ECB has just announced it is lowering interest rates.. This is almost entirely due to the ever increasing spread to German bunds we are witnessing in the debt markets. The measure will assist but its no where near enough.. And, better than a soap opera, 48hrs after announcing a Greek referendum on the bailout, its canceled. Democracy is not always the best policy it seems. (You notice, again and again issues around European political and financial integration are kept outside of the democratic process but its all done in the name of ‘progression’ for the greater good).
We must keep watching these debt spread rates.. explosive, to the upside, are France and Italy..
Portugal
http://www.bloomberg.com/apps/quote?ticker=.PORGER10:IND
Spain
http://www.bloomberg.com/apps/quote?ticker=.SPAGER10:IND
Italy
http://www.bloomberg.com/apps/quote?ticker=.ITAGER10:IND
France
http://www.bloomberg.com/apps/quote?ticker=.FRAGER10:IND
Every day the spread to german bunds is widening.. the screws are being turned.. The cost of borrowing for all these states rises every day.. and remember Italy must roll over a huge amount of public debt in the next 15 months. Another 50bn or so this year and somewhere around 250bn next year. The euro banks must also roll over vast amounts of debt in the near future. Without ECB monetization its surely an impossible task. A brief glimpse of the numbers is worrying. Here a quick overview of the next 12 months:
- French banks need to roll over 30% of their total debt.
- Spanish banks and Italian banks need to rollover more than 33% of their total debt.
- German banks need to roll over nearly 40% of their total debt.
- Irish banks need to roll over almost half (50%) of their total debt. (Irish bank debt is held by UK banks, note. Circa 140bn euros in loans by UK banks to Irish banks. 10% of uk GDP).
This is not a ‘sell’ indicator in itself as many ‘deflationists’ would claim. This is simply a huge set of indicators that time line the limit whereby nominal prices can be allowed to fall. Nominal prices must rise in order for the fiat system to survive. If nominal prices are allowed to fall just ahead of this huge re-issuance of debt the game will be up. The roll overs will not occur at a sufficiently low cost of money and the whole system will implode. This implosion is mathematically inevitable if the monetary base does not perpetually expand. Without the government, consumer and or corporations increasing debts to expand the monetary base the central banks will have to print to sustain the ponzi scheme. Without this the destruction of the post war social welfare model will be complete.
Rich
(6 votes, average: 5.00 out of 5)
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