Austerity is not homogeneous

Logically speaking, if what ails some countries in Europe are economies that are not generating the growth necessary to finance its public debts and deficits it would follow that to improve this situation would be to facilitate private sector growth and cut public spending. Instead the austerity calls are not differentiating between the public sector and the private. Both are getting clipped and Spain is another to follow this dead end path. PM Rajoy announced another 65b euros of budget trimming which is including higher taxes on the private sector along with public spending cuts. Until Europe separates public sector austerity from private, the spiral will continue. With respect to the contribution from Spanish bank security holders to help their situation, senior bond holders will again be bailed out but it seems that equity, sub debt and preferred holders will be given hair cuts in any form the bank bailout takes. Zero return for deposits with the ECB overnight hasn’t dissuaded European banks as 809b euros were handed over to the ECB last night, the most since early May. In Asia, the Shanghai index bounced off a 6 month low as the front page of today’s WSJ highlighted the spending steps China will take to goose their economy. In the US, the MBA said refi’s fell 3.4%, a decline for the 3rd straight week to the lowest in 6 weeks. Purchases though did rise by 3.3%.

II: Bulls 44.7 v 42.5 Bears 24.5 v 24.5

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