Wednesday, February 22, 2012
Now Portugal
It looks like Greece will get its debt restructuring, which presumably delays its collapse by a few months. So now the spotlight shifts to the other functionally bankrupt eurozone countries which have no choice but to demand the same deal.
Portugal, by general consensus, is next in line. It hasn’t blatantly lied about its problems the way Greece has. And it hasn’t accumulated quite as much debt as Greece, though at 105% of GDP its government is still deep in the danger zone.
So as with Greece, austerity leads to depression:
Bailed-out Portugal’s recession seen worsening
(AP) LISBON, Portugal — Portugal’s recession will deepen this year under the weight of austerity measures meant to reduce public debt, the bailed-out country’s central bank predicted Tuesday.
Portugal is trying to free itself from a huge debt burden that forced it to ask for a euro78 billion ($100 billion) financial rescue package last year to avoid bankruptcy.
But the Portuguese economy, one of the frailest among the 17 countries that use the euro as its currency, is buckling under the austerity cuts and fueling investor fears about the bloc’s chances of recovery from its two-year-old sovereign debt crisis.
The central bank said in a report it expects the economy to contract 3.1 percent this year. Last October, it forecast a 2.2 percent contraction in 2012.
As in bailed-out Greece, the government faces a dilemma as it tries to cut spending while at the same time fostering the growth it needs to settle its debts.
The jobless rate has climbed to a record 13.2 percent, and trade unions have staged strikes and protests against tax hikes and pay and welfare cuts.
Finance Minister Vitor Gaspar told lawmakers Tuesday he planned no new austerity measures this year. He said any funding shortfall would be made up through the sale of state property and gambling concessions.
Portugal went into a double-dip recession last year, contracting 1.6 percent, the central bank said. The economy will be “virtually stagnant” in 2013, it said.
The debt crisis has caused Portuguese living standards to drop, with the central bank estimating that disposable income would decline 11 percent between 2011 and 2013 — the duration of the bailout agreement.
Depression, in turn, leads to chaos:
Lisbon Protests: More Than 100,000 Rally Against Austerity In Portugal
LISBON, Feb 11 (Reuters) – More than 100,000 people packed Lisbon’s vast Palace Square on Saturday in the largest rally against austerity and economic hardships since the country resorted to an EU/IMF bailout last May, and organizers vowed to step up protests and labour action.
The mass rally occurred just four days before Portugal’s international lenders were due to start the quarterly evaluation of the bailout implementation on Wednesday in the finance ministry building which overlooks the square by the river Tagus. They come amid concerns Portugal may need more bailout funds, if not a debt restructuring like Greece.
“We take this opportunity here to make our own evaluation on behalf of those who suffer daily,” Armenio Carlos, head of the country’s largest union, CGTP, told supporters as the crowd chanted: “IMF doesn’t call the shots here!”
“We have to step up the struggle,” he said. Carlos promised the next wave of rallies across Portugal as soon as on Feb. 29.
“The country needs to remove the rope from around its neck,” he said, saying that Portugal should try to renegotiate its debt rather than impose more austerity, an argument he has made consistently.
The peaceful rally under the banners of the 750,000-strong CGTP, which last month refused to sign a pact with the government on labour market reform, showed that social strife is running strong and likely to grow even though other unions agreed to the reforms demanded by the bailout terms.
The dynamic of austerity leading to depression leading to regime change will continue until Germany just gives up and bails out the whole eurozone periphery.
Dollar Collapse
Top Banks in EU Rush for Safety
LONDON—Top European banks, responding to new regulations and wary of lending, are stashing increasingly large sums of money at central banks around the world in a collective flight to safety.
The eight giant European banks that have disclosed their annual results in recent weeks reported holding a total of about $816 billion in cash and deposits at central banks as of Dec. 31, according to calculations by The Wall Street Journal. That is up 50% from a year earlier, when the same banks were holding roughly $543 billion.
WSJ
8 Reasons Why The Greek Debt Deal May Not Stop A Chaotic Greek Debt Default
The global financial system is not a game of checkers. It is a game of chess. All over the world today, news headlines are proclaiming that this new Greek debt deal has completely eliminated the possibility of a chaotic Greek debt default. Unfortunately, that is simply not the case. Rather, the truth is that this new deal actually "sets the table" for a Greek debt default. When I was studying and working in the legal arena, I learned that sometimes you make an agreement so that you can get the other side to break it. That may sound very strange to the average person on the street, but this is how the game is played at the highest levels. It is all about strategy. And in this case, the new debt deal imposes such strict conditions on Greece that it is almost inevitable that Greece will fail to meet some of them. When Greece does fail, Germany and the other northern European nations may try to claim that they "did everything that they could" but that Greece just did not "live up to its obligations". So does this mean that we will definitely see a chaotic Greek debt default? No. What this does mean is that the chess pieces are being moved into position for one.
The following are 8 reasons why the Greek debt deal may not stop a chaotic Greek debt default....
#1 Greece Is Being Set Up To Fail
The terms of this new debt deal impose some incredibly harsh austerity measures on Greece and from now on the Greek government will be subject to "permanent monitoring" by EU officials.
In other words, they will be under a microscope.
Any violation of the terms of the debt deal could be used as a pretext to bring down the hammer and cut off bailout funds. Potentially, this could even happen just a few weeks from now.
It has become obvious that there are many politicians in Europe that would very much like to kick Greece out of the euro. In a recent column, the International Business Editor of The Telegraph summed up the situation this way....
It is clear that Berlin, Helsinki, and the Hague have taken the decision to eject Greece from the euro whatever the country now does. Even if Greece complies to the letter with the impossible terms of the EU-IMF Troika, it will not make any difference. A fresh pretext will be found.
#2 The Next Greek Election Could Bring An End To The Bailout Deal Overnight
The next national Greek elections are scheduled for April. Political parties opposed to the bailout have been surging in recent polls. It is becoming increasingly likely that the next Greek government will abandon this new deal entirely.
The following is what hedge fund manager Dennis Gartman told CNBC about what is likely to happen after the next elections....
"A new government is going to come to power following elections that shall take place sometime this spring, and if anyone anywhere believes that the next Greek government shall do anything other than abrogate all the agreements made with the ‘troika,’ then we have a bridge we’d like to sell them at a very high price"
With each passing day anger and frustration inside Greece continue to rise, and those that are currently holding power in Greece are becoming very unpopular.
One current member of Greek Parliament recently talked about what he thinks will happen in the aftermath of the next election....
"If we achieve a Left-dominated government, we will politely tell the Troika to leave the country, and we may need to discuss an orderly return to the Drachma"
#3 This Bailout Deal Is Going To Make Economic Conditions In Greece Even Worse
In a previous article, I listed some of the new austerity measures that are being imposed on Greece by this new agreement....
The EU and the IMF are demanding that Greece fire 15,000 more government workers immediately and a total of 150,000 government workers by 2015.The EU and the IMF are demanding that wages for government workers be cut by another 20 percent.The EU and the IMF are demanding that the minimum wage be slashed by more than 20 percent.The EU and the IMF are also demanding significant reductions in unemployment benefits and pension benefits.
The austerity measures that have already been implemented over the past few years have already pushed Greece into an economic depression.
These new austerity measures will deepen that depression.
At the moment, the Greek national debt is sitting at about 160 percent of GDP.
We are being told that these new austerity measures will reduce that ratio to 120 percent by 2020, but already there are many in the financial world that are calling such a goal "comical".
Even with this new deal, the Greek national debt is still completely and total unsustainable. A "confidential report" produced by analysts from the European Central Bank, the European Commission, and the International Monetary Fundsays the following about what this new debt deal is likely to accomplish....
There are notable risks. Given the high prospective level and share of senior debt, the prospects for Greece to be able to return to the market in the years following the end of the new program are uncertain and require more analysis. Prolonged financial support on appropriate terms by the official sector may be necessary. Moreover, there is a fundamental tension between the program objectives of reducing debt and improving competitiveness, in that the internal devaluation needed to restore Greece competitiveness will inevitably lead to a higher debt to GDP ratio in the near term. In this context, a scenario of particular concern involves internal devaluation through deeper recession (due to continued delays with structural reforms and with fiscal policy and privatization implementation). This would result in a much higher debt trajectory, leaving debt as high as 160 percent of GDP in 2020. Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it.
The GDP of Greece fell by 6.8 percent during 2011.
2012 was already expected to be even worse, and all of these new austerity measures certainly are not going to help things.
And every time the Greek economy contracts that makes a chaotic debt default even more likely.
#4 The Greek Parliament Must Still Vote On This Bailout Deal
It is anticipated that the Greek Parliament will vote on this new agreement on Wednesday.
It is expected to pass.
But when it comes to Greece these days, there are no guarantees.
#5 The Greek Constitution Must Still Be Modified
Under the terms of this new agreement, Greece is being required to change its constitution.
The following is how an article in The Economist describes this requirement....
Over the next two months Greece has promised to adopt legislation “ensuring that priority is granted to debt-servicing payments”, with a view to enshrining this in the constitution “as soon as possible”. These arrangements may not amount to the budget “commissar” once threatened by some creditors, but the effect may be pretty much the same.
So will this actually get done?
We will see.
Forcing a sovereign country to modify its constitution is a very serious thing. If I was a Greek citizen, I would be highly insulted by this.
#6 Several European Parliaments Still Need To Approve This Deal
The German Parliament still must approve this new agreement. This is also the case for the Netherlands and Finland as well.
Many politicians in all three nations have been highly critical of the Greek bailouts.
It is expected that all of these parliaments will approve this deal, but you just never know.
#7 Private Investors Still Have To Agree To This New Deal
Private investors are being asked to take a massive "haircut" on Greek debt. The following is how the size of the "haircut" was described by a USA Today article....
Banks, pension funds and other private investors are being asked to forgive some €107 billion ($142 billion) of the total €206 billion ($273 billion) in devalued Greek government bonds they hold.
There is absolutely no guarantee that a solid majority of private investors will agree to this.
In the end, probably the only thing that is guaranteed is that litigation regarding this "haircut" is likely to stretch on for many years to come.
#8 The Global Financial Community Still Expects Greece To Default
Almost all of the analysts that were projecting a chaotic Greek debt default are still projecting one today. Yes, many of them believe that "the can has been kicked down the road" for a few months, but most of them are still convinced that a default by Greece is inevitable.
The following comes from a Bloomberg article that was released after the Greek debt deal was announced....
“The danger of Greece saving itself into economic depression and having to default and exit the common currency zone remains substantial,” said Christian Schulz, an economist at Berenberg Bank in London. Jennifer McKeown of Capital Economics Ltd. repeated her forecast that Greece will quit the euro by the end of the year.
The odds that this agreement will survive for very long are not great.
It will be nearly impossible for Greece to meet all of the conditions being imposed upon it by this new deal. All of the politicians in northern Europe that are just itching to cut off aid to Greece will soon have the excuse that they need for doing so.
And the Greek people could decide to bring all of this to an end very quickly. If they elect a new government in April that does not support this bailout agreement, the game will be over.
So don't be fooled by all the headlines.
A chaotic Greek debt default has not been averted.
The truth is that a chaotic Greek debt default is now closer than ever.
Economic Collapse
Former Islamic Insider Offers Warning
Last week I quoted from a book by Reza Kahlili, A Time to Betray. This week I had a chance to speak with Mr. Kahlili by phone, and ask him about the Iran crisis. As a former CIA operative who worked inside the Iranian Revolutionary Guard, he understands the strengths and weaknesses of the Islamic Republic. He knows the Islamist mindset, and the errors that plague U.S. policy.
I asked Mr. Kahlili whether he thought a preemptive strike against Iran was a good idea. “The question is complex,” he answered. “You should never have allowed Iran to become what it is today. You have missed opportunity after opportunity.”
Readers may remember that in 2009 the Islamic regime was ready to fall, with protests growing stronger by the day. This was a perfect moment to act, noted Kahlili, but the Western world did nothing to support the Iranian people against their oppressors. “Intelligence showed the [Islamic] leaders were ready to flee,” Kahlili said. “The security forces could not contain the protests. The Revolutionary Guard was demoralized. From the West, however, there was silence. You see how it was – a losing game for Iranian dissidents and backers of the West.”
Always the West has attempted to find “moderates” within the Iranian regime. Always, the U.S. has attempted to negotiate and conciliate. Always, the Americans have been duped, refusing to see that the Islamists are enemies of the West. The Islamists, in fact, cannot help themselves. They cannot stop or question the principles that drive them forward. Every success is proof of God’s blessing. “The clerics grow up with the vision that the only way for justice is for infidels to die,” Kahlili explained.
But isn’t Islam the “religion of peace,” as President Bush claimed?
Kahlili laughed, “Religion of peace? If they exploded one nuclear bomb on the Saudi oil fields, it would shut down all production because the oil would have been [radioactively] contaminated. Given our dependence on oil, the resulting calamity would be one of the worst in all history.” This result, explained Khalili, would make the whole world grieve. But the clerics would rejoice. War and disaster are nothing to them. If an unbeliever dies, praise be to Allah the blessed and merciful. If a believer dies it is also an occasion for self-satisfaction.
American policy-makers have failed to understand Iran. They imagine that economic sanctions will bring the Islamic Republic to the negotiating table. According to Kahlili, inflicting economic pain on fanatical Islamists will not work. “For them it is not the economy that matters. It is the ideology that matters.” And what is their ideology? “The Grand Ayatollah talked about what the Koran says,” noted Kahlili. “They [the Muslim clerics] will take over the management of the world. It clearly says this [in the sacred writings], that a man will come.”
That man, explained Kahlili, is the Mahdi (or twelfth Imam).
I asked Kahlili what he thought of the claim that the Ayatollah Ali Khamenei and President Mahmoud Ahmadinejad were personally in touch with the Mahdi. “These people meditate,” said Kahlili. “Khamenei prays and then he ‘ascends to the sky.’ During this elevation of spirit, he communicates with the Mahdi. I was there in Iran, and once you read the Koran in the middle of the night, you will have that same experience and believe you are right.”
Kahlili says that the most important teachings in the Koran are about killing and martyrdom, jihad and conquest. According to Kahlili, “The Koran promises that the Mahdi will wipe out those who don’t believe in Allah. The Islam of normal people centers on how gracious the Prophet Mohammed was; but those who actually go by the Koran know it is about slaughter, and it is written in very clear language.”
The leadership of the Islamic Republic is likely to miscalculate, Kahlili warned. They believe that God has promised them victory. “These people have a very narrow worldview,” he added. “The Ayatollah believes there should be blood until the end of the world, or God willnot be satisfied. You see, the center of the Islamic ideology is justice. When the Mahdi comes, he will kill all infidels. This is their justice.”
An Islamic prophecy says that dark clouds will cover the earth and kill a third of mankind while famine will kill another third. Then the Mahdi will come to smite the unbelievers and forcibly convert the entire world. According to Kahlili, such prophecies encourage Islamists to believe that nuclear war will bring ultimate salvation. What greater incentive could there be for unleashing global destruction?
“Basically,” says Kahlili, “in light of all this, we have a decision to make. Can we accept a nuclear-armed Iran or not? Whatever America decides, I believe the Israelis will not accept a nuclear-armed Iran.”
It is only logical to expect that the Israelis will attack the Islamic Republic’s nuclear sites. As these words are being written, the Israelis are preparing to activate special missile defense systems around Tel Aviv. Quite naturally, the Israelis are preparing for the inevitable. The Islamic Republic and its allies have thousands of rockets aimed at Israel. When Israel launches against the Iranian nuclear facilities, the Islamists are bound to retaliate. This could be a war with devastating consequences for the region – and for the world.
There is some good news, according to Kahlili. The Islamic Republic is hated by the Iranian people. If the Revolutionary Guard bases are suppressed by air strikes, a popular insurrection could occur. “Only regime change, only helping the Iranian people, will avert disaster,” said Kahlili. He explained that the Iranian people have turned against the regime and its ideology. He further suggested that few Mosques would be left in the country after the fall of the Islamic regime. “Many are secretly converting to Christianity,” he added.
According to Kahlili there is real danger of war in the Middle East this year. What would such a war mean for the world? There is the possibility of an oil shortage, with financial dislocations to follow. Beyond the economic consequences, Russia and China appear to support Iran. Retired Russian military officers are publicly suggesting that Russia will fight on Iran’s side if war breaks out. Some Chinese military officers have said much the same thing. As if in response to all this, President Barack Obama has announced his intention to cut back the U.S. nuclear arsenal by 80 percent.
Perhaps it is no accident we are in such a difficult position today. Reza Kahlili is not alone in suggesting that the West has used bad judgment and shown poor leadership regarding Iran. To survive intact, our civilization must do better. We have deluded ourselves long enough. We have refused to accept that our enemies are enemies, that they intend our destruction. The hour is late, and time is running out.
Financial Sense
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