Category: Estrategia

The zero-interest-rate policies that have been maintained by central banks in the most developed parts of the world to prevent a debt crisis have completely distorted the financial system. The side effects of giving away the cost of borrowing and providing an open-ended lifeline to prevent the heavily indebted (the entire developed world) from going bankrupt are devastating for those who need to generate income. It is a scenario that is favourable to those who are insolvent but very hostile to investors, who find themselves forced to lend their money in exchange for the meagre returns offered by increasingly risky and insolvent issuers.

As investors’ money shifts towards the most insolvent debt in a desperate search for a few basis points of yield, the bubble in the prices of all debt – both developed and emerging, and across the entire yield curve – is swelling ever further. The most creditworthy issuers – or those with central banks willing to buy up everything – already have a large part of their yield curves in negative territory, meaning that investors have to pay to lend them their money. Similarly, less creditworthy issuers are basking in a sea of liquidity that allows them to take on more and more debt whilst paying interest rates as if they were large, creditworthy multinational corporations. (more…)

With central banks and their QE, the debt situation in the developed world has reached a surrealistic level worthy of study. Not only because of the unprecedented size of the balance sheets of the FED, ECB, BoE, BoJ, SNB, etc., but above all because of the manipulation of accounts, which has become a macabre and dangerous norm.

Thus, the manifest insolvency of the southern states of the Eurozone is the gigantic elephant in the room of the Troika (now renamed «the 3 institutions»: EU, ECB and IMF) that all these creditors ignore without the slightest blush. The most surreal case is that of Greece, which with Syriza at the head of its government is causing panic among its European partners. And this panic is not caused by the Greek state's inability to repay its massive debt - they have known that for years - but by the new government's willingness to publicly and openly acknowledge its insolvency.. Why? Simply because recognising that Greece will never be able to pay means having to write off losses on its creditors' balance sheets. And that really panics them, since neither the European banks nor the indebtedness and budget deficits of the other Eurozone countries are in such a state that they can count not a single euro of additional losses at the moment. (more…)