The Spanish and Italian stock markets were down by more than 5% this morning.
The rate on Spain's 10-year government has exploded overnight by 25 basis points reaching 7.52%.
The collapse came on fears that a number of regional governments in Spain will ask the central government for financial support.
The European Central Bank is not stepping in to prop up the Spanish sovereign debt market. The most likely explanation is that it wants to keep the eurozone in crisis mode so that initiatives to push the EZ fiscal and banking sectors on the track towards a closer union maintains an accelerated pace.
It should be noted that what is going on in Spain is likely a preview of what will occur in the U.S. as various states and major cities reach the financial crisis stage. Los Angeles, Chicago, California and Illinois, for starters, are all on death watch by those who understand government finances. It still may take a year or two, but the crisis in the U.S. at the state and local levels is coming.
7% is the magic number. Just looking at an amortization schedule, 7% over 10 years means the borrower has to pay as much in interest as principle borrowed. For a country that running a constant deficit, if they don't have the money now, they're not going to have twice as much money a decade from now.
ReplyDeleteA yield is different than an interest rate, but the simple fact remains: if they don't have the money now, they're not going to come up with it later without either printing money or cramming down losses on their creditors. This is the heart of the sovereign debt crisis. It's what the lowest level credit analyst understands that PhD Economists at Princeton do not. And it is not a "self-fulfilling prophecy"; it's just basic analysis that is undeniable.
"The European Central Bank is not stepping in to prop up the Spanish sovereign debt market. The most likely explanation is that it wants to keep the eurozone in crisis mode so that initiatives to push the EZ fiscal and banking sectors on the track towards a closer union maintains an accelerated pace."
ReplyDeleteCould very well be. But it could also be because they already have tons of toxic Greek paper on their books and nothing to show for it: Greece is still going to default.
So maybe they figured out where this is heading and don't want to repeat.
I completely agree that their INTENTION is to force a closer political union, but even the NWO people can't always get what they want.
In the preinternet age, they almost certainly would have, though.