Nearly a year ago, I warned subscribers of consequences stemming from the ECB's negative interest rate program. Here's an exceprt from our resarch report titled  pdf European Banking Macro Issues for March 2016 (843 KB) .

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In its March 2016 report The Bank for International Settlements warns of “great uncertainty” if rates stay negative for a prolonged period.  The report also states the likelihood of a currency war of competitive devaluations if more central banks use negative rates to pace up their economy.

Europes central bank launched a large scale program for asset buying referred as Expanded Asset Purchase Programme (APP) in March 2015 six years after the U.S. embarked on quantitative easing. The APP included the purchase programme for public sector securities to the existing private sector asset purchase program. 

The EAPP consists of

  • third covered bond purchase programme (CBPP3)
  • asset-backed securities purchase programme (ABSPP)
  • public sector purchase programme (PSPP)

ECB started buying Covered bonds and asset-backed securities through two separate programs namely ABSPP and CBPP3 programmes which were started in October 2014 and November 2014, respectively, amid declining inflation and growth.  However, growth had not rebounded with inflation drifting downwards through the end of 2014 and into early 2015. This prompted the ECB to launch a major asset purchase program referred as public sector purchase programme (PSPP) through which the Central Bank would buy euro-denominated, investment-grade securities issued by Euro area governments and European institutions. ECB aimed to purchase €60 billion of assets through these three programs combined together.

In March 2016, ECB announced the addition of corporate sector purchase programme (CSPP) to APP in order to purchase euro-denominated bonds issued by non-bank corporations established in the euro area.

EU bind buying plans

Published in BoomBustBlog

As the year 2012 comes to an end I would like to remind readers and subscibers alike of the impending deadline posed by the leaderless leadership in the EU. Right after the first Greek default and 3rd bailout, in Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth! I made it perfectly clear that Greece was actually in worse condition cashflow wise and balance sheet-wise after the default than before. This has put a deadline of roughly 2013-2014 until that nasty stinky brown stuff splatters off the fan blades - to wit:

Despite extensive, self-defeating, harsh and punitive austerity measures that have combined with a lack of true economic stimulus, Greece has (to date) failed to achieve Primary Balance. For the non-economists in the audience, primary balance is the elimination of a primary deficit, yet the absence of a primary surplus, ex. the midpoint between deficit and surplus before taking into consideration interest payments.

Greece_Primary_balanceGreece_Primary_balance

The primary balance looks at the structural issues a country may have.

Government expenditures have outstripped revenues ever since 2007 and have gotten worse nearly every year since, despite 3 bailouts a restructuring, austerity and a default!

Greece_Primary_deficit_copy

Looking at the chart above, it should be obvious that by this time next year Greece would be pretty much shit out of water for there is no way they can make their interest payments AND thier expenditures sans interest, or make their government expenditures alone, or even in two years even make their interest payments assuming they don't even touch their otherexpenditures.
 
By the 2nd quarter of 2010 I clearly and articulately detailed exactly how Greece would default with specific structures in play- What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates. Due to a few institutions who were skeptical, I attempted to make it a bit more real - A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina.

Well, Greece defaulted according to plan, despite all of the "people in the know" saying otherwise -  - from government officials to the EC and IMF - Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! Even after the default, I made clear that this wasn't over for Greece, for the default actually left Greece worse off fundamentally, not better. Go wonder... I know I did, reference the warning from 5 months ago:

This will be exacerbated by a re-default of the Greek debt that was designed to bail out the defaulted Greek debt. Why will this happen? Greece has severe, rigid structural problems that simply cannot (and will not) be solved by throwing indebted liquidity at it. As a matter of fact, the additional debt simply exacerbates the problem - significantly! This was detailed in the post Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!

..Subscribers can download my full thoughts on Greece's sustainability post bailout here - debt restructuring_maturity extension blog - March 2012. Professional and institutional subscribers should feel free to email me in order to receive a copy of the Greek restructuring model used to create these charts and come to these conclusions.

  • Even with the elimination of interest payments Greece will spiral downward.
  • Even with the near total absolution of its debt, as in a 90% haircut of the most recent bonds issued (which were swapped for bonds of which investors took an effective 74% haircut), Greece will spiral downward.
  • That is the likely reason why these newest bonds back by EU/IMF bailout economic capital are already trading 70 points below par and rated CCC.
  • These bonds are almost definitely slated for a 90%+ haircut by 2016

Long story short, TPTB have put Greece in a situation where it has to literally choose whether it feeds its people or it pays banks exorbitant interest. I'll let you guess which is actually taking place....

Greek Interest Imposed Poverty

Published in BoomBustBlog