Around the Globe 04.10.2013

Italy’s Debt to Rise to Record in 2013 as Recession Lingers – Bloomberg.

We learn three crazy things from this article.  Italy is ensconced in the debtor’s trap where the more it pays, the more it owes.  The multiplier effect is vicious in the Mediterranean countries so further budget cuts this year will lead to Italy blowing through the 1.3% contraction forecasted.

Italy, which may be in need of a bailout itself, has paid 2.6% of its GDP for bailouts in other Eurozone countries.  That’s over €40bn.

The country currently spends 5.3% of its GDP on the interest payments on its 130% of GDP debt mountain.  Let’s see.  5.3% divided by 130% is about 4.1%.  This is a decent estimate of the average interest rate it is currently paying.   If that rate begins moving up, the death spiral will begin with only the OMT plan to stop it.   Guess what will happen to the banks:

Italian Bank Holdings Italian debt_0

Will central bank money printing be able to hold rates steady long enough for Italy to get its fiscal house in order?

Bank Rally May Fade as Revenue Trails 34% Profit Jump – Bloomberg.

The TBTF banks have delivered increased profits to the market by cutting expense and deploying various accounting tricks.  Eventually, profits growth will level off as they deplete expense reduction opportunities and balance sheet maneuvers unless revenue increases.  This article posits that this day has arrived, but I believe the cycle will continue for a couple of more quarters.  Moreover, cheap money from the world central parties will continue to inflate stock prices regardless of profit expectations.

Six Reasons Why Jon Corzine Should Exit Wall Street – Bloomberg.

Do we really need six reasons? Here’s one: Corzine should exit Wall Street because he’s a crook.  He supervised an operation that gambled customer funds on speculative bets.  BTW, his bets eventually would have worked out, but as Mr. Keynes tells us, “Markets can remain irrational a lot longer than you and I can remain solvent.”

Former Regulators Find a Home With a Powerful Firm.

I needed to take a shower after I read this article.  Regulators pursue their own self-interest at the expense of public whom they supposedly serve, and the arrangement is all nice and legal.  Nicholas Nassim Taleb proposes that regulators be limited to earning only their old government salary in industry position they subsequently take.  While laudable, this idea does not go far enough.  My plan would take Mr. Taleb’s proposal a step further by incorporating pitchforks, torches, tar and feathers.

Germans Among the Poorest in Europe: ECB Study.

Germany Disposable Personal Income

This study is quite misleading.  “Poor” is based solely on wealth, not income, according to the study’s parameters.  Next, the survey was performed in 2009 and 2010 before the effects of the eurocrisis hit the periphery hard.  Last, the study does not account for the higher present value of future pension and healthcare plans.  Germany will probably be able to pay its obligations to its citizens, while the PIIGS will not.  Leave it to Germany’s central bank, the ECB, to release a study making the bailout nations seem richer than Germany.

Swan Backs Japan-to-U.S. Stimulus as G-20 Meets, Yen Slides – Bloomberg.

The religious love God just as much as the central banksters love money printing.  The ECB hasn’t joined the party with the same gusto as the other large banks, but Draghi would monetize those PIIGS debts if given the chance.  Is it too early to consider what will happen after this system fails? What will take its place?

EU raises flag over French, Italian, Spanish economies | Reuters.

This is a true fact.  Countries that cannot get their fiscal houses in order face fines from the EU, which will only exacerbate the situation.

By the way, Slovenia will need a bailout.  The soaring price of its debt indicates that it has lost access to markets.

Soros Tells Germany It Should Leave Euro.

Soros thinks that either Germany should exit the Eurozone or support Eurobonds.  Basically, he is saying either s@#$ or get off the pot.  The only way to permanently solve the eurocrisis is for all of these countries to become joint and severally liable for each others debts.  I do not see the various peoples of Europe supporting the loss in sovereignty that move would entail.

BTW, Germany is holding on as long as possible because it benefits the most from the currency:

Euro Fair Value Germany

2 thoughts on “Around the Globe 04.10.2013

  1. You have assembled a very sad litany of woes and injustices that embody everything that is wrong with the global financial system. I do hope we don’t have to wait too long for the day of reckoning, because it is overdue and much needed.

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