Best of the Week
Most Popular
1.How U.S. Dollar Destruction Threatens the Global Economy - Steve Forbes
2.Why UK House Prices Will Continue Rising - 'It's Immigration Stupid' - Nadeem_Walayat
3. Bitcoin Price at Beginning of a Move up? - Mike_McAra
4.Gold Price to Plunge, Visiting Fort Knox - David_Hague
5.Silver Price Forecast - Metal to Gain Ground in August on These Factors - Jim Bach
6.Gold And Silver Will Rise With US Dollar Demise, Just Not Soon - Michael_Noonan
7.Bitcoin Price Strong Move Possible - Mike_McAra
8.Israel Gaza War Crimes - Soldier's Ordered to Shoot Civilians Including Children - C4News - C4News
9.UK House Prices Crash Warning - Daily Mail Cognitive Dissonance - Nadeem_Walayat
10.UK House Prices Boom - Top Quick Cheap Tips to Help Sell Your Home - Nadeem_Walayat
Last 5 days
President Obama Strongest Statement Yet on Israel Gaza War - 20th Aug 14
Peak Gold? Russia To Surpass Australia As World No 2 Gold Producer - 20th Aug 14
AI, Robotics, and the Future of Jobs - 20th Aug 14
Stock Market Investors What's Your Exit? - 20th Aug 14
The Gold War - Thinker, Trader, Holder, Why? - 20th Aug 14
Ukraine Interest Rates Soars to 17.5% As External Debt Cannot be Repaid - 20th Aug 14
Rising Interest Rates and The End of Stimuland - 20th Aug 14
Inflation Watch: $245,000 to Raise a Child in United States - 20th Aug 14
Inside the Stunning Deal That Put Apple and IBM on the Same Side - 20th Aug 14
The US Gold in Fort Knox is Secure, Gone, or Irrelevant? - 19th Aug 14
Bitcoin Price On The Brink of a Possible Reversal - 19th Aug 14
Why Tesla Stock Price Will Double in the Next 12 Months - 19th Aug 14
Europe's Economic Malaise: The New Normal? - 19th Aug 14
The Coming U.S. Economic Collapse Will Trigger a Revolution - 19th Aug 14
Market Bubbles, Bubbles Everywhere - 19th Aug 14
This is Your Economic Recovery With and Without Drugs - 19th Aug 14
Stock Market Strong Start to Jackson Hole Week - 19th Aug 14
Iraq, Ukraine - Oh, What A Tangled Mess We Weave - 19th Aug 14
How to Apply Moving Averages as a Trading Tool - Video - 18th Aug 14
Why Short Stock Traders Are Losing Money This Week - 18th Aug 14
Stock Market Rally May be Complete - 18th Aug 14
Why Chinese Citizens Invest In Gold - 18th Aug 14
Palladium Reaches 13-Year High Over $900 oz as Gold Trading Volumes Surge 66% - 18th Aug 14
Understand and Profit from Surging European Volatility - 18th Aug 14
No Escape from The Dollar as The Currency Standard - 18th Aug 14
Stock Market New Highs Less Certain - 18th Aug 14
German Stock Market DAX About To Drop - 18th Aug 14
Stay on Board - Stock Market Big Picture - 18th Aug 14
Europe Economy Is Tanking, QE Is Coming - 18th Aug 14
Are You Ready for The Greatest Technology Revolution Yet? - 17th Aug 14
Why King Coal is Bigger than Oil or Gas - 17th Aug 14
U.S. Empire of Death and Lies - 17th Aug 14
Ukraine - Whose Spin Are We Caught Up In Here? - 17th Aug 14
Time Decay And No Escape For Abenomics - 17th Aug 14
India BSE SENSEX The Party Is Over In Bombay - 17th Aug 14
Stock Market Uptrend Looks Underway - 17th Aug 14
The Key Role Of Conspiracy Theory In Dumbing Down Society - 17th Aug 14
The Federal Reserve in Denial Mode - Bond Market Explained - 17th Aug 14
Stock Market Ukraine-Triggered Volatility, But a Flat Finish - 16th Aug 14
Stock Market Investors Conditioned To Catch The Falling Knife - 16th Aug 14
Decline And Fall Of The CO2 Crisis - 16th Aug 14
Gold Stocks Major New Upleg - 15th Aug 14
Don’t Assume What Is “Unseen” Doesn’t Exist - 15th Aug 14
HUI, Gold and Silver; Fun With Monthly Charts - 15th Aug 14
Cry for Argentina: Fiscal Mismanagement or Pillage? - 15th Aug 14
New 'LBMA Silver Price' - Still Not Transparent - 15th Aug 14
America the Neighborhood Bully Recklessly Throws its Weight Around - 15th Aug 14
The Single Best Investment for the Semiconductor Tek Stock Boom - 15th Aug 14
The Something For Nothing Society - Inflation and Getting Paid NOT to Work - 15th Aug 14
Forecasting Ability of the Elliott Wave Principle - Trader Education - 15th Aug 14
The Most Hated Stocks Bull Market - 15th Aug 14 - Puru_Saxena
America's First Oil Sands Producer and Other Natural Resources Surprises - 15th Aug 14
Life and Times in Propagandistan - 15th Aug 14
The Biggest Lesson from Microsoft’s Recent Battle with the US Government - 15th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

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

© 2005-2014 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

Free Report - Financial Markets 2014