Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Stock Market - All Is Calm, All Is Not Right - 27th Aug 16
Gold Junior Stocks Q2 2016 Fundamentals - 26th Aug 16
Buy Gold’s August Dip? Gold’s Monthly Sweet Spot In September - 26th Aug 16
The IMF’s Internal Audit Reveals Its Incompetence and Massive Rule Breaking - 26th Aug 16
Commodities Are the Best Bargain Now—Here’s What to Buy - 26th Aug 16
Why I Left Canada and Became A Citizen of the Dominican Republic - 26th Aug 16
The GLD vs GOLD - 26th Aug 16
Can Stocks Survive Without Stimulus? - 25th Aug 16
Why Putin Might Be on His Way Out - 25th Aug 16
Bond Guru Gary Shilling - The Bond Market Rally of a Lifetime - 25th Aug 16
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

Spain and the Western Financial System on the Brink

Interest-Rates / Eurozone Debt Crisis Jun 19, 2012 - 04:01 AM GMT

By: Mario_Innecco

Interest-Rates

This weekend the world kept a close eye on the Greek parliamentary elections and the big worry, from a EU establishment perspective, was that the a victory by the Coalition of the Radical Left or SYRIZA would result in market turmoil today. SYRIZA, under the leadership of Alexis Tsipras, did not win and the New Democracy party triumphed and as a result Greece is now expected to stay the course as far as the EU bailout plan is concerned. So this should have been great news for the markets right? Europe could now move ahead and sort its sovereign debt crisis out.


That is what we were led to believe but the reality of what happened in Europe today was quite disconcerting as the markets turned their eyes towards the Kingdom of Spain and gave it the thumbs down despite the much hyped €100 billion bailout of its major banks just a week before. Maybe the markets now realise that one can not solve a debt problem by piling on more debt? We at For Sound Money think the markets are quickly losing faith in the Kingdom's ability to not only pay back its debts but also service its debts.

Today the Spanish 10-year government bond or bono yield settled at a post EMU (European Monetary Union) high of 7.158% or up 28.4 basis point from Friday's closing of 6.874%. The short end of the yield curve reacted even more negatively as the 2-year yield spiked 45.6 basis points higher to 5.445%! This 2-year yield had dropped from 6.12% at the end of November 2011 to a low of 2.15% in the beginning of March this year. This 400 basis point or 4% drop came as a result of the ECB's (European Central Bank) Long Term Refinancing Operations or LTRO through which the central bank lent a total of €1.018 trillion to European banks at a very low rate of 1% for three years. The first of these financing operations took place on December 22, 2011 and the second leg of of the LTRO came on the 29th of Febraury when €529.5 billion was borrowed from the ECB. As one will notice the Spanish 2-year yield bottomed just a few day after this second LTRO.

The purpose of the LTRO was to help the European banks and at the same time drive government bond yields lower as Spanish and Italian banks would borrow at 1% for 3 years from the ECB and lend (buy government bonds) to their respective govenments at a higher rate. This LTRO was supposed to be a win-win deal as the the Spanish and Italian government borrowing costs would be driven down by their banks buying their paper and the banks would at the same time make a profit as dropping yields of their government bond holdings would mean rising prices of their holdings. So just over three months since the last LTRO Spanish yields are exploding higher once again and that means the value of the Spanish government bonds are crashing which also means that the financial health of the Spanish banks is quickly detereorating. Not surprisingly the Spanish IBEX-35 index finished down 2.965 today and the financials led the way with a drop of 4.22%.

It is clear that the ECB's LTRO strategy has been an "epic fail" as my teenaged daughter would say. It looks to us here at For Sound Money that the post Bretton Woods "Fiat Dollar" system is in critical condition as the Spanish domino seems very close to falling on to the Italian domino.

The ball is your side of the court central bankers and we are not even sure you will be able to hit it back over the net!

The Spanish 10-year yield chart. (Bloomberg)

By Mario Innecco
ForSoundMoney.com

At ForSoundMoney we stand for a hard currency. We believe in a monetary system based on commodity money and a free-market banking system where central banks are non-existant.

Mario Innecco Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife