Tuesday, June 12, 2012

A Bailout For Spain's Banks Won't Do Any Good-- None Whatsoever-- For Spain's People But Banksters Are In Love With Sado-Monetarism


Rajoy beso Merkel

Property speculation in the '90s (irresponsible gambling) led to a severe over-extension of Spain's banking system. Last week they-- the country's banks and the government that had been bolstering them-- were on the brink of bankruptcy. Then German banksters orchestrated a "bailout" (really, for themselves)-- which every newspaper in the world has termed "buying time"-- which will lead directly for Spain's banks being on the brink of bankruptcy next month.
In 1998, the centre-right government passed a law that increased the amount of land for development. Developers got rich, selling the idea that property would always go up in value. You could buy a flat on the Mediterranean for $156,000 and sell it the next day for $234,000; by the end of the month it would be worth $390,000. And the flat, purchased off-plan, was still being built.

German banks financed Spain's banks, which needed funds for high-risk mortgages. Greed made the people rich for a while-- but then it made them poor, and jeopardised their future.

Spain is a country with a million unsold properties and an unemployment rate of 24.5 per cent.

Delinquency rates on these properties are as high as 19%. And did we mention that a quarter of the workers don't have jobs? At some point, the lights won't turn on when you flick the switch. The $125 billion "rescue plan" isn't meant to rescue any Spanish workers or consumers or, really, anyone in Spain at all. It's a plan to rescue the banksters who lent Spanish banks the money for the frenzied speculation. That's not good. "Austerity" is turning out to be the worst thing Germany has brought Europe since... well, you know.

And then there's Greece, Portugal, Cyprus (who is savvy enough to try to borrow from Russia instead of the Austerity-minded Germans) and Ireland. And Italy. Spain has already embraced Austerity-- the same way it embraced the other German idea in the '30s-- and it's just made things worse... a lot worse. The bond vigilantes are asking for enormous rates in return for investing in Spanish bonds-- rate's Europe's 4th largest economy can't afford, not during an unchecked recession (or whatever you want to call the economic crisis that's destroying the Spanish people's economic prospects. And the country's recently elected right-wing government of Mariano Rajoy-- a believer in Austerity-- admits things are going to get a lot worse. None of this bailout bullshit is addressing the real problems of economic growth-- jobs for working people.
"A significant part of this (bailout for Spanish banks) has to do with ring-fencing Greece," says Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. "This is enough to prevent added market contagion."

But analysts said even bolder action may be needed from some key European governments and institutions that have been leery of committing too much to the effort.

Germany, worried that it will get stuck with the bill for any ambitious schemes, has rejected several ideas for easing the crisis. It has been reluctant to ease the terms of previous bailouts to reduce the pain of government spending cuts on Greece, Portugal and Ireland. And it has resisted calls for the creation of joint "eurobonds" that would raise money and spread responsibility for repayment across the euro countries.

Likewise, the European Central Bank has been reluctant to intervene to jolt the eurozone economy. Last week, it passed up an opportunity to reduce interest rates. And it has been reluctant to flood the economy with money to push down interest rates the way the U.S. Federal Reserve has.

The rescue money for Spain will come from pools set up by other euro countries. Spain's government will distribute it to the banks. The banks will pay it back with interest, and the money will go back to the rescue pools. Interest rates and other details had not been revealed as of Sunday.

...The troubles in Europe also are causing economic problems for the United States and developing countries such as China and Brazil, which rely on Europeans to buy their exports. So the plan unveiled Saturday eases pressure on the United States and the rest of the world economy as well.

European economic troubles pinch U.S. businesses. U.S. companies send 22 percent of the goods they export to Europe and have more than $2 trillion invested in factories, offices and businesses there.

A bigger fear is that Europe's financial troubles could cross the Atlantic. When banks lose confidence in each other, they refuse to lend each other money. Credit dries up, depriving economies of the fuel they need to grow. A financial crunch can wreck the economies on both sides of the ocean as it did in 2008.

Paul Krugman saw this one coming a mile away: "yet again the economy slides, unemployment soars, banks get into trouble, governments rush to the rescue-- but somehow it’s only the banks that get rescued, not the unemployed... What’s striking, however, is that even as European leaders were putting together this rescue, they were signaling strongly that they have no intention of changing the policies that have left almost a quarter of Spain’s workers-- and more than half its young people-- jobless." European interest rates remain artificially high-- a recipe for an even worse recession than the one Europe is steadily falling into.
For years Spain and other troubled European nations have been told that they can only recover through a combination of fiscal austerity and “internal devaluation,” which basically means cutting wages. It’s now completely clear that this strategy can’t work unless there is strong growth and, yes, a moderate amount of inflation in the European “core,” mainly Germany-- which supplies an extra reason to keep interest rates low and print lots of money. But the central bank won’t move.

Meanwhile, senior officials are asserting that austerity and internal devaluation really would work if only people truly believed in their necessity.

Consider, for example, what Jörg Asmussen, the German representative on the European Central Bank’s executive board, just said in Latvia, which has become the poster child for supposedly successful austerity. (It used to be Ireland, but the Irish economy keeps refusing to recover). “The key difference between, say, Latvia and Greece,” Mr. Asmussen said, “lies in the degree of national ownership of the adjustment program-- not only by national policy-makers but also by the population itself.”

Call it the Darth Vader approach to economic policy; Mr. Asmussen is in effect telling the Greeks, “I find your lack of faith disturbing.”

Oh, and that Latvian success consists of one year of pretty good growth following a Depression-level economic decline over the previous three years. True, 5.5 percent growth is a lot better than nothing. But it’s worth noting that America’s economy grew almost twice that fast-- 10.9 percent!-- in 1934, as it rebounded from the worst of the Great Depression. Yet the Depression was far from over.

Put all of this together and you get a picture of a European policy elite always ready to spring into action to defend the banks, but otherwise completely unwilling to admit that its policies are failing the people the economy is supposed to serve.

Still, are we much better? America’s near-term outlook isn’t quite as dire as Europe’s, but the Federal Reserve’s own forecasts predict low inflation and very high unemployment for years to come-- precisely the conditions under which the Fed should be leaping into action to boost the economy. But the Fed won’t move.

What explains this trans-Atlantic paralysis in the face of an ongoing human and economic disaster? Politics is surely part of it-- whatever they may say, Fed officials are clearly intimidated by warnings that any expansionary policy will be seen as coming to the rescue of President Obama. So, too, is a mentality that sees economic pain as somehow redeeming, a mentality that a British journalist once dubbed “sado-monetarism.”

Whatever the deep roots of this paralysis, it’s becoming increasingly clear that it will take utter catastrophe to get any real policy action that goes beyond bank bailouts. But don’t despair: at the rate things are going, especially in Europe, utter catastrophe may be just around the corner.

As for the efficacy of the bailout... Monday, Spain's 10 year bonds rose to 6.5%... and then just kept on going up. Today they were at the highest closing levels of the year. I guess no one heard about the bailout yet.

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At 2:35 PM, Anonymous Hal (GT) said...

It's been my thought for over a year now that Germany is quietly and pervasively taking over the EU without firing a gun. I think that is continuing. Whether or not it will work, I don't know. But it sure looks like it could.

You're right of course about this current bail-out not doing any good. It hasn't and I think it pretty much is dead at this point in the game and everyone knows it.


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