The Chart Spain's Mariano Rajoy Wishes Could Be Swept Under The Rug

Tyler Durden's picture

A week ago, after peripheral European bonds soared and yields plunged on more hype and more promises that the ECB may monetize debt on the one condition that insolvent countries hand over sovereignty to the Troika ala Greece, we were not all surprised to learn that "suddenly, nobody in Europe wants the ECB bailout." And why should they? After all, The whole point of the gambit was to lower bond rates, which happened, which would allow insolvent government to stack even more debt courtesy of lower rates on top of record debt, taking the insanity of the old saying "fixing an insolvency problem with liquidity" one step further, and revising it to "fixing an insolvency problem with more insolvency." Furthermore, if the mere threat of the ECB stepping in and crushing any shorts or supporting longs was enough, why even bother with actual intervention. Simple: even infinite monetary dilution has its limits. That limit is and always has been cash flow, because a central bank can only dilute wealth, never create it. And for Spain said limit is approaching fast.

Recall that as we calculated on September 3, Spain is rapidly running out of cash: its consolidated cash balance has plunged from over €50 billion in March to just over €20 billion in July and dropping at an alarming rate. The cause for this drop: a budget deficit that refuses to go away, and with ~25% unemployment, what the government does to the tax rate is irrelevant as the Laffer curve crosses into the twilight zone of the Laughter Curve.

Recall also that Goldman made it very clear that Rajoy has to request an ECB bailout last week, because while he may posture for political reasons knowing once he invites the Troika his political career is done, and such posturing will cause even greater conditionality to be ultimately imposed on Spain, the real gating issue is cash.

Enter the chart that Rajoy wishes did not exist: the net cash in/outflow into the Spanish treasury due to bond/interest activity.

As is quite obvious on the chart above, and explains Goldman's urgency with a formal Spanish ECB activation request, the closer we get to October, the closer Spain gets to running out of cash. And in that particular case none of the currently implemented reality countermeasures will do anything to hide the fact that Europe's emperor was naked from the very beginning.

The flowchart then becomes as follows:

1. Find out what the Spanish cash balance was as of August. If the economy indeed contracted far more than expected, which it likely did, this number should dip below €20 billion for the first time since August 2011.

2. The September number will not be known until a month later. However, it is safe to assume that it will not be a blockbuster cash surge.

3. If the total cash balance extrapolated going into October is close to the ~€15 billion needed to satisfy the Net Cash Requirement, watch out below, as "Plan Silvio" comes into play.

3.5. What is "Plan Silvio" you may ask? Simple - in November 2011, the ECB made it very clear it would no longer purchase Italian bonds as long as Berlusconi was in charge. In essence, this was the first act of the now totally political ECB, courtesy of its then-brand new president Mario Draghi, who had replaced JC Trichet days earlier. End result: Italian bonds soared to their post-Eurozone highs, and Silvio was promptly replaced with a Goldman technocrat. Just as was planned from the beginning.

4. Of course, Plan Silvio will be called Plan Mariano in its 2012 version. It will, however, manifest itself in identical terms to its prior iteration: a bond curve inversion which forces the current administration to do the biddings of the market. Should the Spanish bond curve, however, invert, it would mean that the 2 years will literally implode, as the matched yield will soar by 300-400 bps.

5. Next steps: in 2011, one firm that literally bet the farm that the ECB would not allow a curve inversion in Italy (it did), as a catalyst to replacing the current government, was everyone's favorite client money vaporized: MF Global. Should Plan Mariano be a "go", we can only wonder how many other hedge funds and prime brokers will suffer the MF Global fate, now that buying the Spanish short end is the "no brainer" trade of 2012.

Naturally, all of the above assumes that the Spanish economic contraction has continued, and its funding needs are over and above those budgeted at the beginning of the year when the Treasury bond issuance schedule was announced.

One thing we do know: the wall of worry is now officially gone courtesy of coordinated intervention between the ECB and the Fed, both of which have gone all in on the reflation trade. And with no wall of worry to be surmounted, everyone will now be on the same side of the trade. Hopefully, for "everyone's" sake, the central planners are better equipped to dominate reality this time around, than they were back in 2006 when "subprime was contained." Sadly, they never are. Which means that the current attempt at reflation will fail, only to be followed by yet another sharp deflationary crunch, which in turn will be followed by even more CTRL-P based reflation attempts, and so on, until finally one day, disgusted by the central-planners intention to defer the advent of reality at all costs, leading to record amplitudes in prices at ever increasing frequency, money itself, in its current form, will be overthrown by the same people who use it. Because every ponzi scheme lasts only as long as there is at least one more sucker.

It is at that point that the lunacy of the status quo will finally end. Seen in this light, we actually wish to thank the central planners for taking the steps they did in the past two weeks: they simply made the arrival of the final monetary phase transfer that much quicker.

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veyron's picture

Wake me up when gold skyrockets ... and no, Thursday didnt count.

Crisismode's picture

Physical Gold @ $5000./Oz. by July 1, 2014.

You heard it here. Check back with me in 22 months.

I'll still be here.


boogerbently's picture

Israel has nuclear weapons, Iran does not.

Yet, Iran states if they are attacked, "nothing will remain" of Israel????

Reminds me of Khaddafi's "line of death".

What's he doing now, anyway?

And how did Libya fare in the years following THAT statement?

GetZeeGold's picture




What's he doing now, anyway?


Cat's dead....didn't even put up much of a bounce.


But he did talk a mean game......right up until the end.



bank guy in Brussels's picture

Jim Sinclair offered to put up US $1 million for his 10-year bet that gold would hit US $1650 by 14 January 2011 ... nobody took him up on it. Not even Warren Buffet or Charlie Munger.

Funny thing is they would have won the money, although Sinclair was close ... it only hit $1650 for the first time a few months later.

Many well-justified investor bets, lose because of timing.

You just predictin', or you puttin' up the fiatscos to back it up as well?

GetZeeGold's picture



Not even Warren Buffet or Charlie Munger.


Never gamble against's one of the rules of Fight Club.


veyron's picture

canadian monster box > american monster box

Stock Tips Investment's picture

The size of the international crisis and the "solution" they are looking for central banks, generate extreme consequences. The rising price of gold (and other commodities) is one of them. The stock of some companies. The sky is the limit.

GetZeeGold's picture



Well .999 anyway.


Death and Gravity's picture

In Figure 2, I read "coupons" as "Groupons".

Carpathia's picture

All fiat money eventually reaches it's true value of paper and ink.

GeezerGeek's picture

It never ceases to amaze me how some people can be adamantly opposed to the Fed yet accept bad spelling and bad grammar, even to the point of down-voting people who point such things out. I try to make allowances for people whose primary language is not English. I've been doing that for my (Chinese) wife and numerous (Spanish) friends for decades. Still, I find it irritating to see corrections deplored.

I don't expect comments on ZH to excuse the Fed's actions or those of politicians on the grounds of 'close enough' or 'well, I know what they are trying to attain'. This isn't a game of horseshoes or hand grenades, friends.

Western's picture

lol, hi stacking, people like you are a problem because it's annoying to have ur grammer corected.

stacking12321's picture

i gave you +1 for knowing the difference between its and it's.

chiswickcat's picture

sometimes a little value returns when they turn up at flea markets, junk shops etc, as novelty items... "hey look, there's a ga-gillion zimbabwe dollar note, it's only two $2. if i buy that, i'll be a ga-gillionaire - ha ha ha ha ha" as the stall owner forces a smile as he/she has only heard that comment a ga-gillion times before...

Cult_of_Reason's picture

What do you mean it will implode?

They said load it up with 30X leverage and don’t fight the ECB and the Fed.

max2205's picture

Wake the fuck up. Europe doesn't matter anymore

GetZeeGold's picture



So why is Ben Shalom pumping so much money into them?


knukles's picture

Which Spanish guy is this you all keep talking about?  The bull fighter or the shoe designer?

Jason T's picture

OT:  I paid $3.96 for gas last week.. $4.07 today!  upstate NY

stacking12321's picture

they were both obviously a good deal, though, as you did proceed with the transaction.

Cult_of_Reason's picture

I have been paying ~$5 for long long time now in SoCal. $4.07 is a dream.

Today's prices:

$5.09 at Shell, W Olympic Blvd & Fairfax Ave

$5.09 at Chevron, N Alameda St & N Main St

$5.29 at 76, N Crescent Dr & S Santa Monica Blvd

Advoc8tr's picture

We have been paying $1.60+ AUD per litre here in Oz for a while now - that's about $6.40 US a gallon   They pay over $2.00 per litre in Europe. You guys still have cheap gas even at $5 gall

boogerbently's picture

Ha, Ha

And you consider yourself "above" the MSM brainwashing.

Those prices just mean your corporate sponsored govt. is better at deception than ours.

honestann's picture

A question.  I assume the market for oil and gasoline is so huge that prices are fairly similar for everyone in the world.  So my question is this.  Are the differences in prices around the world for gasoline at the pump almost entirely due to different levels of taxation?  Or is something else substantial involved too?

PS:  I was reading a few days ago that gasoline in Ecuador is $1.50 per gallon.  Not bad!

boogerbently's picture

Base gas price + tax + cost of lobbying = pump price.

snblitz's picture

The world price for oil (Brent) is about US$117 per barrel.  West Texas Intermediate (WTI) is what people in the US generally pay which is around  US$100 at the moment.

So the US does get a 15% or so discount.  There are refinary costs too.  The US gets discounts there too.

However, the major disparity is local taxes.

nmewn's picture

At least we have brand new roads & bridges no one can afford to use!!!

Look on the bright side...they'll stay that way ;-)

hooligan2009's picture

i see its only $8.82 in central london for the international bankers...why do they like it there so much?

1.44 pounds per litre x 1.62 dollars per pound x 3.785 litres per gallon

Peter Pan's picture

How on earth all these nations think they can repair their balance sheets when their cash flow is negative is beyond me.

What is therefore even more fascinating is that there are Euro nations even contemplating the financing of nations such as Spain which have a negative cash flow and no offer of collateral.

The world either has to take its writeoffs upfront or disintegrate over a longer period of time which will create greater evils, conflicts and imbalances.

GernB's picture

The pain they have to endure to repair thier ballance sheets is unimaginable. It is the unbearable pain of having to live within thier means. No people should be asked to shoulder such an immense burden.

nasdaq99's picture

and according to elmundo, the rail system has started another 24 hour strike:


elpais said that the 750,000 square foot square where the demonstrations took place yesterday was packed.  250-500,000 people?

q99x2's picture

Is Greece going to default and leave the Euro? And if so, how long is that going to take?

bank guy in Brussels's picture

Really it's a gambling crap shoot as to whether Greece, Italy or Spain will leave the euro first, all due to internal political dynamics in the face of actual or threatened austerity cuts under the boot of the EU-Troika.

Despite Greece being in the worst shape, there are a lot of different factors in play, including how bribed or captive the politicians might be to the broad European banking class.

Italy would have the smoothest sailing after leaving the euro and the best rationale. They are a strong export economy; they have quite low debt aside from public debt; Italians are actually richer than Germans in net worth after debt (though Germans have higher income). In some ways their only real economic problem is the euro.

Berlusconi might shortly ride back into power in Italy on an anti-EU platform, and be able to instantly have his revenge for the EU-ECB putsch against him described in the above article.

Greece has a lot of special factors, including how people psychologically are attached to the EU because of feeling threatened by Turkey (which militarily invaded Cyprus a few decades back, Cyprus a majority Greek-speaking country which is really part of 'greater Greece'). Greek society has really crumbled under the Troika, and there is so much pain there that an anti-euro explosion may happen shortly.

But Spain has a lot of internally building pressures that may make it the first to leave. Its economic mess is fueling strong separatist movements in its Catalan- and Basque-speaking regions, and it might actually blow apart as a nation as well as leave the euro.

For a while I have thought Italy will be the first to leave the euro but it is anyone's gamble as to who goes out first.

The EU seems to think it can always step in at the last minute and shovel in enough printed money to prevent anyone from leaving ... but I increasingly feel the political pressures under imposed 'austerity' have gotten out of control. (Austerity meaning the cuts to incomes and benefits of working and poor people, not the ZH definition as 'overall debt reduction' of a society.)

boogerbently's picture

In a vacuum, the financial mess would take a few more years to play out.

The ever increasing global violence and posturing will shorten that timespan.

The worst (soonest) "realistic" catalyst would be Israel attacking Iran BEFORE the election, forcing the "muslim in chief" to back them. A good war could steer us away from the "fiscal cliff."

nmewn's picture

Jou've got to pump it aaawwwp...SNL ;-)

Yen Cross's picture

 Spanish Submission, is imminent!

falak pema's picture

that's like : "my orgasm is imminent...i've been waiting for it since...well, like the zh forum, i'm running out of patience; and i've stopped counting!" 

BTW : you never know what draghi can do; he may get Berlu to organise a bunga bunga for the frustrated cash hung Spaniards! Imagine being cash hung when you're guns are primed, well slung and all oiled in their holsters, and ready to pop.

Those ECB shills weren't born yesterday and learnt their tricks on WS bigstick-house of squid GS. 

Can kicking and now frontpage CB shilling keeps the world guessing. 

WHen is it cummmmmmmmminggggggggggg???

Now you can feeeel the urgency!

Are we deep shit into wishful thinking?

Or is this the REAL thiing?

Schmuck Raker's picture

"...none of the currently implemented reality countermeasures will do anything to hide the fact that Europe's emperor was naked from the very beginning."

Balee dat -

ebworthen's picture

You can't pay the middle class crap and charge them an arm and a leg for housing, healthcare, gas, and food, and expect it to turn out well.

Enjoy the parties elites, you heads are headed for nooses and guillotines along with a lot of innocents.

Why oh why do we repeat this cycle over and over and over again?

Where is Jon Corzine, et. al.?

Martin Antolinez's picture

Tourism in August will help pump up net cash flow. Unfortunately that does not take from the big picture, maybe delay the day of reckoning just 1 month. 

BKbroiler's picture

excellent post.  The whole "Silvio/Mariano Plan" insight is fantastic, we now have bankers ousting elected officials and inserting cronies.  Not to worry though, Silvio is coming back baby, bunga bunga, vafanculo!

GlomarHabu's picture



Tyler uses many graphs and charts. For the boobouise, anti intellectuals, and those who are smarter than Arisitotle I suggets reading "Charts and graphs for Dummies"

why Habu?

well have you read some of their posts?


need any other answer.

nope, I see what you mean.

Go Israel, nuke the muzzies. 

GlomarHabu's picture



WHY obama wants a second term's not what you think


A second term will allow him to do the obvious things many commentators have already pointed out. Things like continuing to dismantle our republic, ruin our economy and destroy our military. If elected you can take those items to the bank.  But barry boy is looking beyond all that.

barry boy knows there are 1.5 billion muslims worldwide. They already have a huge footprint in almost every European country and they are breeding like rabbit’s with an average of eight children per couple compared to the Wests  1.2 to 1.5 per couple which is not enough for a civilization or society to continue in existence.  The muslim world lusts for a worldwide caliphate and the glory it will bring mohammad.  barry boy wants to be the head cheese of the muslim worldwide caliphate, and he can pull it off.

barry boy will allow Israel to be destroyed and in future years that will play to his muslim world in a huge way. barry boy will also have all the protections former presidents get so the US taxpayer will be protecting him after he’s destroyed this country and moved on to become the leader of the caliphate.

This is why barry wants a second term.

Go Israel ..nuke the muzzies and Iranians.

Hey Habu?


think the networks will let their "reporters " stand under nuclear fallout?

Well, we can always hope.

funny dude.

Nice talk'n but I'm gonna take the Porsche out toys need love too.



..and folks you're really not giving it you best effort. what does a comtinbutor have to do to get into triple digit down arrows?

I mean I depend on group validation so much ...but