| Austerity In Spain? Where? Public Debt Threatens to Exceed 100% of GDP in 2014 Posted: 16 Apr 2014 06:29 PM PDT EL Pais reports Spanish Public Debt Threatens to Exceed 100% of GDP in 2014Via translation General government debt accumulated through February was 987.945 billion euros, an amount that represents 96.5% of gross domestic product (GDP). This represents a new record in the amount of money the state, communities, and the municipalities have to return to financial institutions and investment funds. In February alone, the government liabilities increased by 8.130 billion, up 8% from the previous month.
The debt problem is not just that you have to pay, but the difficulty to stop the frenzied pace to growing-has risen from 37% of GDP in 2007 to 96.5% seven years later.
If this pace continues, the liabilities of the government would scale up to 110% of GDP, an unknown dimension in the last century. Since the early twentieth century, when Spain had to attend entrained war debts of Cuba, the barrier was not exceeded 100%, according to the historical series of the IMF. The debt ended 2013 at 94% of GDP.
The threat that public debt exceeds the red line of 100% of GDP grows as government is unable to decisively reduce the public deficit. The 2014 budget is expected to be in the red by 60.7 billion, 5.8% of GDP.
In addition, the Executive will launch a new section of the Autonomous Liquidity Fund (FLA), liquidity to support to the regions, totaling 23 billion, representing about two-points of GDP. In total, the public debt will grow by about 80 billion, eight points of GDP during 2014. The level of liability of public institutions would reach 104% compared to 98.9% government projection earlier this year. Treasury Raises Less Than Expected Despite tax IncreasesCompounding the spending problem, Treasury Raises Less Than Expected Despite tax IncreasesVia translation from Libre MercadoThe Ministry of Finance announced 17 of every 100 workers are employed directly in government up 20% from levels 2007, when the ratio was 14%.
Speaking in net terms, the crisis has wiped out 3.6 million jobs in the private sector but has just reduced the workforce of 136,000 public employees. What does this mean? In essence, that 97% of the labor destruction has taken the private sector, while the government has just 3% of the course setting.
The situation is even more poignant when we realize the increase in spending on handpicked advisers. In 2013, the Ministries have triggered the eventual disbursement of staff salaries by 7.5%. Also the salaries of senior management have risen in 2013. Adding up all the costs of the central administration staff, we see that in 2013 an increase of 0.8% was recorded.
Although tax revenue was 37.8% of GDP and was in line with the historical average, the total outlay of the government in 2013 exceeded 44.4% of GDP. Grants have remained almost intact compared to 2012, while the total personnel costs assumed 900 billion euros.
To keep afloat these structures spending taxpayers in crisis have taken numerous tax increases. However, the resulting fiscal balance has not kept pace than projected by the Treasury:
- The tax on winnings from lottery has raised less than half of schedule in 2013.
- The 10% surcharge on excise duty on alcohol has not generated the expected returns, 70% lower than expected.
- Income tax collection has a gap of 6% vs expectations.
- The indirect quintessential tax generated 5% less than estimated by Treasury.
In sum, the income tax office have been 4.21% lower than projected. However, it is important to note that the number of taxpayers who pays this revenue has declined significantly as a result of mass unemployment and the destruction of businesses. Austerity In Spain? Where?The biggest things Spain needs to do are cut public spending and public employment, and lower taxes. Instead, it raised taxes on those with real jobs. It should be no surprise that revenues don't meet expectations and public spending has not declined. In spite of all the howls from misguided Keynesians and Monetarists over alleged austerity, the approach Spain took is not "austerity", rather it is economic insanity. By the way, debt does not "threaten" to exceed 100% of GDP, it is a near-certainty. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Ukraine Separatists Seize Six Armored Personnel Carriers, Parade Them in Two Towns Posted: 16 Apr 2014 11:17 AM PDT Pro-Russia forces in eastern Ukraine intensified their defiance against Kiev on Wednesday, seizing half a dozen armored vehicles and parading them through towns of Kramatorsk and Slavyansk. The Financial Times reports Pro-Russia forces intensify defiance in eastern Ukraine The escalating tension, a day after Kiev launched special operations against the separatists, prompted Nato to bolster its military presence on its eastern border, Anders Fogh Rasmussen, the alliance's secretary-general announced on Wednesday.
Hundreds of local people in the centre of Kramatorsk cheered the vehicles and the roughly 100 militia men on them as they drove on to nearby Slavyansk. The defence ministry said the troops were guarded by "people in uniforms who have no relation to Ukraine's armed forces".
The crowd cheering the pro-Russia forces cried "Donbas, Donbas", referring to the region of Donetsk, as they chatted excitedly and took photos on their phones. Some locals said the forces were troops from Kiev that had switched sides. More likely, they were more of the "green men" militants who took control of a series of government buildings in the region in recent days. There was no sign of struggle.
Unidentified armed militants had seized the mayor's office in Donetsk, a large regional capital where pro-Russia separatists nearly two weeks ago seized the regional government building, news agencies reported on Wednesday. It was not immediately clear whether the group was allied with separatists that have in past days seized about 10 regional government buildings in eastern Ukrainian cities.
Meanwhile, Prime Minister Arseniy Yatseniuk told the cabinet that a newly formed "constitutional commission" would swiftly draft constitutional changes delegating more governing power from Kiev's central government to regional legislatures and administrations.
Konstantin Dolgov, the Russian foreign ministry's human rights representative, was quoted as saying: "To all appearances, events [in Ukraine] are beginning to develop under the worst-case scenario." Earlier, Russian prime minister Dmitry Medvedev claimed Ukraine was close to "civil war".
The comments from Moscow heightened concerns that any bloodshed resulting from attempts by the Kiev authorities to retake control of eastern Ukrainian cities could prompt direct military intervention by Russia. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Europe Without €: Former EU Commissioner Says "Monetary Union has Failed" Posted: 16 Apr 2014 07:20 AM PDT Via Translation from the Italian website L'Anti Diplomatico, former EU Commissioner and and signatory of the Manifesto of European solidarity, Frits Bolkestein proclaims the " Monetary Union has Failed". In his conference "Europe Without €" held in Rome on Saturday 12 April, Fred Bolkestein, a former commissioner of the European Union and signatory of the Manifesto of European solidarity quotes former German Chancellor Helmut Kohl in his address to the European Parliament in 1991:
"EU policy is the essential counterpart to monetary union." The political union had to precede the formation of the single currency and a real central bank.
The opposite happened. Maastricht policies to create a monetary union have not had an effect integral politics, but the opposite effect as we see today.
Economic cultures are different and there is no solidarity. The French view is that imbalances of payments and budgets should be adjusted and jointly funded by the surplus countries to finance the deficit countries. It is a vision not sustainable in the long run.
According to Bolkestein, Eurobonds will only dilute the responsibility and "veil" problems. The Germans, moreover, do not want transfers and Eurobonds. Moreover, as history teaches, transfers from rich regions to poor regions do not work.
Monetary union has failed, concludes Bolkestein, and the countries in deficit situation can not solve their problems by themselves. Indeed, this is an additional cause of suffering. Alternatives do not exist and "we have to think about a second step: the exit from the euro." That the monetary union has failed is certainly not news to Mish readers. But it is both new and news for a former commissioner of the European Union to recognize that simple statement of fact and give a " Europe Without €"conference on it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Gold Doomed or Resting? Gold vs. Major Currencies; Goldman Sachs and Morgan Stanley Reiterate Sell Signal Posted: 15 Apr 2014 11:17 PM PDT Here are some interesting charts from my friend Nick at Sharelynx Gold. (Login Required) Gold vs. US Dollars Gold vs. Euros Gold vs. Ukraine Hyyvnia It took about 4,000 Hyyvnia to buy an ounce of gold at the end of 2008. It takes 17,444 now. Gold vs. Russia Rubles Gold vs. India Rupees
Gold vs. Argentina Pesos
Gold vs. Venezuelan Bolivars Gold vs. Yen By the way: Those in Argentina and Venezuela cannot buy gold at the quoted rates. The charts reflect "official" exchange rates. Black market rates are much much higher. Goldman Sachs and Morgan Stanley Reiterate Sell SignalBloomberg reports Goldman Stands by $1,050 Gold Target on Outlook for RecoveryBullion's rally this year was spurred by poor U.S. data probably linked to the weather and rising tension in Ukraine, analysts led by Jeffrey Currie wrote in a report, describing the reasons as transient. With the tapering of the Federal Reserve's bond-buying program, U.S. economic releases will return as the driving force behind lower prices, he wrote.
Gold's 12-year bull run ended in 2013 as the Fed prepared to reduce monthly bond-buying that fueled gains in asset prices while failing to stoke inflation. Prices rose 10 percent this year even as the Fed cut purchases, with Russia's annexation of Crimea and mixed U.S. economic data boosting haven demand. Last year, Currie described gold as a "slam-dunk sell" for 2014.
"It would require a significant sustained slowdown in U.S. growth for us to revisit our expectation for lower gold prices over the next two years," Currie wrote in the report, dated yesterday. "While further escalation in tensions could support gold prices, we expect a sequential acceleration in both U.S. and Chinese activity, and hence for gold prices to decline."
Gold for immediate delivery traded 0.3 percent higher at $1,322.01 an ounce at 7:43 p.m. in Singapore, according to Bloomberg generic pricing, after the United Nations Security Council met to address the Ukraine crisis. Bullion last traded below $1,050 an ounce in February 2010.
Morgan Stanley
Bullion is the least preferred commodity among metals as prices resume a decline this year on the outlook for rising U.S. interest rates and low inflation expectations, Morgan Stanley said in a report on April 8. Average prices are expected to drop for the next four quarters, it said.
Stronger U.S. growth this year and next will help the world economy withstand weaker recoveries in emerging markets, according to the International Monetary Fund. The world's largest economy will expand 2.8 percent this year and 3 percent in 2015, unchanged from forecasts in January, the IMF said in its World Economic Outlook report last week. Least Preferred Commodity?Is gold really the least preferred commodity? Actually, I hope so, because if it is, sentiment will reverse. Please consider Gold Prices 2014: Do What Goldman Does, Not What It Says Jeffrey Currie, the investment bank's head of commodities research, has repeated his $1,050 target several times since last October, when he declared gold a "slam-dunk sell" along with other precious metals.
But investors need to be very skeptical when looking at Goldman's forecasts for gold prices. Not only are they often wrong, but the bank frequently does the opposite of what it recommends.
Goldman and Gold Prices: A Shady History
Let's first look at some of Goldman's gold price forecasts over the past few years and how they panned out.
For example, back in 2007, Goldman was bearish on gold, telling its clients to sell. In fact, Goldman declared selling gold in 2008 one of its Top 10 tips of the year.
Of course, gold prices rose 12.2% in 2008 and another 23.4% in 2009.
By November 2011, Goldman was actually bullish on gold prices - it raised its target to $1,930 an ounce about one month after gold prices had peaked.
By May 2012, with gold prices below $1,600, Goldman adjusted its bullish target to $1,840 an ounce. Gold prices did rise slightly after that, but never made it to $1,800, and thereafter started a precipitous decline.
By December 2012 - when gold prices were trading in the neighborhood of $1,700, Goldman revised its forecast to $1,800. Six months later gold prices were slipping toward $1,200.
Goldman finally reversed course in February 2013, beginning its string of bearish forecasts that have continued to the present.
That's actually good news for gold prices, as Goldman always seems to be late figuring out where gold is headed. Gold Doomed or Resting?Seldom is sentiment so bad for something that still appears to be a long-term bull market. When in doubt, it pays to take the opposite side of what Goldman Sachs publicly says. Goldman has a history of not only being wrong, but betting against its own recommendations. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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