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.