Spain is interesting situation. Dramatic situation, industrial production is 30% below the peak of 2007 and the country is in recession or near depression. The banking system is imploding. The balance of payments is in deficit of 30% of GDP. The Spanish banking system could implode dramatically if there is no euro. The private capital market shut of the country. Interest rates shoot to the moon. Then restructuring. That is not happening here because the government relies on the Spanish government via ELA. Target2 is similar. Spain has banking run. The normal mechanism can’t happen due to the Eurozone system. Bundesbank holds rising claims – 750 billion euro, a combination of several banks – PIIGS. The next number will probably be more than 800 billion. $1 trillion before the euro is over. Germany can never reclaim. Will never see this money. Politics can’t solve it therefore the central bank has to fund it. The ECB has broken several laws. The money printing press is running faster and faster every day.
Felix Zulauf was born 1950, and is the owner and president of Zulauf Asset Management, a Zug, Switzerland-based hedge fund. Felix has worked in the financial markets and asset management for almost 40 years. Mr. Zulauf has been a regular member of the Barron's Roundtable for more than 20 years.