Guest Post: The Financial System Is Built On Eggshells: Can Spain Avoid Default On Its Own?

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Sun, 07/10/2011 - 18:24 | 1442052 Hedgetard55
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The Euro Zone is like an elephant trying to balance on a quarter.


The US is like an elephant trying to balance on a dime.

Sun, 07/10/2011 - 18:35 | 1442091 Sudden Debt
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I wonder how they'll keep on balancing when both continents have elections in 2012 and this shit isn't resolved by then.

They'll need a lot of smoke and mirrors to get out of that mess, unless they want right wings to take over. 1932 all over again...

Sun, 07/10/2011 - 19:00 | 1442124 Weisbrot
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you seem to be misinformed

1932 was left wing not right wing

national socialists = left wing = progressives = our current misleadership




Sun, 07/10/2011 - 19:06 | 1442137 Sudden Debt
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It are the extreme right wings that will take over now.


Sun, 07/10/2011 - 20:34 | 1442235 Bananamerican
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it am?

also "(Germany) will be taking care of its own (bad) self"

Sun, 07/10/2011 - 19:19 | 1442151 yabyum
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fascists=1932, lay off the Glen Beck

Sun, 07/10/2011 - 19:39 | 1442176 Ahmeexnal
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The Eurozone has officially changed it's name to Stronzone.

Sun, 07/10/2011 - 20:22 | 1442226 Central Bankster
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Lay off the ignorance chief.

Sun, 07/10/2011 - 23:15 | 1442547 Fish Gone Bad
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I watched the Glen Beck show for about a half hour back in the spring when I was staying at the Bellagio.  It was hard to watch.  The guy is all over the place.  Mind you, I did not say he was right or wrong, just all over the place.  Such and such person is in cahoots with this person, who did something or another in the 70's, and this other person is a socialist who is married to this other Marxist ...  It reminded me of Michael Crichton's, The State of Fear.  I turned on cartoons.

Sun, 07/10/2011 - 19:16 | 1442153 Caviar Emptor
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National socialist was the Nazi party

Sun, 07/10/2011 - 20:37 | 1442237 Ahmeexnal
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emphasis on the SOCIALIST

Sun, 07/10/2011 - 21:35 | 1442373 Goldilocks
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"Occult Forces" (1943) ~ National Socialist Anti-Freemasonry Film (English Subtitles) <-- (51:34) <-- (Summary / synopsis)

Sun, 07/10/2011 - 22:53 | 1442515 gorillaonyourback
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dude fuck the jews, fuck the freemason, fuck the illuminati, and fuck everybody outside your cicle of 150 people,,,,, worry about peak oil that's the big equalizer.  If u learn to farm and be REALLY self sufficient does it really matter what 20 percent makes it to the resourceLESS future?

Sun, 07/10/2011 - 22:55 | 1442519 gorillaonyourback
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once the 80 percent have died back it will take 10 years for mother nature to build back up.  So worry  about makin it through the next 20 on your own

Sun, 07/10/2011 - 23:30 | 1442579 snowball777
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It was co-opted from the DAP; they were fucking fascists. Everyone even remotely associated with Strasser was killed in the Night of Long Knives.

What passes for a knowledge of history with some here is positively frightening. Read a fucking book already.

Mon, 07/11/2011 - 05:09 | 1442898 CassandraDoomsday
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They seriously think they can delay sorting it out till 2014....

Merkel announced "intent" to stand again, even got the TEconomist to write a piece about her


Sun, 07/10/2011 - 22:53 | 1442517 Miss anthrope
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Puzzling evidence I say!!



Sun, 07/10/2011 - 18:24 | 1442057 SirPlayomic
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The financial system is built on interest - there, I fixed it for you.

Sun, 07/10/2011 - 18:32 | 1442086 Sudden Debt
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Spain's "industry" which is real estate and home building for the biggest part is "build" on the "under the counter money" of Europe.

That means: Everybody who has black money which they want to put to "good" use puts it in a bag and drives it to Spain to buy some property.

This is also the reason there was a housing boom from 2000 to 2007.

When that money dried up and every country was checking out second houses to look for extra tax money and also initiated free repatriate programs for that kind of money, the Spanish housing market popped.

That was also the moment people started to notice that the surplus on vacation homes in Spain was so vast and totally not profitable that the word "investment" was the starting word for any joke in Europe.

The housing marketboom is death. The surplus is endless. And that created a 20% unemployment rate in Spain that can't be fixed.

Also Europe is broke. People don't have these amounts of money anymore to build extra houses like that and who would they? There's enough stock to buy some on the cheap. Also the tax bounty hunters won't allow them anymore.

A second note is that because Spain is broke, they'll need extra tax revenue. And why not tax foreigners, rich ones that is, a bit more instead of their broke unemployed citizens?

Which will brake the housing market and industry even more.

Spain is living on borrowed time. The good times are over. They are eating their reserves, the people that is.

And then there are the ecological problems... Spain has been turning into a desert for almost 2 decades now and that shit is bad.



Sun, 07/10/2011 - 19:55 | 1442195 jm
jm's picture

While Spain is of interest to me, the bigger implication of the data is that Greece impacts Ireland most unfavorably.  An Iris debt default will be very, very bad for the UK and Germany, which will in turn be very bad for the planet.

This whole Italian flare-up is completely ominous for France.

At some point the only way to stop the chain reaction is to end the policy of bailing out banks whilst leaving bondholders intact.  I believe something will have to give here, the sooner the better, and country fundamentals will stand on their own.

There is something of a floor on Spanish real estate.  Prices get really cheap and droves of English and Germans will scoop them up.

However, Spain is not a true sovereign because it doesn't print its own money, and issue debt in that money.  

This puts them at a huge disadvantage to countries like Poland and Vietnam.

Sun, 07/10/2011 - 20:40 | 1442241 Ahmeexnal
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No. When spanish real estate gets real cheap, it won't be droves of "English and Germans" scooping them up.
It will be droves of Chinese and Moslems.

Sun, 07/10/2011 - 20:53 | 1442256 jm
jm's picture

Ok.  There is a floor on Spanish real estate.

Mon, 07/11/2011 - 12:53 | 1444324 DrunkenMonkey
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After they clean up the epic level of corruption at the town hall / regional level.

Sun, 07/10/2011 - 18:33 | 1442088 richard in norway
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it might not be the end of the world but it is seriously fucked up

Sun, 07/10/2011 - 18:39 | 1442099 Sudden Debt
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Just another 10% inflation after the 600billion to 1.2 trillion euro injections to fake that recovery. Nothing to worry about.

People will take it and blame... the Chinese?

Sun, 07/10/2011 - 18:45 | 1442104 Atomizer
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My Fair Lady - The Rain In Spain

Sun, 07/10/2011 - 19:02 | 1442126 DosZap
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I can just see the Germans ONE more time forking over part of 1.2T Euro's,for another members imprudent spending.

Hell, will freeze over first.

Sun, 07/10/2011 - 19:19 | 1442156 Caviar Emptor
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Germany's debt/GDP is nothing to sneeze at.

Sun, 07/10/2011 - 19:24 | 1442160 unum mountaineer
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china will step in. 4b to hugo chavez just yesterday. c'mon its just trading confetti at this point. This whole damn system is just to damn big to fail!

Sun, 07/10/2011 - 19:15 | 1442150 Cheesy Bastard
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There are only shells left.  No one has any huevos any more.

Sun, 07/10/2011 - 19:21 | 1442157 johngaltfla
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Good story but missing the impact of 22% + unemployment and an incredible rate of residential mortgage default with no HAMP bailout AND no debt forgiveness built into the tax or civil court system. That's where this could go from a domestic real estate crash into violence pretty darned quick.

Sun, 07/10/2011 - 20:00 | 1442201 jm
jm's picture

this is a good point.  I'm not sure if Spain is just more honest about their unemployment numbers, or they are equally dishonest and the 22% unemployment is much worse.

This is problem.

Sun, 07/10/2011 - 19:24 | 1442159 carbonmutant
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In other news:

"Argentina's government says the country's inflation rate is 9.7%. Most independent economists put the figure at 20%. So the government has filed criminal charges against one consulting firm, MyS for "publishing false information about inflation data," part of a coordinated campaign against independent economists."

Sun, 07/10/2011 - 19:26 | 1442164 Caviar Emptor
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The ministry of truth needs no verification

Sun, 07/10/2011 - 19:28 | 1442167 carbonmutant
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"In short, if you don't like the temperature, buy a new thermometer"

Sun, 07/10/2011 - 19:24 | 1442161 Caviar Emptor
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If one domino falls....

The others will too on both sides of the ocean. Without the political will for another TARP, the only choice is to nationalize like GM was

Sun, 07/10/2011 - 19:30 | 1442170 schismjism
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the systemic risk inflation is overpowering the deflationary spiral... looks like steve keen agrees with this analysis....

Sun, 07/10/2011 - 19:34 | 1442173 zorba THE GREEK
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 If any country defaults, its Leman's X 100

Sun, 07/10/2011 - 19:37 | 1442174 BlackholeDivestment
BlackholeDivestment's picture's not the end of the world you say? Come on, the new versions of the Great Depression Bucketheads broke the Glass Stegall seal etc... and created the black hole on purpose. To think or suggest otherwise (as if it ain't the end built in) defines the prophetic strong delusion upon our dusty asses. ''They'' know exactly what they are doing, it's called the mark of the beast bitchez, and the exposure is not a choice, the shit is in the wind. You cannot buy sell or trade outside of the global mark to myth prison and you sure as hell are not going to escape the demand destruction of the black hole these bastards call the ''moral hazard'' when it's really their offers of temptation, as they are not their brothers keeper Bitchez.

Sun, 07/10/2011 - 19:47 | 1442181 jm
jm's picture

The raw data on country exposures:

Sun, 07/10/2011 - 19:56 | 1442198 Arius
Arius's picture

everything is fine ... just more doomsayers...

Sun, 07/10/2011 - 20:09 | 1442211 jakshitte
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Agreed. Game on!  How long does this banana republic continue to pacify the masses by falsely propping up markets and pretending??? Laughable...if it wasn't my own government

Sun, 07/10/2011 - 20:16 | 1442219 jakshitte
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So....let's see. The second (China) and third (Japan) largest economies in the world have no risk? Interesting.

Sun, 07/10/2011 - 20:53 | 1442258 SwingForce
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Spain? The country?

Sun, 07/10/2011 - 20:55 | 1442263 disabledvet
disabledvet's picture

no one was predicting Italy as a problem and in fact as one person who saw it as such the vehemence of the counter-attack only convinced me that emotion still ruled...or more accurately over-ruled good, hard honest debate such that problem solving could begin. The irony is of course that those who shout down the reality of the euro-land implosion are the last to come to her defense. this WAS an emminently preventable crisis--but the ECB just keeps raising rates--for what purpose no one i think wishes to divine. so now we will see...

Sun, 07/10/2011 - 21:00 | 1442280 jm
jm's picture

You are reading diabolical genius into Trichet where I read incompetence and idiocy.

Mon, 07/11/2011 - 02:45 | 1442826 GBruenetti
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Numbers, numbers. They only have meaning as long as the basic rules hold, but these are melting away, fast. In the end what counts is how do you keep the labor force producing things.

Unfortunately our labor force (including oil, coal and gas) gets smaller by the day due to sinking EROEI. Our current financial system is simply not made to cope with this fact and nobody has any idea of a system that actually would work reasonably well under this conditions.

Mon, 07/11/2011 - 04:10 | 1442874 Yen Cross
Yen Cross's picture

  This is a fantastic post! Thanks Tyler... What really catches my {EYE} is those Line 1) GDP numbers, and the fact that Italy is ready to cave in with the lowest numbers. Priceless.@ -6.3%     Thanks again +1

Mon, 07/11/2011 - 06:30 | 1442955 jm
jm's picture

What is most interesting to me is the roll figures combined with the % of revenue paid to interest.

Spain has to refi ~20% in the next twelve months.  Let's say they refi with a 5Y and the coupon rises to 10%.  They are still only paying about 12 cents of revenue to debt service for this fraction of their debt. This takes them to about 8 cents overall.  Totally doable.

Italy has to refi about 25% of their debt in the next twelve months. They are already paying 20 cents of revenue on debt service.  If they have to take a doubling of coupon on 25% of this debt, you are reaching a painful spot.


Mon, 07/11/2011 - 06:51 | 1442967 Yen Cross
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 Excellent Point!!! (jm)     Thanks. Yen

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