Spain Reminds Us What The Main Problem With Blank Checks Is: Says Q2 GDP Will Be Worse Than Q1

Tyler Durden's picture

Even as Spain, Italy and soon France are scrambling to break the link between sovereigns and banks, an unpopular move that until recently Germany was very much against as it permitted the culture of endless unsupervised bank bailouts on taxpayer dimes to continue, we get a fresh reminder of why any unconditional aid, entitlement, or backstop guarantees funded by "other people's money" is always inevitably a bad idea. Case in point: Spain, which just said that its economy will contract in Q2 even more than in Q1. This reminds us why any claims of "austerity" are a total mockery: only Keynesian priests seem unable to grasp that countries gain much more upside from pushing their economies to the brink only to be bailed out, than from engaging in real economic viability and sustainability programs: i.e., living within your means (something we proved empirically before). Finally, this is also a stark reminder that when one removes out all the bailout noise and the daily high-beta gyrations of sovereign debt, the real reason why sovereign bondholders should be buying Spanish debt - an actual improvement in its economy-  continues to not only be absent, but by the very nature of endless now-monthly bailouts, becomes impossible as debt never fixed more debt

Here is the latest steaming pile of reality just served from from Spain, via Bloomberg:

  • Data for 2Q show contraction was “slightly superior” to that of 1Q, Spain’s economy minister said today during a conference in Navacerrada, near Madrid.
  • The deterioration is "not very significant" says  Guindos
  • Spain is “totally committed” to austerity: Guindos
  • Says EU summit “intensified” European project, sent message of solidarity
  • Says Spain must show public finances, services are sustainable

No they're not. It's ok though: the government did not cut more spending than necessary
in order to live within its means, because it knows that if things get
bad enough, and yields on debt soar, someone, somewhere will step in and make the price of debt, so critical to plug the ever grown deficit hole, sustainable for just a little longer, even as deficits accumulate to a level that is simply ridiculous, at least until the next risk flaring crisis.

This is precisely what Monti and Rajoy showed at last week's Eurosummit: every time things get worse, someone who has done the right thing, has to fold to keep the party going for all the crack addicts.

The problem with this approach, and it applies to the US entitlement state underfunded by about $100 trillion just as much as it does to Europe, is that at the end of the day only math matters. One can push for artificially lower yields to keep the game of musical chairs going longer, but not even naive children believe that there could be a happy ending to a farce in which one time bailouts continue to enable self-destructive behavior, which in turn becomes a Mutually Assured Destruction gambit to the worst offenders.

In the mean time Spain's already deep recession is about to become even worse, to be followed by Italy, France, and soon, Germany too, now that it has decided to spread the wealth.

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I am Jobe's picture

Don't stop printing.

The Monkey's picture

Or stimulatin'. 50 bps rate cuts and Chinese stimulus on the way...

old naughty's picture

I was "told" the Law of Dwindling Returns is for us muppets.

So, it applies to sovereigns too?

markmotive's picture

There's no such thing as a free lunch.

Marc Faber on the perils of money printing's unintended consequences:

vast-dom's picture

"One can push for artificially lower yields to keep the game of musical chairs going longer..." Bernank is ready to play ad infinitum, or at least decades like Japan. Game is rigged and fucked.

Mongo's picture

Send the bill to the Germans

Peter Pan's picture

The Germans have always been the victims of their leadership and their willingness to obey it.

Mongo's picture

What the fuck is "slightly superior"? ... Who the fuck are these turds... oh never mind.

Harlequin001's picture

'Slightly superior' means that by making things seem worse now to get a bailout, when the gravy train finally comes off the rails they will be able to claim a better and stronger 'recovery' through austerity' in the aftermath in the hope that stock markets will soar, I think...

I'm sure there's some logic in there somewhere...

Peter Pan's picture

Did he say slightly superior? Even George Orwell couldn't come up with something like that in his masterpiece 1984,

sablya's picture

For in a single hour all this wealth has been laid waste.”

And all shipmasters and seafaring men, sailors and all whose trade is on the sea, stood far off and cried out as they saw the smoke of her burning,

“What city was like the great city?”

And they threw dust on their heads as they wept and mourned, crying out,

“Alas, alas, for the great city

where all who had ships at sea

grew rich by her wealth!

For in a single hour she has been laid waste.

Rejoice over her, O heaven,

and you saints and apostles and prophets,

for God has given judgment for you against her!”

(Revelation 18:17-20 ESV)

Ancona's picture

When this thing finally blows, the columns of smoke will be visible for miles....

Harlequin001's picture

You'll hear the bang on the other side of Saturn...

Cognitive Dissonance's picture

For all intents and purposes when this thing goes it will be a global event. This means everyone has the best seat in the house.

Except for those who are more equal than others....the 1%ers if I'm not mistaken. They get front row center seats.....right where they can be splashed with their fellow 1%ers blood and guts.

Surfs up

old naughty's picture

They don't care; they gulp down their own kind.

financial apocalyptic contagion's picture

1%'er hunters will be the Nazi hunters of the 21st century!

bring it

LULZBank's picture

When this thing finally blows, the columns of smoke will be visible for miles....

Dont hold your breath... You would'nt even know what happened and when.

EscapeKey's picture

...and stuff.

This line:

Spain is “totally committed” to austerity: Guindos

works better in the voice of a whiny teenage girl, and if you add the words "like" and "and stuff" - and sounds more believable as well!

Spain is like “totally committed” to austerity and stuff: Guindos

falak pema's picture

wait for Q3/Q4 and... like for the sunday golfer, 2013 will be really downwhill.

ZippyBananaPants's picture

Is that like saying my dick is slightly superior in shortness than the average American weiner?

Always can put a positive spin on anything I guess.

slaughterer's picture

In Q3 it will be "even more superior"

Lucius Cornelius Sulla's picture

You can bitch about the situation all day long but the bottom line is how do you use this knowledge to your advantage?  How long will the market levitate on the hopes and aspirations of a political class desperate to keep the status quo alive?  If you can answer that quesion, then maybe one can position themselves to survive and prosper.

indianajohns04's picture

Buying rental properties near universities, PM's,  and shorting XIV everytime the VIX is below 17.

sabra1's picture

me, i have the locations of all the fools, who were on episodes of "Doomsday Preppers." if you're stupid enough to appear on that show, you deserve to be seperated from your stash!

LULZBank's picture

Haha... Smart ones will always survive, even without any stockpiles.

I sometimes think to myself as well, that these guys with big caravan or mobile units with big solar panels on top. When the TEOTWAWKI is here, and there is lawlessnes, these guys driving these mini motorcades will be like those flashing targets in video games, whom you can shoot for multiple bonus points.

Non Passaran's picture

Good idea for making (zombie) friends. 

When TSHTF those places will be zombie magnets.

WonderDawg's picture

I've been pondering the rental properties near universities myself. However, there is a huge bubble in student debt, and like other bubbles, this one is unsustainable. I wonder what will happen to university enrollment when that bubble pops. Tuition costs will likely drop, but so may enrollment once this ridiculoous monetization of education ends. So is there a bubble in university area rental property and will it pop?

Peter Pan's picture

In a chaotic and dysfunctional world there is no such thing as perfect wealth whether it's called guns, gold, food or whatever. Perhaps only a sense of community can come close to riding out the approaching tsunami.

Non Passaran's picture

Been buying domains with names similar to famous e-learning sites...  Universities are overrated.  I expect formal education to last shorter and become cheaper. 

lotsoffun's picture

wait and watch.  student loans dry up and mommy and daddy watch their 401k's drop like their home value, and they ain't paying for billie and sallie to hook up at college in a $1,000/month rental.



otto skorzeny's picture

how is this even possible?

cherry picker's picture

In the old days and even now, cattle ranchers brand their cattle so they know which ones belong to who. 

In this high tech world, the same is done to people in a different sense.

Everything is now recorded, rightly or wrongly, in a digital format, matched to "social security" numbers, fingerprints, eye scans and photographs and kept for a digital eternity.

There is no "forgive" or "forgetting".

A person receiving a DUI thirty years ago will still be a "drunk driver", even if he or she no longer drinks.  Someone who was arrested and never charged will always have the arrest shown, regardless whether guilty or innocent, as the arrest in and of itself implies where there is smoke there is fire.

This applies to everyone of course, except for those responsible for implementing and maintaining the digital "big bro".

If we object to the continuous debt cycle, we will be branded.

I think this place we live in is akin to a couch potato hell.

LULZBank's picture

One day people will figure out how to end this madness. Even the ones who say "You have nothing to worry about if you have nothing to hide."

StychoKiller's picture

Nothing to hide, huh?  Then WHY are YOU wearing clothes?

EVERYONE has something to hide.

iDealMeat's picture

Consumer consumption is consent for the big bro state.  Cut your consumption in half and help accelerate the crash of a broken system.

LULZBank's picture

Now... now... dont be talkin' bout doin' summit practical. Diss-cussin is our way of tellin 'em to fuck off.

iDealMeat's picture

FAIL.  Comments like that just perpetuate status quo stupidity..


mkhs's picture

Only if the rebellion fails.

apberusdisvet's picture

Of course the real agenda is never mentioned; that of incremental (and truly insidious) total control over all of the sovereign states  with unelected technocrats in charge of the debt enslaved sheeple throughout the Eurozone.  Goebbels would be laughing at this continuous proaganda dog and pony show.  The only question remaining is who becomes the new Hitler?

Mr. Lucky's picture

Exactly; and November isn't too far off.

LULZBank's picture

Nothing happens in November, or even after. Just the carrot for the "awake sheeple" to look forward to for now. And then there will be something else.

Mr. Lucky's picture

I hope you are correct.

aleph0's picture


The deterioration is "not very significant" says Guindos
Spain is “totally committed” to austerity: Guindos

Sort of contradictory .. and then this :

Says EU summit “intensified” European project, sent message of solidarity [ or sympathy ? ]

 Like ... we'll all go down together 

... Baghdad Bob in Spain ?

kraschenbern's picture

But the sovereign's credit is never questioned.

And the bank will hold assets guaranteed by the sovereign.

So all is well.

RobotTrader's picture

IBEX 35 made another new high for the move on Friday.

The lows in Europe are in.

A Man without Qualities's picture

I'm not sure how well you know the components and weightings for the IBEX, but it is basically three main subsectors:

Banks/ finance - the big question is what hit to equity will the conditional aid create.  The idea that the other European partners are going to inject capital but leave equity unscathed is pretty remote.

Utilities - the price fixing mechanism means these are bleeding cash.  There is a capital shortfall of around €27bn needs to be addressed.  The consumer cannot pay more, the government is broke and therefore there is no immediate solution.

Construction - nuff said

It may be that the lows are in - the low being around 6,000, but we are up 20% from there on the back of some pretty vague agreements and there is still plenty of hidden nasties.

Anyway, given the 6% rally on Friday (which continued after hourse) that was not matched by the bond market, I have gone short as I expect the market to sell off this week as PMI data shows there is no light on the horizon.

LULZBank's picture

You are wasting your time. He will be posting the same shit again tomorrow, if not today.

LULZBank's picture

Please make it default!!! I cant take it anymore!!!