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Let’s Stop Kidding Ourselves and Look at the REAL Math Behind Spain
As you know by now, I keep stating that Spain is going to be the straw that breaks the EU’s back. The country is facing a regional, banking, and soon to be sovereign crisis all at once.
Spain's Catalonia suspends social service payments
Catalonia, Spain's most indebted region, said Tuesday it could not pay subsidies in July to hospitals, old age homes and other social services already reeling from sharp budget cuts.
http://news.xin.msn.com/en/business/spains-catalonia-suspends-social-service-payments-2
Catalonia is one of SIX Spanish regions that are facing budgetary crises (there are 17 Spanish regions in total). Given that the Government of Spain itself is bankrupt (the Government bailout fund had less than €5 billion in it when Bankia collapsed back in May), the possibility of a Federal bailout here is nil.
On top of this, the Spanish banking system is on the verge of systemic failure. Spanish banks draw on average, more than €300 billion from the ECB on a monthly basis to meet liquidity needs.
To put this number into perspective, the entire Spanish banking system is roughly €3 trillion in size. So Spanish bank liquidity needs alone amount to roughly 10% of total assets.
This would be akin to US banks drawing $1.2 trillion from the Fed for liquidity purposes on a monthly basis. If the headlines in the US read that, there would be full-scale panic (a la 2008).
Small wonder then that investors, savers, and corporations are pulling their money out of Spain en masse:
Capital outflows from Spain more than quadrupled in May to €41.3 billion ($50.7 billion) compared with May 2011, according to figures released on Tuesday by the Spanish central bank.
In the first five months of 2012, a total of €163 billion left the country, the figures indicate. During the same period a year earlier, Spain recorded a net inflow of €14.6 billion.
The outflow has resulted from domestic banks sending money abroad, foreign lenders pulling out cash and mostly non-resident investors dumping Spanish assets. The steep rise was likely due to Bankia, the banking conglomerate, having requested a bailout in May.
Over the last 11 months, funds equivalent to 26 percent of gross domestic product exited the country, Tuesday's data from the Bank of Spain showed.
Spain’s response to this is to punish those who are smart enough to get their money out of the country. The country has imposed the following fines/ capital restrictions in the last month:
- A minimum fine of €10,000 for taxpayers who do not report their foreign accounts.
- Secondary fines of €5,000 for each additional account
- No cash transactions greater than €2,500
- Cash transaction restrictions apply to individuals and businesses
So, we have a €3 trillion banking system, from which €163 in deposits has left in the last 11 months, and which is drawing over €300 billion from the ECB on a monthly basis.
If this doesn’t make it clear that the Spanish banking system is ready to implode, perhaps the private text message Spain’s Prime Minister sent to his Finance Minister stating that Spain would need €500 billion will (emphasis added):
“Aguanta [Finance Minister], we are the fourth European power. Spain is not Uganda… If they want to force the rescue of Spain, they need to start getting ready €500 billion and another €750 billion for Italy, which will have to be rescued afterwards.”
Which brings us to the Spanish “bailout” of €100 billion. Setting aside the fact that this bailout is nothing compared to what Spanish banks are drawing from the ECB (as well as the amount Spain’s Prime Minister hinted at in his text message), there’s the legal problem if just where the money will come from.
Germany, which is the REAL backstop for the EU (Spain sent its Finance Minister to Germany, NOT the ECB when it made a plea for an additional €300 billion), has stated explicitly that neither the EFSF nor the ESM bailout funds should be given banking licenses (which means they cannot buy bank debt).
So who is going to prop up the Spanish banking system? If the ECB does it, Germany will be furious (they’ve stated explicitly that the ECB should focus on price stability). Germany won’t do it. And the IMF doesn’t have the fire power.
And finally… let’s be serious about the EFSF and ESM. The EFSF doesn’t have the funds to prop up Spain (remember this is the bailout fund that needed aid just to complete bond auctions). As for the ESM… well, Spain and Italy account for 30% of its funding.
So if the ESM were to “bailout” Spain, it would essentially be Spain and Italy bailing out Spain. You literally couldn’t make this stuff up if you tried.
Finally, Germany hasn’t even RATIFIED the ESM yet. That’s right, Germany, the country that is the true backstop of the EU, which will account for nearly 30% of ESM funding by itself, won’t agree on whether or not it wants to fund the ESM until September.
Oh and as a closing note, Germany has already pushed its Debt to GDP up to 90% via its various EU bailouts… which is why Moody’s has put the county on negative watch. What happens if Germany loses its AAA credit rating as France did last year?
By now I hope you realize that the situation for Spain is hopeless. I’m sorry to be the bearer of bad news, but this is reality. Those who are investing as though there will be some magical solution to this mess are the same people who bought the S&P 500 in July 2008, hoping that Hank Paulson’s “bazooka” would stop the Crash.
We all know how that turned out.
With that in mind, I view this current rally in the markets as a gift from the market Gods to prepare for what’s coming. On that note, we’ve recently published a report showing investors how to prepare for this. It’s called What Europe’s Collapse Means For You and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.
This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com
Good Investing!
Graham Summers
PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.
And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com
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And what's more, this has been almost totally ignored by the mainstream media
YES when police and firemen are fighting the military in the capital city - well Spain you have a problem.
it was a joke - a piece of boilerplate that Graham inserts into his crap posts after quoting "der Spiegel"
HAhyperion thought you were referring to his post about the Spanish tragedy, not making a sarc repetition from the Phoenix Capital article ... HAh saw your post right after his in vertical order, and didn't notice you weren't replying to his post ...
In any case I always like the Phoenix Capital articles for the hilarious comment sections, I skip the article and go straight to the comments .... like 'Clueless Economist' above asking for how to get a multi-year subscription LOL
Whether or not Graham's "the sky is falling" predictions are marketing ploys or gross exaggerations, certainly for these families the Madrid sky is falling:
http://www.nytimes.com/2012/07/29/world/europe/spains-elders-bearing-bur...
The swine rule here.
Obviously, if humans with actual brains had begun to deal with EU profligacy several years ago, they probably could have saved the thing. But they have waited too long, and countires invovled are such complete messes, that no solution remains. They can create the awsomest fiscal unoin imaginable, but it would just default anyway. If they try to print their way out, the amount of Euros they will have to print might actually destroy the currency.
The Germans have a cultural memory of the Weimar hyperinflation, but they have personal knowledge of how much effort it took to integrate East Germany. East Germany was a country with 14 million people who were essentially useless because of their dysfunctional upbringing. 25 years later a new generation has grown up as full-fledged Germans and things are only beginning to turn around. But the investment was in the tirllions. This is what Germany knows, you can barely save a country the size of Greece. The idea that Gemany can save 100's million of useless Europeans (useless by Geman standards) is a well known impossibility. It cannot be done, so it won't be done.
That's right on. I'm afraid so.
During the Spanish Civil War, Stalin told the revolutionary leaders in Madrid they should send the country's Gold Reserves to Moscow, "for safe keeping", so that they weren't captured by the Loyalist Forces if they took Madrid. The Comrades boxed up all the Gold in Wooden Shipping Crates sent it on a train to the coast and shipped it to Russia. Nothing ever came back. If nobody beats up the Spanish they'll just run their own head into the wall untill they're incapacitated.
Graham you're still here? I thought the world was going to end by now? Do you curse each morning that the sun rises, knowing your armageddon forecast has failed for another day? You're shit (rantings) are only good for entertainment value & heckling. We thank you for that. Good day sir.
Oh, oh, the sky is falling. Just buy my secret report and I'll tell you all about it.
His facts are spot on. It's the predictions that aren't worth shit. Since when do facts get in the way of bankers and politicians?
With that in mind, I view this current rally in the markets as a gift from the market Gods to prepare for what’s coming.
Well, at least we have to recognize that he's funny and rejoices at the potential of a full-blown market crash. :)
The initials Graham Summers are actually Goldman Sachs in disguise!
This is the muppet show newsletter .
Let's stop kidding ourseleves that GS' posting are anything but crap designed to peddle his newsletters and be done with him.
Kidding ourselves?
You have 1 month left to run for the wholesale 'collapse' prediction.
Thanks Graham for the valuable information...how do I go about subscribing to your excellent newsletters again? I am interested in a Multi-year subscription.
Spain should just print their own fucking money. Fuck the pussy Bankers, they can go get real jobs like real men
??
Re '??', wasn't sure if you were not getting the sarcastic joke of 'Clueless Economist' ... or just deepening and confirming it