Why Sovereign Defaults Matter... and Why Spain is a BIG Deal. The following is an excerpt from my latest client letter explaining why Spain is such a big deal and why when it defaults it’s game over for the EU.
I’ve received a number of emails asking me why Spain is such a big deal for the global banking system. To fully understand the implications of Spain, you first need to understand how the global financial system works “behind the scenes.” We’ll start first with the US financial system, particularly the Primary Dealers which are the real controllers of the monetary supply (via lending). If you’re unfamiliar with the Primary Dealers, these are the 18 banks at the top of the US private banking system. They’re in charge of handling US Treasury Debt auctions and as such they have unprecedented access to US debt both in terms of pricing and monetary control.
The Primary Dealers are: 1. ????? 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. These are the firms that buy US Treasuries during debt auctions. So, let us consider Spain. Good Investing! Fitch’s Pant Says India Rate Cut Will Raise Corporate Spending. (Corrects designation in first paragraph.)
Devendra Pant, a director at Fitch Ratings in New Delhi, comments after India’s central bank reduced interest rates for the first time since 2009. Pant spoke today in a telephone interview. Governor Duvvuri Subbarao lowered the repurchase rate to 8 percent from 8.5 percent, the Reserve Bank of India said in a statement in Mumbai today. The outcome was predicted by three of 25 economists in a Bloomberg News survey. Seventeen expected a 0.25 percentage-point cut and the rest predicted no change. On growth prospects: “At present, any kind of fiscal prudence can only come from high tax revenue, which will happen if growth is supported. On inflation: “While current core inflation has moderated, it is still a concern. To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net; To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net. In conversation with: Prof. Steve Keen. U.S. Economy Is At The 'Fiscal Cliff'
Chart(s) Of The Day: Follow Where The Money Was, Is, And Will (Not) Be. There is no shortage of money in the world.
Thanks to global Central Banks' extreme activism money supply has exploded. Since August 2011, the Fed has been less of a full-time player in this effort but in passing the baton, the rest of the world did not let them down with most notably the ECB having taken over with its own version of free-money printing for much of the first quarter - driving the ratio of outside (central-bank-driven) money relative to inside (the bank themselves creating money via credit) to record highs as a stealth nationalization of credit is underway (though as we noted earlier this morning - the transmission mechanism is not working). So where oh where is all that hard-earned free-money going? The story bifurcates here. Real Money Supply growth is running well ahead of any empirical trend-line, thanks to central bank largesse... Recently the Fed has taken a small step back (but money supply growth - red line below - remains stable in the US)...