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Peter Schiff: Its Going To Hit The Fan In Obamas 2nd Term

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Peter Schiff’s interview with Varney on Fox.

  • Gold is consolidating in preparation for another big move up.
  • People are getting complacent and think things are getting better, but that’s only because governments are printing money. People will soon start to see the inflation.
  • Japan will start to see high rises in inflation.
  • Inflation is the new monetary policy for CBs.
  • Markets are currently blindsided and won’t see inflation until it gets much worse.
  • CPI numbers are phoney and designed to hide inflation.
  • Bond bubble will eventually burst and that money will chase real goods.
  • Would be shocked if there wasn’t an explosive move up in gold in next 2-3 years.
  • It will hit the fan in Obamas 2nd term  – Currency crisis & Sovereign debt crisis.
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Spain Uses 90% Of Social Security Fund To Buy Its Own Debt

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You know when your country is up shits creek when you hear stories of social security funds being used up to fund the country’s debt. In Spain’s case over 90% of its Social Security Reserve fund has been used to purchase worthless Spanish 10yr bonds. Not long left now 😉 

MADRID—Spain has been quietly tapping the country’s richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds, raising questions about the fund’s role as guarantor of future pension payouts.

Now the scarcely noticed borrowing spree, carried out amid a prolonged economic crisis, is about to end, because there is little left to take. At least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt, according to official figures, and the government has begun withdrawing cash for emergency payments.

Although the trend has drawn little public attention or controversy, it has become a matter of concern for the relatively few independent financial analysts who study the fund, which is used to guarantee future payments of pensions. They say the government will soon have one less recourse to finance itself as it faces another year of recession and painful austerity measures to close a big budget deficit.

That pressure, some analysts said, could force Prime Minister Mariano Rajoy’s government to seek a rescue this year from the European Union’s bailout fund, a politically risky course he seeks to avoid.

In addition, there are worries that Social Security reserves for paying future pensioners are running out much quicker than expected.

In November, the government withdrew €4 billion from the reserve fund to pay pensions, the second time in history it had withdrawn cash. The first time was in September, when it took €3 billion to cover unspecified treasury needs.

And what happens when Governments break the rules. They change them 😉

Together, the emergency withdrawals surpassed the legal annual limit, so the government temporarily raised the cap.

“We are very worried about this,” says Dolores San Martín, president of the largest association of pensioners in Asturias, a small region that has one of the highest percentages of retirees in Spain. “We just don’t know who’s going to pay for the pensions of those who are younger now.”

Spain aren’t the only country to tap into their pension reserves.

In the years before Europe sank into crisis in 2008, some countries, including Spain, Finland and France, accumulated rainy-day pension funds made up of the surplus left from social-security payroll deductions after pensions were paid out. The reserves were to be tapped in future years, when payroll deductions may fall short of payout obligations.

After the crisis began, some of those countries began using the pension reserves for other contingencies, such covering a drop in foreign demand for their government bonds. Since the collapse of Ireland’s property boom, for example, most of its pension fund has been used to buy shares of nationalized banks and real estate for which no foreign buyers could be found.

“Most of the [Spanish] fund is an accounting trick,” said Javier Díaz-Giménez, an economics professor in Spain’s IESE business school. “The government is lending money to another branch of government.”

Its a risky strategy as the Government is gambling that either the economy will pick up or domestic demand for Spanish debt will kick in. Both highly unlikely.

Spanish officials defend the heavy investment of the Social Security Reserve Fund in their government’s high-risk bonds. They say the practice is sustainable as long as Spain can continue borrowing in financial markets, and they predict the economy will start to recover late in 2013, easing the debt crisis.

But some analysts say Spain will have trouble finding buyers for the estimated €207 billion in debt it plans to issue in 2013, up from €186 billion in 2012, to cover central-government operations, debt maturities of 17 regional administrations, and overdue energy bills.

“With foreign investors staying away from the Spanish debt market, you’re going to need all the support you can get from domestic players,” said Rubén Segura-Cayuela, an economist with Bank of America-Merrill Lynch.

And domestic appetite for Spanish debt, he added, may not be enough.

Spain’s commercial banks already have increased their Spanish government-bond portfolio by a factor of six since the start of the crisis in 2008, and now own one-third of government bonds in circulation.

The percentage of Spanish government debt held by the Social Security Reserve Fund stood at 55% in 2008, according to official figures; by the end of 2011 it had risen to 90%. Analysts say the percentage has continued to rise, even as international agencies have lowered Spain’s credit ratings.

Spain’s continued use of those reserves to buy its own bonds appears to violate a rule set by government decree that mandates their investment only in securities “of high credit quality and a significant degree of liquidity.”

Last year Spain’s rating by Moody’s MCO +1.52%Investors’ Service and Standard & Poor’s Ratings Services fell to one notch above noninvestment grade, or junk status.

Tomás Burgos, head of the committee that runs the fund, said the ratings drops “are at the very least something to keep an eye on.” He added that the fund is solid enough to ensure future pension payments. It has more than doubled in value since 2005, the first year for which there is detailed data.

But with unemployment now above 25% of the workforce and fewer wage earners paying in, the Social Security System is about €3 billion in deficit, according to government estimates.

Source: Wall Street Journal Online

 

Greece Is Printing Its Own Euros And Everyone Turns A Blind Eye

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Nobody is brave enough to finally pull the plug on Greece and force it to exit the euro so the game continues. The Troika are due to release their report in September but in the meantime on 20 August a €3.2 billion bond is due to be paid. The ECB has stopped accepting Greek collateral. So where does Greece get its funding from? And here lies the fragility of the monetary system because Greek is printing its own money and everyone is turning  a blind eye.

A lot of politicians in Germany, but also in other countries, issue zingers about a Greek exit from the Eurozone and the end of their patience. Yet those with decision-making power play for time. They want someone else to do the job. Suddenly Greece is out of money again. It would default on everything, from bonds held by central banks to internal obligations. On August 20. The day a €3.2 billion bond that had landed on the balance sheet of the European Central Bank would mature. Europe would be on vacation. It would be mayhem. And somebody would get blamed.

So who the heck had turned off the dang spigot? At first, it was the Troika—the austerity and bailout gang from the ECB, the EU, and the IMF. It was supposed to send Greece €31.2 billion in June. But during the election chaos, Greek politicians threatened to abandon structural reforms, reverse austerity measures already implemented, rehire laid-off workers….

The Troika got cold feet. Instead of sending the payment, it promised to send its inspectors. It would drag its feet and write reports. It would take till September—knowing that Greece wouldn’t make it past August 20. Then it let the firebrand politicians stew in their own juices.

 

In late July, the inspectors returned to Athens yet again and left on Sunday. After another visit at the end of August, they’ll release their final report in September. A big faceless document on which people of different nationalities labored for months; a lot of politicians can hide behind it. Even Merkel. And the Bundestag, which gets to have a say each time the EFSF disburses bailout funds.

Alas, August 20 is the out-of-money date. September is irrelevant. Because someone else turned off the spigot. Um, the ECB. Two weeks ago, it stopped accepting Greek government bonds as collateral for its repurchase operations, thus cutting Greek banks off their lifeline. Greece asked for a bridge loan to get through the summer, which the ECB rejected. Greece asked for a delay in repaying the €3.2 billion bond maturing on August 20, which the ECB also rejected though the bond was decomposing on its balance sheet. It would kick Greece into default. And the ECB would be blamed.

But the ECB has a public face, President Mario Draghi. He didn’t want history books pointing at him. So the ECB switched gears. It allowed Greece to sell worthless treasury bills with maturities of three and six months to its own bankrupt and bailed out banks. Under the Emergency Liquidity Assistance (ELA), the banks would hand these T-bills to the Bank of Greece (central bank) as collateral in exchange for real euros, which the banks would then pass to the government. Thus, the Bank of Greece would fund the Greek government.

Its against the governing treaties but when has that stopped the elites in the EU who can break the rules whenever it suits them. As Eddie Van Halen once said, “To hell with the rules. If it sounds right, then it is.”

Precisely what is prohibited under the treaties that govern the ECB and the Eurosystem of central banks. But voila. Out-of-money Greece now prints its own euros! The ECB approved it. The ever so vigilant Bundesbank acquiesced. No one wanted to get blamed for Greece’s default.

If Greece defaults in September, these T-bills in the hands of the Bank of Greece will remain in the Eurosystem, and all remaining Eurozone countries will get to eat the loss. €3.5 billion or more may be printed in this manner. The cost of keeping Greece in the Eurozone a few more weeks. And on Tuesday, Greece “sold” the first batch, €812.5 million of 6-month T-bills with a yield of 4.68%. Hallelujah.

“We don’t have any time to lose,” said Eurogroup President Jean-Claude Juncker. The euro must be saved “by all available means.” And clearly, his strategy is being implemented by hook or crook. Then he gave a stunning interview. At first, he was just jabbering about Greece, whose exit wouldn’t happen “before the end of autumn.” But suddenly the floodgates opened, and deeply chilling existential pessimism not only about the euro but about the future of the continent poured out. Read….. Top Honcho Jean-Claude Juncker: “Europeans are dwarfs”

Source: Testosteronepit.com

German FinMin Denies Rumors Of ECB Bond Buying

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Its the same old technique used over and over again. Say you are going to do something, get the markets hyped up and then do nothing or as little as possible. Why stop when it works every time. During the week Draghi took his opportunity when Merkel was on vacation to hint at bond buying. The markets rallied as usual but watch for the sell off on monday because Schaeuble has denied any such action.

 For days, it is speculated that the European Central Bank (ECB) is planning, together with the bailout fund EFSF Spanish government bond buy – so come back to Spain to cheaper capital. The “Sueddeutsche Zeitung” According to the euro countries willing to support this approach . Federal Finance Minister Wolfgang Schäuble (CDU) has now dismissed the reports in an interview with the newspaper “Welt am Sonntag”.

 “No, at this speculation is not true,” Schäuble said the newspaper. The Finance Minister said it was already a sufficiently large aid package for Spain have been laced.

…….

Why will Germany, which Schauble says himself is in a very difficult position, and has already been very helpful to Spain, not provide more funding? Simple – unlike all other broke globalist neo-socialists, he believes that the market is actually right in punishing profligate spenders, and having bonds trade above 7% is not the end of the world. Of course, he is absolutely right.

Source: ZeroHedge

Spain: Close To the Edge And Soon To Be Eating Manure

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As reported in ZeroHedge, Spanish bond yields went over 7% and the Budget Minister in the Spanish Parliament this morning came out with the line 

“There’s no money in the public coffers.”

What a start to the day but it got even worse than that from the Minister

The Budget Minister went on in Parliament, this morning, to proclaim that “There is no money to pay for public services” which is quite a statement to make after the Prime Minister had told everyone that Spain was fine and that only the banks were having some issues. Of course this same Prime Minister said bailing out the Spanish banks was a “Great victory for Europe” so we already know that he is suffering from some serious psychological deficiencies and needs some help. Poor Mr. Rajoy; where is Sigmund Freud when you need him?

“The European Central Bank intervened in the secondary market to buy public debt to avoid the European monetary system collapsing. Spain would have collapsed without this intervention.”

                  -Budget Minister Montoro in Parliament this morning in Madrid.

Economists are not noted for their humour but this story is a classic.

Recently two noted Spanish economists were interviewed. One was always an optimist and one was always a pessimist. The optimist droned on and on about how bad things were in Spain, the dire situation with the regional debt, the huge problems overtaking the Spanish banks and the imminent collapse of the Spanish economy. In the end he said that the situation was so bad that the Spanish people were going to have to eat manure. The pessimist was shocked by the comments of his colleague who had never heard him speak in such a manner. When it was the pessimist’s turn to speak he said that he agreed with the optimist with one exception; the manure would soon run out.

 

Spain To Fund Bankia By Using The ECB in “Cash For Shit Exchange”

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When Ireland’s banks went bankrupt ran out of capital, the Irish Government needed a bailout and funded them directly as sovereign debt. Spain after pumping €4billion into Bankia initially, now looks to have found a new way to play the game or as ~The Slog has called it appropriately “cash for shit exchange”. The weakness in the euro is while the ECB won’t fund sovereigns directly, it will take any old shit as collateral from the banks and Rajoy knows it. BRILLIANT 😉

In an amazingly cunning stunt, the Spanish Government plans to pay for Bankia’s nationalisation with its own debt…and then get Mario Draghi’s European Central Bank (ECB) to exchange this junk for cash.

As a chap who’s fond of bailing out sovereign states with worthless paper, Mario Draghi may well find himself trumped this week by Mariano Rajoy of Spain, who (prodded by the crafty Bankia president, Jose Ignacio Goirigolzarri)  has cooked up an entirely legal cash-for-sh*t exchange whereby Madrid injects €19bn of unrepayable Iberian debt into Bankia, who then send it up to Frankfurt in exchange for real spendable euros printed by Mario’s dwarves provided under the eurozone liquidity scheme.

“This could catch on in a big way,” giggled The Slog’s baleful Fifth Columnist in Brussels, “Imagine giving someone like Venizelos this idea….he’d empty the ECB in a week”.

The Slog’s contact has confirmed that Spain does not intend to fund Bankia in this manner but has bolder plans.

Joking apart, my normal contact in Madrid is already in the office this morning, and acutely aware of how this new contagion could spread very rapidly.

“I know for a fact that the Government here is considering a similar plan for some larger Cajas if this one goes through,” he confirmed, “So Draghi cannot afford to set a precedent. Rajoy is basically using the eurozone’s own rules to force the ECB into direct help for banking insitutions…but without the need for Sovereign bailouts. For now at least.”

The theory is that this will be less spooky for the bond markets buying (or rather not buying) Spanish debt. It also gives the Madrid government a way of reducing its outgoings massively without needing the markets.

The problem of course is that this is a national-centric short-term ruse that can only lead to a medium term ‘run’ on the ECB’s liquidity resources. And it leaves Draghi with two equally unpalateable alternative courses of action: to renege on his own promises and say no to the exchange; or to start printing a great deal of money.

The ECB are well used to bending the rules, are Spain about to out-fox them?

Source: The Slog

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