Deleveraging


From THE AUTOMATIC EARTH

I’m under the impression that it’s not all that difficult to see what goes on and why in the financial world these days. Everyone simply keeps talking about what Germany should do, and about eurobonds etc., but a relatively concise overview of a few numbers should be adequate to point out that none of that “solution” talk is based on too much realism.

That’s not to say that it’s impossible that Germany would succumb to the growing pressure to “act”, just that even it it did, not one underlying issue would be solved. Instead, it would mean that the Germans would take the huge risk of taking on enormous losses incurred by other countries and their banks.

Germans may have enjoyed their spot in the safe haven limelight a bit too much to see the mote in their own eyes, but that should not mean they must keep on doing so. All’s not well in Berlin either.

Let’s do a list of where several countries stand at this point (I made a list of 10-year sovereign bond yields at 8.00 AM EST):

  • Greece: Will be broke in 3 weeks unless it receives the €8 billion next bailout tranche. It will get this only if the main opposition party signs a letter declaring its support for the EU/CB/IMF troika’s austerity measures and budget cuts, supported by new technocrat PM Papademos. Opposition leader Samaras has so far refused to sign. 
    10-year bond yields 29.87%.
  • Portugal: Downgraded by Fitch to junk status. 2012 GDP expected to fall 3%. Portugal expected to need the same level of bailout as Greece, though a 50% debt writedown has been ruled out by the Greece deal.
    10-year bond yields 12.32%.
  • Ireland: Nominal gross national product (GNP) has already contracted by 22%. Public wages have fallen 12% on average. There are likely to be further wage cuts in the December budget.
    10-year bond yields 8.21% (down from 14% in July)
  • Italy: Paid 6.5% this morning for 6 month loan, 2-year is over 8%. Monti needs to speed things up, or else…
    10-year bond yields 7.33%.
  • Spain: Enormous pressure on the banking system.
    10-year bond yields 6.7%.
  • Belgium: The Dexia bailout deal struck with France recently is rumored to be falling apart; Belgium can’t afford the terms of the deal (a €4 billion price tag and a €51 billion guarantee) . It wants France to pick up a larger piece of the pie; which France in turn can’t afford to do, for fear of being downgraded.
    Update: S&P just downgraded Belgium
    10-year bond yields 5.84%. 
  • France: Has been threatened with a downgrade by Moody’s. Analysts have claimed losing its AAA status would be the end of President Sarkozy’s career. Eurozone chief Jean-Claude Juncker has said it would also threaten the credit rating of Europe’s bailout fund, the EFSF.
    10-year bond yields 3.67%.
  • Austria: Will almost certainly lose its AAA status; Eastern European loans (Hungary) are the main culprit.
    10-year bond yields 3.80%.
  • Hungary: Downgraded to junk status.
    10-year bond yields 8.83%.
  • Germany: Had a disastrous bond auction, and its bond yields are creeping up. Has a number of banks with high exposure to PIIGS debt.
    10-year bond yields 2.23%.
  • Netherlands: Germany’s little brother, but with an impending housing bust.
    10-year bond yields 2.72%.
  • US: Manages to stay in the shade for now, but a further downgrade is believed to be all but certain.
    10-year bond yields 1.92%.
  • UK: See US, no downgrade threat announced to date. Still a Bank of England expert said this week that its housing market will NEVER recover.
    10-year bond yields 2.27%.

• Recently downgraded to junk : Portugal, Hungary.

• Under threat of an imminent downgrade: US, Japan, Austria, France, Belgium.
Update: S&P just downgraded Belgium

• Additional downgrades could be coming fast and furious soon.
~

See also MONEY: A chart of almost all of it, where it is, and what it can do
~~

Follow

Get every new post delivered to your Inbox.

Join 4,555 other followers