Obama Economics

While Obama supporters fantasize that the world economy has stabilized, the collapse continues in Europe, with Spain the worse case. Better get that Glass-Steagall defense up for defending US deposits, not speculation in Europe. Liam Halligan warned in the Sunday Telegraph (from London, England, and the City o0f London) that the Spanish debt bomb is about to explode, and none of the European bailout mechanisms are big enough to handle the fallout. Halligan, the chief economist at Prosperity Capital Management, has previously written in the Telegraph that only a Glass- Steagall banking reorganization can save the European financial system from disintegration. Halligan presented a devastating picture of the onrushing Spanish economic and financial crisis. While Spain's government debt is relatively low when measured against GDP, the private banking sector's debt is 300 percent of GDP, and either Spain will be facing major bank collapses or a government bailout of the bankrupt banks, as happened in Ireland, causing the financial and economic disintegration there. Between the out-of-control levels of bank debt and the 30-40 percent collapse of property values, the Spanish banks, led by Inter-Alpha's Banco Santander, are all facing a pile-up of non-performing debt. Attempts by the Rajoy government to impose killer levels of austerity have already triggered general strikes and violent protests; such austerity measures are a path to chaos. Spain's official unemployment level is 24 percent as of March—almost two-and-a-half times the European average. Moreover, last week, Spain's benchmark 10-year bonds were being sold at over 6 percent yield, an impossible level. On April 30, the Spanish government has to roll over 11.9 billion euro, and in late July, another 12.8 billion euro. In February and March, Spanish banks alone took in more than 50 percent of all the low-interest lending at the ECB's special discount window. Halligan's conclusion: "The spectre of another eurozone bailout looms large—only this time far bigger than Greece, involving much larger numbers and in one of the world's major economies... Greece has already enacted the largest sovereign debt restructuring in history to avoid a big, disorderly default. Pulling that off involved a 110 billion euro EU/IMF package in May 2010, another 170 billion euro this year and a hefty bondholders 'haircut.' What would it take in Spain if that's what it took in Greece? Spain is a 'grown-up' economy. Should Spain need a bailout, and if (a big if) one can be afforded, then who's next? Where does this madness end?"