The Obama Administration has won its second term. And now that the election is over we can come to grips with the fact that nothing has been fixed and that the math is impossible both in Europe and here.
First and foremost, Greece is out of money… again.
The country is currently embroiled in a new 48 hour strike to protest the next wave of austerity measures which will be voted on today in order for Greece to qualify for the next round of bailout funds.
The bailout in question, €31.5 billion, was actually due five months ago but was not paid as Greece has failed to meet budgetary requirements. Without this money the country will run out of funds by November 16. We’ll see how this pans out but suffice to say the same issues (Greece is broke and will remain in the EU as long as it gets money) are still in play. None of them are good.
Then of course there is Spain, which continues to present impossible ideas to deal with its impossible economic situation. The country currently has just €37 billion in cash lying around. With this, it somehow plans on buying €60 billion worth of bad bank assets.
This is doable over time… provided that Spain doesn’t have a single other problem occur. Unfortunately, we’re up to five regions requesting bailouts leaving just €3 billion in funds available for any other regions that face a shortfall (there will be more).
Meanwhile, Spanish banks continue to draw over €400 billion from the ECB… up from €300+ in June. And on top of this, the country needs to raise €207 billion next year while keeping rates low.
And then of course there is the US…
The US re-entered recession in June 2012. And we are now facing the fiscal cliff again with the threat of tax hikes hitting in early 2013. We also have $16 trillion in debt and are running our fourth $1+ trillion financed by the US Federal Reserve which bought over 70% of all US Treasury issuance last year.
Speaking of the Fed, Obama’s win means Bernanke’s job is secure at least until he decides he wants to step down… which if he has any sense he’ll do so that the disaster waiting to unfold can happen on someone else’s watch.
That someone else will likely be Janet Yellen, the current Vice Chair of the Fed, who is an even bigger dove/fan of money printing than Bernanke (she said that QE 3 would “benefit the world,” a truly staggering claim given the increase in inflation both in the US and especially in emerging markets).
What does this mean?
Simple… the very same problems that the world faced on November 5, 2012 remain in place. And we now know that those in power (Bernanke and Draghi) favor money printing over everything else. So the cost of living/ inflation will continue to rise and the world will lurch ever closer to the great debt implosion that will eventually take down the financial system.
Now more than ever, investors need to get access to high quality guidance and insights. There sheer magnitude of the issues the global financial system is facing is enormous!
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Best Regards,
Graham Summers
