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Portugal: 8.6% real interest rate

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Paul Mason | 21:54 UK time, Monday, 4 April 2011

portugal 10 year bond yield

This graph shows what it costs the Portugese government to borrow money over 10 years: 8.6%.

I've just checked with my own bank and they're offering me 9.9% unsecured over 10 years so my "spread" over Portugal is 1.3 percentage points - much less than Portugal's spread over Germany.

I can't be bothered flagging it up on the actual graphic because I am glued to the BBC's Lambing Live, but the spike in May last year is the Greek bailout, the spike in December the Irish bailout and the current spike - it is a spike - means a bailout is as sure to follow as a little Swaledale lamb is sure to pop into Kate Humble's hands during live TX.

Right now it's nearly as risky to lend to a private individual as it is to the government of Portugal.

Meanwhile the IMF is said to be pushing for the d-word. Default. According to Der Speigel, it's privately advising Greece to restructure its debts, paying only a percentage of what its lenders owe. Greece's debts are now pushing 150% of GDP. Portugal's are projected to be 97% this year.

Will the moment of truth for EU strategy on sovereign debt happen before lambing season is over? Not sure.

Comments

  • Comment number 1.

    THE SILENCE OF THE LAMBS

    The IMF gives birth to the 'D' word in the spring, it looks quite cute and helpful as it pops out of its mum all innocent and full of hope... but nobody talks about what happens to it a few months down the line, especially not the kate Humble's of the media.

    No prizes for who plays Hannibal lectar in the global scenario as he disappears off into the tropical sunset with his hat sat at a jaunty angle and final witty quip tripping off his silver tongue having gorged himself on everyone elses liver.



  • Comment number 2.

    Is this what the EU really wants because surely there will be a not insignificant knock on effects on economies who are at the margin of refinancing some of their debt. It demonstrates that the ratcheting of austerity to 'cure' the deficit issue is going nowhere. The EU needs to step in and provide the financial stability but also the support for growth of these ailing economies with Merkel/Sarkozy plan.

  • Comment number 3.

    so Portugal going into Carey street...will they lower their property prices then? thought not....

  • Comment number 4.

    The analogy I prefer is the scene in the Deerhunter where they are playing Russian roulette...sooner or later one of these will have devastating consequences. Each empty chamber adds to the tension.

  • Comment number 5.

    I am come to the depressing realisation that there never was any alternative to default. There was more debt in the system than could ever be repaid on any reasonable growth forecast - and we are not going to see growth in these times of austerity.

    So people are just playing pass the parcel with the debt-bomb: and when the music stops it will explode and bring down everyone in the game.

  • Comment number 6.

    tForth - what took you so long? - surprisingly common sense wins the day. People think it's sustainable to work for 40 years and retire for 30 years. I haven't done the numbers but I can't understand how this adds up. It's all really confusing until you add in the axiom "the current generation is running an unsustainable ponzi scheme". Debt levels are not sustainable even if we believed the price of assets and the extent of pension liabilities. Add in the fact that housing is a sham and many pension liabilities are unfunded and it goes from dire to absurd.

    Also - isn't the lack of growth now simply a function of the suspension of an economy where you buy a house, I buy a house, we both sell it to FTBs at a massive increase then slap each other on the back and go on holiday? Our stamp duty goes into massive state spending, mostly on non-productive stuff, driving even more jobs. Then retire on big defined benefit pensions and eat out all the time, whilst youngsters pay into a defined contribution scheme that will be a fraction of our unfunded pensions, and who have no assets or savings at all. Was that +really+ growth?

    I recall asking a colleague in around 2002 why everyone suddenly bought lunch and coffee out, went on holiday a lot more and generally spent more. What had changed? Had a new combustion engine been invented? Computers had been around for a good while. A new form of transportation? A new fertilizer? Wait - a new way of looking at money where we all just borrow forever and ever and it never matters as house prices will always go up! What a great invention.

  • Comment number 7.

    Ben

    I agree. Our economy was based on a fraudulent platform of debt based ponzi financing. But who stoked the "feel good factor"? Who stimulated demand pull for debt with a "growth, growth, growth" mantra, whilst liberalising credit creation behind the scenes to facilitate supply push?

    What if our esteemed policy makers actually knew that there were limits to growth? What if they kept the impression up that the good times would roll, whilst back at the (Crawford) ranch they plotted the 21st Century resource coup? Matt Simmons was a senior aide to Bush Jnr:

    http://greatchange.org/ov-simmons,club_of_rome_revisted.pdf

    What if the nation has been lured into excessive debt levels by state sponsored loan sharking? Then who is to blame?

    In my view, the lender is just as culpable as the borrower. Especially when they knew that the growth was unsustainable.

  • Comment number 8.

    Hawkeye - as the forward says "anyone who can read without moving their lips". To not spot the issues I enumerated you'd have to have a mix of two qualities. Stupidity and greed. Boomers who presided over this have different mixes of these, but most excel in at least one. You'd have to in order to get us into this mess. I take your point that it's bad to exploit greedy stupid people, but it's been that way since the dawn of time so let's take responsibility.

    Can you really have an economy that is successful where the level of introspection is so low that people don't even wonder if house prices rising faster than wages forever is sustainable? Isn't it inevitable that with such a population living standards will drop when we are forced to compete in a global market-place? Should we bemoan stemming resources to our population? If you are a humanist would you want resources to go to people who have kids hungry for education, 50 to a class, or one where Pop Idol rivals election turnouts? (I don't blame the kids BTW!). To me this looks like the classic cycle of successful forefathers, lazy dumb kids then failure.

  • Comment number 9.

    Ben

    I agree about the introspection. I struggle to get my concerns across to friends and family. Many are highly educated (Oxbridge / PhDs etc.). They probably think that I'm worrying too much. But then, perhaps they aren't street smart like Taleb explains in Black Swan.

    Here's another example of highly intelligent people who just don't get it:

    http://golemxiv-credo.blogspot.com/2011/04/free-market-and-globalization.html?showComment=1301741529053

    The power of propaganda is frightening.

  • Comment number 10.

    Hawkeye - ok - I feel we are talking past one another slightly. Here's the gap: I think banking has a large share of the blame for the financial crisis. The other large share of the blame goes to individuals. Finance stood to make from ignoring fundamentals. So did the current "grown ups". I feel like you are just blaming one side of the transaction, but it takes two to tango.

    Being greedy is the banker's excuse. I'm not sure if I dislike the "grown ups" even more for being stupid and greedy, as in the end everyone looses as they really only have a big tv, a big pension and an overpriced house to show for it. The last two won't hold out until they get to the big sofa in the sky if matters deteriorate much further.

    I'm not sure I hold with conspiracy theories. As you say, you can meet Phds by the ton who think the financial system is fine and dandy, 10 years ago and even now. Many of these guys work for banks. Greed and stupidity are decentralised. You don't need coordination, just dumb people. Conspiracy requires a hub and this plot is just too big to conceive. Bush and his people failed at so many things in his presidency - why would this one massive plot have worked? An alternative narrative would be that Bush and his admin were utterly ineffective. This certainly happened to Labour as Brown / Balls couldn't plot their way out of a box. It also fits in perfectly with every other action Bush ever took.

  • Comment number 11.

    Ben

    I don't think we're cutting across each other. It seems that we both agree that culpability for excessive lending is 50:50 (give or take). If that's the case then there needs to be a 50:50 split of losses. However, all current policy activities (bank bailouts, austerity & inflation) are ensuring a ratio of losses at about 0:100 (in favour of the banks). I've yet to hear you clearly advocate policies to share this burden (i.e. letting banks fail or writing off debt).

    As for the conspiracy charge, then I say that Kleptocracy can be de-centralised too. It needn't be competent and cohesive. You just need to recognise which side of the fence you are on. As Warren Buffett recently said, there is indeed a war on:

    "there’s class warfare, all right. But it’s my class, the rich class, that’s making war, and we’re winning."

  • Comment number 12.

    Hawkeye - apologies I must have misconstrued. "If that's the case then there needs to be a 50:50 split of losses". Agreed.

    I don't think it's just a simple two sided split. There are three sets. Venn diagram! Old, young, rich. Almost nobody young intersects with the rich bucket (only inherited and that'll be when you are 50 when I die jnr). Many old do.

    And by rich I don't mean they own a speedboat. I mean they have a realistic chance of owning their own property and having a good pension. For the young this bar is so over their heads they can't even imagine it and have given up, though a few well-off parents are still bankrolling their offspring into a decade of negative equity. Why the generational apartheid? Is it moral?

    Who would loose out if banking stocks fell? Pensioners, investors, rentiers. Old people!

  • Comment number 13.

    Ben

    I think I get where you’re coming from now. Wealth is certainly to some degree an inter-generational issue, but the imbalances are more pronounced within generations than across generations. The wealth is not concentrated among the elderly; the wealth is concentrated among the wealthy.

    As the oil bounty slips away, and the last remnants of our civilised country slowly gets raped and ravaged, much misdirection and disinformation will ensue.

    The youth for the moment seem to posses a mixture of impassivity and confusion with pockets of (potentially misguided) anger. What would be a catastrophic miscarriage of moral justice is for the middle & working class youth to blame and seek revenge on the middle & working class elderly.

    Any confrontation based on regional, racial, gender, age, public sector v private sector, establishment (e.g. police) v population will be self-destructive and futile. Not only that but it obfuscates the role of the real perpetrators. A cynic might even claim that this strategy of "divide & conquer" has been the game plan all along. Nothing like a great diversion tactic whilst the real culprits siphon off the profits:

    http://www.bbc.co.uk/blogs/newsnight/paulmason/2010/05/euro_bailout_now_banking_risk.html?postId=95930884

 

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