Brussels sees darker times for Spain and Europe

By LUIS MIRANDA | THE REAL AGENDA | NOVEMBER 6, 2012

Brussels sees no green grass across the fence when it comes to an economic recovery. The economic forecasts for 2013, which will be made public on Friday, will describe a dark and rainy future for Spain and most likely the rest of Europe.

Forecasts are just that, good or bad omens based on leading indicators. But it remains to be seen whether or not they are right. But if the predictions issued by Brussels become reality, that reality will mean serious trouble for Spain and the rest of Europe. The European Commission anticipates that the GDP falls 1.6% this year and 1.5% in 2013.

Spanish government forecasts were more hopeful before the statement from the EU with phrases such as “We emerge from the crisis” and “there are hopeful signs”. These phrases were issued by the Minister for Employment, Fatima Banez, who had said that Spain would see a contraction of 1.5% for this year and a decrease of 0, 5% for 2013.

Next to the real exit from the crisis, the troubling data made public by Brussels is the government’s deficit. The massive austerity measures adopted by Spain only helped reduce the deficit by a meager 0.2 %. The painful measures that combined tax increases with deep cuts in expenses related to social programs did not work; just as it was intended to. The deficit will end the year at 8%, according to the Commission, but this number does not take into account the effect of recapitalization of banks. Expect the Spanish deficit to be much larger.

For 2013, the fiscal gap is 6%, and 5.8% by 2014. These numbers again do not include the bailouts of the banking system and the possible bailout of Spain as a whole. As predicted months ago, Spain will not be able to lower its deficit to 3 % of the GDP, which is the target requested by Brussels. That leaves three possibilities. The first is to extend the deadlines to meet targets, which has been demanded by the International Monetary Fund (IMF) in Brussels. This alternative is now getting stronger and is supported by several countries that are hanging from the debt cliff.

The second is to ask Spain for additional efforts. That is, more austerity and spending cuts, which as it has been seen in Greece, would result in no solution whatsoever. Most economists expect that agreements reached during future meetings will include a combination of both austerity and an extension for Spain and the other countries to reach their deficit goals.

Spain’s Economy Minister Luis de Guindos, expected a deficit of 7.3% this year, 4.5% next year and 2.8% in 2014, far below the projections made by analysts and official data from both Brussels as the International Monetary Fund (IMF) for next year and the next.

The Commission did not comment yesterday on the data. Clearly on all forecasts, Brussels and the Spanish government, weigh several unknowns, especially those relating to the effect of the increase in VAT (a real social experiment, with the country in recession) and the tax amnesty.

However, the Vice President and Competition Commissioner Joaquin Almunia, gave some clues in Madrid yesterday about the situation: government budgets for 2013 and associated economic forecasts show the efforts being made by both sides — income and expenses — but the accompanying macroeconomic picture is “far from the consensus.”

Almunia also hinted that Brussels has the feeling that Spain has denied the complete evidence, the depth of the crisis and the need to act thoroughly. “The delayed reaction is too often associated with Spain,” he said. Speaking at the New Economy Forum, he called “giving in to defeatism” and explained that the crisis “has a solution, tha will be overcome and is beginning to be overcome.”

“Trees should not impede us all to see the forest,” said Almunia. But the trees are just too tall. Brussels projections that approximate the most to those of the Spanish government are related to public debt. And even in that section the figures speak for themselves: the debt will end this year at 83.7%, the next at 89.5% and will be at 93.9% of GDP by 2014.

One thing is for sure: there is no sign that shows when the debt will stop growing. Meanwhile, Europe continues to advance an agenda that keeps on using the same old recipe of more austerity, while government expenses continue to grow. As we have explained here in multiple occasions, both Spain and Europe are — intentionally — going through a vicious cycle that will not result in the reduction of the deficit or the rescue of the economies that are heavily burdened by debt.

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How Bailouts Pass on the Burden to Taxpayers

By BOB CHAPMAN | INTERNATIONAL FORECASTER | MAY 17, 2012

Article originally published in April 4, 2012

How do you create your own monsters? Over the past month the US and Europe have been telling us they will agree to release oil reserves into the market to drive down prices. What are they waiting for? It is expected there could be serious supply disruption, but yet no action. Incidentally, in all the media we see no admission or comment that those nations’ actions were responsible for oil prices at $107.00 a barrel.

Over the past month China and India have been avoiding oil sanctions by agreeing to trade for local currencies commodities and consumer goods. The trend continues, but leaves Iran with a shortage of currencies. In addition Iran is helping Syria by supplying an oil tanker. That oil is shipped directly to China.

Appointed Greek PM Papademos informed Europe late last week that a third bailout cannot be excluded. Just as we predicted. There will be no end to these subsidies. The idea is to keep bleeding Greece forever.

This past Friday European governments called for a bigger financial emergency fund, extra engineering a firewall to fight the regions debt crisis. The firewall commitment is $1.1 trillion, and of that $320 billion has be set aside to fund the ESM due July 1st.

If you remember more then several months ago we told you it would take $4 to $6 trillion to bail out Italy and Spain. These firewall funds are supposed to protect the sovereign debt of some six countries, and $1.3 trillion cannot accomplish that. They’ll need at least four times that amount. As you can see, the entire program is deceitful and these subsidies, if allowed to, will continue for years with Northern European taxpayers footing the bill for these subsidies. They believe eventually Europe will never be able to tear away from the grip of world government. Those of you who have been paying attention are witnessing the demonstrations, violence and arrests in Spain and it appears it is escalating. Cutting the budget by 1/3 under the circumstances is stupid. That is a fall in the public debt from 8.5% to 5.3% of GDP.

In Greece, the Greeks know they cannot nor do they want to, meet the terms of their financial agreements. On April 29th an election is due and that has caused a splintering of the vote, which pollsters believe only gives the two major parties some 35% of the total vote. This means political instability and perhaps social and political chaos not seen in Sprain since the 1930s. This is what happens when people are without hope in any country. During May and June chaos will reign and the austerity-bailout deals will have to be canceled plunging Greece into default, something that should have been done three years ago, and all of this could in part been avoided.

In the Greek election that many never happen on April 29th, or maybe May 6th or perhaps May 13 Pasok and the Democracy Parties, as we pointed out before, may only get 35% of the vote together and if they do not win there will be no parties to pledge support to cutting more public spending of 5.5% of GDP. That means no bailout in a fractionalized government. Those kinds of cuts will flatten the economy totally. Greek debt is still more than 100% of GDP, or $440 billion.

It only took three months and Spanish PM Rajoy is losing support as millions of Spaniards demonstrate in the streets. The voters in Andalusia failed to give him a majority, as well. Already Rajoy is in trouble.

Avoidance of a Greek election is only going to make things worse. As it stands now Greece is going to end up in chaos and if that happens Spain and others may follow, upsetting all of Europe.

This past week’s results of EU member meetings may have set the stage for bailout, but it will be interesting to see if the funds are found to accomplish their ends. Many professionals are not convinced that all will go well in Greece, or for that matter in Ireland, Portugal, Italy and Spain. Many believe they are facing a global government finance bubble. Let’s face it; the risks are massive, because all governments and the financial sectors have all taken the route of expansive money and credit that will all end in bubbles.

Like all the creations of the last few years’ currency swaps by the Fed, commonly known as illegal loans, to the European Central Bank is just another form of welfare that they know will only try to work in the short run. A virtually free service provided by the banks that control everything. It is all risk free of course, because bankers supposedly know what they are doing. That is how they put us in the position we are in the first place. These loans, created out of thin air do not create economic goods and services or a recovery, especially who 800 banks refuse to lend any of the funds out to business to increase business and employment. Mind you this is virtually free money – like financial welfare.

In another orgy of free money the Fed tells us that it bought 61% of US Treasuries issued in 2011, and as we said in an earlier issue that program, Operation Twist, was a disaster. Again, the Fed was undermined by its own so-called allies. This exercise, just like the year before, has just barely kept the economy alive.

If House bill (HR-4180) by Rep. Kevin Brady (R-TX) makes it out of committee it would strip the Fed of half of its dual mandate. It would no longer have to provide full employment they would only have to insure price stability. Like the efforts of Ron Paul over countless years, who expect billions of dollars will be passed out in bribes and nothing will happen. The only way to recapture the system is to bring it down.

The Fed oblivious of history pours money and credit here, there and everywhere, keeping many currencies from failing and supposedly giving them viability. If needed more money is extended with a hope someday it will be repaid and, of course, it won’t be. The extension of debt central banks believe can go on forever, and needless to say, that is ridiculous. Something you probably missed in the Copenhagen meetings was that there was a proviso to supposedly increase competition within rating agencies by forcing rotation and to draw in European agencies. This was a move to have less rerating encounters, so as to deceive the public.

Money is readily available to banks and to an extent to major corporations, which in turn have used part of those funds in western stock markets sending them close to new highs. Most economies are sputtering at best and investors ask how can this be? Well, that is why markets are up in spite of lack of participation and volume. That means there is a limited market to sell into. The buyers are not there, so the banks have to sit on the shares. 70% of the volume is algo trades that last 8 nanoseconds. That adds no liquidity to the markets. There is no longer a retail to dump the shares on.

Now that the G-20 has decided how much money will be donated to the EFSF and the ESM, they now want $500 billion more from the IMF, 19% of which is paid for by US taxpayers. The bulk of those additional funds are to come from emerging market economies. The BRICS have said that they will not participate without an increase in their voting power.

Federal Reserve May Be `Central Bank of the World’

Bloomberg

Federal Reserve Building, Washington, DC

Federal Reserve data showing UBS AG and Barclays Plc ranked among the top users of $3.3 trillion from emergency programs is stoking debate on whether U.S. regulators bear responsibility for aiding other nations’ banks.

UBS was the biggest borrower under the Commercial Paper Funding Facility, with $74.5 billion overall, more than twice as much as Citigroup Inc., the top U.S. bank recipient, according to the data released yesterday. London-based Barclays Plc took the biggest single amount under another program that made overnight loans, when it got $47.9 billion on Sept. 18, 2008.

“We’re talking about huge sums of money going to bail out large foreign banks,” said Senator Bernard Sanders, the Vermont independent who wrote the provision in the Dodd-Frank Act that required the Fed disclosures. “Has the Federal Reserve become the central bank of the world? I think that is a question that needs to be examined.”

The first detailed accounting of U.S. efforts to spare European banks may add to scrutiny of the central bank, already at its most intense in three decades. The Fed, which released data on 21,000 transactions, said in a statement that its 11 emergency programs helped stabilize markets and support economic recovery. The Fed said there have been no credit losses on rescue programs that have been closed.

The growth of the U.S. mortgage-backed securities market and the dollar’s status as the world’s reserve currency enticed overseas banks such as Zurich-based UBS to buy assets in the country before 2008. They paid for the holdings with U.S. dollars, and when funding seized up, the Federal Reserve refused to take the risk that European firms would unload the assets and further depress markets for housing-related investments.

‘Much Worse’

“Things would have been worse if they hadn’t lent to foreigners,” said Perry Mehrling, senior fellow at the Morin Center for Banking and Financial Law at Boston University and author of “The New Lombard Street: How the Fed became the Dealer of Last Resort.” “We’re finally getting to understand the role of the Fed in the world.”

Fed spreadsheets showed the central bank became the world’s lender of last resort as dollars flowed to European banks as well as Bank of America Corp. and Wells Fargo & Co., among top borrowers from the Term Auction Facility at $45 billion each.

Goldman Sachs Group Inc., which posted record profit last year, borrowed more than $24 billion from another program. Milwaukee-based Harley-Davidson Inc. and Fairfield, Connecticut- based General Electric Co. sold commercial paper, a form of short-term debt, to the Fed under a program that lent as much as $348.2 billion at its peak.

Sanders, the Vermont senator, said yesterday he plans to investigate whether banks profited by borrowing from the Fed and investing the funds in Treasuries, benefiting from the difference in interest rates.

‘Bailout Protection Act’

U.S. Representative Mike Pence, an Indiana Republican, said he planned to introduce a “European Bailout Protection Act” to restrict the flow of International Monetary Fund loans to European countries. He said he was responding to reports that U.S. officials might bolster a European fund designed to deal with this year’s debt crisis, which has spread from Greece to Ireland.

Edwin Truman, a former Fed official who is a senior fellow at the Peterson Institute for International Economics in Washington, said any push to confine the Fed’s role to U.S. banks would create a “massive exercise in financial protectionism.”

“It would lead to retaliation, so U.S. banks in London or Tokyo would expect the same kind of treatment,” Truman said. William Poole, senior economic adviser to Merk Investments LLC and a former Federal Reserve Bank of St. Louis president, said he was surprised by the extent of non-U.S. bank borrowing.

Commercial Paper

“I was under the impression that each country bore the responsibility for supervising the banks headquartered in their borders,” Poole said in an interview.

The $74.5 billion received by UBS through the CPFF, which bought short-term debt, represents total borrowings by UBS over the life of the program. The total outstanding at any point in time never exceeded about half that sum, said Karina Byrne, a UBS spokeswoman.

Byrne said the bank’s tapping the Fed fund “should be seen in the context of our overall desire to maintain flexibility and diversification in our funding sources.”

The loan to a Barclays unit came from the Primary Dealer Credit Facility, created to make sure U.S. securities firms and foreign firms’ U.S. affiliates had cash to satisfy clients’ financing demands.

Barclays took the loan the week in September 2008 that it acquired the U.S. operations of Lehman Brothers Holdings Inc. Mark Lane, a spokesman for Barclays, declined to comment.

‘A Big Operation’

Paris-based Natixis borrowed $27 billion under the commercial paper program. “We’ve got a big operation in the U.S.A.,” Victoria Eideliman, a spokeswoman for the bank said. “It was, for us, natural that we participate in this program like all the banks. When we participated, the liquidity situation was very tense.”

The $182.3 billion rescue of American International Group Inc. spared European banks that traded with the New York-based insurer from having to raise as much as $16 billion in capital, according to a June report from the Congressional Oversight Panel, which reviews bailout spending.

Fed Chairman Ben S. Bernanke addressed questions in a 2009 Congressional hearing about why non-U.S. banks benefited from the AIG rescue.

‘The Obligation’

“I would point out that the Europeans have also saved a number of major financial institutions, and the issue of whether those institutions owed American companies money has not come up,” Bernanke said. “So I think that there is a sense that we all have the obligation to address the problems of companies in our own jurisdictions.”

Three of the top seven borrowers under the CPFF program were private firms. New York-based Hudson Castle received $53.3 billion in aggregate, BSN Holdings took $42.8 billion, and Liberty Hampshire Co., a unit of Guggenheim Partners LLC, drew $41.4 billion, Fed data show.

Hudson’s website says it develops “customized debt products.” A person who answered its phone said no one was available to comment. A Guggenheim spokesman didn’t return phone calls.

BSN Capital Partners Ltd., which was associated with BSN Holdings according to a 2006 Standard & Poor’s note, was founded by John Burgess, a former Deutsche Bank AG managing director. Burgess declined to comment.