Europe’s problems. One of them is higher inflation…[which] is going to be very positive for gold… because the central banks will be under pressure to print.
When the supply of something is increased sharply relative to demand, the value of that commodity will decline. If the supply continues to increase rapidly and indefinitely, then that item will become worth less and less, with the potential to finally become nearly worthless. This is the Developing Disaster facing the US Dollar and the world. This is the factor that could become the single most important criterion in investment allocation decisions and possibly even for individual financial survival…[Let me explain this further by reviewing the 7 major problems facing the U.S. (and thus the world) and how they all will lead to problem #7 – devolution.] Words: 1520