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Spain Pilfering its Pension Funds

Posted by Steve Markowitz on January 8, 2013

During the first week of January most of the financial focused on America’s “Fiscal Cliff”.  While an interesting diversion, the world’s economic challenges are much broader than America’s deficits and debt. While Europe’s financial issues are not currently making front-page news, its challenges remain daunting.

Last week the Wall Street Journal reported on Spain’s economic problems in article titled Spain Drains Fund Backing Pensions.  Spain is the “S” of Europe’s so-called PIIGS.  A few examples of Spain’s problems include:

  • The country’s unemployment rate is about 25% with it being much higher for those under 30 years of age.
  • Spain will have to issue over €200 billion in debt for 2013, an increase of approximately €20 billion, over the previous year.
  • In 2012, both Moody’s and Standard & Poor’s lowered Spain’s bond rating to junk status.

Instead of addressing its problems, Spain is compounding them with financial gimmicks.  Its Social Security System had previously created a rainy day fund that would be required in future years as fewer workers will be paying into the fund with more retirees withdrawing from it.  That fund, however, has been robbed by the government who is forcing its Security System to use these funds to purchase Spanish government’s risky bonds.  It is estimated that 90% of the fund is now invested in Spain’s debt.  Not only will these “borrowed” funds ultimately need to be paid back if it’s obligations are to be met, but this pool is now tapped out.  These realities will add to the pressure that will ultimately require Spain to seek a bailout from the European Union.

In addition to Spain’s security system having its fortunes tied to the country’s bad debt, Spain is has also forced its commercial banks to invest their funds in the government’s debt.  This game of having one arm the government, as well as its banks, lend to another arm is a Ponzi scheme that would make Bernard Madoff smile.

If the sovereign financials shell games were limited to Spain or a few countries, the potential problems internationally could be contained.  However, many governments use similar financial tactics, including the United States.  Politicians, particularly those on the Left, either ignore the problem or are delusional with claims that economies can grow their way out of the debt.  Such fantasies are akin to physicists believing in perpetual motion.

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One Response to “Spain Pilfering its Pension Funds”

  1. Carl Hackert said

    WHAT DOES THIS UNEXPECTED DECLINE IN GDP TO -.1% FOR THE LAST QUARTER DO TO THE ASSUMPTIONS MADE BY OUR GOVERNMENT BASED ON POSITIVE GROWTH ON THE ORDER OF 3% ANNUALLY?.

    Rick Santelli Responds to Negative .1% GDP Report: ‘We Are Now Europe’

    By Noel Sheppard | January 30, 2013
    Rick Santelli made a stunning observation Wednesday about the shocking report that the economy actually shrunk in the fourth quarter last year.

    “We are now Europe,” he declared on CNBC’s Squawk Box.

    “Hey Joe,” Santelli said, “when you act like Europe, you get growth rates like Europe, and our discussions with economists sounds like we’re in Europe. They have the same discussions constantly.”

    “They’re always doing the right thing,” he continued. “They’re always thinking they know better. And this is the kind of growth. We have become Europe. We are now Europe.”

    Steve Liesman pushed back, “We reduced federal spending, government spending by 15 percent. Which part of that’s not Europe don’t you get?”

    “And why do we need to reduce government spending?” asked Santelli. “Because we run trillion dollar deficits for crying out loud.”

    Read more: http://newsbusters.org/blogs/noel-sheppard/2013/01/30/rick-santelli-responds-negative-gdp-report-we-are-now-europe#ixzz2JU01drOn

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