Policies cooked up by charlatans

Financial terrorists

Hat tip: Apodrecetuga

Adding debt to a debt problem is going to increase stability?  That is insane.

Bad boy banker threatens

The bad boy banker Fernando Ulrich, president of BPI, one of the larger Portuguese Banks, makes an interesting statement:

Public entities local or central will never ever get credit (from the banks) again - unless they can show the same credit rating and cash flow as similar entities in Germany or Schwitzerland.

The reason I call him bad boy banker, is the he has been the most vocal of the bankers against the demand banks must raise their reserves to the levels demanded by the Troika.  From him came the by now infamous question.  It goes something like this (from my memory)  "How can 5th or 7th level rank bureaucrats (of the Troika) be deciding issues of this kind of importance?"

His argumentation is that the money applied for further capital in the banks is less money available for financing companies and society in general.  Also he argues, that banks forced to augment the capital by next year may have to borrow from the state's fund created for this reason.  The state gets the money from the Troika - a by now infamous fund of 12 billion euros.  He knows the state will demand influence (stocks?!) from the banks they lend money.  And as he claims - this is a kind of nationalization.

His most weighty argument in my opinion is this:  "Let the bankers take care of banking."

He has a point.  The politicians obviously do not understand banking or much of anything.  They should stay out of the private sector.

On the other hand this whole crisis has the financial sector as one of the culprits.  But it must also be stated that the Portuguese banks have been some of the most responsible of all Europe.

Until now, BPI, Mr. Ulrich's bank, has been awarded by Fitch by receiving a junk rating together with the Portuguese state.

Perhaps the public sector not being able to borrow money in the future is positive.  Then at least they can waste less and perhaps become responsible.  Spending less than your income would be a nice rule for the next 100 years...

The public sector can foresee some horrific short term problems.  If I were I bank I would not lend a cent to any public entity.  Not even the Bank of Portugal.  Not even if they handed in the gold reserves as a collateral.  Because no matter what - you can only be sure of one thing:  The public sector is untrustworthy.

Empty barrels make more noise

A number of socialists, foremost among them ex-president Mr. Mario Soares , ex-minister of finance Mr. Freitas do Amaral and the entire opposition are rambling against the "dictatorship of Merkozy".  Merkozy being Mrs. Merkel of Germany and Mr. Sarkozy of France.  The dictatorship being them negotiating alone and making demands mostly on the PIIGS and other European countries.

The economy of France is in fact not very healthy, but it still has a triple AAA rating and the German economy is so far the healthier.

They are are the only two big sustainable economies left in the European Monetary Union.  I do to a degree understand the preoccupation of many concerning the apparent lack of democracy in the current process.  But:

1. Who is paying for the PIIGS?
2. Who will save Europe?  The PIIGS?
3. Who has blatantly - even criminally mismanaged their economies?
4. In Northern Europe mismanagement and corruption has consequences.  Is it that hard to understand that Northern Europe, calvinistic or not, want to see the responsible punished?  The reason is to make sure it does not happen again. With the persons and causes identified it is less likely.
5. When you have mismanaged economically it is quite normal to loose freedoms and maneuverability.  The creditors will always impose rules to insure their capital.
6. Northern Europe is by definition more proactive than reactive and plan long term in stead of short term.  The PIIGS have done the opposite.

It is of course not pleasant to have been called out in the open and shown that years of work has been wasted. It has been wasted because the quality of work has sub-par and even miserable.  Looking back in time the socialists share the main burden as their governance is more recent.  But the social democrats also have a large share the guilt.

The rot has to come out of the political system and the rot has to come out of the public system. 

Portugal should be happy to have the rich uncles in Europe trying to save it (and themselves and the European Union).   If the socialists here in Portugal had any results they could point at, and say "We know what we did.  See how fine it is."  Then they could join the discussion of the adults.  As it is - they deserve to be left out.

Even though I personally am no great fan of German bureaucracy and German mentality as a whole - I can see some of the qualities.  Portugal needs more discipline, more accountability, more planning, more focus etc.  In fact, Portugal should consider replacing the top 2000 public function managers with Germans.  Give them power to fire and change.  In five years there would be results. We would have less liberty in Portugal, but at least we might not be broke.

And as the socialists now have discovered.  When one is broke, one does not have much liberty anyways.  

Going broke, the odds are in, take two

The financial markets gives us again the probabilities on countries defaulting.  The top 10 current candidates are (the numbers from three weeks ago in parenthesis):

1. Greece
   92.93 (1: 86.58%)
2. Portugal
   60.50% (2: 58.79%)
3. Argentina
   54.47% (6: 46.48%)
4. Pakistan
   54.38% (4: 48.55%)
5. Venezuela
   53.12% (3: 50.46%)
6. Ukraine
   46.95% (7: 41.00%)
7. Ireland
   46.79% (5: 46.79%)
8. Italy
   37.63% (8: 38.82%)
9. Hungary
   35.99% (9: 31.06%)
10. Spain
    33.64% (10: 29.16%)

The PIIGS are all in the top 10.  Otherwise it would be disappointing.   To people who love to be at the top of lists.  The presence on this one is no reason for pride.  The company neither.

I feel sorry for the minister of finance

Vítor Gaspar

He just seems such a nice guy.  He speaks clearly and is clearly no real politician...yet.  He is also is nearly the only member of government (or even parliament) that actually seems to be able to calm down the country.  In spite of his job of delivering the extreme austerity measures.  If his measures had the same quality as their delivery, things would start to look brighter.

But boy does he look aged and stressed.

Anybody would, with his responsibility.  And his problems - they become worse every day...

The OECD just came out with new previsions from their group of Gypsy soothsayers.  I don't know why but I trust their gypsies more the the gypsies of the EU not to mention the complete lack of quality of the Portuguese soothsayers.

Retraction of the economy will be worse in 2012 than predicted by the government about 4 weeks ago and worse than predicted by the EU about 3 weeks ago: Not 2,8%, not 3% but 3,2%.

My hat eating, as fun as it would be, looks more unlikely than ever.  Of course you do not need a soothsayer to be able to predict that it will worse than 3,2%.  Much worse, I am afraid.

That is what a lot of new taxes and no structural changes will do to a country like Portugal.  In fact we still have to see a single structural change implemented to try to make it possible or even likely for businesses to grow.  They are the producers.  The simple truth is that we all live off the products of what looks like a smaller group of smaller producers in 2012 and onwards.  Not the least because the consumers will have less purchasing power in Portugal for sure, and probably in the entire EU.  Even with the same purchase power, people are saving more and are more careful with spending.

By the way, the OECD also predicts nearly 14% unemployment for 2013.   Higher numbers than the government and the EU predict.   We will be lucky if it does not rise to the Greek levels of this year.  Estimated at 18%.  

The big parties are not on speaking terms

The petty political games continue among the big parties.

We can this morning read in the news, that there have been no negotiations this weekend between the government, PSD/CDS and the opposition, PS.

Everybody but the politicians have by now discovered the grave situation of the country.  Nearly everybody, except the politicians, understand the need of a united nation.

Portugal may not be at war and also not at fight for its survival, but we are at a crisis just below that.  There are a large number of citizens in this country living below the ridiculously low poverty limit.  This number is becoming larger.

An enormously large number of families and businesses have gone bankrupt or will in the coming year.  The unemployment is near 13% and if not for a miracle will go up.

There is a huge lack of social cohesion.  No national unity.  There have not even been a single apology, to my knowledge, from any responsible politicians, from any members of governments the last 30 years.

Even our usually very (and too) quiet president has started talking about cohesion and national unity.

And yet the political petty games are still on.

At this moment PS and PSD should a long time ago have started negotiations and found common grounds.  Even if not being able to find common ground, the disagreements should have been kept behind closed doors.  If (when) the need arises for at broad collaboration, there may not be much left to collaborate on.

And yet we see here Mr. Seguro, the leader of PS state: "There have not been, there are not, and there will be no negotiations with PS and the government concerning the state budget of 2012".

Even if the crisis should fizzle out, and Portugal arise from ashes in 2013 by a miracle, then areas like health and education need reforms with a broad majority behind them.  You cannot run these areas such as these on four year plans changing everything after every election.  The cost in terms of money and in terms of human sacrifices are simply to high as the past and the present situation clearly proves.

We have in Portugal a democratically elected parliament.  But we have no democrats in parliament.

Compromises, long term planning, the importance of listening to minorities, working for the good of the people, leadership, the art of the statesman - all these we look for in vain in the Portuguese parliament.  Instead we find a group of people playing petty games - for their own personal advancement?

This no game.

Shame on you.

I have solved the mystery

Fictitious, for now...

Here I went and  practically proclaimed most Portuguese politicians dishonest thieving corrupt incompetent conniving  bastards.   I am of course referring to the gentlemen and a few ladies who got us into this mess of social misery and near bankruptcy.

I was wrong.

I sincerely apologize and I eat my words.

The explanation is much more simple.  It is one of simple minds.  You see, most politicians are numerically challenged.  I.e. they do not understand numbers very well or at all, many in fact suffer from dyscalculia.  Also they are geographically challenged.  Beyond their own navels they really do not see the world around them. Furthermore, they are culturally challenged as well.  They tend not to see other cultures.  This goes well with my claim that narcissists all are culturally and geographically challenged.

My mommas  (I have had the luck of more than one) always taught me to help and treat with respect the mentally and otherwise challenged members of our species (before PC, the era of politically correct, they were mental cases and handicapped).  And so I have tried.  And thus my apology, albeit belated.

You see I found the reason for the mess.  Because of the many who have heard my ravings or the few who have read my ravings in my blog (spread it please), some say.  "People can't be that evil.  They can't be that conniving. No, it is very simple.  It is all caused by stupidity!".  In my ignorance I ignored their arguments as I thought I knew better.  And also I do not like non PC statements.  If they had said mentally challenged I might have listened - instead they dared call the concept by its name.

We now get to source of the mystery.  How did the Portuguese politicians manage to overspend so much?  Because nobody in their right mind would do so consciously.  It is quite simple and all involves the word billion.

When I write billion, I (as well as the EU) mean the number 1 000 000 000, a 1000 million, 10 to the 9th, 10^9.  But in Europe a billion generally means 1 000 000 000 000, a million million, 10 to the 12th, 10^12.  It is an American custom to use 10^9 as a billion.  In France, Germany, Scandinavia and other countries we use the word "milliard" for 10^9 as we are civilized - just ask the French.  The funny thing is that some countries like the UK and Portugal do not have a word for 10^9.   Instead they say a thousand million. As in "The Earth is approximately 4.5 thousand million years old."  It is somewhat primitive but a good way to have much needed daily math lessons.  On the other hand I am glad they do not say "4.5 thousand thousand thousand years old".

What has that to do with the mystery?  Well, read on - I am nearly there.

The GDP of Portugal is 170 billion euros.  I.e. 170 000 000 000 euros.  The Portuguese public debt varies according to different sources and your political standpoint.  But pretty much all agree it is currently around the GDP.  I.e. 170 billion.

Here are couple of further facts:  Everybody reads the GDP numbers from international sources, as they simply to do not believe national sources, when it comes to GDP.  They all state a GDP in billions.
When looking at public debt everybody only look at their own doctored numbers, as they come from trusted national sources easily manipulated.

Do you see it?  The Portuguese politicians were told:  The GDP is 170 billion euros and the public debt is 170 thousand millions.  In other numbers: GDP 170 000 000 000 000 versus debt 170 000 000 000.  A debt a thousand times less, no less, than the GDP.  This is where the feeble minded mentally challenged politicians made the mistake.  They actually thought Portugal had the lowest debt, percentage wise, in Europe.  They mistook the GDP billion for a Portuguese billion (bilião).

It was an honest mistake.

So now we are in this mess with nobody to blame really.  But at least the mystery is solved and the conspiracy theories have been disproven.  There are no malicious people behind the financial crisis.  No conscious corruptness.  It is all an unfortunate accident.  The only possible blame is on the people.  The people should be more careful with whom they elect.

Household accounting

Soon for sale (cheaply!)

The nice gift loan we got from the Troika of a potential 78 billion euros has avoided the Portuguese state going bankrupt.  For now.

When the yearly interest rate on loans - to finance the never ending rising public expenditure - became unsupportable on the free markets, it was around 7%.  In some instances the lenders now want around 14%.

Thus the 4-5% yearly interest rate Portugal must pay on the 78 billion is comparably a good deal.  The time to pay back the loan varies according to the source.   The Europeans (2/3 of the loan) are asking for 4% and an average pay back time of 12 years.  IMF is asking for 5% (variable) and an average 7.25 years.

To make it more simple let us say 10.5 years average to pay the loans back.  We can then calculate the yearly interest at ~3 billion a year.  Close to 2% of the national GDP.

And here are the big news in the MSM today:  "Portugal will have to pay 34 billion in interest on the 78 billion loan", and one maybe not so naive reader exclaimed:  "That is close to to 50% interest!", well it isn't.  And then again - it is, if you look at the whole period.  Economists have also claimed, "We may not use the entire loan".  The chance of that happening is probably smaller than the guilty corrupt politicians admitting and paying back what they have stolen.

And do not forget we have to amortize the loan.  That is, we should pay an additional 7 billion a year.

All in all, we are talking above 6% of the current GDP every year during ten years going to pay just this debt.  As the state is responsible for half of the GDP more or less - it consequently corresponds to a massive ~12% of the state budget.

On top of that, there there is additional interest and amortization on other larger (all together) loans owed by the Portuguese state (by us).  After all, the public debt looks soon to be above 110% (depending on sources) of the GDP.

Furthermore, we have to add the yearly deficit of the Portuguese state.  Last year 8,6%, this year ~4,5% and next year ~3% if everything goes as planned.   You see, the public debt is not even becoming smaller - it is still growing.  In the near future for sure and perhaps even (much?) longer.

Additionally, the economy is contracting. The GDP might be 170 billion this year, but according to official expectations will be 168,5 billions next year with a growth of -3%.  The "Larsen rating bureau" and other cynic realists, on the other hand expect something closer to -5%.  Or Larsen will have to eat his old hat.

Income is going down and expenses are going up.   Our big neighbor, Spain, and the next country over, Italy, are currently both in trouble.  And we are all on the financial bookmaker's world wide top 10 to default (go broke) and the rating agencies have nearly all given Portugal junk status.

If you ask me, I can't see how a Portuguese default can be avoided.  Considering the simple but revealing accounting above, the international financial crisis, Portugal's financial super crisis, the paralysis of the EU, the international mistrust, the lack of growth, the bankruptcies of families, the bankruptcies of businesses, the despair of the people and the politicians lack of any common sense and the resulting lack of pro-active action - the outlook is bleak indeed.

I have a cold and my eyes are in tears.  I am glad to have that excuse. 

Portugal is junk

Portuguese countryside, according to Fitch

Not only has Portugal now junk status, but with a negative outlook.  This according to the rating agency Fitch, that downgraded Portugal today from BB+ to BBB-

Moody's is of course worse, giving Portugal this even lower status: "Non investment grade - speculative".  In other words they suggest not to invest in Portuguese papers, and if you do, you are certified mad and might as well go to a casino.

Only Greece and Serbia are worse off than Portugal according to Fitch.  The negative outlook means Portugal is in the competition to be number one of the worst.  I always thought if you have to go then at least with a bang.

I suggest parties all over the country instead of no good boring strikes.

I was getting worried about "the boys"

Why?  It is good income and little work!

Fortunately I have now seen (hat tip SIC Notícias), that PPPs (Public Private Partnerships) one of the big and growing reasons for the public deficit, and the job choice number one for ex politicians and their cronies aka "the boys" are not, by far, entirely out of the question.

They just have to be carefully studied beforehand, the minister of finance states.

SNAFU is the order of the day.  Same procedures as last year.  "The boys" just need to be a bit more patient - that's all.

If sanity ruled - Portugal would not consider a PPP the next 100 years, but fortunately it does not.  I am sure the members of parliament - with their double jobs as representatives of the state and simultaneously working for some big companies, that just happen to be involved in PPPs - will continue as during the last government.  I wonder if six of them will just happen to be on the negotiating committee again?  Amazing co-incidence that...

That is a relief.  We are relieved.  Happy for the corrupt industrious political class.

PS. A few red revolutionary radical political activists might make a lot of noise concerning new PPPs.  My advice is find a different acronym instead of PPP - it is an often used sound political tactic.  Call them Civil Organized Rural Restoration Unified Project Tasks.  CORRUPTs.  This way you will have a fresh start and nobody will complain.  After all, the CORRUPTs have nothing to do with PPPs.   Their names are completely different.

The rats are already leaving the sinking ship?

Read Portugal instead of Wall Street

I have already twice mentioned the government policy of getting rid of young people by asking them to emigrate.  Here and here.

Obviously this will have effects.  Already it seems the population is diminishing.  I have not heard MSM mentioning this.  I do not think it is the young people emigrating provoking this already.  I think the smart and the rich as well as some emigrants from Eastern Europe and Brazil are starting to flee.  Look at the chart below showing the size of the Portuguese population:

With a birth rate of 1.3, severely worsening financial situation, and the young emigrating, there will soon be lot of space here.   It will be kind of cool to be the only person on the beach of Carcavelos in summer 2025.  Also a bit lonely - but I will not have to worry about pulling in my stomach when the pretty women pass by.

The trade deficit...

it is impossible for a country to balance its government and business deficits while running a trade deficit. This is an accounting identity and is true for all countries at all times. Greece and others are in a monster predicament. No amount of austerity will work until their labor costs drop (for both private and government workers) and their trade deficits are brought into alignment.

From JohnMauldin.com (share this quote)

We have of course no news from the government concerning the trade deficit.  It seems to worry only people with common sense.  On the other hand, with a sufficient number of citizens broke and with no money to buy foreign goods - the problem might solve itself.  Except - what about Portugal having to import more than half of its basic necessities - such as food.

Portugal reported a trade deficit equivalent to 1323 Million EUR in September of 2011. Portugal major exports are: clothing and footwear, machinery, chemicals, cork and paper products, hides, tungsten and wine. Portugal imports mostly machinery and transport equipment, chemicals, petroleum, textiles and agricultural products. European Union is by far its largest trading partner accounting for about 72% of total trade.

Consider that Portugal has had a continuous trade deficit for 20 years now.   I do not know about you, but if I for twenty years had bought more than what I produced (earned) then I would be in real trouble by now and truly dependent on my creditors.