Gold Forecaster
- Global Watch
Spain's savings spent?
Julian D.W.
Phillips
Gold Forecaster snippet
May 24, 2007
- Below is a snippet from the
latest weekly issue from www.GoldForecaster.com
The Banco de Espana's holdings
of foreign currencies and gold have fallen to €13.2bn (£9.02bn),
equivalent to 12 days of imports, according to their website.
Last week saw a continuation of their sales of gold of, possibly,
in the region of 10 to 15 tonnes more.
Over the past two months the
Banco de España has sold off 80 tonnes of gold. The bank
has reduced its holdings of U.S. Treasuries, British gilts, and
other investments at a similar rate. Total reserves have now
fallen by two thirds from €41.5bn in early 2002. Greece
and Portugal have seen a similar drop.
The Banco de España
refused to comment on the sales, or why they have pursued the
policy of using up savings when they could have used other means.
It appears the bank has been
draining the reserves to help finance the current account deficit,
which has ballooned to 9.5% of GDP, reaching €8.6bn in
January alone. It appears that the current account is completely
out of control. Spain has the worst deficit in its history and
worse than any other country in the western world. Should Spain
face any form of banking crisis, Spain will find the situation
nearly impossible to handle. For instance, should a housing slump
occur, a banking crisis is likely to follow. The first signs
of a housing slump are emerging as the E.C.B. raises interest
rates already up seven times to 3.75% since December 2005. The
shares of Valencia builder Astroc have fallen 77% since February,
setting off a sharp slide across the sector, with knock-on effects
on banks with mortgage exposure.
 It
is often assumed that reserves no longer matter once a country
has joined the €, but this ignores a crucial element in
the workings of the European Monetary Union system. It is responsibility
of the 13 national central banks to act as lender of last resort
in a crisis, even though they have no control over interest rates.
Morgan Stanley said construction accounts for 17.7% of G.D.P.,
even higher than the 15% peak reached in Germany after reunification
- a boom-bust story that left the German Banks emasculated for
years.
Spain's private sector has
amassed $600bn (£300bn) in foreign debts. Corporate borrowing
is 100% of GDP. The overall stock of mortgages has increased
six-fold in a decade. Household debt has reached 120% of disposable
income, largely on floating rates.
Japan was able to uphold its
banking system in the post-bubble slump of the 1990s because
the government could guarantee deposits. You can't do that in
the Eurozone because there is no government to turn to.
Each country is on its own,
when it comes to reserves. That is why the overall reserves of
the Eurozone system have remained stable. France retains (€76bn),
Germany (€86bn), Italy (€59.5bn) and have all kept
holdings these levels since the launch of the €.
The ECB may intervene only
if the crisis spreads across the Eurozone, and it is forbidden
from bailing out the member states. The International Monetary
Fund warns that the structure leaves E.M.U. exposed to "systemic
financial risk". Consequently, reserves are a key defense
for each state, hence the E.M.U. rule that national banks retain
the lion's share of reserves. The ECB has a token 13%.
At the moment Spain is in fair
condition: -
- Growth was 4% in the first
quarter.
- The budget surplus is 1.8%
of GDP.
- The export share is holding
up.
- But house prices have nearly
tripled since 1995. A law to control property speculators has
been passed in Madrid. Now, house price growth has clearly peaked
and is decelerating quickly.
The government cannot devalue
its way out of trouble, so it will have to deflate.
The irony is that gold has
its greatest value after a crisis has exploded, not just ahead
of it. Will we see more sales of Spanish gold? These are not
sales to adjust reserves, as has been the stated reason why the
Eurozone banks are selling gold, they are because Spain is headed
to difficult days. Let's see how much more will be sold?
Please subscribe to www.GoldForecaster.com
for the entire report.
May 21, 2007
-Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
321gold Ltd
|
