Greece was bailed out yesterday. Or so the headlines blare. In reality all that will be happening at some point in the near future is that the European Governments will give Greece enough money to pay back the European banks a portion of the money Greece owes those banks. In exchange Greece agrees to retrench its public sector and raise more money from everyone else. As if that will ever happen.
In other words this is nothing more than a public relations sham.
The secret to understanding what really is going on is to figure out who benefits from the movement of money. In this case it is the European banks. The European banks and their good buddies in the their governments are hoping to keep alive the game of make believe, particularly the part where Portugal, Spain and Italian government bonds owned by the banks are not worthless.
What makes a governments debt worthless? If a country has a negative cash flow, meaning it spend more than it takes in taxes, and it looks as if that negative cash flow will continue in perpetuity, that country’s debt is obviously worthless. That debt will never be repaid except via printing more paper. What would you call debt that will be never repaid, except worthless?
Almost all of Europe other than Germany has a negative cash flow. That means that almost all of Europe needs to borrow more than it is generating in tax revenue.
As for yesterday’s deal, there is no benefit to Greece. The only thing I can see what Greece gets out of this deal is that the Greek bankers and politicos are saving their butts at the expense of the rest of country.
That brings us to the United States. The US government is also spending more than it makes. This fiscal year the deficit will rise from $1.2 trillion to $1.3 trillion.
The current administration again wants us to believe that while the deficit will be up this year, next year it will drop. Of course, they have been saying this every year since the first explosion of money printing at the end of 2008. Since then the US has created $5 trillion in new debts.
I personally do not blame government officials for doing what they are doing. If I could print money and use it to pay my bills I would do it too.
The real blame for delaying real change in the US, Japan and most of Europe goes to those who keep buying the phony paper being printed by central bankers. Only when the enablers stop buying worthless government debt can the economies of the US, Japan and most of Europe really reach bottom and we are all forced to restructure the way our governments work.
Charles Biderman
President & CEO TrimTabs Investment Research
Portfolio Manager, TrimTabs Float Shrink ETF (TTFS)
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Best one yet Charles.
Please be sure to invite us to your inaugural financial seminar – my husband and I would be happy to attend.
Best,
Debbie
My observation holds – all EMU ntnioas have foreign-currency debt from the perspective of the national government. The most likely reason Italy and Belgium are less under attack from bond markets at present is because they are very large countries and bond traders know that the ECB/EU will never let them default.Gros is right at least on this. Spain is big but also faced a lot of issues with the markets. Euro Zone ntnioas with high (negative) international investment position/gdp ratios are under trouble. Here is some stat at the end of Q2 2010. Data from central banks and statistical institutes.Net International Investment Position at the end of Q2 2010:Spain -€916b,Ireland -€189b,Greece -€218b,Portugal -€180b,Italy -€260b(4 times Q2 2010 GDP) :Spain €1,086b,Ireland €156b,Greece €235b,Portugal €171b,Italy €1,514bHence (-NIIP/GDP) ratio is Spain 84%, Ireland 120%, Greece 93%, Portugal 105%, Italy 17%Will try to update it till Q4 2010. But partially explains why Italy is under less pressure in spite of having a public debt/gdp over 100%. Of course, the markets don’t know this but its the result of supply and demand. A rise in international debt implies more and more public debt has to be picked up by foreigners directly or indirectly putting pressure on yields.