Wednesday, October 3, 2012


Yesterday’s Bloomberg reported: “Mario Draghi’s plan to save the euro is about to get a test run. Spanish Prime Minister Mariano Rajoy appears ready to accept--perhaps not immediately, but soon--the European Central Bank president’s offer of a deal, in which the bank would buy up Spanish government debt in exchange for promised austerity and economic reforms. … Even as the foundations of a rescue fall into place, though, it’s becoming clear that Europe’s fourth-largest economy is in worse shape than previously understood--and that ECB bond-buying won’t fix it. On Oct. 2, Madrid reported that unemployment rose for a second month in September to 24.6 percent, contradicting earlier government assurances that joblessness had peaked. The same day, Moody’s Investors Service…estimated that Spanish banks faced a capital shortfall of up to 105 billion euros ($135 billion), almost twice the figure reported to the government a few days earlier.”
Greece is a sideshow compared to Spain. The ECB is already propping up Spain’s banking system with 411.7 billion euros in MTRO and LTRO loans. That’s been necessary to offset massive deposit and capital outflows. Odds are that Spain will ask for help soon, and get it, but will continue to be a pain in 2013.

Today Morning Briefing: Crosscurrents. (1) Will the bull go over the cliff? (2) Retesting the record high before yearend? (3) Postponing persistent problems. (4) FSMI is rebounding. So is ECRI-WLI. (5) Forward earnings at new record highs again. (6) A scary study of widespread pain fiscal cliff would cause. (7) Feldstein and Thaler have a couple of good solutions. (8) Spain is in pain and a pain. (9) Persian carpet bombing postponed? (10) Happy and sad mix of economic indicators in the US. (More for subscribers.)

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