Tuesday, November 30, 2010

Citigroup: Portugal is Insolvent

Willem Buiter, Citigroup Inc.’s chief economist, said today that Portugal is insolvent and "will probably need soon to join the emergency-loan program from the European Union and the International Monetary Fund".
He added: “The market’s attention is likely to turn to Portugal’s sovereign, which at current levels of interest rates and growth rates is less dramatically but quietly insolvent,”

“We consider it likely that it will need to access the European Financial Stability Facility soon.”
According to Bloomberg, this was in a note dated yesterday.
“Despite the recent drama, we believe we have only seen the opening act, with the rest of the plot still evolving,”  “Accessing external sources of funds will not mark the end of Ireland’s troubles. The reason is that, in our view, the consolidated Irish sovereign and Irish domestic financial system is de facto insolvent.”

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Spain's Yields Jump As Its Banks Will Struggle To Refinance 85B Euros in 2011

So now the fun has started with Spain, which is really as Roubini says, "the big elephant in the room (there is not enough money to bailout Spain)".

Bloomberg reports today that Spain’s banks will have to refinance about 85B euros next year, and that will be  struggle as costs are surging.
They report analysts saying there is "universal dumping of Spain going on,”

The average yield investors demand to hold euro-denominated Spanish bank bonds jumped by the biggest monthly jump on record, rising 141 basis points to 385 basis points in November.
"Spanish lenders are paying the highest premium ever on their debt relative to other banks in Europe.
Spain says the government’s finances and the country’s banks are sound".

So said Ireland, and all the banks passed their "stress tests" too.

"Spanish banks had loans from the ECB of 67.9 billion euros in October, a 30 percent drop from the previous month. Spanish ECB loans as a proportion of banking assets stand at about 2 percent, compared with about 7.8 percent for Ireland".

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Monday, November 29, 2010

Roubini: There is Not Enough Money To Save Spain

Nouriel Roubini said today that there may not be enough money to bail out Spain. He qualifies Spain as the “big elephant in the room” in the European debt crisis. However, he predicts that next in line is Portugal.
“It is quite likely that Portugal” “The big elephant in the room is not Portugal but, of course, it’s Spain. There is not enough official money to bailout Spain if trouble occurs.”

Bloomberg: "The cost of insuring the debt of Spain and Portugal soared to record-high levels today, according to CMA prices for credit- default swaps. Contracts on Spain climbed 14 basis points to 336 while Portugal rose 23 basis points to 524".

"As the number of countries needing bailouts or financing help grows, Roubini said sovereign debt, and in turn “supranational debt,” will increase as well".

He says that at some point debt restructuring could occur become inevitable for the sovereigns and also those financial institutions, adding that the IMF may be one such institution.

“Even the QE2 is not sufficient to restore growth to the trend level,” “The problems of the economy are not problems of liquidity, but problems of credit insolvency, and therefore monetary policy cannot resolve this.”

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Saturday, November 27, 2010

50,000 March in Dublin Against Irish Budgets Plans and Banks Bailouts

From the Irish Times today:

They estimate over 50,000 peope protesting. Ireland's population is about 4.3M.

"Addressing the crowd on a podium at the GPO Irish Times columnist Fintan O’Toole said the Government is doing a deal with people who were never elected.

He said the country was paying billions to bail out the banks and that the Government had declared war on the poor. He said Irish people were not subjects, but citizens, and wanted their republic back."

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Friday, November 26, 2010

Tensions Escalate in the Koreas and Europe, Spain Targetted

The world's tensions have signficantly escalated today, with North and South Korea at each other's throats, and the situation in Europe getting dire.

The Wall Street Journal reports that  things in Europe got worse as the "market homed in on Spain as another potential weak spot, leaving officials scrambling to quell investors' fears".

Of course, the Spanish Prime Minister dimissed the rumours and sadi there was absolutely no chance for a Spain bailout. But Ireland did the same just days before one was forced down their throats to save the foreign banks investments..

The WSJ says that his attempts to calm the markets had little effect, the euro is tumbling and the selloff in Spanish and Portuguese sovereign bonds is continuing.

"Sparking Friday's markets turmoil was a report in Friday's Financial Times Deutschland, which quoted unnamed German finance ministry officials as saying an aid package for Portugal would reduce the chances that Spain would also need a bailout.

The Portuguese and Spanish governments, the European Commission and Germany's finance ministry all denied the report, saying pressure wasn't being placed on Portugal to seek help. "It's absolutely, completely false—every reference for an aid plan for this country. It has neither been asked for and neither have we suggested it. It is absolutely false," said European Commission President Jose Manuel Barroso, a former Portuguese prime minister.

But the report still caused the euro to tumble against the dollar to $1.3252 from $1.3355 late in New York Thursday".

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Thursday, November 25, 2010

Brazil Raises Minimum Credi-Card Payments to 20% To Avoid Consumer Super-Debts

Brazil announced today new measures aimed straight at credit-card companies. They want to avoid consumer "super debts".

Mimimum credit-card payments have been raised to 15% starting in June 2011, and to 20% in December.

They also limited the num,ber of possible charges that credit-card companies can charge to 5, from 80:

- annual fees
- 2nd card issuance
- emergency credit-limit extensions
- cash withdrawals
- bill payment

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Irish Unions: Government Has No Mandate to Sign Recovery Plan; 90,000 Jobs to be Lost

The ICTU, Irish Congress of Trade Unions, says it is "abundantly clear that the Government doesn’t have a mandate to sign off on its national recovery plan".

David Begg, Ictu's general secretary, said that that the four-year plan could cost 90,000 jobs.

Irish Times: "Congress president Jack O’Connor said the trade union movement was always reluctant to call on a democratically elected government to vacate office.

However he said it was the view of congress that it would be better if people were given the opportunity to have their say in “these far-reaching matters”.

“It is abundantly clear that this Government doesn’t have a mandate to sign off on a plan as controversial as this.”

The Ictu is organising a big demonstration and rally in Dublin this Saturday, in protest against the Government’s economic policies.

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Chaos In Irish 10-Year Bonds: At Highest Ever Since Euro Created in 1999

At 10.28am, the yield was at 8.996%, up 0.132%, near the highest since before the euro was introduced in 1999.

The spread to the bund was 629.2 points.

10-year bonds:

Ireland's jobless rate:

Update 10:30AM: New high reached at 3.07pm local time: the yield was at 9.053%, up 0.189%. The spread to the bund was 634.7 points.

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ECB: "It Is Inconceivable That The Euro Fails"

Klaus Regling, chief of the European Financial Stability Facility (EFSF), said there is "zero danger of the euro zone breaking up", but added that the situation in the euro area was indeed serious.

""It is inconceivable that the euro fails".

"No country will give up the euro of its own will: for weaker countries that would be economic suicide, likewise for the stronger countries. And politically Europe would only have half the value without the euro."

"Of course the situation is serious," but he said there was no way France and Italy were in danger.

"Italy has come through the crisis well and has its state deficit in hand. And France has the same credit standing as Germany,".

Of course they would never say the opposite: "The Currency will fail", just like Ireland said that they would nor need a baliout, same thing Spain is saying now.

There were reports earlier this week that Ewald Nowotny, European Central Bank policymaker, was quite irritated at Ms Merkel for not "differentiating between the euro as a currency and the problems of individual (euro zone) states", when Ms. Merkel voiced her concerns and said the situation was serious.

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Wednesday, November 24, 2010

Ireland In Chaos, Massive Cuts, Massive Strikes Planned

Whether the government will last much longer is an open question. The Irish government, or rather, what is left of it, tabled today their plan to cut the deficit to 3% of GDP. The plan itself will vut GDP signficnatly, so that target  is actually a moving target, and ne that will get increasingly more diffiocult as time goes by.

The measures are draconian and spare no one, from students, to healthcare, to pensions, to the VAT. Massive strikes are already planned for thor weekend.

* €15bn in measures aim to bring deficit under 3% GDP by 2014

* €6bn of adjustments to be front-loaded in 2011
* An extra €1.9bn sought via income tax changes
* Standard VAT rate to rise from 21% to 23% in 2014
* Entry point for income tax to fall to €15,300 – from €18,300 currently – by 2014
* Minimum wage to be reduced by €1 to €7.65
* Reduction of social welfare spending of €2.8bn targeted
* Domestic water charges to be introduced by 2014
* Introduction of a site value tax in 2012
* Students' contribution charge to rise from €1,500 to €2,000
* Reform of capital acquisitions, capital gains tax
* Pension-related tax changes to yield €700m
* Tax savings of €240m on public sector pension deductions
* Site valuation tax to be introduced
* Cut in public service staff by 24,750 from end-2008 levels to 2005 levels
* Overall pay adjustments of €1.2bn by 2014
* 10% pay cut, new pension scheme for new public sector entrants


Interesting to see that they don't pay for water overthere, and new water charges are pending the installation of water meters! We wonder what their per capita average water consumption is.

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Tuesday, November 23, 2010

The Farce: Irish Banks Passed European Bank Stress Tests in July 2010

Back on July 23 2010, these were the enws:


"Regulators announced Friday that seven of 91 European banks failed stress tests meant to reassure investors about the stability of the continent's banking system.

Five Spanish banks, one German bank and one Greek bank were the only institutions to fail."

The banks failing were:
  • German bank Hypo Real Estate Holding
  • ATEBank of Greece
  • Diada,
  • Unnim,
  • Espiga,
  • Banca Civica
  • Cajasur.

  Ireland's AIB and IRE passed.

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Canadian Inflation Jumps, Much Higher Than Expected

Canadian inflation was much higher than expected in October. Consumer prices rose 2.4%, a sharp increase from September’s 1.9-per-cent rise. Half of it due to higher gasoline prices.
Core prices also jumped, rising to 1.8% in October.

Tha Bank of Canada will take note of this.

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Chaos in Ireland: ECB Says "The Euro Will Survive"

In light, and in spite of, the current chaos in Ireland, the ECB came out and said that "the euro will survive the current crisis in Europe" ... "but spreading of Ireland's problems must be prevented.

Tha was from European Central bank Governing Council member Erkki Liikanen.

Would they ever say the opposite: "The Euro will not survive"? ;-)

"Euro will survive and euro's position is not at all in question,"  He added that he found it impossible that the euro zone would split into two different groups.
Luxembourg's finance minister Luc Frieden said "no alternative exists to the euro and those who seek to speculate against it will lose" "Investors must understand there is no alternative to the euro, who speculates and bets (against it) is making a mistake,"

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Irish Government Agrees on Bank Bailout Then Collapses: Condoms After the Fact

After Ireland agreed to a bank bailout, its government will dissolve. The coalition government collapsed on accusations that the Irish sovereignty has been lost and that in the end foreign banks banks will be bailed out by Irish taxpayers.

The dissolution after agreeing to the bailout, which indeed raises many questions. How can they agree to something for the long term and then collapse the government? The situation in Ireland is very volatile.

From the Irish Times comes htis commentary today:

HAVING AN election after agreeing a four-year deal that will shape all key decisions is like debating which brand of condom to buy after you’ve become pregnant. It is a parody of democratic choice. Popular sovereignty has almost no meaning in Ireland right now. Its restoration is the precondition for a meaningful election.
We need a non-party technical administration to hold the fort while the people have their say on the four-year plan and on radical reform of our political system. Within that space, we need to make a collective decision on the International Monetary Fund-European Union deal.

The primary goal of the IMF-EU package to which any new government will be committed is not to stop Ireland spiralling downwards into economic depression. It is to ensure that Irish citizens cough up yet more money for the banks.

The process of converting bank debt into national debt is to be completed. Instead of the banks borrowing money from the European Central Bank at one per cent interest to fund their operations, the State (you and me) will borrow it for them at perhaps five per cent.
To pay for this, the poor and the vulnerable will be further hammered.

Welfare will be slashed, public health services will deteriorate, children, the disabled and the elderly will lose the already inadequate services that afford them some hope and dignity. But the €100 billion that is owed by the Irish to German banks and the €109 billion owed to British banks will be secured.

The consequences are entirely predictable. Mass unemployment and mass emigration will be locked in to an economy that, beyond the multinational sector, will not grow.

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Monday, November 22, 2010

Irish Government Loses All Remaining Credibility: Asks for Bailout, Coalition Crumbles

The Irish Government officially asked for the bank bailout, and the goverment coaltion has crumbled, as we suspected last week.

The government has lost all remaining credibility, says the Irish Times:

"THE GOVERNMENT’S decision to request a financial aid package from the emergency fund established by the European Union and the International Monetary Fund (IMF) yesterday brought one of the most dramatic and traumatic weeks in Irish political history to its inevitable conclusion.

For all the ignominy the move represented, it has given a confused and fearful electorate a measure of certainty. The publication of the four-year fiscal plan tomorrow and the budget on December 7th will bring further clarity to the position the country now finds itself in.

Of course a lot of people will not like the things they find in the plan and the budget, but those measures will, hopefully, bring a sense of realism in public debate about how we get out of our grave difficulties.

After more than two years of talking about drastic measures, it seems that decisive action is finally about to take place. The real danger is not that the Government will act too harshly but that the axe will fall in the wrong place.

Why, for instance, is the Croke Park agreement sacrosanct when welfare payments are about to be cut?

Why are pensions untouchable but the minimum wage can be slashed?

As Brian Lenihan sought the approval of his Cabinet colleagues to apply for the fund yesterday, it was clear the immediate priority is to ensure that the banks don’t collapse.

The threat that such a disaster might happen and threaten the survival of the euro was the catalyst for the EU/IMF intervention, but patience with the Government’s ability to handle the economy was already beginning to wear thin among our EU partners.

Whether an alternative banking policy at the beginning would have averted the disaster we will never know, but the policy that was adopted has simply not worked.

On the public finances, the Government’s main failing is that it has acted so erratically since the storm broke in the autumn of 2008, making some courageous decisions like cutting public service pay, but shirking the recommendations of the McCarthy report and the need for a property tax. The failure to do all that was needed to get the public finances properly back on track quickly fed into a lack of confidence in the banks and the two combined simply overwhelmed the Coalition.

The handling of events over the past 10 days destroyed whatever remaining credibility the Government had left. The failure of the Taoiseach and his Ministers to tell the public what was happening did not arise from any deliberate attempt to mislead; it was that they just didn’t seem to appreciate what was happening around them.

When it finally dawned on them, they engaged in nitpicking distinctions between talks involving officials and those involving political contact.

In the bubble world in which Ministers and senior civil servants operate, this may even have made sense but the Government ended up looking foolish and incompetent in front of the world. That is something from which it will never recover.

One way or another, the Coalition’s days are numbered. It simply cannot continue to govern much longer, having lost every last vestige of authority and the sooner it is taken out of its agony, the better for everybody.

Precisely how an election will happen is not at all clear but it has to take place as early as practicable in the new year.

It is now taken as a given in the political world that the four-year plan and the budget will have to be ratified by the Dáil. After what now looks like the inevitable victory of Pearse Doherty of Sinn Féin in the Donegal South West byelection, the Government’s majority will shrink to three. That will leave the fate of the budget in the hands of Michael Lowry and Jackie Healy Rae but they are likely to vote for it, as not to do so would plunge the country into fresh turmoil.

Even if the two Independents decided to try and block the budget, it is likely that Fine Gael would find a way of letting it pass, although only on the condition that an election is held in January or February.

Given the way he has acted up to now, Brian Cowen may well try and continue on until he simply runs out of support in the Dáil. That will inevitably happen next spring when the three outstanding byelections in Dublin South, Waterford and Donegal North East take place and the Government’s majority of three is wiped out.

However, the Coalition is unlikely to last until then. If the two Independents do back the budget, they may not be in the mood to flout popular opinion for much longer. Lowry and Healy Rae may decide that the best option is to vote against the Government on the Finance Bill when the Dáil comes back at the end of January.

The Greens will also have to make a decision on whether they want to continue in office any longer. While they will face a huge challenge to retain any seats in the Dáil, they will have one last chance to point up their separate identity as a party by precipitating the election as soon as possible.

Whether Brian Cowen will lead Fianna Fáil into that election – or whether he even wants to, as he insisted he does last night – is a moot question. At this stage it is doubtful if a new leader would do any better, but that is something Fianna Fáil TDs will have to ponder in the coming days.

Whatever way it comes about, an early election is required to mark an end to a dreadful phase in Irish political and economic affairs. Hopefully it may also mark the first step on the road to recovery of national well being and self-esteem."

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The U.S. Is Following Japan Right On

From the New York Times comes this chart:

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Saturday, November 20, 2010

The QE2 Purchase Schedule

This is the schedule of QE2 operations, as per the BY Fed:

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Friday, November 19, 2010

Roubini and The Elephant in The Room; Will Need Mars To Bailout the IMF; Bond Vigilantes Asleep in The U.S.

TV personality Roubini was on CNBC today, commenting on Ireland, Europe, and the elephant in the room.

"We have too much private debt in the case of Ireland," "We have decided to socialize the private losses of the banking system. Son now you have a huge increase in public debt—going from 7% to 100% of GDP. Soon it will be 120%.Greece is already at 120 percent. So now you have a bunch of super sovereigns— the IMF, the EU, the eurozone—bailing out these sovereigns. There's not going to be anyone coming from Mars or the moon to bail out the IMF or the Eurozone."  So at some point you need restructuring. At some point you need the creditors of the banks to take a hit - otherwise you put all this debt on the balance sheet of government. And then you break the back of government—and then government is insolvent."

The above was all in breath!

"The next one in line is going to be Portugal. [...] Spanish debt problems are the elephant in the room. You can try to ring fence Spain. And you can essentially try to provide financing officially to Ireland, Portugal, and Greece for three years. Leave them out of the market. Maybe restructure their debt down the line. But if Spain falls off the cliff, there is not enough official money in this envelope of European resources to bail out Spain".

"Spain is too big to fail on one side—and also too big to be bailed out."

Spain has $1T in public debt.

"Italy is not bad. France's deficit 8% of GDP" "Sarkozy came to power saying 'I'm going to do lots of reform.' He has not done it. Right now, he is weak. He might lose the election. And, therefore, they are going to delay fiscal austerity and reforms."

"But France does not look much better than the periphery."

"Politically they are constrained from making reforms." "You had massive riots in the streets."

"What's going to happen when you do more radical reform? That's an open question in the case of France."

"The Bond Vigilantes have woken up in Europe, but are sleep at the wheel in the U.S."

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Meredith Whitney: Municipals Will Default, There Will Be Indiscriminate Selling

Meredith Whitney was on FT discussing banks, housing, and the munis.

She says that once the first muni defaults people will sell indiscriminately, and that there will be many more layoffs.

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Bernanke: U.S. Risks Having Millions of Unemployed For Many Years

Bernnake in Frankfurt: “Globally, both growth and trade are unbalanced,” “Because a strong expansion in the emerging-market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favor of slow growth for everyone if the recovery in the advanced economies falls short.”

He commented on “large, systemically important countries with persistent current-account surpluses.”

"Countries that undervalue their currencies may eventually inhibit growth around the world and risk financial instability at home"

But isn't that what the U.S is doing with QEs?

Bernanke added  that “sense of common purpose has waned” “Tensions among nations over economic policies have emerged and intensified, potentially threatening our ability to find global solutions to global problems,”.

“further disinflation could hinder the recovery,”

“Insufficiently supportive policies in the advanced economies could undermine the recovery not only in those economies, but for the world as a whole,”.

“On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years,”“As a society, we should find that outcome unacceptable.”

Bloomberg: "Bernanke, a scholar of the Great Depression, drew a comparison between the current period and events leading to the 1930s economic disaster. The U.S. and France maintained “persistently undervalued” exchange rates by preventing inflows of gold from feeding into money supplies, which created deflationary pressures in other countries and helped bring on the Depression, Bernanke said".

"preventing inflows of gold from feeding into money supplies"? We have to think about this one.

“Although the parallels are certainly far from perfect, and I am certainly not predicting a new Depression, some of the lessons from that grim period are applicable today,” “In particular, for large, systemically important countries with persistent current-account surpluses, the pursuit of export-led growth cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account.”

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Thursday, November 18, 2010

"We Serve Neither King Nor Kaiser But Ireland"

Here's the latest comentary from the Irish Times. There are many very difficult questions to be answered and difficult choices. Will Ireland be forced to change its own laws due to a forced bailout?

The Irish Times - Friday, November 19, 2010

IN THE days ahead potentially enormous decisions will be taken. The effects on this State and its citizens will be felt far into the future. Outsiders will be making the running. Although it is an abomination that this sorry point has been reached, it may give some small comfort to know that Ireland’s position is not as powerless as is usually the case when governments have mismanaged their affairs so badly that they require rescue. Normally, governments receiving external aid in bailout situations face empty coffers and are desperate for funding sources of any kind. The Irish State is not in that position because €20 billion is on hand owing to earlier borrowings. This provides more leverage than rescued countries can usually deploy.

Chief among the matters on which this leverage must be focused is the preservation of Ireland’s decades-old low corporation tax rate. Although it is far from certain that a higher rate will even be sought, if it is, it must be resisted at all costs. An increase would hinder recovery, threaten an outflow of jobs and undermine the economy’s long-term growth potential. Nobody’s interests would be served. It should also be stated loudly that the intellectual case for tax harmonisation in a currency union is weak or non-existent, demonstrated not least by the freedom of states and cantons in the US and Switzerland respectively to set their own corporation tax rates.

Far less contentious is the size of the budget adjustment for 2011. Given that this had already been agreed with the European Commission, it is difficult to envisage any push for a significantly larger adjustment. However, its composition may be another matter. The Croke Park deal guarantees no further cuts in public sector pay and no involuntary lay-offs. Its abandonment would signal very clearly who calls the shots.

It is also important that the State’s (weak) hand not be overplayed. That Ireland is in a precarious position is well known. It may be even more precarious than the Government either understands or is prepared to admit. The astonishing speed with which outside forces moved in over the past week suggests that those at the helm may still be behind the curve in dealing with the economic policy-making challenges they face, or they are in denial about them.

How the institutions of the State play that hand also requires consideration of the shared European interest in maintaining monetary and financial stability. Any threat to the existence of the euro is a grave threat to all those who use it. The containing of the contagion which threatens the single currency is not just a concern for the EU-IMF personnel, but for Ireland too. There is no better demonstration of the extraordinary nature of this crisis than the fact that Ireland’s weakness poses a greater threat to Portugal in the short term than it does to this State itself owing to the latter’s urgent need to continue tapping the bond market. If obduracy in Dublin is blamed for triggering a Portuguese bailout, then precious goodwill will be lost and ill-will generated.

Resolve, fortitude, intelligent prioritisation and sharp focus are needed by those representing the State.

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Ireland Mourns Bailout Forced Down Their Throats

More from Ireland's newspapers:

After close to 90 years of independence, it is a sad day for the country that it has squandered its sovereignty through sheer economic mismanagement. What makes it even worse is that this has happened at a time when we are still, on paper at least, one of the wealthiest nations in the world.

The immediate trigger for the decision of our European Union partners to force Ireland into the EU/International Monetary Fund (IMF) bailout is the state of our banks, but the impact on the country is likely to be felt across all aspects of Government policy and at every level of society. On one level, intervention by the EU and the IMF is no bad thing. It means that rational decisions on how we can live within our means will now be forced down the throats of the competing interests who have stymied any genuine national response to the crisis.
The real danger is that some other EU states will try to tamper with major national policy issues like the 12.5 per cent corporate tax rate, so the sooner we get through the pain of the four-year plan and out the other side, the better. On a party political level, the events of recent days are a disaster for Fianna Fáil. The party, which always thought of itself as being a national movement rather than a mere political party, has presided over the surrender of Irish sovereignty as a direct result of its own mismanagement.
In the longer run, that is likely to be devastating for the party that has never spent more than one term out of office. The voters who rewarded it for being so irresponsible in the good times are likely to be merciless now that everything has gone so badly wrong.

So I am wondering, what if the situation in Ireland unravels beyond the point of no return? Why would the population accept being tied to the Euro? Will the government survive?

I have bought msyelf some insurance, December puts.

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Irish Bank Bailout - The View From Ireland: Sovereignty Surrendered

While much is being said on this side of the Atlantic about the forced Irish bailout, and the salvation of foregin bansk by irish tazpers, what do the Irish think?

This is an editorial fron the Irish Times:

IT MAY seem strange to some that The Irish Times would ask whether this is what the men of 1916 died for: a bailout from the German chancellor with a few shillings of sympathy from the British chancellor on the side. There is the shame of it all. Having obtained our political independence from Britain to be the masters of our own affairs, we have now surrendered our sovereignty to the European Commission, the European Central Bank, and the International Monetary Fund. Their representatives ride into Merrion Street today.

Fianna Fáil has sometimes served Ireland very well, sometimes very badly. Even in its worst times, however, it retained some respect for its underlying commitment that the Irish should control their own destinies. It lists among its primary aims the commitment “to maintain the status of Ireland as a sovereign State”. Its founder, Eamon de Valera, in his inaugural address to his new party in 1926, spoke of “the inalienability of national sovereignty” as being fundamental to its beliefs. The Republican Party’s ideals are in tatters now.

The Irish people do not need to be told that, especially for small nations, there is no such thing as absolute sovereignty. We know very well that we have made our independence more meaningful by sharing it with our European neighbours. We are not naive enough to think that this State ever can, or ever could, take large decisions in isolation from the rest of the world. What we do expect, however, is that those decisions will still be our own. A nation’s independence is defined by the choices it can make for itself.

Irish history makes the loss of that sense of choice all the more shameful. The desire to be a sovereign people runs like a seam through all the struggles of the last 200 years. “Self-determination” is a phrase that echoes from the United Irishmen to the Belfast Agreement. It continues to have a genuine resonance for most Irish people today.

The true ignominy of our current situation is not that our sovereignty has been taken away from us, it is that we ourselves have squandered it. Let us not seek to assuage our sense of shame in the comforting illusion that powerful nations in Europe are conspiring to become our masters. We are, after all, no great prize for any would-be overlord now. No rational European would willingly take on the task of cleaning up the mess we have made. It is the incompetence of the governments we ourselves elected that has so deeply compromised our capacity to make our own decisions.

They did so, let us recall, from a period when Irish sovereignty had never been stronger. Our national debt was negligible. The mass emigration that had mocked our claims to be a people in control of our own destiny was reversed. A genuine act of national self-determination had occurred in 1998 when both parts of the island voted to accept the Belfast Agreement. The sense of failure and inferiority had been banished, we thought, for good.

To drag this State down from those heights and make it again subject to the decisions of others is an achievement that will not soon be forgiven. It must mark, surely, the ignominious end of a failed administration.

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Why Would The Irish People Sink Into More Debt to Pay For... Bank Bond Holders?

It seems Ireland is being forced to accept a bailout, pushing more debt onto taxpayers so that bank bond holders don't lose money. Why would the Irish people accept that? We really don't know from this side of the pond.

Watch the Dow Jones Wire video...

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FT: Europe Should Prepare Now For a Run on The Banks; Game of Bailouts Cannot Be Sustained

This editorial of the FT is quite shocking for those who thought that the financial crisis was over. Europe should prepare now for a run on the banks.

"Its fumbling approach to the explosive instability of the Irish banking system leaves little hope that the other ticking bombs with which Europe’s economies are riddled are going to be disarmed in time".
"Saving the banking system, however, is not the same as bailing out extant institutions; nor should taxpayers give up even more of their blood to the walking dead. Yet this is what Ireland is being asked to do – borrow money from the EFSF to raise the banks’ equity. Doing so would be an insult to the Irish people (whose incomes will be mortgaged to pay the loan back) and a gratuitous one at that: it defies logic to claim that adding to Dublin’s debt will seduce markets back to Irish sovereign bonds.
"So Ireland – and Europe – must confront the prospect of an inevitable string of bank restructurings. Giving away more capital now will weaken states’ ability to deal with the problem when there is no more time to be bought.
Preparations must now be made for dealing with a run on banks by depositors or wholesale lenders. Countries that have yet to put in place special insolvency regimes – Ireland included – must do so without delay. They must allow states swiftly to take control of banks so as to keep operations going during a panic and quickly allocate losses by forcibly restructuring wholesale debt or converting it into equity.
Ireland has little time to lose. Overall deposits are shrinking. Europe must prepare for a run on the Irish banks spreading, with deposits fleeing not to financial institutions with solid assets but to those with solid sovereigns: Berlin may soon face calls for support.
It concludes:
"This game of bail-outs on the sly cannot be sustained for much longer"

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Attention UNG Lovers: Natural Gas Contango Ends for Early 2011 Months

These are the current contract prices for natural gas contracts:

Contango for early 2011 contracts has ended, in fact there is slight backwardation in March and April. Shall this situation continues, UNG may actualy benefit. Prices may also lift due to winter drawdowns.

Note that UNG contracts for this month have already rolled over, which was the only place where there was contango for the next 5 months. This does not mean that this contango won't be carried over on a month to month basis. Next rollover data is December 14.

This is all in sharp contrast to what the situation was in September:

However, note that the prices were 10-15% higher back then.

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The GM IPO Travesty

General Motors Co. "wildy successful" IPO is today. GM has annoucned that with the proceeds it plans to reduce its debt and other obligations by $11B, cutting interest costs and preferred dividends by $500 million a year. It has paid $2.8B to the United Auto Workers retiree health-care trust, and will contribute at least $6B to the unfundned liabilities of $29B in its pension funds.

The biggest travesty is the Volt, a form of hybrid car with two engines, and thus a lot more things that can break. IEEE Spectrum declared it a loser. I want  a car with fewer sensrso, no multiple oxygen sensors, EGR valves, ignition coils, MAF sensors, etc. I have replaced them all, and some. I supposed paying to fix all these things keeps the economy going, and perhaps that is their plan.

”The first year’s volume, by GM’s own calculations, is 10 000 units, and you can’t save a company with that. That’s chicken feed. You’d need a vehicle that sells 400 000 units,” says John Wolkonowicz, an auto industry analyst at IHS Global Insight, in Lexington, Mass.

”There are not enough idiots who will buy it,” Johan de Nysschen, the president of Audi of America, told auto blogger Lawrence Ulrich.

Anyone who wishes to understand who this IPO is "successful" should read this post by Steve Miller.

A travesty indeed.

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OECD Releases Outlook for 2011; Cuts China's Growth And Raises Inflation

The OECD has just released its economic outlook for 2011.

Economic activity in OECD countries will gradually pick up steam over the coming two years, but the recovery will be uneven and unemployment will remain persistently high.
They also believe that the financial sector will return to normal and households and business will be in a position to renew spending and investment.

They also raised China's inflation projection for 2010 to 2.8%, ad attribute it to the low Yuan.

"The main challenge facing governments today is moving from a policy-driven recovery toward self-sustained growth".

“As stimulus is withdrawn, governments will have to provide a credible medium-term framework, to stabilise expectations and strengthen confidence, particularly for the private sector,” OECD Secretary-General Angel Gurría said. “Enhanced confidence could result in a faster-than-projected recovery” (read the full speech).

Gross domestic product (GDP) across OECD countries is projected to rise by 2.3% in 2011 and 2.8% in 2012. In the US, activity is projected to rise by 2.2% in 2011 and then by 3.1% in 2012. Euro area growth is forecast at 1.7% in 2011 and 2% in 2012, while in Japan, GDP is expected to expand by 1.7% in 2011 and by 1.3% in 2012.

Emerging markets are expected to grow at a quicker pace than the OECD, helping to lift global trade growth to more than 8% annually in 2011 and 2012.

But uneven growth within the OECD area, as well as between the OECD and emerging economies, will add to global imbalances, which are among the most significant threats to the recovery. The OECD warns countries against taking unilateral action in response to exchange rate volatility, and says that international collaboration, notably within the G20 process, will be essential to warding off protectionism.

The Outlook also highlights other downside risks that could derail the recovery, including the potential for renewed drops in real estate prices, most notably in the US and the UK, high sovereign debt in some countries and possible abrupt reversals in government bond yields.

Going forward, the OECD recommends that countries adopt a combination of coordinated macroeconomic and structural policies to ensure the conditions for long-term growth. Fiscal consolidation is needed to reduce government deficits and debt, while making room for future fiscal policy action. Structural reforms are needed to boost growth and employment, and to contribute to budget consolidation and external rebalancing. Monetary policy must gradually return to a more normal stance".

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Petrobras Finds More Light Oil In Brazil: To Be Number One Producer by 2015, 100B Barrels Reserves

These are staggering numbers. Petrobras announced today that it found a new sweet light oil well just to the south of the Santos basin. PBR owns the rights to 80% of the oil in this well, with Karoon Oil owning the rest. The depth of the drilled well is 2,200m, actually shallow for pre-salt standards.

According to Almir Guilherme Barbassa, its chief financial officer, Petrobras aims to be the world's largest oil producer by 2015.

This pull-back on the price of oil might just be the chance to get in.

Almir Guilherme Barbassa told the Guardian that Petrobras would be one of the biggest beneficiaries of new legislation that will grant the company a minimum 30% stake in each new discovery and will also be the lead operator in all new projects. It means that "Big Oil" – companies such as BP, Shell and ExxonMobil – will have to play second fiddle to Petrobras for access to Brazil's vast reserves.

Petrobras is aiming to more than double production over the next decade to 5.4M barrels of oil and gas per day, "which is likely to be the most produced by any publicly quoted company in the world". As a reference, BP was the biggest producer last year, at just under 4M barrels per day, but has indicated in future it will produce less as it restructures and sells assets following the Gulf of Mexico disaster. XOM, ExxonMobil, is only aiming for growth of about 2% or 3% each year over the next few years.

Mr. Barbassa indicated that Petrobras could reach its goal much sooner, and become the world's largest publicly quoted oil producer as early as 2015. [...] Between 2015 and 2020 the target could happen."
He added:  "You are not going to find another company which has the same potential as Petrobras anywhere in the world. Most large companies are producing 40% or more of gas. It's a different kind of energy in terms of price and ability to trade."

Petrobras has booked "recoverable volumes" of up to 15B barrels of oil and gas, giving it a total reserve base of at least 30B barrels. Total pre-salt reserves are currently estimated at 50B-100B barrels, similar to Russia and Kuwait.

ExxonMobil's total proven reserves is about 23B barrels.

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Wednesday, November 17, 2010

The Real Letter From Warren Buffett To Uncle Sam

Or what he should have written... Mr. Buffett has gone down several notches today. Courtesy of Barry Ritzhold. Extracts:

"As a student of the Great Depression, Ben Bernanke should have had the best grasp – but his bailout of Bear Stearns revealed him to be just another banker, intent on saving the banks – banking system be damned. To give you a clue of exactly how lost Hank Paulson was, he spent his time praying, and creating documents that exempt himself personally for liability. He’s fr5om Goldman, so we know that “team first” ain’t exactly his style. Tim Geithner, who did such a stupendous job overseeing the banks in the first place, was n way over his head. And while I never voted for George W. Bush, I give him great credit for hiding under the bed and pretty much staying out of everyone else’s way. I would call him clueless, but that wouldn’t be fair to the legions of clueless around the world.

"I would be remiss if I failed to mention my personal positions in this: I made a killing in Goldman Sachs and GE. My investments in Wells Fargo would have been a disaster if not for you. Don’t even get me started with me being the largest shareholder in Moody’s – that was some clusterf#@k. And considering all of the counter-parties that Berkshire Hathaway has, we risked being just another insolvent investment firm along with everyone else had nothing been done.

So I must say thanks to you, Uncle Sam, and your aides. In this extraordinary emergency, you came through for me — and my world looks far different than if you had not.

Your grateful nephew,



P.S. Thank you for preserving the status quo for the rich guys, while the rest, well, they are the rest.

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Latest Roubini Video: QE2 Will Have Little Impact, Global Tensions Getting Worse

Nouriel Roubini is in Europe. He says that global tensions are getting worse and that the effects of QE2 o growth wil be minimal, about 0.3% on GDP.

Banks are not going to lend this excess money. Weakening of the dollar caused by Qe2 is increasinsgly being resisted, so it won't happen either.

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Evolution of Historical Yields Show In How Much Trouble We Are

The evolution of the yield curve, which shows the yield paid by different terms of treasuries, from 3m to 30 years is shown below. If you look at the latest one at the bottom, you will see that we have never had this current situation (at least since 1977), and it clearly shows in how muhc trouble the economy is.

The latest yield curves above are simply astonishing. Note however that yields were indeed lower in 2008 and 2009, saying something about the effectiveness of QEs.

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