Silk Purse Out Of A Sow’s Ear!

June 10, 2012

Merrill Lynch and others with the knowledge of the balance sheets of the Irish banks gave exposure of ¢6 bn from the banks only to the Irish sovereign. It was believed these were terrible losses but they could be covered by the Irish sovereign under advice from NTMA. It was a poor decision that gave no ceiling to the ‘unlimited’ nature of the guarantee that gave Irish sovereign support to the banks. People like Prof Morgan Kelly who flagged losses at ¢20/30 bn, even these were an underestimate, were ignored in the race to give the country to bankers. Banks succeeded in putting banking debt on sovereign debt and the public were conned.

Similarly, Spain has now succumbed to the banks with its ‘silk purse’ bailout of ¢100 bn. We need to know the interest rate and the term as I write, but really they don’t matter. It’s all laughable, it’s a silk purse made out of a sow’s ear. If they can’t pay back previous debt, they can’t through austerity pay back previous debt with more bailout debt piled on previous debt. Its a laughable economic policy.

Consider that Spain’s most recent trip to the markets levied an interest rate of dangerously high 6% +. Markets were factoring in the dangerous state of Spain’s exposure to banking losses similar to our our property bubble losses, but on a vaster scale.

Now consider “Statement by International Monetary Fund Managing Director Dominique Strauss-Khan on Ireland’s bailout. The remarkable nature of this fairy tale is the implicit belief stated that the bailout will work. Given some good husbandry and resetting under austerity and efficiency of the economy, Ireland can return to markets and repay its debts.

It’s remarkable that an organisation of the stature of the IMF with its experience of its role in the Argentinian crisis circa 2000 should make the same mistake again. IMF supported the efforts to keep Argentina pegged to the dollar and bailed out Argentina in a way that destroyed the Argentinian economy in a matter of years. Other criticisms of the IMF role were also made,

It was only when Argentina unilaterally broke its link to the dollar and devalued its peso, that the Argentinian economy recovered. But crucially there was another factor in its recovery, it defaulted on its debt and negotiated a debt writedown with its creditors.

Both Spain and Ireland need to leave the euro. Both need to renegotiate their debt and default and renegotiate with their lenders. Spains Rajoy is touting the ‘bailout’ deal as a victory for the euro, what a laugh?

The rebubbling of Ireland, Greece, Spain, Portugal with inflationary bailout blowing out their financial services and banking systems with more debt, through austerity imposed on taxpayers, who are part of the real economy, is not a solution; inflating financial services and banks while deflating the real economy, is, to repeat and emphasize this point, is NOT a solution. Its a laughable anachronism and ponzi scam that weakens Spain and the euro and consigns Spain and Ireland to the dustbin of the market place.

This ‘bailout’ debt will destroy Ireland and Spain. It is currently destroying Ireland and our incompetent leaders in their Vichy collaborative way are doing nothing to remove the source of destructive Troika imposed ‘bailout’ on Ireland. Its interesting the current Spanish ‘bailout’ sinkhole does not appear to include the IMF as part of the arrangement. Presumably, this will be funded through the ESM.

As this blog has pointed out there are concerning and terrifying aspects of the conditionality of the ESM on sovereign constitutions not the least of which is the binding way ESM ensnares its delinquent and subservient recipients of its ‘aid’ to complex legal agreements meaning countries will not be allowed to default and haircut debt similar to Argentina.

I’m not going to speculate on a 1984 world of the future with countries such as Ireland, Spain and Greece devastated by austerity, that have become ungovernable, with special forces/ Leopard tanks sent from on behalf of our debtor banks in Germany in a repeat of the Third Reich, to solve the problem of Federal Political Union.

You can write that book yourself!

Rajoys claims of victory for the euro and for Spain in these negotiations must be seen as another episode in the delinquent political handling of European leaders in their dealings with bankers: they’ve once again been sold another pig in the poke taxpayers are expected to pay for. Those who made all the losses, bankers and developers are being bailed out by those who didn’t make the losses, taxpayers !

Ireland’s taxpayers fed by such black/white Orwellian propaganda fell for this propaganda also and voted Yes. For how long will Spain’s taxpayers agree with Rajoy’s ‘victory’ speech?

Failure by Ireland to achieve relief in its debt burden opens the scenario of default.

Continuing pressure vis a vis Spain, Italy, Greece and Portugal will continue to mount, elections due in Greece this weekend 17th June.

We are looking into a crumbling euro vista in the short term. If Greece chooses to leave the euro, you can be sure market pressure to leave the euro will increase in Ireland. If we stay, continuing austerity and the weight of 120% + debt to GDP combined with Ceaucescu like austerity will mean pressure to leave will come from without and within Ireland.

Its likely the EMU will sacrifice Ireland and Greece to the markets in an escape through the exits as the euro disintegrates. Whether the euro failed experiment will continue thereafter remains to be seen. Its unlikely the euro can withstand the forces of disintegration for very long coming from Spain.

The euro is indeed a Titanic with not enough life boats.

Can silver save Greece?



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