Notes From Underground: Rajoy’s Party Retains Power in Galicia

In what was a very slow new weekend the most significant story is that Spanish PM Rajoy’s political party held on to power in the PM’s home state of Galicia. This was considered to be an important test for Rajoy for if his support in his traditional support base had turned against him, there would be no chance that the PM would have proceeded down the road of further austerity. Now Señor Rajoy may be emboldened to surrender to the demands of German-imposed CONDITIONALITY so as to receive the proposed bailout from the ESM. This should be short-term bullish for the EURO as it will remove one of the obstacles that was blocking a massive dose of liquidity into the Spanish financial system. The trade-off game of financial support for enacting more austerity should help the markets as near-term fears of a Spanish collapse should be postponed.

This week’s calendar is heavy with politics and central bank meetings. The Bank of Canada will announce its rate intentions on Tuesday, followed by the FED and the RBNZ on Wednesday. I am not looking for any surprises from any of the banks and expect the status quo to be maintained.

Monday night will bring the last of the Presidential debates and will deal with foreign policy. From my perspective, this issue is of significance in this regard: If the U.S. is becoming more energy independent then it should be possible to begin cutting the military budget. I am at first a deficit hawk and believe that reining in the free spending ways of a profligate Congress is the most important issue facing the nation. In a very non-political way I have always been opposed to DEFENSE SPENDING for it is the basis for much of the misappropriation of U.S. funds. Defense spending has been the third rail of Congress because so many districts are affected by its impact and the military-industrial complex gets massive support because of the largesse of defense dollars spread to so many congressional districts.

If the defense industries were to get their ox gored, many other appropriations would be cut resulting in the beginning of real budget reform. David Stockman has recently been in the media citing the need to cut defense expenditures by 25% in order to get serious budget reform. If, as both President Obama and Mr. Romney proclaim U.S. energy independence, then it should logically follow that the U.S. military needs will be reduced. The rationale has been a large navy as the bastion of protecting the sea lanes for the flow of the lifeblood of the global economy–oil.

Well, it is time that other nations dependent on the free flow of oil begin to carry the financial burden. If the U.S. won’t cut its defense budget it must mean that imperial overreach is the goal of U.S. foreign policy. If that is the objective then the candidates should proclaim it loud and clear. Otherwise, cut defense spending for the initiation of real budget reform. Again, this is not a partisan viewpoint and only state the case for a sound financial system.

***What are the Canadians thinking? Over the weekend it was announced by Ottawa that a $5.2 billion Petronas bid for Progress Energy Resources would be blocked. It seems that the Canadians don’t want a domestic energy company purchased by a state-controlled company (Petronas is owned by the Malaysian Government). The Canadians continue to say they are open for business but over the last few years some major deals have been blocked by the government. BHP was prevented from buying Potash Company but in that deal the shareholders were also opposed as they felt the BHP bid was too low. There is another pending deal in the energy area: NEXEN Corp being in favor of a $15 billion takeover by CNOOC.

If the Canadian government blocked the Progress Energy deal for foreign government involvement, how promising can the NEXEN deal really be? (Although the Nexen deal was going to be reviewed by CIFIUS because of its holdings in the Gulf of Mexico.) It seems that Canada needs to review its policy on globalization. It has been a recipient of the free flow of money and natural resources for many years. Does it really want to start playing games with global capitalism?

***A quick heads up to an interesting article from last week. In a Financial Times oped piece, Gavyn Davies raises the question: “Will Central Banks Cancel Government debt?” It is very thought-provoking and how to discuss this further as more people familiarize themselves with the proposition that is put forward.It is of more than a passing interest.

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9 Responses to “Notes From Underground: Rajoy’s Party Retains Power in Galicia”

  1. Notes From Underground: Rajoy’s Party Retains Power in Galicia « Jim Sinclair's Mineset Says:

    […] More… […]

  2. charles reeder Says:

    Who do you think would be more inclined to put defense cuts on the table O’bama or Romney? This isn’t a very difficult question.

  3. yra harris Says:

    Chuck–it should be obvious but the failure to put it forward in a very direct way tied to foreign policy is mind boggling.It appears that Romney has painted himself into a corner over this —greater energy independence begets lower defense spending—the math is easy very easy and needs to be done–for i beleive once the sacred cow of wanton defense spending is delt a blow then watch everybody rush to gore many other oxen–then let the genuine deficit cutting begin but not in a haphazrd way that will harm the fragile economy—but going forward we would be a healthier society and economy and that does not mean having a robust national defense.

  4. Tony Says:

    Cut defense 25%? It’s settled, I’m writing you in for President! I wish the guys running would bring it up. We spend 550 billion more per year than China and defense is nearly 5% of GDP. We spend over 40% of the world’s total defense budget. Staggering to say the least!
    http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

    Get it in line with other countries and we will be on the road to recovery. Unfortunately, a big ‘if’ with these 2 parties.

  5. asherz Says:

    In the post WW I period the western nations, exhausted after the terrible war that was to end all wars, drasticaaly reduced their armed forces. Except for Germany in the 30’s. When the policeman leaves his beat, the bad guys take over the vacuum. Our pulling away from the role of a superpower has found its new bad guys. Al Qaeda has gotten the message. Cairo and Benghazi are a warning.Wanton defense spending-no. Eviscerating our military capabilities will lead to war. It always has.

  6. yra Says:

    asherz–cutting the defense budget is certainly not eviscerating the military—the U.S. has the capability to quickly move forces into battle with its present state —less hardware and silly programs that continued to be financed because they are simply in motion–silly from so many levels—if 500 billion doesn’t deo the job and that is not counting the off balance sheet intelligence expenditures then what–3% of GDP spent on defense in a non war environment is not withdrawing from the world.In the 1920’s and 1930’s the defense expenditures were down to 2%

  7. dennyboy2211 Says:

    Yra,

    “Rug pull for Romney” continuation In progress.

    Denny O’Brien aka FOS .. Friend of Santelli Naples, FL

    Sent from my iPhone

  8. Dustin L. Says:

    Yra- Gavyn Davies article is indeed interesting, thanks for sharing. I wonder why they would ever do this though? A central bank is more likely to get more bang for their buck by continuing to monetize and inflate the debt away. It will still harm their balance sheets but, it will be less abrupt and a slightly more “undercover” operation rather than an outright write-down of the debt. And, the governments still get their required bailouts. Plus, many central bankers maintain, at least in public, that the risks to their balance sheets are muted (Who would actually believe them? I don’t know but, gold seems to be clearly voting against them despite the day to day ups and downs.) So, would these institutions willingly sacrifice their balance sheets when they think that they can create the inflation needed to save the financial system and governments from collapse while also maintaining a sound balance sheet and when needed withdraw the liquidity with little problem? I am sceptical. Something to think about for sure though.

    P.S. How about the Yen!

  9. yra harris Says:

    Dustin –there is a great deal to opine about in the Davies article–I amwaiting for some more feedback on the blog and will write about its implications later in the week.The YEN is definitely in play as the Nikkei hit the 200 day moving average today as the YEN actually got some traction,finally,above the 200 day—let’s hopw we begin to see the breakdown of the perfect correlation of the risk off trade

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