The ECB, Europe and The Real Growth Plan

“The ECB and the creditor nations cannot and will not save governments that are unwilling or unable to save themselves”. RBS research

Slovenia has suddenly been forgotten by markets despite a banking system with average non-performing loan rate of 20%. This is what mass liquidity does to markets. If the country is in recession and the markets remain weak, it may need between 9 and 13 billion euros between 2013 and 2015 (25-38% of GDP, according to JP Morgan). If it follows a bail-in process like Cyprus, it will likely impact European banks by c15 billion. Austria, Italy, France and Germany would be the most affected .

This is why Draghi must keep his powder dry and cannot turn on the money printing press more than he has already. In the European ship there are holes everywhere, and we cannot demand the captain to repair the vessel and navigate to greater depths at the same time.

Mario Draghi commented recently that "the ECB's policy "will remain accommodative as long as necessary" but can not "replace government inaction or undercapitalized banks." And he is absolutely right. Monetary policy is not a substitute for inefficiencies. 

In this regard, and considering the many press articles blaming the ECB for the troubles of the periphery, I would like to point out the most absurd myths about the European Central Bank. These are:

1 - The European Central Bank does not print and does not support economies like the Fed does. The Fed's balance sheet is 3.2 trillion (U.S. $), the ECB is 3.5 trillion. The ECB has increased its balance sheet by one and a half trillion dollars in four years, including 218 billion bond purchases (SMP).



The following BNP chart shows " how the ECB prints more money than the Fed quietly"(from their report "Bigger than QE").  It is an extremely revealing chart, and shows how the main beneficiaries of this policy were Italy and Spain, precisely the countries that complain the most about ECB "inaction".



2 - The European Central Bank does not increases money supply . As we mentioned recently, the money supply (M3) has reached a maximum (9.7 trillion in January 2013 compared with an average of 0.33 trillion from 1980 to 2012). Nearly all of the increase in money supply has gone to one item: "Credit to General Government". As RBS and BNP point out, the ECB has been as aggressive as the Fed , just silent. The problem is that all that liquidity has been absorbed between hypertrophied states and banks that have to buy sovereign debt, and almost nothing to SMEs and families. This is the governments' "generosity" that "allows the private sector to save". Unbelievable.



2 - Germany prevents Spain from recovering because they don't allow the ECB to flood the market with money. We have seen that the money flows, but it stays in the pocket of governments and banks. We have seen that there is plenty of liquidity, but it is used to buy sovereign debt. We have seen that money is created, but the cost to borrow for businesses and families has sky-rocketed .The transmission system is simply flawed due to the greed of the heavily indebted states and financial institutions. Yet they say there is "no demand" for credit. I am amazed.

That transmission problem that prevents liquidity from reaching to the real economy is the fault of the member states who administer those funds, not the blame of Germany or the Bundesbank, which has two-thirds of its balance sheet exposed to the ECB, so they have little interest in seeing things get worse. But the ECB, Germany or the Bundesbank cannot just sit down and maintain unsustainable economies without reform. This reminds me of the words of a Finnish MEP: "The fact that I have lent a thousand euros to a friend and he has  spent it unwisely does not mean that he doesn't owe me the money or that I need to lend him a thousand more."

That is why Draghi's words are so revealing.

There are perverse incentives in providing endless liquidity to countries that play the game of reaching the limit without reforms, wait to be systemic, get a bail-out and continue without changing bloated state structures, using the chequebook of others. 

Solidarity is one thing. Donation is another. Especially when debt in Northern countries is not low. With debt/ GDP ratio of 90% and their own banking problems, doubling the bet on the periphery spending is suicidal.

Germany, on the financial side, has a financial sector debt at about 45 times common equity and cannot take more peripheral risk easily. Especially when they have seen the disastrous results of the previous "stimulus" of 2007-2011.

On the social side, Germany cannot afford inflationary policies after decades of accepting disposable income losses, millions of mini-jobs and wage and pension cuts for the common good.

In simple terms, the construction of the new Europe cannot come from the same mistakes of 2007-2011, spending or borrowing, because the domino effect of systemic risk makes Europe weaker and more indebted.

European states are carrying a suicide policy against their own people masked as "social". The pyramid of debt and accelerating spending is the same in most countries, and it is not sustainable. The ECB knows. And we should know that kicking the can forward without reforming inefficient and bloated states is not an option anymore.

I already commented this in my article "The Day After the Bailout, Internal Default" . Once 90% of the countries' outstanding debt ends in domestic hands, the problem of government negligence will only be ours. Because 97% of the Spanish pension fund is invested in sovereign debt, 80% of the social security, many insurers, etc... Do we want to copy Japan and get to 240% debt to GDP? Then we should take internally the risk, just like the Japanese... Not pass the bill to the ECB or Germany.

No, the periphery problems are not the fault of Germany or the ECB. The countries are to blame themselves  for their lack of action in distributing this enormous liquidity. Perverse incentives appear again. The more liquidity, more debt in the wrong places -governments and banks-, delays in carrying out the necessary reforms, and nothing changes...

Of course, some Keynesian economists say central banks do not go bankrupt and should just print. Except that the central banks' balance sheet is paid by citizens in taxes, inflation and ultimately impoverishment -devaluation and default- ... and more cuts. We have seen it in the UK where monetary expansion has not prevented large cuts... or in Spain after massive countercyclical plans, which only deepened the hole and left tens of billions of debt.

It is precisely the government bubble and ineffective stimulus plans, funding the state in privileged terms and encouraging "spending" in low-productivity sectors, what explains much of the differential in the periphery compared to Northern countries.



The free bar of fake money does not solve problems of inefficiency, crony-ism and low productivity .

However, many economists maintain the myth that easy money and the European Central Bank printing is the solution to everything. After 1.5 trillion of expansion, putting 44 billion to buy Spanish government bonds and 230 billion to support its financial system they say it's "not enough". Really?.

On Thursday I attended the presentation "Spain, a land of Opportunities" by the  Business Council for Competitiveness. It has its voluntarism and optimistic predictions, but it is an excellent initiative. This document shows three realities:

1 - That the high-productivity sectors have grown and developed during the crisis in an exemplary manner with almost no additional credit.

2 - That despite a "strong" euro Spain exports more than ever.

3 - That the greatest mistake of the Spanish crisis was doubling the bet on the construction bubble with "counter cyclical" spending sprees, which have enlarged the hole and repressed healthy sectors with tax increases, while credit is monopolized by public administrations.

But even so, I hear things like "the fact that countercyclical policies have not worked in the past does not invalidate that they must be reapplied". In a country that doubled its public debt to generate zero jobs, spent billions on useless infrastructure and built a structural deficit that is now very hard to contain. Repeat?.

I read a lot that the cost of financing SMEs would improve if the ECB flooded the system with liquidity. More liquidity? Curious, because the average spread to finance companies gained 300 points to 550 basis points precisely during the "open bar" of ECB liquidity. A transmission failure problem created by crowding out of public administrations is not solved with more liquidity. It is solved with free market and private funding. The monetary illusion leads us to think that adding water to the glass of milk makes us have more milk.

The myth that you have to spend when there is contraction and that saving will happen when the economy grows is simply untrue. Because governments do not save in prosperity. They spend more. And in any case, it is a futile discussion when we have crossed the threshold of debt saturation by a mile.

Repeating the mistakes of stimulating through government spending leads to perverse incentives that not only delay the recovery but makes our countries even more risky as an investment.

The best growth plan is lowering taxes and letting the high productivity sectors thrive, not drown them.

Europe  can overcome the crisis deleveraging. Growth and credit will come from private sectors and private funding, attracting capital, allowing SMEs to grow, cutting political spending and rebuilding the middle class by increasing their disposable income. Reducing the weight of the State without destroying essential services  allows to lower taxes and boost consumer spending.

(This article was published in El Confidencial in Spanish)

Ten Myths About Tax Havens

This article was published in Spanish in El Confidencial

"A tax loophole is something That benefits the other guy. If it benefits you, it is tax reform." Russell B. Long
"A war on tax havens is nothing but an Attempt to Increase taxes to prop up bankrupt welfare states, to continue feeding the leviathan" Charles Gave

Tax evasion and money laundering are big problems. But those problems are solved with a strong legal and penal system, not attacking tax competition and foreign investment.

It is not a coincidence to see a debate on tax havens at the same time as we live the period of greatest financial repression since the 70s, when political spending in OECD countries soars to record highs. Tax havens are the new "scapegoat".





In my opinion, the main mistakes in this debate are:

1) Tax heavens or tax hells? The debate throughout Europe starts with a translation error that is not accidental, nor irrelevant .  Many European countries translate Tax Haven as Tax Heaven (paradis fiscal, paraisos fiscales). It's a very important semantic difference.  It is important, because that translation error occurs, not by chance either, in countries where the most interventionist policies are implemented. The assets of banks in tax havens have increased approximately ten trillion dollars since 2001. According to Harvard University, the increase in these assets happens almost always after the tax burden increases with about twelve months difference. That is, the movement of capital out of tax hells comes AFTER tax increases. It is NOT the cause of these tax increases, as some want to tell us, but a consequence of financial repression.

2) They shelter illegal funds. Another myth is putting everything under the "illegal" banner. In late 2010, according to Tax Justice, the fifty largest banks managed 12.1 trillion dollars in assets offshore . This is known data, with operations that are legal, either from investments or corporate accounts. The vast majority comes from companies with multinational trade agreements seeking two objectives. One is to grow and develop their activities in the world without incurring in double taxation, which creates many more social benefits, employment and wealth than capital controls. Another is to safeguard funds from complex countries. For example, Venezuela and Argentina. Thanks to tax havens companies have been able to avoid instituted capital controls and confiscation of part of their investments in those countries.

3) Billions of lost tax revenue. According to the study "Do tax havens divert economic activity?" (B Mihir A. Desai, C. Fritz Foley, James R. Hines Jr.) empirical evidence shows that tax shelters do not reduce economic activity in high-tax countries, but actually increase it. Because assets are reinvested in sovereign debt, stocks and business projects in OECD countries with high taxation. Also, economic activity has not only increased with the growth of tax shelters, but has benefited mostly Western countries, as a large part of the money that is protected in tax havens from global totalitarian regimes is reinvested in the U.S., Europe and UK. This is an important factor, because we tend to forget the amount of money from honest citizens looking to take their money out of repressive dictatorial regimes.

4) They are in exotic locations. What is a tax haven? Nobody in Spain, for example, complained when its companies conquered the world buying assets and deducting goodwill from the tax base. Or when Spain gave huge incentives to foreign companies. Our benefits are always tax "reforms" and the others are "evasion" . Who decides what is a good or bad tax territory? Delaware, Nevada, Wyoming, Luxembourg, Malta, Cyprus, Andorra, Jersey, Ireland, Lichtenstein, Switzerland or even Navarra ... all have distinct and significant tax benefits. Is Cayman bad and Luxembourg good? Why? 

5) They generate unfair tax competition. We talk about tax harmonization as a panacea. Except that harmonization is not the echo of the Beach Boys singing Our Prayer, it means raising taxes on everyone . A confiscatory state never has enough. And it does not save in prosperous times. It is precisely the tax competition of different countries what prevents you from working for the government until September, as happened a few decades ago. In 1979, the average personal income tax in the OECD in the top range exceeded 67% and the corporate income tax was 50%, plus there were taxes on capital of all kinds. (you can read it here). Was the State more efficient before and countries enjoyed greater wealth? No. Today, thanks to openness and tax competition, we have much lower taxes.





(Tax burden on families. Source: OECD)

6) Competing with tax havens is a race to zero. No, it's not. Tax havens have levels of public spending that stand around 25% of GDP. That, in itself, precludes the race to zero. In any case, the race must be to provide services that citizens view as adequate and of quality. As Will Rogers said, "the best that can be said of the tax system is that, thank God, we don't have the amount of government that we pay for".

7) We can eliminate tax havens. There will always be tax competition. The same as in the 70s France was a tax haven for the British, there will always be a sovereign country to attract capital efficiently. Or do we really think Brussels will impose its tax system to China-Hong Kong, Singapore, Dubai, etc.? How? By cutting trade? Please. Capital restrictions led us to the worst recession since the Second World War ... and above all, they did not work. Tax evasion and the underground economy in Europe in the 70's were higher than today in terms of GDP. Another thing I love is the issue of transparency. According to the World Bank, most of the major tax shelters have better corporate governance and transparency than ... France.







8) They finance terrorism and money laundering. The Institute of Governance at the University of Basel made ​​a very detailed analysis of countries with a high risk of terrorist financing and money laundering, and out of twenty-eight countries identified only one can be considered "tax haven". Money laundering and terrorism will always exist, unfortunately and what needs to be done is to attack the source, and apply strong criminal prosecution policies.



9) The perception that tax havens are no risk. Investing offshore is expensive, costing millions of dollars in commissions, and it is also complex and risky. Very risky. Why do people do it then? Because in cases we have turned our countries into tax hells that pursue predatory policies. Question: Where are deposits safer, in Cyprus or in Jersey? In Cyprus, where deposits are guaranteed up to € 100,000, while in Jersey and similar tax havens they are only insured up to 50,000 (pounds).

10) The argument that states that without tax havens there would not have been a crisis. We are overwhelmed with figures. Billions and billions. Of course, all estimates. And also, this is very important-confusing assets with liabilities and capital accumulated with annual profit. I use two figures. Eight trillion dollars, according to the Boston Consulting Group and 21 trillion, according to Tax Justice, which has a tad of interest in inflating the figure. But it does not matter. Assume that these figures are true and that all belonged to OECD citizens and assume a 20% tax -to be generous- which, of course, would be applied only once. What do we find? That with all proceeds we would not cover the deficit in the last three years of the OECD. If the US taxed 20% what some say American companies hold in foreign accounts, it would not cover the 2012 deficit.

The current crisis is due to government mismanagement of bubble-period revenues that they assumed would be eternal. Tax revenues in the EU do not collapse due to selfishness, but because investment conditions are atrocious and taxes too high for people to invest.

Globalization, free movement of capital and trade have made ​​possible to enjoy the rights that many now claim. Tax havens do not thrive when there is a fair and low tax environment. Returning to capital controls and the nanny state lead to equality in misery.

The best policy against tax havens is not to become a tax hell

Spain, Insolvency and The Telegraph

(This article was published in Spain in El Confidencial on May 18th 2013)

" Dissent is the highest form of patriotism ", Howard Zinn.

In the past week there has been an enormous uproar in Spain created by an opinion article published in The Daily Telegraph under the title "Spain is officially insolvent"

Do we really believe that an article is so important that it could change anything if what it says is untrue?

The article, let's be clear, says nothing new or that has not been written before in reports by Citigroup, Exane, JP Morgan or a handful of local analysts.

I live in London and work in the City and as a Spaniard it angers me often to see how my country constantly revises and changes economic data expecting no one will notice and praying we can hold our breath for another month. No, the lack of confidence of markets is not due to the foreign press, but to of our track-record.

About the Daily Telegraph I believe it's worth mentioning that it is frequently extremely critic and agressive with the policies of the government of Mr David Cameron and others, with sharp comments almost daily. The newspaper has uncovered corruption cases in its first page that in Spain would be relegated to inside columns because the amounts stolen would be seen as ridiculously low. I've also seen headlines in other media such as "Subprime Britain" (in City AM), that show the level of free speech in the UK. However, as soon as the press touches Spain, oh no, we cannot allow that.

What we have to do is show our credibility with strong economic data . We don't need to to demand blind loyalties and say that "they are doing worse" or "everyone else is changing data", because it is not true to start with. Yet in Spain it is now a national sport to blame Merkel, Draghi, Bush, Obama or the UK press for our troubles, not ourselves.



So, on to the article, let me clarify some concepts without entering into hopeless patriotism. Spain is not yet insolvent , but if it continues to spend and avoids tackling its debt issues hoping that someone else solves its problems, it run the risk of becoming so.

Why Spain is NOT insolvent

- Spain has 50% of its private debt concentrated in 28 companies and banks of the Ibex 35 Index. All listed, with diversified shareholder bases, and multinational activities. These companies spent huge amounts of money in assets with debt. But those assets can be sold. They are already divesting, at good prices too, and lowering their debt levels to 2006 averages. In addition, these same companies and banks are financing themselves at extremely low rates, even in the worst months of the crisis. Everyone of them could make capital increases if needed. Besides these concentrated cases, most of our companies maintain a comfortable financial situation.

- It is true that the interest coverage ratio of Spanish listed companies and banks is very low , as the IMF pointed out, but that average is distorted by the fact that Spain's stock index contains many utilities and construction companies, which traditionally have very tight ratios but also asset-backed non-recourse debt. These companies, of course going through unquestionable challenges, are also doing their homework.

- The problem of banking in Spain is concentrated in the disaster that was the political model of the savings banks. It's true that the cost of their bailout is huge, but it is also true that Spain has only used 40% of the funds granted by European Union for their aid, which is a strong cushion even if we considered that 20% of the 160 billion euro in zombie loans is unpayable. Spain's big banks, on the other hand, maintain higher capital ratios than many French and German banks.

- The bubble of political spending is a huge problem . It is recognized all over Europe. 493 billion euro of public spending and 110 billion deficit is unacceptable for a cyclical economy that is service-oriented and which has seen the burst of a bubble which accounted for 15% of GDP. The real estate and ghost infrastructure bubble. The central state until March 2013 has spent 43.3 billion, nearly twice its revenues. Right. But we all know that if the state recognizes an economy of "crisis" it could curtail 10 billion in subsidies and grants, 35 billion in "economic activities"-the black box of state spending- duplicate administrations, regional embassies, eliminating thousands of advisor jobs, etc..

The UK and the useless comparisons

The Spanish press has spent days saying that the UK is in worse shape than Spain and that is why they "attack us". Enter the "blame the foreigner game".

To remind the British people that the policy of printing, devaluing and inflating the economy is not working is useless. They discuss it every day ("Never mind the triple-dip recession, the double dip may have been an illusion too ").



To remind the British of the cost to taxpayers of the support to their banks (512 billion pounds according to the National Audit Office) is not necessary. The press repeat it day after day, and it was the BBC -a public network- who alerted of the Northern Rock and banking crisis. Can you imagine the Spanish State TV (TVE) alerting of the debacle of the savings banks five years ago when Spain was self-proclaimed the "best and better regulated financial system in the world"?

Needless to say that the policy of increasing debt, adding deficit and propelling the real estate bubble is also criticised heavily here in London. But it's also worth differentiating deficits. The British deficit is partly explained by the weight of its financial sector and its solid financial account supports it. In any case, urgent cuts are needed. The Spanish deficit is current spending and no investment, and its deterioration is far superior in size and speed (from +5% surplus to -10% in two years and continuing down is simply atrocious).

The funny thing is that those Spanish politicians who repeat day after day that the country needs to print money like the UK are our leaders, masters of the blank chequebook and golden scissors to inaugurate ghost airports and useless bridges . However, they fail to mention any need to copy the dynamism, freedom of trade,and investment attractiveness of the UK.

What Spain refuses to copy from the UK is:

- The lowest corporate tax of any western economy (21% from 2014), according to PWC. No taxes on dividends, large investments do not pay tax on capital gains and are given huge tax benefits to investment in R&D and UK companies. An environment that is not predatory against capital and allows SMEs to grow and reach the status of large company faster and more succesfully than in Spain.

- The most important difference, that many tend to forget, is a robust and growing financial account balance of payments (see the graph of @ _perpe_ )



- In the UK one can start a company in a week for the cost of a couple of Happy Meals . Being an autonomous entrepreneur is extremely cheap. Public administration suppliers are paid within 30 days.

- A reduction in civil servant staff of 22% since 2005 .

- Independent regulators, not controlled by parties and governments.

- A really flexible labour law that allows an unemployment of just 2.5 million (7.9%), despite the recession and over a hundred thousand annual net immigration.

- A country that attracts foreign investment -more than a trillion euro-, opening doors to M&A, trade and private funding.



-  Institutional credibility and credit responsibility. Everyone knows who to blame for the deficit. Debt is not shared between 17 regions with no responsibility for its consequences.





To say that the UK debt is worse quality than the Spanish bonds but trades at low rates solely because the country devalues ​​and monetizes, is simply lying . And it's also a lie to say that monetizing debt would avoid budget cuts if Spain could do it. If inflation and printing is the magic solutions, the richest country in the world would be Venezuela or Argentina and the poorest would be Germany .

Without institutional credibility industrial strength, credit responsibility, legal certainty and a proper investment environment, all monetary interventions are futile.

Is the UK "against the European Union"? Or the other way around?

The whole controversy created by this article boils down to the eurozone crisis and how it is perceived from London.

Being in Europe is costing the UK 13.6 billion euros a year . From London, one sees the European Union as an accident in slow motion. In horror, but unable to stop looking. And the debate is logical ( read here ).

The constants summits to solve debt problems, inefficiency and bureaucracy with more debt, bureaucracy and intervention make the model unattractive to anyone looking from the UK perspective. It is not a "take it or leave it" issue. Paying for a club where they serve bad food, the staff is impertinent and rules change each month is not the solution .

Does the UK defend the City? Of course. And France defends its subsidized cinema and farmers and no one criticizes them. The City generates more tax revenues than Scotland for the country, of course the government has the right to defend it.

After almost ten years living in the UK, I have not met a single British EU supporter. But that's not an attack on the countries or its citizens. It is a concern about the interventionist course the EU is taking. "More Europe" does not have to be a loss of sovereignty, less freedom, more planning and less democracy.

A Europe designed from the model of the State "in everything and for everything," a "directed" economy similar to the French, where everything is decided by committee, attacks the culture of trade and freedom not only of the UK , but of Finland and Holland... And the tradition of Spain!.

Many in the UK, locals and foreigners, see the disaster that is building, and obviously do not want it for them or for the poor countries that fell into the trap. Margaret Thatcher said it in 1990, " The single currency will be fatal to the poorer countries because it will devastate their inefficient economies ".

For me it is essential that the UK remains in the EU. To help it avoid becoming a "centralized planning Titanic", and to make it what it always should have been, a union of sovereign states to facilitate commerce and growth, not design it in a committee. Openness and freedom.

PS: Many thanks to @ _perpe_ and PWC for its graphics

Summary comments from Commodities Investor Day presentations

A few summary comments from CS commodity day presentations:

Metals:

The entire metals complex is moving lower (in price) and very little of it has to do with weak demand in China, if anything, physical demand looks decent there, particularly in precious, but even copper and ore.  It's almost all on supply gains for these metals in 2013 and again unfortunately in 2014.  There is simply too much supply coming in. 

Further, the production that is coming on-line is all at lower and lower costs, meaning we will have stranded assets in the market, and that usually creates a negative price cycle to rationalize.  Again, this is not going to be GDP dependent/linked, and that is throwing off armchair generalists.

Steel production is bullish, thus prices are bearish.  Too much global capacity and margins are too low to sustain.  This is a part of the bear call on Iron ore as well, but really Glencore trader cited dynamics that BHP and Vale in particular want to beat the hell out of the smaller producers and get tons out of the market for 2014, they are playing a longer cycle.  Expect iron ore prices to fall 20%+ this year, in back half.

Grains:

Mixed bag.  Short cycles dominate the picture, demand is structurally firm and consistent (growing 2%/yr).  Corn plantings in the US and indeed globally are epic.  If we don’t get disruption this year, corn will fall materially from current levels, but there remains great uncertainties as the year progresses.  China wheat (they are number one globally) looks robust, as does corn, don’t expect problems from China this year, unless we get big drought.  Picture much more balanced that last year.

Some concerns on Egypt, which is the world’s largest wheat importer….fell from 11m to 8m, wondering if people are starving.  Subsidies will come off soon there and expecting chaos to emerge.  Trader chat is that the government falls within 1-2 quarters.  Has implications for oil…

Energy:

Oil was the stand-out bullish bet by the audience in a survey, most expected firmness and/or prices to lift a little.  Only 5% of the audience expecting oil to see a price move down next 12 months (you make of that what you want).  As usual, 99% of the discussion is counting barrels in odd places around the world, and little discussion of demand, other than ‘its growing 1-1.2 m bbl/year), with zero colour as to how/why.  Supply, people are very freaked out at the global picture, but also note findings keep surprising to the upside, and technology is helping…US shale, everyone knows the score, massive US growth…

Precious:

Unquestionably the huge consensus position: gold/silver have meaningful downside.  Drivers are 1) over-crowding by financial investors in a negative rates cycle that is ending, 2) structural strength in US $ that is trade and perhaps budget balance related (both improving) (not a GDP issue), 3) technicals are awful.

A contrarian point made that retail demand exploded on lower prices recently, but everyone blowing it off.  I would throw in, its one of the few commodities where the cost curve is actually meaningfully moving higher…usually that means supply corrects more quickly.  We’ll see….

Japan and Manga Money

Japan's yields soaring

The play year-to-date has been that historical QE would push yields lower, as they have in the US QE process, but there appears to be sharp rotation away from JGB’s in recent days.  

You can choose to read this positively or negatively for Japan, many will say that breaking the bond market is what the economy needs, eg, rotation into growth-related investment.  

However, a good chunk of this may simply be rotating out of the country into US debt or anything non-JPY denominated.  Japanese ownership of US treasuries soared to $573bn (Japan Tops China Buying Treasuries After Lost Decade - Bloomberg)

Many Japanese firms are rather leveraged and will suffer from rising term rates should the economy fail to rip along with the fading currency.    

Recall also that government receipts remain anaemic and there is a large budget deficit that shows little signs of improvement, along with the largest debt/GDP on the planet (more than Greece). Japan's sovereign debt is 24 times its tax receipts.  The US's sovereign debt is 6 times its tax receipts.

Additionally, seems that this massive stimulus is not working well... Energy costs have soared 26% since January.

Yes, nominal GDP is up 0.9% (3.5% ytd)... After collapsing in the last quarters of 2012... Printing money gives the laughing gas illusion. But wages, investment and corporate spending are still subdued. According to Bloomberg, "dragging on growth for a fifth straight quarter, private non-residential investment subtracted 0.3 percentage point from annualized real GDP. The level of business investment in January-to-March was the lowest since the second quarter of 2011. Companies also drew down inventories last quarter, taking 0.8 percentage point off GDP. The so-called GDP deflator, a broad measure of prices across the economy, tumbled 1.2 percent from a year before, the most since the final three months of 2011, underscoring Kuroda’s challenge as he seeks to end more than a decade of entrenched deflation".

Wait til cost of debt and energy adds to the corporate bills.

Japan's Manga Money Policy: (This article below was published in El Confidencial in Spanish)

"The Bank of Japan's huge bet by boosting quantitative easing will not turn the economy around and is instead sending the nation Toward default" Takeshi Fujimaki

A well-known blog (Macro Man ) calls the latest stimulus "the Japanese laughing gas" because it creates an illusion of happiness . I call it monetary Manga, in honour of the superbly fantastic comics from Japan.

In my opinion, supporters of this policy face two problems: the evidence of the failure of the experiments of recent decades and especially if other countries take to the same madness policies, the side effects are simply unpredictable . In any case, the "experiment" will be paid by you.

Wild stimulus policies are always adorned with a "social" objective. "It's for your good." "Without them it would have been worse." But they are profoundly unjust, anti-social and, most importantly, ineffective. They just benefit financial assets and cronyism.



Some say Europe should do the same. Why?

The simple explanation is that they assume that if you print money, liquidity floods the system, it stimulates productive economy, savers are forced to reinvest, which in turn improves the country's debt situation, lowers the cost of debt of companies, reducing unemployment and avoiding deflation. What a blast! All at once. No need to change the economic model of low productivity sectors, and welfare state inefficiencies. Just devalue and stimulate. Except it does not work.

Spain, a country that experienced the disastrous competitive devaluations of the 90s, should know. A country that sank the economy and put it at the brink of bankruptcy "stimulating" through spending between 2007 and 2011 should be cautious and learn from its history. But no. We like Japan, but without Mitsubishi or its productive workforce.

The data in Japan is challenging and we should very carefully calibrate the siren song of easy solutions.




After many trillions spent and years of implementing the policies that some want for the EU:

- Japan will reach a debt to GDP of 245% in 2013 according to the IMF, rising for the sixth consecutive year. The risk of default, curiously, has soared between February and April, although still low.

- Public spending is unsustainable. The country's financing needs reach over 60% of GDP in 2013, compared with 25% in the U.S.. Japanese public debt exceeds twenty times the country's fiscal revenue.



- The trade deficit reached a record of 64 billion euros . This is important because the main trading partner of Japan is China, and the decision to attack so aggressively with monetary policies can be a backfire if China reacts. Japan also imported 87.3 million tons of gas and 3.6 million barrels a day of oil, which is paid in dollars. To devalue the yen only becomes inflationary on energy bills.

- Unemployment has not dropped, remaining at the average of 2003-2012 . In fact, it has risen from 3.83% to 4.42% between 2007 and 2013.

I focus here on the Credit Suisse report "Japan Implications" and DBS Group's "Japan: Gauging the Impact QE" to see how many things remind us of our countries.

The Bank of Japan has been implementing expansionary policies since 2001, and so far:

- Lending does not improve. In Japan, as you can see in the graph below, lending has stagnated at levels of 2003 and is absorbed by the state-debt and mega-conglomerates.



- The stock markets react to the agresiveness of policy, like throwing a stone into the water. But its effect is diminishing. Of course, the Japanese stock market has risen 45% so far this year, but masks a more modest 22% in US dollars. In the end, what matters is if the sectors have low growth and low profitability or not.



- It supports low productivity industries . Devaluation and stimulus perpetuates uncompetitive models and takes money from savers pockets, only to give it to those sectors to maintain their activity a few more years, pay some taxes and help support a huge public spending.



- Add to this combination a population pyramid that the prime minister himself considered "unsustainable." It's a bomb on a pension system that drags an unsustainable public spending.




So why do it? Easy, let me tell you where the money from the Japanese population is. In deposits and currency, 56% of the total. The Japanese citizens save. A lot. The government feels the need to stick its hand in that pocket ... devaluing. But the Japanese, like the Europeans, do not spend more. The big problem is that the velocity of money, which reflects economic activity-continues to fall despite wild liquidity. It is all in bonds of extremely indebted states and banks. The lack of consumer confidence does not dissipate by manipulating monetary variables because most fears come from lack of security and tax increases.

Japan, the 'Hedge Fund' of a single bet.

The Japanese economy is extremely dependent on the global economic cycle -correlation of business profits to global industrial production is twice compared with the U.S. or the UK-, and generates very low margins. Several large companies get returns significantly below their cost of capital. Exporters, but not tax paying -due to low margins- enough to support a bloated state and an ageing population .

The decision of the Bank of Japan is like a huge speculator borrowing dozens of times is assets with a single bet : that Japan will export its way to profitability and generate sufficient tax revenue at the expense of the rest of the world. That bet is exactly that of all OECD countries are following. Just this time, Japan is much more leveraged. A bet with the money of future generations. 

The consequences of following the Japanese monetary policy elsewhere are clear:

- The countries' debts are not reduced, they soar. With more money, governments spend more, forget to reform, and decide to maintain unproductive models.

- It becomes, as in 2001, a model that encourages financial risk taking in an excessive manner, but at a time when banks, companies and households are still heavily indebted, which may lead to shocks in economies that still remain very fragile.

And of course, like Japan in the two lost decades, we would see that big structural problems are not solved and that countries do not reform . As such, if the rest of the OECD relaxes to the manga money illusion, Japan would lose its bet as growth will remain anaemic, and not just remain in an untenable situation, but even weaker.

If Europe and the U.S. want to win this race with Japan, it's best to use the liquidity and asset bubble to reform, to be more competitive and reduce public spending. That is why I totally agree with the stance of Germany and Finland in the European Union and defend not to participate in the contest "to see who gets into more debt and defaults first." If I am not right, we will be better anyway. And if I am correct, we will avoid being the fool who gets the shortest stick in the contest of "who goes bankrupt".

The Big Bond Bubble

"Artificially pushing interest rates down and forcing investors into junk bonds has only one end. It's just a case of when, not if "(Sohn Investment Conference)

The slump of bond yields seen recently is not the result of the successful policies of our governments. We have seen most growth estimates revised down in recent months. We are seeing a "bond fever" worldwide.

Greek ten year bond yields have fallen to pre-crisis levels, Portugal is back in the capital markets, Rwanda issued a 6.8% bond, junk is trading at historically low rates, companies at risk of bankruptcy issued debt at 3.5%, ... All this is not a coincidence. It's the perception that the environment of artificially low interest rates and extreme liquidity will remain.

Low rates create a blind race to "seek yield" which always ends badly, because it encourages reckless behaviour of issuers thinking that everything is fine and it pushes banks and investors to close their eyes and take risks that were previously deemed as unacceptable. Then we go back to bailouts and "too big to fail" problems. Courtesy of central banks and their expansionary policies.

It seems that our central banks and states do not want to avoid another bubble. They want to replicate it.



This leads to build up in risk and leverage, while investors are accepting lower quality assets in exchange for lower returns.

The question is not "how it ends", which we have seen in 2001 and 2007, but "when".

It's like the Roadrunner cartoons. The Coyote climbs up the cliff until he passes over the edge, keeps running and suddenly finds that under his feet there is nothing. The risk today is very similar.

This week the U.S. junk bond index has reached the lowest yield of the last thirty years. "High yield" is now an average of 4.95%.

Adding to this picture, debt accumulated by investment funds has reached record levels , doubling in two years while assets under management have grown just c15%.

However, our leaders across the OECD, instead of worrying and taking urgent action to avoid this bubble, see the decline in bond yields as a  sign of "restoring confidence".

Do not forget that stock markets and bond yields also reached euphoria levels in 2001 and 2007, as economies plunged into the abyss.

I am convinced that the level of risk that is currently building up in the markets is disproportionate to the quality of assets.



How to create the bubble

The steps are:

- Since 2007, central banks have lowered rates 511 times. Today most countries with high quality credit trade at very low yields, 1 or 1.5%.

- Meanwhile , the credit quality of sovereign and corporate debt suffers because economic prospects do not improve. We have lost more than a trillion dollars in assets with maximum guarantee (triple A) during the crisis.

- The rate of defaults has also gradually increased , albeit at low levels due to the liquidity frenzy. Junk bonds have a default rate of around 3.5%, and the default risk of several European countries has also increased 12% recently.

- In that environment, pension funds are unable to generate the dividends they need to give to their customers buying only high quality bonds, which leads them to accept greater risk. The most serious problem is that they also accept low conditionality, ie, very soft credit requirements.

- Because of this "thirst for yield" demand, countries and companies issue debt like crazy without improving fundamentals, taking advantage of lower interest rates.

What if there was no bubble?

Moody's, the rating agency, and some banks were quick this week to say that "there are no signs of bubble in bonds." Unfortunately, their past predictions have been less than successful.

The arguments against the bubble are:

- The spread with quality debt is unchanged . That is, although the yield of all high-risk bonds has dropped it has also fallen proportionally in high quality debt. The problem that I see with this argument is that it fails to mask an overall situation of manipulated prices, soaring debt and weak growth.

- Western economies are recovering. However, there is no solid data to support this claim. Growth in Europe, including the UK, is atrocious and the United States remains anaemic, and debt continues to grow while downgrading global growth estimates (from 4% to 3.3% overall).

- Central banks will continue to print and lower rates as needed. This only has a problem. In previous bubbles rates were not at 0.5% and deposits at zero percent. And economies, private and public, were not so indebted ... Investors were not so exposed to the market (see the chart below on the impact of expansionary policies in the stock market).  The placebo effect of monetary policy laughing gas lasts less than before.

While the snowball of high risk bonds continues to grow, both sides are engaged in the discussion of low inflation ... Forgetting the monstrous asset inflation that is being created, and ignoring that monetary policy  accompanied by tax increases and financial repression makes consumption fall.

What if there is a bubble?

Taking advantage of the relaxation of the conditions that investors demand in an aggressive monetary policy environment sounds good if one prepares for the winter taking drastic measures to reduce financing needs.

If this bubble bursts, it will do so with heavily indebted companies, governments and funds, ie, with very low capacity to absorb a sell-off shock. And if refinancing needs continue to accumulate the "vacuum" effect can lead to huge problems.

Too much risk for little return.

Investors and banks are taking too much risk. Balance sheets are not being cleaned and if this bubble is real  the effects can be disastrous.

If this pyramid of cards suffers the smallest shock , we will repeat 2007. But meanwhile, we are not cleaning the economy of unproductive sectors and taking the reforms needed to ensure sustainable growth .

Bubbles are relatively easy to identify, especially when they are created so quickly. When will they burst, in a manipulated market, is less evident. The belief of many funds and banks is that central banks are going to hold risky assets up because they do not "see bubble risk".

And therein lies the problem . The worst of these bubbles is that it's presented with a "social" veil. "Reducing Unemployment," "support credit flowing" or "encourage growth" , when all they do is support banks and indebted states and push the most cautious investors, pension funds, to high-risk behaviours. Citizens do not see a dime but should rejoice at the "perceived wealth" and "trust" improvement.

There are many investors warning of this situation . Of course, they can be wrong. But states, rating agencies and central banks never see bubbles. Remember the technology or real estate ones. They spent more time justifying them than analysing how to get out. We'll see what happens.



This article below was published in El Confidencial in Spanish

Spain: Austerity, Yes Please

"Rather than attempting to return to Their artificially inflated GDP numbers from before the crisis Governments need to address the flaws in Their Underlying economies" R.Rajan, Univ Chicago

"Governments are always Keynesian when it comes to spending. When it comes to saving They Become Stalinist "

We have read some terrible economic news for Spain . Unemployment of 27.16% and a deficit that reached 10.6%. A 7.1% excluding banking aid. Spain, for the fourth consecutive year, reached a deficit of more than 100 billion euro. That's a level some politicians want to relax!!! . However, we have also received great news that we should not forget. The banking sector has recovered 25% of the deposits lost in 2012 and the corporate debt has fallen to 2006 levels.

Germany is right

The cleansing processes of overly indebted, low productivity economies are painful, but the greatest risk we face, without a doubt, is trying to perpetuate it.

What I have not read in most media analysis is that these unemployment figures are dramatic result of the same atrocious, unjust and anti-social policy we want to repeat .

What did Spain do when the housing and civil works bubble burst?. Double the bet, giant stimulus plans that took the country from a surplus of 5% to an 11% deficit, which today generates almost 60 billion euro per year of structural deficit. Perpetuate an unsustainable model, creating a social and economic situation that is practically insurmountable, playing "next year everything will be solved" and "blame it on the Germans-Draghi-Cameron or whoever." Today, lo and behold, the fault lies on everyone but us and the solution, of course, can only be to repeat the same disaster of the government-led stimulus.

Look at this chart on the growth of spending throughout the housing bubble and the myth of lost tax revenues.






Indeed, Spain should be the first to avoid useless formulas, in a country that has suffered the devastating effect of competitive devaluations in the 90s and today suffers the brutal impact of the bet to give even more money to spend to the same politicians that have brought us to the brink of bankruptcy.

Germany is right ... because their model works . Their adjustment process lasted from 2004 to 2010. The focus on competitiveness and high productivity sectors is precisely what has led them to be successful today. Something we wrongly call austerity and that it is nothing more than prudence, common sense and balancing the budget .

We say that Germany was the first to breach the stability pact. Sure, by a percentage point ... not six. And making hugely significant reforms. But in Spain all we hear is "Germany has to undertake fiscal expansion to help the periphery" and "the ECB has to print money and let us borrow more".

This analysis from Cubism Economics is very telling

Let's do the numbers for the impact of a German expansionary policy in Spain:
- German imports from Spain were Eur 22bn in 2012, 2% of Spain's GDP.
- Let's be optimistic and say that a fiscal expansion in Germany would lead to a 5% increase in its imports from Spain. This amounts to 0.1% of Spanish GDP.
- Let's say that Spain's foreign trade multiplier is 2.5. This would lead to an increase of 0.25% in Spanish GDP.
- Let's be optimistic and further assume that the fiscal expansion in Germany by having an impact in its imports from other countries, leading to an increase in their GDP, which in turn would lead to an increase in their Spanish imports set the Spanish foreign trade multiplier at 5.
- The result would be an increase in Spanish GDP growth of 0.5% as a result of a German fiscal expansionary policy.
- A similar exercise could be run for Portugal (0.75% GDP growth) and Greece (0.25% GDP growth).
All nice to have, but it wouldn't solve the EU periphery's underlying problems. If anything, it would only perpetuate them by delaying necessary reform implementation.

We should emphasize several factors:

- The risk premium with the Bund below 300 points basic is good news, but it is not a blank check to spend and get Spain back into a debt shock. We should not confuse global excess liquidity with signs of recovery.

- Monetary policies do not replace inefficient and subsidized models, or allow the substitution towards high productivity models. In fact, it perpetuates an economic system where the Spanish public spending consumes 50.2% of the country's GDP (including public enterprises).

- Relaxing deficit targets does not improve the economy. Spain has been allowed to miss its deficit target five times and nothing has improved.

Solving debt with more debt is simply enlarging the hole created by a hypertrophied welfare state. 

Any economist, Keynesian or not, knows that a process of massive indebtedness ends only in three ways. With a debt default, massive devaluation or financial repression. We forget that if we continue building debt and keep spending the budget cuts will be more severe when the saturation ends and drastic measures are taken. No, there is no other solution but austerity.

Excel Sheets and magic

European leaders have jumped to call against austerity because studies by economists Ken Rogoff and Carmen Reinhart contained a miscalculation, though their conclusion, that the most indebted states grow less, has not been denied.

Look, it's simple. If we have any doubts about whether countries with debt above 90% of GDP grow less or enter recession, wait a few weeks and we will will check it in all its glory in Spain (where, on the other hand, the debt to GDP exceeds 110% taking all elements).

Where is the austerity?

In 2007, in the middle of the bubble, the Spanish government spent 413 billion euros. In 2012, 494 billion. After all the "cuts", and 32 tax increases, public spending is still about 80 billion higher.

The debate over austerity or growth is, therefore, useless. Because there is no other solution. because there is no austerity, just moderation of excess spending.

"We have to spend more" ... "relax the deficit" -hey, it was only 110 billion euro in 2012 - to "get out of the crisis." Are we sure? What do they want?,? A deficit of 12%, 13%? A debt of 120%, 130% of GDP?... To stimulate demand ... what demand? Ah, of course, the demand of crony sectors living off grants and subsidies which have lost 20 billion of government spending for unneeded high speed trains, empty airports, ghost towns and idle bridges.

If Spain grows next year it will be a miracle. But even if it does, the structural weaknesses remain in a country that cannot generate net job creation unless it grows by 2% its GDP.

Chart courtesy of perpe.es.



Growth in austerity

There is no growth without public spending? Untrue. Without crony government led investments Spain can replace an economic model based on construction and civil works for one based on services, technology and exports.

Let businesses grow, they are behaving admirably when you look outside the huge conglomerates. Stop the crowding out of the state on the real economy.



Spain must lower taxes urgently
Spain suffers one of the highest fiscal efforts in Europe, affecting mostly SMEs and middle class households. 

Spain is not going to get out of the crisis led by the sectors that got the country in recession, a disproportionate public spending and highly indebted savings banks. It has never happened. But if the State recognizes that the only thing that will get us out of the crisis is the middle class, what they have to do is increase the disposable income of families by cutting taxes, and the solution will begin from the consumption side.

If the State recognizes that the companies that lead the economic model change can not be sabotaged with a confiscatory tax policy and bureaucracy, we will have the solution to employment. To create jobs, not to 'moderate the rate of destruction'. The labour reform is not going to be successful without a business environment of absolute clarity, legal certainty and low taxes to attract capital.

If the State recognizes that the principal financier of future projects can only come from foreign private investors , it will implement the reforms that curtail the bureaucratic assault on entrepreneurs that we see on a local, regional and state levels. Not reduce it, not mitigate it. Sever it. Open windows. Show that Spain is open for business.

The capital that will create jobs will not be from the Ibex 35 companies, which have a much higher number of employees than their European and global peers. In addition, almost 50% of private debt in Spain is concentrated in 28 companies of this index. The capital that will create jobs will not come from a State that still holds many more employees and advisers than needed (3 million public workers, 20,000 advisers).It will come from those companies that did not borrow aggressively, allowing them to grow cutting taxes and helping create new companies.

There is no worse policy than uncertainty. We must put Spain open for business . Open to attract capital and grow, not attract debt and subsidies. If not, we will make the same mistake we made in 2007.





This article below was published in El Confidencial in Spanish

The zombie Europe. Why is credit not flowing?

"Low rates make banks support zombie zombie companies" Nicolas Véron
Let's be clear. Zombie loans and sovereign debt prevents any chance of growth in Europe.

Last week we saw the European Central Bank (ECB) lower benchmark interest rates to 0.5% and leave deposit rates at 0%. Soon, you will end up paying for depositing your savings. Six years lowering rates and the "success" is questionable.


Too much liquidity in the wrong sectors

Almost all the liquidity that flooded Europe with the ECB's policies went to two sustain zombie sectors: near-bankrupt large companies , which are kept alive artificially, and unsustainable sovereign debt of highly indebted states. It's Night of the Living Dead, by George A. Romero, in a financial version.

This is a 600 billion euro problem in Europe and some estimate the size at more than one trillion, in a banking sector that exceeds 300% of GDP in the euro-zone.

That is why we cannot build the house from the roof and launch the much trumpeted banking union. It would perpetuate the "pretend and extend" problem, and solve nothing . In fact, risk increases.


What are zombies loans?

I've been talking about them since 2007. Think of a business or public administration, large and heavily indebted, which calls for a huge loan at the time of 'we need to grow and grow' for a public project or a large acquisition ... and when the recession arrives, they can not afford to repay the loan. The bank prefers to refinance the loan because surfacing the is too hard, and therefore prefers to wait until things get better.


What happens? That things do not improve. They worsen. But as rates are low and continue to decline, bank prefer to refinance again.


The perverse incentive to copy Japan with its zombie loans and wait. The country has lived since 1997 with zero interest rates and the risks do not improve. The ball gets bigger.


Once you spend six years in crisis, with everyone holding their breath to see if next year we see growth, four things happen:


- The delinquency rate soars. In Spain, it's 10.7% despite the bad bank (Sareb) swallowing billions in toxic assets. In Europe, delinquencies also continue to grow.


- The balance sheet of the corporate zombies artificially kept alive does not improve. In fact, it worsens. According to Eurostat, in Spain 40% of listed companies have too much debt and negative free cash flow. The third worst country in Europe in debt repayment capacity.





- As the balance sheets deteriorate, the quality of the loan portfolio of banks gets worse and banks can not lend to good SMEs and households.


- Then, to top it off, as interest rates continue to fall, banks seeking some profitability and "security" ...flood their portfolios with sovereign debt, accepting less and less yield, even when the risk increases.


In short, banks deepen their risk exposure, the balance sheets of problematic companies is not cleaned, governments borrow more and the contagion risk of sovereign debt-financial sector-real economy deepens.Meanwhile, SMEs are still suffering.


Of course, many will tell me we need more time, that all cannot be done in a day.But it's been six years. That's why financial reform is so important.





This is the perverse incentive of lowering rates again and again. Perpetuating the hole. That's why moving rates down from 0.75% to 0.5%, or 0% does nothing.


Lowering rates perpetuates insolvent models because it is cheaper than cleaning up balance sheets

If we do not solve the problem of low bank capitalization, the economy will not improve and credit will not flow to households and SMEs.


The Bank of Spain estimates 160 billion of refinanced loans, ie possible hidden delinquencies. It is therefore very welcome to see an initiative to analyse those refinanced loans.





A problem in all of Europe


But it's worth saying that the capital increase of Deutsche Bank and Commerzbank shows that it is a problem all over Europe, not only Spain. It is the inability of the banks to improve their capitalization organically, that is, through their core business. Capital increases are needed. And what has been done so far is not enough.


According to JP Morgan and Goldman, European banks need at least 34 billion euro to achieve a meager 9% tier 1 core capital, 95 billion, if we include derivative positions.


How not to fix it


It is not solved by introducing more relaxation of the regulations (Basel III). Nor hiding and looking the other way with banking unions, to create a European mess where nobody knows what's in the balance sheets of others. In addition, the banking union is a process that would lead to years of negotiations, bureaucracy and analysis, as few in the financial sector trust what other banks have in their balance sheets.


It is not solved either by looking the other way and asking that the ECB lends directly to businesses . This creates a huge moral hazard. Why do we have banks? Why have we spent hundreds of billions in bailouts?


Look how curious these perverse incentives are. Spanish banks that have not received bailouts are providing 70% of loans to SMEs and households . And many public savings banks, after the bailouts, not only have not solved their business models, but hardly lend. They are just machines that buy sovereign bonds.





How to fix it


Increase capital, conversion of debt into equity ( debt to equity swaps ) are essential, swiftly but orderly. Avoid another Cyprus using this environment of huge liquidity to recapitalize, because otherwise the hole only increases and the elephant in the room that nobody wants to talk about is sovereign debt ... banks are accumulating greater risks by accepting lower returns.


Europe has to attract private financing, venture capital and untie the real economy from banks while they heal their finances. That can not be achieved by keeping the zombies sectors nor through repressive taxation.


Growth plans?


Europe cannot pull the chequebook again. Previous stimulus plans and unjustified infrastructure investments have left masses of debt and inefficient and expensive systems. There is no better stimulus plan than to recapitalize banks, through market measures, and to lower taxes.


This means no cost to the citizen and no debt for our grandchildren.


Do not worry, rates will be dropped again. But if Europe does not tackle the problem of liquidity predators - governments and zombie companies-, nothing will change. Perverse incentives to kick the can forward remain the same. The funny thing is that now they say it's for "the social good".


It's funny, when Greenspan in the U.S. brought rates to 1% many in Europe complained warning about the excessive risk that was being accumulated in the economy. And they were right. The funny thing is that today, for the sake of "growth", European governments demand more debt. When it explodes, the blame will fall, of course, on "the markets".





This article below was published in El Confidencial in Spanish