European Credit Contraction Accelerates, Spanish Loan Creation Craters

Tyler Durden's picture

There is a simple mnemonic for the Keynesian world: credit creation = growth. More importantly, no credit creation = no growth. And that, in a nutshell is the entire problem with Europe.

With the ECB unable and unwilling to engage in outright unsterilized credit creation (i.e., pumping low powered money into banks which can then invest in businesses buy stocks), the only hope for European growth is that its commercial banks will be net lenders and thus net contributors of credit money to the economy. However, as we first discussed over a year ago, Europe simply no longer has the debt capacity (either secured through unencumbered assets, or unsecured through future cash flow) against which banks can lend. Today's M3 data simply confirmed that for Europe a long, hard painful slog is best it can hope for. That is, assuming of course, the soaring unemployment, deteriorating demographics and collapsing welfare state do not lead to a revolution first as Wolfi Schaeuble warned yesterday.

From SocGen:

The broad monetary aggregate M3 expanded by €15 bn in April. We see this expansion as a technical correction from last month’s report. In fact, last month’s deceleration of M3 was largely attributed to the Cyprus events. However, the broad aggregate is still growing at a slow pace, well below its reference value of 4.5%. On the credit side, there is no sign of improvement. In fact, credit to the euro area private sector is contracting further to -0.9% yoy from -0.7% yoy.


Looking at the country level, we still see signs of credit crunch in the peripheral economies. In Spain, outstanding loan to non financial corporation is contracting at -19.1%. Yet, there is little incentive to borrow given the lack of confidence in future growth.

The key charts that matter: Eurozone M3 and net lending. The blue line is what should be happening. The brown line is what is happening.

And a nation by nation breakdown. Oops, Spain.

All of the above is the bad news.

The good news is that for now at least Europe still is the proud recipient of exogenous credit creation, mostly from Japan and assorted US hedge funds, as well as various European banks rehypothecating sovereign bonds with the ECB. This has prevented the economic reality from spilling over into the bond sector as it did in 2010, 2011 and 2012. Soon the carry arb will disappear and slowly but surely European peripheral bonds will resume their traditional trading pattern, which will return the crisis squarely where it belongs.

In the meantime, Europe is delighted that it has bought itself some time in which to enact the structural reforms so desperately needed to make it a viable going concern. Oh wait, as the ECB reported today Europe never did any of that because politicians were hoping and praying the bankers would fix it all.


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IridiumRebel's picture

All charts nowadays look like the crocodiles from the Activision game, Pitfall. 

BandGap's picture

When the fuck does "not seeing reality" become just plain old lying in the face of the data? I am so tired of this shit where we all sit around and wait for TPTB to see fucking "reality". WE ALL SEE IT, INCLUDING CENTRAL BANKS AND GOVERMENTS.

It's fucking 4th down and 89 yards to fucking go. I don't give a shit what you have in your fucking playbook, punt the fucking ball.

IridiumRebel's picture

Yes, but you postulate that they may still function under "fundamentals". This is a straight farce. They want 4th and 89 because they know the coke sucking "traders" will stay hooked on FedCock. 

BandGap's picture

Really, I'm not postulating anything. But anyone with a triple digit IQ can see how this ends. Even a fucking addict has a moment of clarity where they understand the habit is killing them.

So, if they fucking know this is all bullshit why do they perpetuate this fucking bullshit? To avoid war(s)? To give themselves time and money to evacuate with the goods? There are so many moves after you make the assumption that this will fucking crash and burn. Whya re we even listening to the crap being spewed. It is all about creating chaos, a chaos filled with ghosts and demons of their choosing. TPTB MUST have a monster to direct the people towards.

A debt jubilee would ignite about two dozen revolutions almost immediately.

Oldwood's picture

Lying doesn't work so well if you tell everyone it is a lie. We will accept a wink and a nod, but to tell us to our face that you are lying to us is insulting. Afterall, we still have principles!

NoDebt's picture

+1 for the Pitfall reference.

Wider and wider goes the gap.  Faster and faster goes the printer. 

aint no fortunate son's picture

well, this has been a truly terrifying 5 minute correction - what a shakeout!

buzzsaw99's picture

Soon the carry arb will disappear and slowly but surely European peripheral bonds will resume their traditional trading pattern, which will return the crisis squarely where it belongs.


LawsofPhysics's picture

Wrong.  In order to make an honest loan, you have to have to due some do diligence and have real collateral, without any real collateral or assets of real value you are insolvent!!!!!   Fuck the Keynesians, this is a solvency problem that started in Japan/Europe, and is spreading throughout the world.  No motivation to "fix" anything as those in power and control would have to indict themselves. Good luck with that.

Leopold B. Scotch's picture

Wrong, Wrong, Wrong. You use money printing to enable the bid up of asset prices and then collateralize the higher values.  Lather, Rinse, Repeat.

LawsofPhysics's picture

Works until someone demands to see the collateral, or the claimed value is actually required (for delivery or another reason).  for example, one could claim they have a functioning industrial fusion reactor.  This would be very valuable indeed, but eventually (as the population increase) the reactor has to actually be delivered.  People already starting to belive their "lying eyes" my friend.  You are talking about "mark to fantasy" accounting.  You are a fool if you think that will be tolerated forever.  Watch Syria, this is one among many bluffs that the west is being called on.  It's all connnected.

Oldwood's picture

No one is going to demand to see collateral because they are afraid someone will ask the same of them. The beauty of corruption is that it infects everyone.

LawsofPhysics's picture

Unfortunately, there are many real commmodities that people will demand to see delivered.

BLOTTO's picture

When you realize that its 'not about fixing' and all about 'the great plan' - the agenda, for total just advanced in your thinking noodle...

Their is no fuckin 'fixing'...get over it.



astoriajoe's picture

so basically managing things so that the muppets don't start pulling fancy people out of fancy offices to perform fancy operations on the sidewalk.

LawsofPhysics's picture

Correct, but the rubber meets the road eventually.  The harder they try to consolidate, the quicker local solutions that are off-grid grow.

You can be an optimist and get a dependable tribe in order and prepare OR you can accept what come.  I choose the former.

Son of Loki's picture
Spain Ghost Towns Develop From Real Estate Crash (PHOTOS)


"Better buy now! ... before you're priced out of the market."




yogibear's picture

"Spain Ghost Towns"

Still looks better than Detroit.

Onward to more and more and more printing until the finaincial assets are completely bubblized and it blows.

Oldwood's picture

This will become a great boone to the Hollywood groups with the demand for doomsday/zombie movies, as these ghost cities will provide the backdrop. Just thinking Omega Man or Racoon City.

angel_of_joy's picture

I thought that "ghost" towns are a Chinese specialty, and that the mighty Europeons are (much) better than that...

... and what becomes of a Potemkin village after the official visiting program has ended ?

Ghordius's picture

"Fuck the Keynesians," agree with the sentiment if not with the wording

"...this is a solvency problem that started in Japan/Europe, and is spreading throughout the world" - is it? I vaguely remember a housing market in the US that was going up, up, up, and CDOs, and CDO-squareds, and CDSs, and the rise of a huge derivative world that enabled the off-balance sheet parking of wonderfully "hedged" solutions, and hedge-funds, and immense amounts of USD flowing from checking accounts to Money Market "dollar equivalents" involved in a huge search for yield and causing huge streams of hot money looking for some easy carry-trade deal including flattening all bonds markets in europe then "it's all the same to me, markets know better"

in short, I vaguely remember... the megabanks, rising leviathans on a surge of easy money

and when a market did not look good enough, the Squid "helping out", like in Greece

LawsofPhysics's picture

Structural reforms would mean, holding the financial sector accountable!!! Wake us when this happens.  Should be a long sleep.

buzzsaw99's picture

yeah but when the shft they hide the trash or dump it on taxpayers and pretend all is well. how can a bank be insolvent when they can do that?

LawsofPhysics's picture

Because the bread and circuses continues.  I did much of my business with BofA, until 2008.  The vast majority of folks are ignorant sheep.  It only ends when people stop supporting the immorality or the bread is no longer available.  History is very clear on this.

Dr. Engali's picture

No this ends in war. There is no way around it. They will take us to war long before the masses rise up against TPTB. The empire has a formula and they will stick to it until the empire collapses completely.,

LawsofPhysics's picture

No kidding, when the bread stops flowing, the world always goes to war. See my comment above.  The rest of the world is calling the west's bluff on many things, including the quality of the underlying collateral and assets.  Things should start unwinding faster this year.

Oldwood's picture

Nah, we will all be sitting around our dining table enjoying our imaginary meat and potatoes while watching imaginary "reality TV" and bulshit mainstream news. Don't burst the bubble...the world can't take it!

LawsofPhysics's picture

Unfortunately, there are many real commmodities that people will demand to see delivered.

yogibear's picture

"holding the financial sector accountable!!! "

Impossible. The finiancial criminals are running the game.

Smegley Wanxalot's picture

The clear solution is to print mo' money. Now where is my Nobel Prize?

firstdivision's picture

Honey Market don't give a shit.  Neither does Honey Euro.

SheepDog-One's picture

I'm just scared to see the day when suddenly a shit IS given....that will be one stupendous dump!

waviator's picture

Structural reforms are so passé.
Central Bankers have our backs now.

NEOSERF's picture

Long Draghi bazookas

bdub2's picture

...and there it is:

Spains Rajoy says economy already bottoming out.

astoriajoe's picture

was that a translation error? Perhaps he said the 'bottom was falling out'?

Gumbum's picture

In a world based on debt money, credit contraction naturally leads to recession/depression.

Do a little research on Basel III. Credit in the system is about to contract and will deepen the depression and lead to a merger boom in the banking sector.


It's all a game of consolidating the financial power of the world into fewer and fewer hands.

LawsofPhysics's picture

Correct, the issue will be the delivery of bread as every productive enterprise/person begins to get squeezed and starts to see their quality of life decreasing.  reminds me of a line from star wars; "the more you tighten your grip the more star systems will slip through your hands"

I remain long black markets and sharecropping.

earnyermoney's picture

serious question, Do you mean parcel out your land as rental plots for others to grow "food"?


I've wanted to roll my 401K to some kind of turst that could buy farmland that could grow a food source as a revenue stream but I've not been able to find an answer.

LawsofPhysics's picture

Yes, it is easy to establish a land-lease trust for this. As always management/oversight is key.

timbo_em's picture

With all those worser fundamentals it comes in handy that Mr Kuroda has to increase his printing operations.

BTW: Has the ECB been selling its PIIGS bonds since Abenomics started?

SheepDog-One's picture


orangegeek's picture

Yep - deflation - where the access to and the desire for credit goes into the tank.


Ben and Barry must be printing like they never have before.  Have fun with that boys - no one wants your debt.

Dan Conway's picture

Blame it on hurricane sandy!

Dan Conway's picture

I just don't understand it!  Reduce rates to historical lows and they still don't borrow?  Are they stupid or unemployed?  Don't those european morons know that all is fixed?  Jeeshhh

On a serious note, if germany is the best house on the block and they are negative - Ouch!  And wait until france's downward spiral picks up speed.

macroeconomist's picture

"There is a simple mnemonic for the Keynesian world: credit creation = growth. More importantly, no credit creation = no growth. And that, in a nutshell is the entire problem with Europe."


Hmm, that is not a simple mnemonic for the Keynesian world, it is the basic structure of capitalist economies since early 1900s, when Keynes was a child. Investment requires credit creation, and loans create deposits, which become savings AFTERWARDS. That savings finance investment is total non-sense for anyone who has some knowledge about how capitalist economies function.

Now demonizing Keynesian policies have reached to a stupid level on this website.

There's no growth ---Oh it's Keynesians fault.

There's high unemployment---Only if Keynesians shut up, we would not have unemployment.

I need a wee---Fuck these Keynesians!


W74's picture

What's sad is that literally all of this could've been rectified back in '07/'08 with a year or so of recession and then real returns in 2010/11.  We COULD be two or three years into a real recovery and period of economic growth, but chose not to do the honest thing which would've been to stick it to the banks and derivitive fraudsters.