Spain and its laments

If capitalism has a poster child a black sheep and lots of problems is in Spain, full of easy to corrupt local caciques, governments after government that fail to govern, and an elite that is as much arrogant and the rest of citizens, harsh words, you bet, there is so much talent in this country of 44 million that is sickening what is happening to its government.
If today August 1rst of 2012, will be the first day of a rude awakening to the process of capitalism as interpreted today. It should be not surprise that as it stands today it is a failing system, for most but a very rewarding system for those who control corporations.
The European community is collapsing, it is difficult to pinpoint if it will be Spain local governments who will be the responsible to undo the currency treaty or it will be a massive popular movement.
As we stand today, the ECB, the Bank of Spain and the Federal Reserve have focused in bailing out the banks at the cost of tax payers.
The banks in Spain are starting to feel the injection of the ECB and Bank of Spain and the preferential treatment laws that gives them. The advantageous position of banks to be first in line to collect taxpayers receipts might turn to be the unwinding of the whole enchilada. In the next twelve month we are going to see the euro leaders behave as Sangria drunkards.
They sold the idea to the masses that save the banks and you will be saved. B.S, as most of such statements.
There is not problem that will not correlate to other in this complex pyramidal capitalist program.
Using new debt to pay old debt.....there are thing that make you go hummmmmm.
Spain regional governments are going to be confronted with a situation in which banks are first in line to collect their debts and people are going to be left behind. Taxes are controlled by the central government, but debt can be incurred by local governments at the rate that they demand and the central government rubber stamps it.
Well, the day of reckoning has arrived.
Local governments have more debt coming due and not a single one has near enough revenue to cover the interests, so a massive default is looming under their heads.
Many municipalities had fail to pay employees for a year, and still they cannot pay their interest or due principals of the past borrowing spree.
I predict that by next year around this time Spain will dealing its way out of the euro currency, at least temporarily if not definitively, most local governments will goo into default and banks will have to claim loses in their CDS's, and guess who holds most of those collateral debt obligations.......    
   

Risk Premium

As the markets continue to trade risk premium derivatives, here is Gary Shilling giving you and edge with his four part series on Bloomberg.com

http://www.bloomberg.com/news/2012-04-18/will-u-s-avoid-2012-recession-a-postscript.html

One can agree or disagree with Gary’s age and interested view of what envelops him, one thing is laudable, he is sharing a point of view that directs you to search for facts and establishes the risks that people are confronting today, nothing less than a big thank you and a candle in the altar for Mr. Schilling for caring to warm all of what he thinks is coming, again, you might agree or disagree but the risk premium is there priced in the markets.

As of 4/19/2012 the risk premium of countries stood at the following prices.

Country s	Price	Variation	%
Spain	423,23	+13,02	+3,17%
France	142,00	+9,88	+10,17%
Italy	392,00	+4,13	+4,15%
Greece	1.937,00	-71,00	-1,18%
Portugal	1.068,00	+0,00	+0,03%
Ireland	641,00	+-10,00	+0,43%
Risk premium

What does it means?

Everything needs a little context, France risk premium in a week went up 40%; Greece is trading at default rates, after all those bail-outs and piles of cow manure printed about Greece, the Greeks are suffering at levels never seen before, even more than when the fascist ruled the country, I am sure Greeks are getting a new meaning to Democracy after creating it; Portugal is getting a shocking awakening about what capitalism means, Portuguese people are getting where no one wants to be, a population losing its patience;  Ireland, can’t do much after it guaranteed all bank debts with taxpayers money, people in Ireland now have to live with a debt rope on their neck rope at risk rates that no country is capable of surviving; Italy is having its “Coming to Jesus” moment with rates that might prove unsustainable if they continue to increase,  the 450 level risk rate might put Italy a full risk; and last but not least Spain.
Well, well, Spain is different, still has its sun and gorgeous Swedish, Norwegians and other northern Europeans are buying real estate in the country like never before (no kidding), the sun still shines in Spain even if the banks go bust. Did I say bust and Spain in the same line? Yes, Spain is getting to the finish line of the nation busted contest.      

Europe has a tool they do not want to use for fear of the US, it is its single currency.
What Europe does not have is a single economic policy.
The Europeans step number one for its solution is to trash (devaluation is a solution to dissolution) their cherished Euro, if they can bring the price down around 30% to 50% int eh next 12 months, their internal growth will accelerate around 7% to 9 % annually in the first two years and have a chance to fix their underlining deficits, if they keep the Euro trading at a 40% premium, they are kidding themselves and they will bring 500 million people to the streets.
Read Schilling piece, and where it lies the real risks.

If you thought throwing out of power Saddam, Qaddafi and others in the Middle East was an act of liberation, for many in Europe their leaders are starting to look like those tyrants.

Never underestimate the power of the yayoflautas.
(a new word I learnt in the Spanish the social lexicom) 

When one must stop trusting what leaders say

We are at a point in the global economic supremacy game that all (good, less good, bad and really bad news) news are turned into a sociopathic make it positive spew.

The sad part is when the folks delivering the spew are those elected and appointed to tell at least the truth.

We can walk thru examples every single day, super Mario (Draghi) at the EU economic helm, as made a fool of himself by contradicting words against his actions. While saying Greece is OK, two weeks later the EU echelon where getting panicky calls from the US Fed and China’s central bank, and forced to tell the truth to them but the rest of the people, the ECB had to inject untold amounts of capital to the lenders of Greece, that continues to be rule by the same incompetents that worked the deal with Goldman Sachs, that cost them to tell the half truth about lying in the financial condition (and one has to correlate documentation) to join the EU.

Today, April 17 the headlines at some major online publications did not say a single word about the problem that a 6% interest rates in the 12 largest economy will affect the top 10 largest economy.

Not only the pernicious 6% debt service will destroy a generation of Spaniards, it will eventually cripple its neighbors and exporters. How big is the Spainish to matter to the rest of the economic world, a simple way to put in GDP terms it will be:

Spain=Belgium+Greece+Portugal+Ireland+Poland

in numbers looks like this:

1.5 trillion(S)= 0.469(B)+0.308(G)+0.228(P)+0.211(I)+0.470

1/10 of the US GDP.

Reality check, Spain matters and Spain is not alone in its troubles. What is unique is the cause of its troubles, if derivatives where the culprit in the US , Greece was falsifying numbers, Ireland lack of controls, Portugal slow growth due to structural autocracy, Iceland banks ran amock, Italy a submerged economy, England covered with financial instruments to provide impossible pensions, France with a debt service that continues to be hedged , Belgium with a internal political fracturing and large debt services, Germany a too lenient government towards financial institutions that have burdened tax payers for generations, the problems are unique and each country. Each country has a different degree of causation, rationalization and all have a serious economic problem that will last for generations.

All countries are privatizing their economies at rates larger than they have lost capacity to control it.

How do you translate Spain 6% interest rates into real and tangible socio-economic-impact, not in a pleasant way, it is going to get rough and rougher as months forces more and new fiscal restrains to trickle down to the people.

A quick review of present government policies to adjust to a 7.5-6% deficit or GDP or around $120 billion that Spain is looking to borrow this year.

20% cuts in education in one year. Try that at home.

50% cut in all government contracts (tell that to the tea party goers).

A 10 % reduction in all defense expending to less than 8% of GDP (The US has a carry-over of 48% across all departments involved).

The individual cuts are all over to list them in detail, but you get a gist of the quantification.

You might think this Spaniards do not pay taxes, wrong, if you think the IRS is intrusive try to escape taxes in Spain, if you belong to the taxed people (aka the 99%ers) you will place your butt every year for 30 minutes in front of an tax officer, and they check your taxes, and you will file what they tell you to file or else. Add to personal income taxes, as a cherry in the cake, a 18.5% flat tax in most consumer discretionary items a.k.a. VAT. So they do pay taxes and compliance is above 95% The other 5% represents a large amount of the 1 per centers using a the US like laws passed in Spain that allows large wealth to escape taxation.

So how much is that 6% not much, today, but you add it to the present debt service in monthly interest will add $1.2 billion for 2012, but $4.5 Billion 2013, and it explodes to $6.5 billion in 2014. All those interest need to come from raising taxes and more cuts. Considering the last employment legislation enacted in Spain, the central bank (Bank of Spain) is forecasting incomes to stay flat or be reduced for a core 68% of the population and for 21% to grow less than 2%, and for the rest 1% to grow 5%. Spain working force cannot sustain this interest rates growth without the rest of Europe feeling it.

Bottom line, Spain cannot grow or tax itself fast enough to get out of their rat hole. Spain has the potential to join and drag Italy and France into a “real” problem. In the mean time the IMF, the ECB chiefs all are in unison saying "the worse is over" once again and we are going to grow a whopping 3%. Where ?

Solutions are available, are all painful, none provides comfort to the 99% of the population. Will civil unrest be next in the agenda, if past economic extremes are any indication, the probability is low today, and increases every month that a new cut takes place and starts to affect more working people.

We are all Greeks

Black swans are flying, the big question is where they will land.

We know all about the optimistic talks taking place about the Greek debt negotiations.

To me, the present ¨all is good¨attitude is a sign to seriously worry.

SERIOUSLY.

Greece, as many small countries under the supervision of big countries, got out of hand and now needs a big spanking.

The problem is how hard this spanking needs to be to correct its bad behavior.

Today, I heard a father, until two years ago,employed in a large govermental entity, crying for food to feed his five kids.

Under fascist and later pseudo elected governments, the greek law makers and central bank machinists provided superior advantages to many citizens in Greece to live far beyong their means, and to a narrow band of its citizens incredible benefits for no work. In the process a few in the elite accumulated inimaginable personal wealth, a copy cat of the government induced class warfare American style. To top the ouzo cake they cooked the books like any well respected crook with power (not all cooks are crooks, nor all crooks are cooks).

This pernicious influence of malversing funds for self enrichement has created a social acceptance that percolates as easy thru Greek society as water does thru a tea filter.

Evading many of the basic social responsibilities of any civil society, are laking in Greece today. Paying taxes and fair minded pay for work rewards, are NOT accepted practices. Today Greece, Italy, Spain, Portugal, France, are not normal societies as a civil person imagines.

For many governments not paing its bills in a fair period say 90 days, has become normal practice, for local governments to keep employes working for months with no pay is normal. Thus young adults that are learning this behavior consider normal not to pay their bill for years, as I learned when I asked around. As an anecdote, I asked a small business person who continues to do work for a local government even if he does not get pay in twelve months, if he considers this payent delay a normal and healthy way of doing business, he answer was interesting, he thought it advantegeous for him becuase it makes it very diffult for others to compete in governments contracts, and he can do the work, also he does not fully pay his employees until the town pays him. As he said the employees come to work becuase eventually we all get paid. A very pernicious way to operate in society. He found this as normal as drinking water.

Many of present Greek social pratices have become laughing currency for comedians. In y opinion, for a good reason. Like, if you have enough money, your governement tax man will work for you, they will help you do not pay taxes, legally!!!

Who tells the truth!

Time as the truth teller!

Now that the truth about Greek book cooking its national debt is out, calculators cannot keep up running with the massive financial discrepancies encountered.

Here we have a country that was granted more than six billions euros in credit, and open more than 8 billion dollar of credit lines to build stadiums for the Olympic games, with full knowledge the Greek economy could not collect enough taxes to pay a third of the interest need it to cover the going forward costs of those bonds, let alone the principal amounts.

Who needs to pay, the borrower or the lender!

The borrower who does it with the understanding. I believe all those Harvard educated Greeks, must retain some knowledge from their days on elite schools, must have know that as borrowers they will have a difficult time to pay for the fun Olimpic party.

Or the lender who knows, if things get sour, eventually it will force the governement to fund any discrepancy with the borrower.

As the sour mash continued to ferment in Greece, money kept pouring into Greece as Ouzo in a weeding. The country continued expending and expanding, corruption keep growing, politicians and friends became very rich and people did see it.

To spalsh a little of hope to the populace, accounting practices advised by the best and brightest, gave a rosy picure of Greece, among those brilliant minds were global economic and investment policy consultants from Goldman Sachs, always magnificent and brilliant creators of cover ups for financial irregularities. Goldman did its deed for the Greeks and worked until the day of recokning arrived.

We should be glad Greece is a country with good mediterranean weather and many months of warmth, you will not need more than a tunic most of the year, so the emperor´s clothes if lost, should not be a big problem.

To spruce the good looks of the truth telling God´s who created such mess, beards and tunics can get a quick trim, we can give a power wash to Zeus and he will look like brand new, ready to toil for its 18 months of pay during a 12 month calendar year. Allt his without financial engineering, and no Gold man left behind.

Real bad numbers!

The financial numbers for Greece are real bad. Really.

Greece balance sheet cannot cope in any shape or form withe present paymentes. Even if the troika (German, French, FMI) forgave the present debt service, greece old debt service was already so large, still it would not be possible for greece to pay it back. Such immense mess was the reason why Greek central bank officials called upon Goldman Sacks to do the cover up job elegantly. Thus Greece could enter the EU and Goldman become the new Greek Central Bank.

For the past 30 years, Greece was barely covering up its debt service, for the past ten years the debt service is 25 times larger than 10 years ago.

All parties in present debt negotiations, have a strong self interest to get it right first, their banks hold most of the debt and the bail ot will go directly to them, and not the Greek governement.

At best, Greece will need to take 10 years of massive social distress, transfer the little they have to private banks, and suffer thru massive unployement until the national income is in line with countries of its caliber, in comparison to its neighbors Greece needs at least a 70% reduction in minimum wage pay.

Top that with the present revenue debacle, less than 20% of businesses are in compliance with their taxes, and most small businesses do not pay taxes, anthey prefer to bribe the local tax man than to pay taxes.

The pain is going to be similar to a hundred nail cruxifixion for most Greeks.

The next Greek governemet, the present impossed government by Germany France and the US will not do much to help most greeks, the next government should follow the play book of Iceland, let the bonds default.For Greece the pill also need to have a ¨get out of the eurozone¨ ingredient at least for next fiive years, inmediately devaluate their currency 80% and implement a massive tax collection reform.

The saddest story of the deficits and the real debt of Greece is that will have to put the country under massive social adjustments, that based on the nationalistic tones of the protests, a civil war should not be discounted.

Do Governments create jobs

In a single word, the answer is: yes.

In fact, good governments create good jobs.

The US with a superior educational system until the 80's hired very smart and able people to run tasks in its government that are complex and necessary for any society to function, in addition to operate at a global leadership level.

Still, today, the US government creates jobs, good jobs, but at a much smaller rate and in smaller fields of reach, like National Institute of Health or the National Science laboratories, and many other worthy entities, not yet destroyed.

When people get ticked-off about government overruns and other mismanagement blunders, what is left of the story is that those projects are outsourced to private companies, and politicians who scream the loudest about the blunder are the ones who allow those corporations to run amok and cover-up for them when the corporations rob the public treasure. Funny how hollow we are in reporting.

The National Institute of Heath, is a great example of government excellence. The VA Hospital system, maybe the best government run health system in the world, until politicians started to eliminate benefits for bounded veterans and its families, by under funding the VA system. So much for pandering to soldiers, chant them as heroes in all campaign speeches and forget about them when they wounded or in need help.

As politicians legislated and destroyed -by outsourcing government functions- jobs, the quality and decline of the educational system followed step by step.

You can thank for the destruction of social quality, now claimed to be some kind of worthy philosophy, Reaganomics. What this philosophy is, it is a bunch of propagated social fallacies, accepted in the politicians -democrats and republicans- corporatocracy rules of politics, that they claim to create healthy economics by each president since Ronald Reagan; nothing is more of lie. None of the two parties escape the big lies, democrats and republicans are as false as their ideas. Today, more radicalized advocates for smaller role of government are louder and more efficient. The problem with the idea is that it misses some components, that is, smaller is OK but it should also include smarter and competitive and well remunerated.

The advocates of the Reaganomics philosophy think that by eliminating government, the interstate highway system will be pay by Nebraskans or Okies, who received from the central government -they want to eliminate more than 20% of their unfair share of taxes- so they can have highways worth of riding, maybe they prefer to go back to dirt roads and schools with no heat, and educate kids only until 11 grade. One has to wonder what kind of screamers are those!

Political demagogues have grown their radicalism to extremes that are unhealthy, to have a healthy country. If a new debate and some strong positions are not taken, been ranked 29 in education worldwide will be an achievement and the ride towards lower quality so far is guaranteed.

The US started to destroy its educational system with President Reagan, today we have politicians with ridiculous demagoguery, the include statements such as the elimination of the US Department of Education. I assume its substitute will the department of idiots. Those screaming the elimination of central agencies, what they are saying is something much different. What they cry is about is simple, get rid of the people who do not look like me, if what it takes is falling behind as a country, who cares we are still "number one", the question is at what "we are number one"?

Bomb throwing and war mongering for sure.