Looking for a disaster waiting to blow sky high? I have one right at hand. El Economista reports 97% of pensions are invested in Spanish government debt in 2012.
The Reserve Fund of Social Security in 2012 increased their holdings of Spanish debt to 97% of total assets, up from 90% who had in late 2011.
Over 70% of purchases are recorded in the second half of 2012, according to Bloomberg points, after the critical moment when ECB President Mario Draghi, undertook to do “whatever it takes” to defend the euro. A message that helped ease the constraints and helped drive Spanish debt.
In 2007, the money invested in financial assets were divided fairly (50%) between Spanish debt and foreign debt, but this proportion began to change in 2008.
In September 2012, for the first time in history the government had to dip into the reserve fund to pay the payroll to pensioners. A total of 3,063 million euros were drawn from this instrument, to which were added to the 3,530 million in November Moncloa needed to fund the pension increases.
Comparison to GM
This exactly reminds me of the stupidity of GM investing its assets in GM bonds. Expect similar results in Spain.
Mike “Mish” Shedlock