I was on the ground in Spain a few weeks back, and then I ran into this piece in Spiegel Online about a small, struggling town on the Spanish border with (British) Gibraltar. This essay resonates in some of the same ways as the Michael Lewis piece on Greece. This is just one town, and Spain has many regions, some more prosperous than others; but in a country where there is 23% unemployment and 50% among youth, there is plenty of suffering everywhere. The general story is one of deep problems, especially with regard to inefficient labor laws.
The author asks a big question: "Can the demise of a single city serve as an example that reflects the crisis in the entire country, isolated like a bacterium under the microscope? A crisis that is so severe that it threatens the continued existence of the euro, if not the European Union as a whole?" The answer: probably not, but the plight of La Línea illustrates the problems and the difficult choices faced by the periphery.
Meanwhile, at the other end of the European economic teeter-totter (but just as peripheral, in its own way), we find the City, London's version of Wall St.; and while the residents of La Línea seem to be rather adept at smuggling, they can't hold a candle to the traders of Barclays (and, it would appear, other eminent financial institutions) when it comes to criminality. (There is never just one cockroach.) We have seen some egregious antics by the too-big-to-fail boys the past several years, but Liborgate really takes the cake and eats it too.
It will be hard to contain the outrage when hundreds of trillions of dollars of financial instruments are priced on this figure. A few basis points means tens of millions to the average guys. Heads should roll. And don't think for a minute that the damage – and the blame – are going to be confined to that side of the pond, either. In a deeply probing commentary yesterday on the Libor fiasco, David Kotok takes the Federal Reserve to task over the abandonment of its formal surveillance and oversight role with respect to its primary dealers (which include Barclays Capital, Inc.).
And so the global economic teeter-tottering grows more extreme and destabilizing. What will it take to restore the dynamic balance we need for continued growth? It's a big old system we're all part of, and it's not going to fly right as long as we're more interested in gaming it than growing it.
It was interesting to be at the table tonight with David Zervos of Jefferies, who invited a few local fund managers and your humble analyst to meet with a former voting member of the ECB and Greek citizen (a US-trained economist, too). I want to think more about what I learned, but I imagine my thinking will spill over into future letters. Dear God, we have dug a deep hole for ourselves. I hope at some point we can stop digging.
And finally, as an antidote to the rather somber take on Spain in today's OTB, take a few minutes and watch and listen to this flash mob in Barcelona. How can you be pessimistic for very long about a country that can do this?
Your wanting to stand on solid ground again analyst,
We woke up this weekend to a €100 billion "rescue" of Spanish banks, and the initial reaction of the market was relief. But did we not just see this movie, but with Greek subtitles rather than Spanish? Was this another of those "necessary but not sufficient" plot lines that Europe is so good at? Kick the can down the road and hope for a happy ending?
Pardon my skepticism, but I see numerous problems. In the first place, €100 billion will not be enough. While the current estimates are closer to €40 billion (if you ask the Spaniards), JP Morgan estimates it will be more like €350 billion. Others estimate more or less, but €100 billion is decidedly optimistic. Even the Spanish authorities are acknowledging that there is another 35% downside for the housing market, which is the main source of the losses. It appears that has NOT been included in the guesstimates.
Secondly, this saddles Spain with yet more debt, which will force the rest of already-sold Spanish debt into a subordinated position (more on that from Louis Gave, below). It does not address the problem that Spain is running an almost 10% of GDP deficit and will need to access the markets for very large sums in the near future. For all intents and purposes, they have been shut out of the bond market, which is why they needed a "rescue."
Third, it does not address one of the fundamental problems, which is the subject of this week's Outside the Box from Charles Gave: it does not help solve the trade imbalance between Germany and the periphery nations.
Germany has two very bad choices. It can finance the multiple trillions of euros of debt of Spain and Italy (and France), converting it into eurozone debt, while giving up its own fiscal sovereignty and allowing a eurozone-wide fiscal union and taxing authority; or the Germans can spend trillions of euros allowing the eurozone to break up, either by exiting themselves or allowing the southern countries to exit.
The market is not going to finance Spain, Italy, et al. in the short term (i.e., this year). That means the ECB will have to print money or some European entity will need to have a basically unlimited blank check at the ECB, if those countries are not allowed to default on their debt. Someone, or some group of someones, is going to have to write a rather large check. The question is whether it costs more to stay or to go. Germany leaving the euro would not be good for German exports, which are 40% of their economy.
Finally, it is not clear exactly how this bailout (let's call a spade a spade) is going to come about. There will have to be, I assume, agreement from the eurozone countries if the EFSF or ESM funds are to be used. Further, if you make this deal for Spain, then Greece, Portugal, and ESPECIALLY Ireland are going to demand a reset. I am sure there is a coherent plan here somewhere, but I can't find it as of Monday night. What I did find is this quote in the Financial Times (jumping to the end of the story):
" 'Many Irish people looking at the deal this morning will be asking themselves why is there one set of conditions for us and another for Spain,' said Mr Doherty. Ireland's economic crisis closely resembles the situation in Spain, where a property crash has morphed into a banking crisis, leading to calls that Dublin should renegotiate its existing EU-IMF bail out deal. Aware that it is unlikely to persuade the troika to reopen its own bailout program, however, Dublin moved quickly on Sunday to deny that Spain's program would be less onerous than its own.
"The Spanish program could also produce political problems outside current bailout countries, particularly over the issue of which of the eurozone's two bailout funds is used for the rescue.
"Dutch and Finnish officials have warned they do not want the new bailout funded through the existing rescue system, the €440bn European Financial Stability Facility, because its lending is treated like any other private lender, meaning it has no seniority in the repayment queue." (emphasis mine)
The Spanish prime minister played the Germans very well. He got what appears to be a much better deal than the Irish. But then, he was playing hardball. This note from Joe Weisenthal at Business Insider:
"According to El Mundo, Spanish PM Mariano Rajoy sent a stunning text message to FinMin Guindos prior to the bailout negotiations. He said, according to El Muno editor Pablo Rodriguez: "Resist, we are the 4th power of the EZ. Spain is not Uganda." Translation: We're a major power, not some random IMF-case banana Republic.
"The followup message (according to Google translate) "If you want to force the redemption of Spain will prepare 500,000 billion euros and another 700,000 for Italy, which will have to be rescued after us."
"Bottom line: hold out for something good. We are powerful, and if they don't give in, the whole thing will go down. It will cost Europe 500 billion if Spain goes bust, and then another 700 billion if Italy goes bust. No wonder Der Spiegel, which represents the German point of view, has an article blasting Spanish blackmail."
And before we get to Charles's piece, let's look at this quick analysis by his son Louis Gave, the CEO of GaveKal, writing from Hong Kong (www.gavekal.com):
"As we go through the few scant details of the bank bailout offered to Spain, we cannot help but shake an uneasy feeling of deja-vu all over again:
- Banks confronting a deposit flight – check.
- Sovereign shut out from debt market – check.
- Loans provided to help sovereign deal with the situation – check.
- Potentially pushing current sovereign debt investors into a subordinated position – check.
"It is on this last point that the Spanish 'bailout' could prove to do more harm than good. Indeed, as we highlighted with Greece, when policymakers transform government debt into subordinated debt, they may as well shut down that market for good. This for a very simple reason: most investors who buy government debt do so on the premise that the paper is the most 'risk-free'. These are not equity investors, carefully weighing the risk-reward of a current asset.
"Investors into sovereign debt are all about minimizing risk. The reason one buys government bonds is first and foremost for capital preservation and portfolio diversification. Subordinated debt does not meet those requirements. Thus, Europe's policymakers, from one day to the next, could potentially not only increase the Spanish debt load by 9% of GPD but simultaneously make Spanish debt considerably more risky, and thus more unattractive. Beyond an immediate knee-jerk reaction, it seems unlikely that the Spanish contraction in spreads will be meaningful or lasting."
What Europe did over the weekend was put a band-aid on a very deep gash. To actually fix the problem, Europe must remove bank liability from the various nations and make them joint and several. But that is going to be something that Germany and other nations will fiercely resist. When the dust settles, the markets will realize, I think, that this latest move did not solve the real problems. It was just a way to stop the immediate pain. There is more to come, and it will require a lot more money and the loss of a great deal of national sovereignty if the eurozone is to hold together. It took the US decades, if not a century, to get to that place. Europe has a few years under its belt at most, and the crisis is right on top of them.
I am in New York tonight, just back from dinner with some of "the guys." (Jonathan Carmel of his eponymous hedge fund, Dan Greenhaus of BTIG, Barry Ritholtz of the Big Picture, and Rich Yamarone of Bloomberg). The topics were all over the board. I am not certain we solved any big problems ourselves; but the Chinese food at Shun Lee was sure good, and the conversation was sparkling.
It is time to hit the send button. Note: There will be no new postings on the Over My Shoulder website for the next 24 hours, as we do a major web-hosting switchover.
And now, let's turn it over to the always-incisive Charles Gave.
Your sorry to rain on Spain analyst,
Nobody, in my book, slices and dices data more thoroughly or convincingly than Greg Weldon. In this week's Outside the Box, he first dispels the illusion that either of the two most-expected outcomes of the growing eurozone crisis is really any kind of a solution – neither expelling Greece nor keeping Greece in the club is going to work, he argues – and then, in a feat of legerdemain, he conjures up an alternative that just might work – and backs up his idea as only Greg can. But is this a rabbit he's pulled out of his hat, or is it ... a Black Eagle?
This letter will print a little longer but, as is usual with Greg, it's chock full of great charts. You can learn more about his work at www.weldononline.com. For institutions and hedge funds, it should be required reading. (It is a little more than your average service, but as you can see, he really gets into the data very deeply!)
I am in Philadelphia tonight to speak for Steve Blumenthal's Advisor Forum. We did an evening at the National Constitution Center museum, where they had a Bruce Springsteen exhibit on the first floor and rather fascinating historical display of the history of the US and the Constitution. At the end is a room where there are 39 bronze life-sized statues of the men who were at the Constitutional Convention, displayed as they might have been arrayed at the signing. It got me to thinking about the times. Indeed, there was a quote from Washington about how bad things had become in 1789, sounding much like so many who now see the US as a hopeless culture, careening down a path of socialism and entropy. And certainly, the US and much of the world face some very hard choices in the next year or so; but somehow I think we will do just fine, even if we make a few bad choices and have to correct our course more than we would like.
Of course, it helps to have a Washington, Hamilton, Franklin, Adams, Madison, and Jefferson to help guide the ship on its course, but we will have to make do with what we have. Every country needs leaders with a clear vision and a love of posterity. Maybe later generations will recognize leadership where we do not. Here's hoping.
On Wednesday I get to spend much of the day with David Rosenberg, and I am sure we will go over our own poor vision of what will happen. And Thursday I get to have lunch with George and Meredith Friedman of Stratfor, in Austin, where I will listen as he gives me his latest take on the world. I always come away from my time with them with a whole lot more insight. Then it's a few afternoon meetings and on to the University of Texas for a seminar with Rosie and Rich Yamarone (with whom I had lunch yesterday in New York). It will be fun.
Your trying to get a whole lot done in a short amount of time analyst,
It really does seem to be All Spain All the Time, but there is a reason. Unlike Greece, Spain makes a difference to the eurozone. It may be both too big to allow to fail and too big to save. Last week I came across a very informative 50-page PowerPoint on the situation in Spain from Carmel Asset Management. It is too big to send, but I asked Jonathan Carmel to draft a smaller document with some of the key points. I find it compelling. You can access the entire PowerPoint on my website. If you are not registered with me, you will need to enter your email address and, if you would, your zip code or country. There is a lot if information and data in the report. It will certainly make you think.
I want to emphasize that I do not think Spain is hopeless. Rather, it has a narrow set of limited options that will require a great deal of austerity and economic pain on the part of Spain and significant help from the rest of Europe, combined with the forbearance and patience of the bond market or massive buying of Spanish bonds by the ECB for an extended period of time. I think it will need to be the latter, as the bond market is on the brink of breaking down on Spanish debt, failing a realistic path to economic balance and growth. The way ahead is most difficult and treacherous. It appears to me that at the end of the day only ECB participation can buy Spain the time it needs. If they give Spain the time, it can get through. But the pain will then be spread to the valuation of the euro and thus the entire eurozone.
Is a new fiscal compact a possibility? One with nations giving up control of their budgets and a euro-wide bond issue by which all the nations guarantee the others' debt? Or is there some middle option? Anything is possible and everything will be discussed, as the cost of a eurozone breakup would be massive.
This week's Outside the Box shows some of the reasons why the task is so daunting. Not to mention Italy. And the election results in France suggest a new government may be coming in May, whose leader has promised to renegotiate the recent eurozone agreement, although the details of what that really means are quite murky. And of course France is only a few years from its own crisis, if its deficit is not brought under control. Hollande has said no more austerity yet has not proposed a plan that promotes real growth.
We will soon plunge into yet more last-minute crisis meetings and summits, in which will be hatched yet more "plans." The German Bundesbank will complain about ECB largesse, but they don't control the ECB, as they once thought they did. They are toothless. But any pan-European plan that requires more German pledges (taxes and debt) must get through their legislature. And the Bundestag is most definitely NOT toothless. Can Merkel tame them once again? It will be difficult if the ECB ignores the Bundesbank warnings. You can only push so much.
A very narrow and treacherous path indeed. And it wends all through Europe, not just Spain.
I write this on my iPad from the train to Philadelphia, as I have managed to fry my computer. Somehow, the coffee spilled on the keyboard this morning did not seem to do it any good. Oh well. I get a backup laptop tomorrow. No data lost, just time and money. Sigh.
Your feeling like a rookie traveler analyst,
Today's Outside the Box comes to us from Grant Williams, who covers the world from his perch in Singapore, in his always instructive and always entertaining Things That Make You Go Hmmm... I felt for him right at the outset today, because (like yours truly) he was trying really hard ... not to talk about Greece. And so, he announced, he was going to talk about Spain and about oil; but then, before he even made it through his opening paragraph, there was this:
"... ahhhh NUTS! They did it AGAIN.... ok... the Greek restructuring. It's not as though I could ignore it, now, is it? ... Oil can wait until next time.... no doubt it'll be an issue then too."
But he's determined to talk about Spain ... so let's talk about Spain. But ... (What is this? Why is Greece such a strange attractor?) on his way to the pain that falls mostly on the plain in Spain, Grant just can't help sharing with us this wry factoid:
"... some 2,400 years after 10 Greek municipalities became the first sovereign entities to default when they stiffed the temple of Delos, birthplace of Apollo."
But Spain, Grant! Yes:
"Spain's GDP of $1.4 trillion, somewhat surprisingly perhaps, puts it just behind oil-rich Russia and Canada and people-rich India. Spain is a big country. Spain matters.
"Spain is now about to become the country everyone cares about all over again and, when the world's focus returns to the Iberian Peninsula, it will realise that the large, grey shape in the corner of the room was a Spanish elephant."
Spain's public debt-to-GDP ratio is a relatively appealing 68%, Grant notes (that's just a little over half of Italy's, at 120%), but here's the rub:
"As manageable as Spain's public debt would appear to be at face value, her private debt is an altogether different story – standing at a staggering 227% of GDP and, according to McKinsey, Spanish corporations hold twice as much debt relative to their output as US companies and, in comparison to Germany, that number goes up to six times....
"As Spain reduced its deficit in accordance with the EU's Growth & Stability Pact, it meant an increasing reliance on private debt was needed in order to prolong the enormous construction boom that had been ongoing in Spain since the 1970s but which really picked up steam in the 90s and 00s. The outcome of that reliance? A tripling of average household debt."
Throw in the part about the Spanish unemployment rate skyrocketing toward the 25% mark this year (and twice that for those under 25) and the bit where the new Spanish prime minister, Mariano Rajoy, draws a line in the sand by unexpectedly announcing that his government's budget deficit would be 5.8% of GDP in 2012, more than 30 percent higher than the 4.4% agreed on with his supposed masters in Brussels, and we have all the makings for quite a spicy little paella.
But stop reading at about the middle of page 10 if you just don't think you can stomach another helping of spanakopita.
I did something rather fun this morning. The wonderful people at the Commonfund were kind enough to invite me and my co-author of Endgame, Jonathan Tepper, who lives in London, to update their attendees on the sovereign-debt crisis we predicted in our book. This was the first time we had done a full-on presentation together. It was fun and came off rather well, and I think the attendees appreciated our combined views. We both agreed we need to do it more. Jonathan is a very brilliant young man. He makes me look good (I will take whatever help I can get). Enjoy the week!
Your losing my taste for Continental cui$ine analyst,
This week we look at a report called “Working Out of Debt,” about debt and deleveraging, from the McKinsey Global Institute. This is a well-done summary of their longer paper, which has been updated, called “Debt and deleveraging: Uneven progress on the path to growth.” I discussed the original paper both in my regular letter and in Endgame. It is one of the best, most definitive pieces on the topic I have read. For those trying to understand how the deleveraging process will affect their particular world, I think it is a must-read. I have been spending more and more time thinking about the whole process of deleveraging, and am coming to think deleveraging is the critical and fundamental factor shaping the economic environment and impacting every decision countries and businesses are faced with. This paper was done by Karen Croxson, Susan Lund, and Charles Roxburgh; and they are to be especially commended for their insight and work.
This summary and the full report look at the relevant lessons from history about how governments can support economic recovery amid deleveraging, and at the signposts business leaders can look for to see where economies are in that process.
Overall, they tell us, the deleveraging process has only just begun: “During the past two and a half years, the ratio of debt to GDP, driven by rising government debt, has actually grown in the aggregate in the world’s ten largest developed economies. Private-sector debt has fallen, however, which is in line with historical experience: overextended households and corporations typically lead the deleveraging process; governments begin to reduce their debts later, once they have supported the economy into recovery.”
You can sign up at their website and see the full report at https://www.mckinseyquarterly.com/Working_out_of_debt_2914. I would strongly recommend you do so, not only for this report but because their website is chock full of well-done articles on a wide variety of topics, and they update it frequently with more material. It is all top-notch. It is worth visiting just to see what they have done in areas that may be of more specific interest to you, or because like me you are an information junkie and want to keep up on a wider world than just macro-economics.
Have a great week. Mine will be busy but interesting, which is always good. And this Friday I start a series on the choices that we face in the US, so there will be lots to ponder amidst the noise.
Your wondering how the Giants got into the Super Bowl analyst,
I am attending the Global Interdependence Center’s latest conference here in Philadelphia, writing you from the Admiral’s Club on my way to Boston. The chatter last night at dinner and between sessions was focused on the risks in Europe. I did an interview with Aaron Task on Yahoo’s Daily Ticker, where I noted that European leaders are starting to use the word contained when they talk about Greece. Shades of Bernanke and subprime. This too will not be contained.
And that brings us to this week’s Outside the Box. Greg Weldon has graciously allowed me to use his latest missive on Europe’s woes. A teaser:
“The EU, like the US, suffers from what we might call the 'Cyrenaic Syndrome', a dynamic linked to the ancient Greek philosophers Aristippus and Hegesias of Cyrene, who, in 3rd and 4th Centuries BC, hypothesized that the goal of life was the avoidance of pain and suffering. Addicts accomplish this thru substance abuse. The EU is trying to accomplish this thru pure denial, and an outright refusal to accept that austerity, like sobriety, is the ONLY way to actually deal with the problems it faces.”
Greg is my favorite slicer and dicer of data. And he (as a registered CTA) has real skin in the game, as he runs money; so his work is not just some guy drawing lines on charts. He has to draw real-world conclusions, for real-world trades. For those who have NOT had a free trial of Weldon’s three research publications, visit www.Weldononline.com and sign up for a free trial.
And for the record, the euro will not fall out of bed until I have exchanged my last dollar in the third week of June. But what’s a little exchange-rate issue when you are talking Tuscany? I can’t complain too much. Have a great week.
Your wondering if Bernanke will ever say the word contained again analyst,
This is a special Outside the Box. I got this letter from my good friend Greg Weldon last night and got permission to pass it on to you. I think it illustrates the problems that the world is facing from the sovereign debt crisis that is building in Europe.
There are no good solutions here, only very difficult ones. In order to get financing, Greece must willingly put itself into a multi-year depression. And borrowing more money when it cannot afford to pay back what it has will not solve the problem. 61% of Greeks now favor leaving the euro. How has Greece responded? By banning short selling on its stock market for the next two months. That should make things better. Greeks are responding by rioting and going on strike. But you truly know when a country is dysfunctional when its AIR FORCE goes on strike. Yesterday Reuters reported that hundreds of Greek pilots called in sick in protest. The response from government? The Minister of Defense said he was "profoundly disappointed." Now that had to make the pilots feel bad.
Money is flying from Greek banks, which makes sense, as how can a bankrupt Greek government guarantee Greek bank deposits? I know that Greek bankers may have a different view, but Greek depositors are voting with their feet. And Greg shows us it is not just Greece. It is fast becoming Portugal. And Spain is not far behind in my opinion.
I can well imagine there are private meetings among Greek government officials, banks and other leaders as to what must now be done. Those meetings I am sure can be tense. These things matter, as European banks hold a lot of Greek debt, as well as Portuguese and Spanish debt. European banks have not come close to dealing with their problems and are seriously over-leveraged. There is the potential for yet another banking and credit crisis stemming from European banks. Will world banks see their trust for each other (and especially European banks with large amounts of Club Med bonds) devolve as it did on August of 2008? It is something we must think about. It is possible, in my opinion. I sincerely hope it does not happen, but we must think about it. (Note, this is not something that will happen for awhile, but we should be aware of the problem.)
I want to thank Greg for letting me send this on to you. His website is www.weldononline.com. This letter is typical of his work – thorough and detailed and full of charts. He is the best slicer and dicer of data that I know.
Let's start with the conclusion to today's Outside the Box:
"The underlying principle flows from the financial balance approach: the domestic private sector and the government sector cannot both deleverage at the same time unless a trade surplus can be achieved and sustained. Yet the whole world cannot run a trade surplus. More specific to the current predicament, we remain hard pressed to identify which nations or regions of the remainder of the world are prepared to become consistently larger net importers of Europe's tradable products. Countries currently running large trade surpluses view these as hard won and well deserved gains. They are unlikely to give up global market shares without a fight, especially since they are running export led growth strategies. Then again, it is also said that necessity is the mother of all invention (and desperation, its father?), so perhaps current account deficit nations will find the product innovations or the labor productivity gains that can lead to growing the market for their tradable products. In the meantime, for the sake of the citizens in the peripheral eurozone nations now facing fiscal retrenchment, pray there is life on Mars that exclusively consumes olives, red wine, and Guinness beer." - Rob Parenteau, CFA
Let me state upfront that this is not the easiest to grasp Outside the Box that I have sent you. But if you can get what Rob is saying, you will understand why the problems facing the world, and especially Europe, are so difficult. Everyone cannot export their way out of this crisis. Someone has to actually run a current account (trade) deficit.
My suggestion is that you read this once through, and then read it again. If you see where Rob is going, it makes it easier to understand the second time. Warning: Rob Parenteau is an Austrian economist. In many circles, what he is saying is controversial, if not at least counter-intuitive. But it makes us think, which is the purpose of Outside the Box. If I get a response that is robust and thoughtful, I will run it in the future. The problem that Rob articulates is the center of the problems we face. There are no good or easy choices, as I have been writing for a log time.
Rob Parenteau, CFA, is the sole proprietor of MacroStrategy Edge and editor of The Richebacher Letter. He also serves as a research assistant to the Levy Institute of Economics. For those interested, you can subscribe to The Richebacher Letter at https://reports.agorafinancial.com/RCH497ControlPromo/LRCHL300/landing.html (yes, more hyper marketing copy, but that is the link if you want his letter.)
I wrote about Greece in last week's letter. Then I ran across this column in the Financial Times by my friend Mohammed El-Erian, chief executive of Pimco, and someone who qualifies to be introduced as one of the smartest men on the planet. It is short and to the point. (www.pimco.com)
And finally, many of you are probably familiar with TED Talks. If you are not, you should be. They basically get very smart, creative people to come in and do short talks Tiffani just sent me one of their latest videos. 13 minutes. It blew me away. The world of Minority Report is here, 40 years ahead of schedule. All I could do was just say "Wow!" Its young men like this that should make us all optimists that somehow we will figure out how to get through all this. http://www.ted.com/talks/view/id/685
Today's offering for this week's Outside the Box starts off with a quote from Titus Maccius Plautus: "I am a rich man as long as I don't pay my creditors." Even 2200 years ago, it seems that problems of credit were an issue.
I talked last Friday about the US being faced with a number of bad choices. But it is not just the US. Today we look at a piece from my friends at Variant Perception based on London. They are a relatively new institutional research house. I have been reading their material for some time and have begun to look very much forward to it. They do some very good in-depth analysis. I asked then to shorten a piece they did on Spain and Spanish banks for this week's Outside the Box. Spain will soon be faced with a number of very uncomfortable choices, but for now they appear in denial.
For those interested, I also provide a link to another report they did on the United Kingdom, tax collections (way down!) and the link to UK gilts (or bonds). It seems they also have a problem with issuing too much debt. http://www.variantperception.com/sites/default/files/uploads/Taxing_Problems_and_a_Gilt-y_Solution.pdf
I have highlighted problems in Japan and with the European banking system. The problem from the credit crisis are world wide. To think they are not interconnected would be naiveté in the extreme. What happens in Japan and Spain and the US will affect your part of the world, some more than others. Today, let's look at Spain, which has as many unsold hoes but at one-sixth of the population, and these homes are on the books of banks at full price. I will let you read about the rest of the future train wreck that is Spain from Variant Reception (www.variantperception.com which has some other interesting sample commentary as well).