Everyone was taken by surprise by the Spanish downgrade. No one more so than the Spanish.
But I believe the reasons for the downgrade do lend suport to what I was arguing in “Peering over the Cliff”. There I argued that the big indebted banks in every country would not survive by seeking profit in sensible lending but ONLY through speculation. By extension if the banks have to grow this way then so do their nations.
The reason for the downgrade, according to S&P Analyst Marko Mrsnik was, (quote from the Wall Street Journal), “We now believe that the Spanish economy’s shift away from credit-fueled economic growth is likely to result in a more protracted period of sluggish activity than we previously assumed.”
And this is bad news according to S&P, because without debt-fuel, Spain won’t grow fast enough to off-set problems which include, ” private sector indebtedness, which S&P estimates is higher than that of many of Spain’s peers, as well as high unemployment, a fairly low export capacity, and an unwinding of the government’s fiscal stimulus as part of its current efforts to reduce general government deficit to 3% of GDP by 2013.”
Damned if the do and damned if they don’t.
This is the deadly irony of the situation all our governments have got us into. They all allowed financial bubbles and then all reacted to the bursting of the bubble by taking on yet more debt at the sovereign level to re-inflate it. The result was predictable. Our nations are now in such debt that they cannot grow out of a spiral of debt by any means other than the same sort of leveraged bubble that caused the crisis in the first place.
As I say, this was predicted by many. I was just one voice among many saying in 2008 that this is exactly what would happen if we followed the policy of ‘hide the debts and bail them out’.
Put the various exhortations together and it looks like this.
Nations MUST:
1) NOT unwind fiscal stimulus otherwise it will harm growth. Bank growth in particular.
2) nevertheless reduce debt levels by cutting social spending, pensions, benefits, education, health and wages.
3) Promote debt-fuelled growth
4) NOT regulate in any way financial products, risk taking, bonuses.
5) NOT bring back mark to market accounting rules
6) NOT reduce leverage at financial institutions
7) NOT allow any private debt to be suffered by any large financial institutions
8) Take on ANY level of sovereign debt IF necessary for further bank bail outs – and then return to point two.
9) NOT audit their central banks
10) NOT allow any truth in any reporting of any part of the financial situation lest it cause a ‘loss of confidence’.
I am sure you could add other commandments of the new political order. Feel free.
Spain’s downgrade sets it out rather clearly in my opinion.
11. NOT introduce draconian austerity measures to swiftly reduce the budget deficits, as that would put paid to " growth " . I think Ireland lost 10% and Latvia and Estonia over 20 .
It can only go on so long, I thought, but will this mad balancing act outlast me ?
Recent downgradings have been balanced by FT etc pointing at splendid earnings results — so we're almost out of the woods …
Doesn't feel like it to me .
PS I mostly lurk here, only recently discovered that I have a google ac,from years ago…to comment , and encourage !
PPS I was a depo and FX broker for some time from 77, so have observed banks doing mad things too . Off to the garden , a few spuds to go in ….
Apologies — I didn't read POINT Two , in too much haste !
Bonjour at any rate .
Frog2,
So glad you have joined. I look forward to your thoughts and comments. Perhaps you will be able to keep me from making silly mistakes.
I would love to hear your thoughts on if/how the city and trading has changed. If you feel inclined to tell, that is.
This weekend Beets, peas, beans, garlic and salad to go in. Spuds and onions already in. Much weeding.