Mish's Global Economic Trend Analysis

---

• Irish Home Loans 90+ Days Delinquent Hits 9.2%; Spain Lending Shrinks at Record Pace
• Germany Draws Up Plans for Greece to Leave Euro; Athens Rehearses the Nightmare of Default; Merkel's Denial Rings Hollow
• China Exports "Grim"; Bad Loans Rise in Fourth Quarter; China Cuts Bank Reserve Requirements; Looking for Miracles

Irish Home Loans 90+ Days Delinquent Hits 9.2%; Spain Lending Shrinks at Record Pace Posted: 18 Feb 2012 10:58 PM PST Spain and Ireland have economies in shambles over housing bubbles popped long ago. Damage continues to mount. Here are a pair of stories highlighting problems. Bloomberg reports Irish Home Loans At Least 90 Days In Arrears Rise to 9.2% Irish home loans in arrears for more than 90 days rose to 9.2 percent at the end of last year from 8.1 percent at the end of the third quarter, according to the country's central bank. A total of 107,708 home mortgages, or 14 percent of the total, were either 90 days in arrears or had been restructured and were performing at the end of December, the central bank said in an e-mailed statement today. Spain Lending Shrinks at Record Pace In the wake of Spanish real estate collapse, Spain Lending Shrinks at Record Pace as Defaults Rise Lending fell by 3.3 percent in December from a year before, the biggest drop since Bank of Spain records started half a century ago, the regulator said on its website today. Bad loans as a proportion of total loans rose to 7.61 percent from 7.52 percent in November as borrowing considered "doubtful" jumped to 136 billion euros ($179 billion) from about 11 billion euros five years ago, before Spain's property crash. The prospect of a protracted recession in Spain is curbing the appetite for loans and making banks more cautious about lending. The economy may shrink 1.5 percent this year, according to central bank forecasts, while unemployment stands at 23 percent. Exane BNP Paribas predicts an economic contraction could stretch through 2013. Banks piled up apartments and building land on their balance sheets as loans to property developers and mortgage borrowers soured during the crash. The government is talking to banks to try to reduce the number of people evicted from their homes for failing to pay their mortgages, Economy Minister Luis de Guindos said in an interview with state radio RNE late yesterday. Deposits gathered by Spanish lenders declined 4.6 percent from a year earlier, the Bank of Spain said. Deposits increased 0.5 percent from November, the regulator said. Misery in Spain Various austerity measures, tax hikes, and cuts to regional governments ensure that the recession in Spain will be both long and deep. For more on the misery in Spain, please see ... EU to Punish Spain for Delaying Austerity Measures, Playing Games with Deficit Projections; Unprecedented Spanish Bond Front-Running; European Job Losses Accelerate   Brussels Recommends Sucking Spain Dry with Increased VAT; France to Raise Sales Tax to Protect Jobs; Is There Any Point or Reason for the Eurozone?   About That "Increase" in Spain's January Car Sales Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Germany Draws Up Plans for Greece to Leave Euro; Athens Rehearses the Nightmare of Default; Merkel's Denial Rings Hollow Posted: 18 Feb 2012 06:32 PM PST It's been crystal clear for weeks, if not much longer, that Germany has been actively seeking to persuade Greece to abandon the Euro. Confirmation came on February 7 with Merkel's Official Denial "I will have no part in forcing Greece out of the euro"; Schäuble Starts Salami Tactics on German Participation, Calls for Vote . Note carefully how the "I"s are being dotted and the "T"s crossed. The ECB refuses to take a haircut on its Greek bond holding so now we have this last-minute debt swap to bail out the ECB right before the rug is pulled. My friend Pater Tenebrarum had an excellent writeup on the debt swap in Credit Market Watch – ECB To Participate in Greek Debt Exchange. Pieces of the Puzzle are In Place Greek CDS contracts are down to a mere $2.8 billion Merkel's "Official Denial" German Finance minister places numerous roadblocks on Greece accepting the next bailout A Debt Sawp will enable the ECB to be made whole (at the expense of German and French taxpayers of course) Dress Rehearsal The Financial Times discusses the dress rehearsal in Athens rehearses the nightmare of default On Friday afternoon, Constantine Michalos, president of the Athens chamber of commerce, sat in his office – around the corner from where protesters were hurling chunks of marble at riot police – and contemplated what was once unthinkable: that Greece would default on its debt and then be forced into a messy exit from the euro. "All hell would break loose," Mr Michalos said, sketching a society that would quickly run short of fuel, food, medicine and necessities. "You would have social upheaval." On Monday, eurozone finance ministers gather in Brussels to consider a €130bn bail-out that Greece counts on to avoid such a scenario. What's likely early next week is a debt swap in which the ECB gets new bonds guaranteed in Euros, then immediately transferred to the EFSF making the ECB whole. Some relatively short time later, the Troika will refuse to lend more money to Greece forcing Greece to go back on the Drachma. Germany Draws Up Plans for Greece to Leave Euro Let's now get to the heart of the matter. The Telegraph reports Germany Draws Up Plans for Greece to Leave Euro The German finance ministry is actively pushing for Greece to declare itself bankrupt and to agree a "haircut" on the bulk of its debts held by banks, a move that would be classed as a default by financial markets. Eurozone finance ministers meet on Monday to approve the next tranche of loans from the EU and the International Monetary Fund, designed to stave off national bankruptcy while the new Greek government puts the country's finances in order. But the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them. His pessimism has been tipped into despair with a secret European Commission, Central and IMF report that even if Greece made good on its promises, it would not be enough to reach the target of bringing total debt to 120 per cent of GDP by 2020. "The idea instead is that the Greek government should officially declare itself bankrupt and begin negotiating an even bigger cut with its creditors. For Schäuble, it is more a question of when, not if." The German finance minister's comments are certain to plunge the authorities in Athens into even deeper gloom. On Saturday they tried to sound optimistic, with a cabinet meeting to thrash out the final details of an austerity package. With Greek morale at rock bottom, the national mood darkened yet further after armed thieves looted a museum on Friday in Olympia, birthplace of the Olympic Games, and stole bronze and pottery artifacts - just weeks after the country's National Gallery was burgled. One Greek newspaper suggested the state could no longer properly look after the nation's immense cultural heritage. "The Greek state has gone bankrupt, let's face it," the conservative daily Kathimerini said in an editorial. Mr Schäuble maintains that since Greece is already regarded by the financial world as bankrupt, a formal bankruptcy would have no negative consequences for other euro members. Merkel's Denial Rings Hollow I side with Schäuble. Moreover, I do not believe Merkel is sincere when she says "Greece going bust could cause a shock wave that buries other countries - with Spain and Italy among them". Rather, Merkel simply does not want to be the scapegoat, preferring to make it look like this was Greece's choice, not hers. She will be a hero in Germany when Greece leaves the Euro, in spite of her façade, pretending she does not want that to happen. The irony is shock waves will indeed come later when Portugal and Spain exit the Euro, given that all the bureaucrats still think "Greece is unique".  In reality, the Euro is a failed idea with too many structural flaws to paper over. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

China Exports "Grim"; Bad Loans Rise in Fourth Quarter; China Cuts Bank Reserve Requirements; Looking for Miracles Posted: 18 Feb 2012 08:42 AM PST Given the previous misguided stimulus efforts in China, it is not surprising to discover Chinese Banks' Bad Loans Rise in Fourth Quarter. Chinese commercial banks' bad loans increased in the fourth quarter of last year, highlighting pressures the lenders face in maintaining asset quality as the economy slows. Non-performing loans rose 20.1 billion yuan ($3.2 billion) to 427.9 billion yuan as of Dec. 31, the China Banking Regulatory Commission said in a report on its website today. Bad loans accounted for 0.96 percent of total lending, up from 0.95 percent in September and 0.17 percentage point lower than a year earlier. Chinese banks are struggling to keep bad loans in check as the country's economic expansion slows and the housing market cools under government curbs. Lenders' non-performing loan ratio had not increased quarter-on-quarter since the end of 2005, according to data compiled by Bloomberg. China Cuts Bank Reserve Requirements Bad loans or not, in an attempt to keep its faltering economy together, China Cuts Bank Reserve Requirements. China cut the amount of cash that banks must set aside as reserves for the second time in three months to spur lending as Europe's debt crisis and a cooling property market threaten economic growth. Reserve requirements will fall by 50 basis points effective Feb. 24 the People's Bank of China said on its website this evening. Before today's move, the ratio for the nation's largest lenders stood at 21 percent. Premier Wen Jiabao aims to steer the world's second-biggest economy through a property market slowdown and the weakest export growth since 2009, with the commerce ministry last week calling the trade outlook "grim." The International Monetary Fund said this month that China's expansion may be cut almost in half if Europe's debt crisis worsens. "Growth remains the top concern for policy makers," Zhu Haibin, a Hong Kong-based economist for JPMorgan Chase & Co. (JPM), said before today's release. "Monetary policy will be biased toward easing this year." Export Slide China's exports and imports fell for the first time in two years last month and new lending was the lowest for a January in five years. Before today's announcement, Ken Peng, a Beijing-based economist at BNP Paribas SA, said the government needs to be "careful not to overshoot monetary loosening, as it did in the financial crisis." Lingering effects of record lending in 2009 and 2010 include the risk for banks that local government financing vehicles will default, saddling lenders with bad loans. The government also aims to avoid fueling consumer and property prices. Inflation unexpectedly rebounded to 4.5 percent in January, accelerating for the first time in six months, as a week-long Chinese New Year holiday boosted spending and prices. China's Problems Inflation Bad loans Property bubbles Massive problems with SOEs State Owned Enterprise  Pollution Unsustainable growth Loosening lending standards is the very thing that fueled property bubbles, price inflation, bad loans, and gargantuan problems with SOEs. For more on the SOE problem, please see China Financial Markets: When Will China Emerge From the Global Crisis? Looking for Miracles Damn the consequences, central banks everywhere inevitably respond to slowdowns with two actions: print money and loosen lending standards. That holds true for the US, China, Europe, and Japan. There are no miracle cures because printing money and loosening lending standards are why we are in this global fiscal mess in the first place. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610