Tag Archives: PIIGS

Between Gold & a Hard Place.

2011 will be remembered as the year when the gold price really took off. It will also be remembered as the year of the PIIGS.

That’s Portugal, Italy, Ireland, Greece, Spain.

So what would happen if we combined the two? What would happen if the PIIGS decided to sell their gold in order to clear their debt? (As recently suggested by Germany’s Vice Chancellor).

And while we’re at it,  let’s get away from expressing sovereign debt in percentages of GDP. No-one understands that anyway.

Let’s be different and look at it all in cash terms:

The total gold holding of the PIIGS is about 3250 tonnes. At current prices that’s worth about 132 billion euros. That’s 132,000,000,000 euros.

Unfortunately their combined outstanding sovereign debt is about 3,300 billion euros. That’s 3,300,000,000,000 euros

For instance, Portugal has about 390 tonnes of gold, currently worth about 15 billion euros.  That is about 20% of its latest bailout package.

The biggest Eurozone gold hoarder is Italy. It is also the world’s fourth-largest owner of the metal . Italy’s  2,450 tonnes is worth about 95 billion euros at today’s prices. That’s 95,000,000,000 euros.

Italy’s government has $2.45 trillion dollars in debt. That’s 2,450,000,000,000 euros.

It is estimated that as a result of inevitable defaults, banks will LOSE £200 billion euros. That’s 200,000,000,000.

Hence all that nervousness around bank shares.

It’s all theoretical anyway because gold is not the property of the PIIGS’ governments to sell. Gold is part of a country’s Foreign Exchange Reserves which are managed by central banks and cannot be used to finance the public sector – except apparently, in certain Middle Eastern states.

What a mess!

Finally, in case you’re still wondering why the politicians have not actually put into place a plan to sort-out the debt-related issues, it is because they don’t really know what to do. Plus, they are playing the NOMW game.

NOMW? Not On My Watch.

President Sarkozy has an election to fight in 2012 and Bundeskanzlerin Merkel has one in 2013.

Can they possibly keep it all going until then?

No.

Banks? It won’t be long!!

When the big boxes of  money arrived in Libya yesterday, I bet that there were several European states who were slavering and wishing that someone would send them a box too!

Especially Greece. Plus other states who don’t really want to admit it!

Greece has been back to the well  for another 109 billion Euro bailout.  That bailout could well be the last one because the well is now well and truly dry.

Even quiet and up-to-now compliant Finland is becoming a little bit fractious and will not contribute any more money to the bottomless pit that is Greece without a Charge on Greek assets. The Finns want collateral – and who can blame them?

The German electorate and many politicians are also beginning to voice their displeasure at having to hand over vast volumes of cash to the Greeks, no doubt followed by others.

Quite rightly, German Chancellor Angela Merkel insists she won’t be “blackmailed” into backing Eurobonds and the Germans have every reason to be worried! If they put their national balance sheet at risk just to support countries like Greece and Ireland,  Germany’s borrowing costs would be driven up by an unsustainable additional 50 billion euros!

The simmering Eurocrisis could explode at virtually any moment because the politicians’  “Let’s wait and see” tactics have failed.

That is what sent European bank stocks  lower today. They tanked!

The other day, Warren Buffett threw $5 billion at “near-death” Bank of America. In spite of Warren’s munificence, the bank has now been asked to sort out any potential problems. The bank’s fire sale continues with them now trying to offload their non-profitmaking Countrywide lending unit.

Does the Fed know something that we don’t?

America and Europe do NOT have a  liquidity crisis!  It is a MAJOR SOLVENCY problem.

Banks do not have enough capital to absorb losses on all the European sovereign debts that they are now loaded down with.

Pan-Western bank failures are now inevitable!!

The politicians? They will be doing what they do best.

Observing, having meetings and telling us not to worry.

p.s  Sorry of this post does not make total sense. It was typed in a hot un-airconditioned dump on a Blackberry and then emailed for tarting up. But hopefully, you get the gist.