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6/11/2012 7:54 AM
Kingdom of Spain Gets Bailed Out
By Charles Payne, CEO & Principal Analyst
As each week goes by, I hear more and more about the fiscal cliff that is rapidly approaching. By some accounts the cliff is the suicidal move to lop $720.0 billion from the economy next year. Last week, everyone commented on this cliff including Ben Bernanke. It was comments from Bill Clinton that caused the most waves as he seemed to suggest failed leadership for not having this issue off the table before the election.
He also called for all Bush tax cuts to be extended only to later amend it to couples making more than $250,000.
After three and half years for being told do as I say perhaps President Obama will be wise enough to follow Bill Clinton for the sake of the nation and chuck ego, arrogance, and ideology out the window. During that silly press conference on the economy the in-the-tank media played along much to the disgust of people that expect more from the Fourth Estate. Be that as it may, for all the talk of a feud between Bill Clinton and Barack Obama, I think the former was trying to help the latter and do smart things. For all the hype that Republicans don't like the "c" word, this administration has in no way embraced any facets of compromise, which in the end a president must be able to do.
At least that's the skill set that should be adopted after pissing away a filibuster-proof majority. Oops.
Make no mistake, the market isn't going to be sanguine about the avalanche of tax hikes and spending cuts scheduled to happen on January 1, 2013. The administration has been adamant about its opposition to austerity in other nations but seems okay with the higher tax aspect of such a plan. Of course, Bill Clinton explaining that Bush tax cuts should be extended for the majority of Americans belies the oft reported notion that the cuts were only for the rich or so-called rich. But now it is time to forget about hurting the rich under the dumb belief it helps the poor and simply save the nation. The stock market is the barometer.
It rebounded last week under an odd assumption that the fiscal cliff is nearing faster and those that care will echo a warning. It's hoped a reasonable response from those that dictate policy and control purse strings will be triggered. Interestingly, the same political arguments could be made if the entire Bush tax cut was ushered through by the White House, which could easily say it was the better part of valor and what we had to do to save the nation and still complain about the part that helps the rich. By the way, I'm wondering when the fight begins to exit the temporary payroll tax cut again. According to Heritage Foundation, it cost $224.0 billion in revenue and hasn't helped the jobs picture.
I think the market celebrated the notion of sloshing around a lot of money and felt something would happen in Europe over the weekend. There is still time to avoid the fiscal cliff that awaits America, but it would mean a serious break with embedded stubbornness and a complete break from campaigning. It would also mean some form of humiliation but that's always part of a major compromise.
Spain is Not Uganda
Mariano Rajoy, Prime Minister of Spain, sent a text to that nation's Finance Minister last week:
"Resist, we are the 4th power of the EU, Spain is not Uganda."
In other words we have to drive a real hard bargain. He went on to explain a Spanish failure would cost €500.0 billion and automatically trip Italy, which would cost another €700.0 billion all of which would decimate the EU and those trying to force austerity with the bailout. And so it seems that Spain was successful in holding the Euro hostage in gaining a €100.0 billion "rescue" of its banks. A special fund is designed to take the cash directly and there is debate over how much sovereignty will be sacrificed. As critical as sovereign control over budgets is, it seemed Spain focused more on making sure this is called financial assistance and not a bailout or rescue.
While that PR game was playing, so, too, was the game of why Spain needs the money. Sure, it's going to banks, but make no mistake, government spending got out of hand in Spain and serves as a cautionary lesson to those that think hiring a bunch of firefighters and building empty air ports is the same as unleashing an economy.
It's unclear how this impacts future bailouts or elections in Greece, although it's considered a major victory for the Euro where everyone saved face. Some are saying other bailout nations will demand to go back to the drawing board...good grief!
What about the People?
I don't think the debate rages to the degree it should as many people take it as an article of faith that US bailouts worked. Yet, when in the end you ask or calculate it, bailing out the banks, auto makers, and housing market hasn't even made the slightest of dents. Nonetheless, in Spain, banks are on the verge of getting the equivalent of €21,000 per citizen or about a year's income. While gloating over the clear victory for his administration, Rajoy said things will still get worse for the people before getting better in Spain. I'm rooting for Rajoy, but when it's all said and done, bank bailouts always leave me wondering why go through the trouble.
What about the people?
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