This is How the Spanish Bailout Will Impact Key Markets

"With investors around the world wondering how the $125 billion Spanish bailout will affect trading, today Michael Pento, of Pento Portfolio Strategies, writes exclusively for King World News to let readers know exactly how this bailout will impact key markets. Here is what Pento had to say about the situation: “It was announced this weekend that Spain has requested and will most likely receive $125 billion (100 billion Euros) to recapitalize their banking system. The money for the bailout will be channeled through the Fund for Orderly Bank Restructuring (FROB), whose funds count towards public debt.”

Michael Pento continues:

“However, nobody really knows where this money will come from or what the consequence will be from bailing out banks by increasing European sovereign debt levels. The current view among global financial markets is that Europe can solve its problems by applying the same elixir as the U.S. did during our credit crisis back in 2008.

Namely, the European Union now claims that by ring-fencing their banking system, starting with Spain, the European debt crisis will simply disappear. By adopting this philosophy, politicians have illustrated their complete lack of understanding regarding the true structure of the problem....

Turning to Europe today, their gross debt is just about 90% of GDP and the euro isn’t used as the world’s reserve currency. The onerous level of public sector debt is already high enough to send the bond markets in Europe’s periphery into full revolt. 

So here’s the big difference; U.S. financial institutions were insolvent due to rapidly-depreciating real estate related assets. But European banks are insolvent because they own the bad debt of insolvent European nations. If Europe’s sovereigns are already insolvent because they owe too much money, how can they go further into debt to bail out their banking system?

Even if they are willing and able to borrow more money, their debt to GDP ratios would soar even higher and cause further downgrades of their debt. Therefore, sovereign bond prices would decline much lower and cause Europe’s banks to fall further into insolvency..."

at  http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/10_This_is_How_the_Spanish_Bailout_Will_Impact_Key_Markets.html