Mish's Global Economic Trend Analysis

Massive Jump in Bank of Spain Borrowing from ECB: Bank of Spain Balance Sheet Shows Spain Deep in Trouble, LTRO is Essentially Useless

Posted: 13 Apr 2012 11:13 AM PDT

CDS rates to protect against default by Spain rose to an all-time high today as Investors brace for more pain in Spain.

Spain was firmly back in the spotlight on Friday, after news of a sharp rise in borrowing by the region's banks from the European Central Bank triggered losses across European stocks, but especially for the IBEX 35 index XX:IBEX -3.58% , which fell more than 3% to a three-year low.

The yield on the 10-year government bond in Spain ES:10YR_ESP +0.0004% , which had appeared to get some relief in the latter half of the week, resumed a climb upward, rising 15 basis points to around 5.93%.

The cost of insuring Spanish government debt against default using credit-default swaps, or CDS, rose to an all-time high. The five-year Spanish CDS spread widened to 505 basis points from 476 basis points on Thursday, according to data provider Markit.

That means it would now cost $505,000 annually to insure $10 million of Spanish government debt against default for five years.

Data released by the Bank of Spain showed gross borrowing from the central bank hit 316.3 billion euros ($416.7 billion) in March, up from €169.86 billion in February.

Massive Jump in Bank of Spain Borrowing from ECB

Inquiring minds are digging into Consolidated Balance Sheet of the ECB and by the Bank of Spain, searching for clues about the LTRO program for the entire Eurozone and also for Spain in isolation.

Consolidated Balance Sheet of Eurosystem
Net Lending to Credit Institutions

click on chart for sharper image

During March alone, the LTRO expanded by 433.236 billion but main refinance operations shrank by 87.821 billion. In March alone, 301.424 billion was parked right back with the ECB.

Please consider Spain.

Consolidated Balance Sheet of Banco De Espana

click on chart for sharper image

ECB system-wide lending in March went up by 39.690 billion euros.
ECB lending to Bank of Spain alone jumped by 75.168 billion euros.

Thus, lending shrank by 35.478 billion euros elsewhere. What did Spanish banks do with the money? They parked it in sovereign bonds are now underwater on the purchases.

If you were looking for specific details as to why CDS rates for Spain hit an all-time high, there you have it.

Will There Be A 'Corralito' in Spain?

In response to Black Market in Spain: Cash Transactions Exceeding 2,500 Euros Now Banned, Gonzalo Lira pinged me with Will There Be A 'Corralito' in Spain?

The "corralito" ("little bullpen") was when the Argentine government limited weekly transactions to AR$250 a week back in 2001.

In my piece, I argue that a "corralito" would be part of a Spanish withdrawal from the eurozone—and on cue, Rajoy is on the road to implementing it.

There is no solution to the Spanish problem except EMU exit and devaluation.

Lira's target date for Spain exit from Eurozone this year is certainly debatable, but economically-speaking it is bound to happen as the current setup is extremely unstable and worsening every day.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Closer Look at Unemployment Claims, Covered Employees, Labor Force

Posted: 13 Apr 2012 02:09 AM PDT

Reader Tim Wallace supplied an interesting set of graphs and comments on unemployment claims, the labor force, and employees covered by unemployment insurance.

Unemployment Claims Not Seasonally Adjusted

click on any chart for sharper image

Data for the above chart: http://www.ows.doleta.gov/unemploy/claims.asp

Unemployment Benefits

The above chart shows the number of employees that are covered by unemployment benefits. The implication is 11 years of lost jobs almost all of it in the last three years.

The next chart shows that we need to add 17,598,279 to the work force with unemployment benefits coverage just to get back to equivalent coverage of 2001!

Civilian Working Age Population

Data for the above chart: http://www.bls.gov/webapps/legacy/cpsatab1.htm

This chart straight from the BLS shows that the number of people of of working age continues to grow. Working age population grew by 28 million since 2001 and 9.4 million since 2008 alone. However, the number of people eligible for benefits is actually 911,000 lower than in 2001.

Percentage of Labor Force Covered by Benefits

The above chart divides the number of people in benefits producing jobs as shown by the Department of Labor report by the number of people in the age appropriate to labor from the BLS report and returns a percentage of people actually participating in a benefits producing job out of that potential labor pool.

From a peak of 59.4% in 2001 we have plummeted down to 52.2% right now in April 2012. And the number is lower than last year, significantly lower than 2010, far lower than 2009, etc. This does not imply an improving labor market but rather clearly demonstrates the continued deterioration of workforce in the USA and probable pressure on those working to provide even greater amounts of their income to those not working.

This 52.2% is a very scary number. It says 47.8% of those of working age are either not working or they are self-employed with no benefits.

The above charts and commentary from Tim Wallace. Thanks Tim!

Given the volatility of weekly claims data, I asked Tim to produce a 6-week moving average of claims vs. the same six week in prior years at the end of the month.

Six weeks should be sufficient to smooth out Easter or Thanksgiving effects, and if not, we can just add another week at such times to cover it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Friday, April 13, 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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