Spain: The Ultimate Doomsday Presentation

Tyler Durden's picture

Since we have grown tired of variations on the theme of "The Pain in ...." (having been guilty of encouraging it ourselves), we will spare readers this triteness, and instead summarize the attached must read slidedeck from Carmel Asset Management as the ultimate Spanish doomsday presentation. Naive and/or idealistic Spanish readers are advised to resume sticking their heads in the sand, and to stay as far away as possible from the attached 54 pages, which prove without any doubt why not only was Greece the appetizer (have your UK law:non-UK Law divergence trade on yet?) but why things in Europe are about to get far, far worse, as the Hurricane shifts to its next preferred location, somewhere above and just south of the Pyrenees.

In summary, here are Carmel's five reasons why Spain's problems are worse than the market anticipates:

1. Spain’s national debt is 50% greater than the headline numbers

Spain’s debt-to-GDP balloons from 60% to 90% of GDP with regional and other debts

2. Spain’s housing prices will fall by an additional 35%

Spain built one house for every additional person added to the population during the past two decades; the fall will decrease GDP by ~2% each of the next two years

3. Spain has “zombie” banks with massive loans to developers and to homeowners

Banks have not begun to realize losses and are vastly undercapitalized

4. Spain’s economy has not stabilized and will continue to deteriorate

Spain has the highest unemployment in the developed world, one of the highest overall debt loads, and the most uncompetitive labor market in Europe

5. The EU will not have the firepower or political will to bail out Spain

Rescue fund headline numbers are misleading and count capital that is not yet committed

And here are the problems that will manifest themselves over the next 12 months:

  • Spain’s true debt burden will pass the 90% “tipping point” identified by Rogoff and Reinhart
  • Housing prices will fall further and faster than anticipated (consensus is 15%; CAM estimate is 35%)
  • Banks underestimate the residential real estate loan defaults (consensus estimate is 2.8% vs. CAM estimate of 11%)
  • Expected housing price depreciation and loan defaults will deepen Spain’s recession (additional 2% contraction in 2012 and 2013)
  • Spain will need to refinance €186.1 Billion in 2012 alone

End result: surging CDS and/or plunging bond prices, if faith in the sovereign CDS market continues to be at rock bottom lows courtesy of ISDA nearly blowing its own head off.

Full presentation:


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Silver Bug's picture

The debt crisis is going to continue to get worse across the western world. There is no option except QE to infinity at this point.

DormRoom's picture

yeah, but QE & Oeperation Twist  allows the Central Banks to transfer risk/debt to its balance sheet, increasing money reserves, but not money.  As long as the velocity of money is low, they can keep keep on doing this, and contain inflation.  Though there will may be leakage (oil/commodity speculation), currency inflows to the BRICS, stoking inflation there.


The intent is to keep the yield curve low (Operation Twist), and provide market liquidity (QE) for  businesses & incentivize government to borrow & spend, as household deleverage.  They can fulfill the price stability side of the mandate.  But full employment requires assistance from the fiscal authority.


Keep in mind that the worries about a credit crunch have dissipated sine QE.x.  As of yet, no borrowing from the government despite record low rates from Operation Twist.


Also, it's not like the Fed is going into this blind.  Japan experienced the same liquidity trap in the mid to late 90s.  The problem with Japan was that the series of stimulus were continually below necessary levels.  So if the US can provide a SINGLE LARGE enough dose (relative to GDP) of stimulus, it can probably side-step Japan's debt problem.

JPM Hater001's picture

I've heard this velocity of money argument against hyper-inflation developing but I think it's important to remember that there is no 0-60% governor. Money sure seems to be moving quicker to me. About 11% and I don't think we are really prepared for fuel prices to hit consumption. What we consume now was manufactured 4 to 6 months ago.

Thanksgiving average fuel price was 3.31. Today of course 3.93.

That's almost 19%. Now imagine that companies have trimmed to offset but that has ended. They have to pass value eventually on for the benefit of the shareholders. That may happen slowly or nearly all at one. Much higher than 19% and you are into month over month double digits....especially with ben's printing fiesta.

Non Passaran's picture

... over a period of 20 years.

Which CB does NOT have such plan?
Nothing to see here...

Mr Lennon Hendrix's picture

The dollar has lost 98% of its purchasing power over its lifetime.  So a 33% loss on its % of purchasing power means what?

Easy math:  The dollar is dead - Long live the dollar.

The Big Ching-aso's picture



Sounds like you think 'balance sheets' don't mean shit.  If so, why can't I transfer all my debt to a 'balance shit' too?

derek_vineyard's picture

only in a dorm room will fed policies be believed

dorm room gunna git a rude welcome to this real world

Ayreos's picture

Spain can only go down, it's all about Italy. The EU can take spain by queezing their all, but not if Italy pushes more shit into the fan.

Straying from the flock's picture

It is the normalcy bias that keeps us from standing up for ourselves.  Separate yourself from the herd.  Soon there will be a new paradigm and those not aware will be fodder for the masses.  People do many odd things when you take away their future.

macholatte's picture


The EU will not have the firepower or political will to bail out Spain



"The answer is simple: In today's world, we cannot afford the luxury of staying in our own mental backyards."

IMF chief calls on US for more cash


TBT or not TBT's picture

Let's stay in our physical backyard then. 


We get 80% of our oil from this hemisphere, and could get all of that way, by weeding out our mental backyards enough to duh, deregulate and enable shale and oil sands imports, just for starters.  Let the GD MF pansy Europeons fight with the whole of the Eurasian continent over the oil from Shoddy Retardia and Northern Kleptistan(formerly Russia).

hungarianboy's picture

In the meantime gold will be dumped all over the place :)


killallthefiat's picture

33%?  I want gold at $10000 now.  Don't care but I want it noooooooowwwwwwwwwwwww.

Mr Lennon Hendrix's picture

V is relavent in terms of p, the price index.  Bernanke is fixing prices, and he touched on this during his GW lecture. 

Welcome to the USSA

LawsofPhysics's picture

You are correct sir. just ask yourself how capital controls and price fixing has worked out before? Moreover, when manufacturers and producers can not get the prices they want, they stop producing and manufacturing. History shows very clearly that you can have hyperinflation without increasing the money supply or velocity. If there is a single gallon of milk in the city, it will be fucking expensive. Especially if the producers have been long since forced out of business.

Fucking morons.

lasvegaspersona's picture

moreover if there is a ton of gold but the owner will not part with it for any amount of cash the dollar becomes soon..

Caviar Emptor's picture

There doesn't need to be a big pickup in th evelocity of money for pain to be acute under biflation: just like if you're standing in quicksand, even a low stool will eventually seem high and out of reach

Buying power of the dollar continues to deteriorate as the crushing combo of higher prices combines with a sagging economy (decreased pay, employment and social mobility). 

One of the key problems is that the extra liquidity "pumped into the economy" by the Fed gets sequestered into an ever diminishing number of already rich hands (which have no intention to redistribute). 

Die Weiße Rose's picture

to determine the value and cost of anything, I find it helps

when we convert any given volume to a smaller unit:

for example Crude Oil:

1 barrel of oil (bbl) is defined as exactly 42 US liquid gallons.

 1 barrel of oil (bbl) = 42 US gallons = 158.987294928 litres


 therefore 1 barrel of crude oil (bbl) at $100 USD per 42 US liquid gallons:

1 US Gallon of crude Oil ($100 USD ÷ 42 US Gallons) cost = $2.38 USD

1 litre of crude Oil   ($100 USD ÷ 158.99 litres) cost = $0.63 USD

1 litre of crude Oil costs about 63c

therefore Oil @ $100 USD (bbl) is cheaper than water in the US...

but then you still got to refine the crude Oil into Gasoline,

unless it is the sweet crude Oil produced in Iran,

that comes already sweet and refined out of the ground..


Atomizer's picture

@ DormRoom Masterbater

In the wake of the Asian financial crisis, many regimes in Asia adopted stricter provisioning requirements, as well as discretionary measures, with the objective of increasing provisioning in good times in response to rising levels of risk. Based on a final sample of 240 banks in 12 Asian economies, the evidence is that countercyclical loan loss provisioning has dominated throughout emerging Asia, most strikingly so in the case of India. Thus, loan loss provisioning did not simply become more conservative at all points in time subsequent to the Asian financial crisis, but actively leaned in a fashion that ameliorated swings in earnings and the macroeconomy.

When the BRICS stack up

Just a little info to look at before forming a Muppet Stream Media parrot reply. For example..

BRIC Members Will Not Reach Agreement: Expert

Wed 28 Mar 12 | 06:45 PM ET
Donald Straszheim, Senior Managing Director, China Research, I-S-I Group believes BRIC nations will be unable to reach a consensus at their Annual Summit due to the fundamental differences in their economies.

DormRoom's picture

what?  None of that is remotely relevant to the arguemnt that the US in a balance sheet recession, and a liquidity trap. 



Richard Koo provides a better argument on how the US can get out of its liquidity trap.

Richard Koo presents to the Argentine Central Bank.

CryingBear's picture

i junked him too but i don't know why he got junked so much. i think he has a good argument here.

Market Efficiency Romantic's picture

Velocity is a pseudo explanation trying to disrupt the mechanics of money supply. In essence it only is a measure of how well money supply finds their intended receiver and provides him with the benefits while shifting the inflation logic into the future via commodity production investment (driving prices of future basic products which much later hit the US consumer via the latest igadget price tag). Alternatively, money supply ex-post compensates the debt-driven income inflation of financial asset holders and managers (deleveraging and sovereign carry trade).

Technicall, I follow the argument of monetary action to distribute liquidity shocks over time and the need for fiscal policy to counter solvency issues.

But with all technical legitimation, look at the real effects on larger parts of society:

First, cash assets are devalued, however with a delay, so that the devaluation lever can be built over time. Hyperinflation is only the tip of the iceberg, the visible delayed consequence of prior action. That I call planned cold devaluation.

Second, real assets as the net worth of a society will be taxed significantly legitimized by the need for fiscal policy. It has to be taxation of assets, as income taxation would even further deteriorate macroeconomic dynamics via lower spending on consumption. This is planned de-facto asset deprivation.

The global scale and seeming predefined outcome suggests that this is meant to mark the tipping point towards equal men without assets, but much debt and no de-jure or de-facto sovereign power to regulate possible sanctions on defaulters.

Market Efficiency Romantic's picture

"money supply ex-post compensates the debt-driven income inflation of financial asset holders and managers"

That's the Bernanke/Draghi recursive Ponzi. A second order Ponzi to laterally shift relative wealth within society. Inflate relative class income through financial asset price balooning and financial asset management rewards, refinance it with democratically underlegitimized central bank printing and then let all of society carry the bag in form of inflation.

The large share of debt in the composition of financial asset values is by definition transitory, so how can benefits be realized and manifested, especially in the light of direct need to refinance by central banks with 'public money' now. Madoff was not acquitted even though he had committed the crimes prior to the public realization that the money was gone. This is not meant as an ethical question, though. Once the simple three-step-logic of 'privatize gain - anonymize amount - socialize loss' is politically, sharply articulated in the light of massive net worth losses, the financial sector will feel some very painful hatred from the masses.

AbelCatalyst's picture

Yo DormRoom! Wake up and smell yourself! Good to see some plants from the FED are here trying to seed the conversation. The only issue is the people here understand the nuances of your arguments - they know that QE will lead to higher gas prices and flat incomes.

The know low interest rates will kill pensions. They know that a weak dollar means higher food prices. They know that the free market does a far superior job regulating the markets and the tinkering that you're discussing. We know that having companies with poor business models go bankrupt is a good thing - failure is an option in the real world which makes one think long and hard before one allocates their individual resources.

We know that risk is a good thing and that consequences are an essential part of life. When you remove the net people are far more cautious, more aware of what they are doing, more self sufficient. The removal of risk and consequences are toxic because risk and consequences will always show up in some form or another. The pressure will build and this tinkering by Central Planners is going to end in a very dark place.

Sadly, it all could have been avoided but now the people who are the most vulnerable will suffer for the selfish and greedy bastards who brought us to this endgame. Shame on all of us for allowing this to happen!!

The darkest hour precedes the dawn!

centerline's picture

You are falling into the "government debts don't matter," closed-system bullshit of neo-classical economics.

Some ideas look great on paper but fail miserably because they don't account for the fact the system is captured and beholden to financial interest instead of the interests of any nation.

Also, the "massive boost in government borrowing" completely ignores the downstream effects on other currencies, import/export balance, etc...  the stuff that trade wars (and real wars) are made of.  Remember that the USD is the reserve currency.  And when it stops being the reserve currency, the party is over for the US.



GMadScientist's picture

What they cannot do is convince people who have savings to invest in obviously fraudulent markets, buy houses above fair value (a.k.a re-inflate MBS bubbles), or spend money they don't have after getting raped at the pump. Pretending that saving over-leveraged people with poor math skills and a bad gambling habit is a way to manage a currency or that skewering working people with commodity price skyrocketing (even if he doesn't count it as inflation) will bring jobs back is the worst kind of cargo cultism. To say nothing of the effect this lunacy has on countries that aren't OECD debt-whores.

Chumly's picture


Um,...well,,...never mind...

AGuy's picture

"increasing money reserves, but not money."

Incorrect because the gov't spends the money it borrows from the Fed. This money enters the economy increasing the amount of money in circulation. Operate Twist is also increases the Money supply because the it frees up capital by providing the means for current bond holders of long dated bonds into cash.Consider that operation twist is permitting China to dump its long term bonds at a higher value then they purchased them (years ago when rates were higher). Then China uses the cash to purchase Oil, gold and other tangable assets. We have a lose-lose scenerio.

In addition, Primary dealers borrow from the Fed and purchase short term bonds creating stealth QE, since the fed is indirectly purchasing Gov't bonds. These purchases do not appear on the feds balance sheet, Yet the Fed is still purchasing gov't debt.

"The problem with Japan was that the series of stimulus were continually below necessary levels"

No the problem is that Japan choose to not fix the primary causes by permitting bad assets to be written off as loses and permit real estate prices fail to health valuations. All it did is extend the recession for 20+ years. Japan is worse shape its ever been and is closing into a Greek style crisis with too much gov't debt and no growth. No matter how much and how hard the Japanese gov't tried to stimulate it failed, again, and again, and again...

Consider that in 1925 the US suffered a terrible depression caused by a real estate bubble. but because market forces were not interfered, it lasts a mere 18 months and the economy bounced back better than before. When the market is manipulated crisises last for years if not decades (examples, the Great Depression and Japan's 20+ year recession).

At this point all this is irrelevent, The US is completely insolvent and its going to collapse. The only thing preventing a fast crash is money printing, but that can only go on for so long because the currency will eventually become worthless. The only wildcard is a engineered global war to stimulate the economy and distract the public and the rest of the world from the real issues. Next up is Iran.






steve from virginia's picture


Heh, heh ...

you were doing good there, sonny w/ the QE non-inflation (it's moral hazard that causes the increase in the money supply, that and wishful thinking).

Where ye go wrong is not questioning wot the debt is to be used for. More of the same means bankruptcy!

Big problem for Spain is it borrowed so it could waste capital: it needs to borrow to obtain more capital AND service its legacy loans!

Nobody has gotten serious about this little problem so it gets bigger until someone pays attention. Greece should have caught the peep's eye but the whole matter was papered over. "Deadbeat Greeks!" the Eurocrats cry but the real culprit is peak oil.

Borrowing to buy fuel and burn it up for nothing. The world's business plan since the end of World War ... One! So ... Greece goes ... then Spain ... Then Ireland ... Japan ... China ... there is nothing to stop the process, the entire world's econmies are headed for the hopper one after the other, big ans small alike, what happened to Greece will happen to all ... Somalia, Yemen, Afghanistan.

Plan B is stringent conservation, cut fuel use by 2/3d to start. Alternative is what is underway in Spain, conservation by other means.

Troy Ounce's picture the households deleverage.... So when everything is reasonably paid off and debts are at a "normal" level the households will run back to the mall and start spending like the early days....??? American consumers are not stupid! Welll...having said that...OK

bank guy in Brussels's picture

Yes, as Jim Sinclair said long ago, at the end, it is the only tool in the Western toolbox:

Monetise, print, and inflate.

Mario Draghi has already started with the LTROs. They are over for the moment, but their short-term effectiveness, means More and Bigger Money Printing are next.

This was really covered well in another ZeroHedge article a few days ago, extensively quoting David Zervos at Jefferies.

Yes, Spain and Italy do menace to blow up Germany and northern Europe, because our banks, pension funds and insurance companies own the Spanish and Italian bonds.

But Germany and the north will not admit to their people that their pensions and insurance annuities cannot be paid in actual value ... which they would have to admit if they let Spain, or Italy, blow up, which would in turn blow up northern Europea.

So even the Germans, kicking and screaming, will finally consent to monetise, print and inflate ... the only strategy to prevent the Northern European citizens from seeing the truth too quickly, and the only strategy to keep Spain and Italy going in the Ponzi game as well. Great ZeroHedge piece:

The Limerick King's picture



The threat of systemic collapse

From world-wide liquidity traps

Means choices are moot

There's only one route

The FED must keep open the taps

Market Efficiency Romantic's picture

I agree with most of your argument, but I wouldn't be so sure about Germany taking infinitive printing (even if successively doubled) based on the scare of facing truth. The real effects of printing and taxing assets will hit people much harder than adjustments to pension annuities, which make up only a small part of German pensions. Further, currency debasement will hurt Germans more than any other Europeans. As is the discipline in accumulating assets, the capacity to suffer in defending net worth is a German virtue.

But that's why plan B, C, and D are in the pipeline, reminding Germany of target II etc. whenever their willingness to cut off a leg to survive becomes to vivid.

Gully Foyle's picture

Another Climate change absurdity

Nasa scientist: climate change is a moral issue on a par with slavery

Prof Jim Hansen to use lecture at Edinburgh International Science Festival to call for worldwide tax on all carbon emissions

francis_sawyer's picture

These fuckers need to pull their heads out of their asses... (&, of course, brush their teeth)...

oogs66's picture

or writing off debt, taking bank shareprices to zero, and starting from fresh, sustainable levels

jekyll island's picture

The problem with any doomsday scenario predicition is that you can only be right one time.  

EconSammie's picture

Back in late January I read an excellent article explaining the depth of the problems in Spain and Portugal. The author thought that an economic depression in both was looking ever more likely. As events have develloped it seems that the media is catching up with him. Here is a link to it.

smiler03's picture

Zerohedge was months if not years ahead of Jan 2012.

DormRoom's picture

EU to become the United States of Germany soon.

bank guy in Brussels's picture

Not really. Everyone here is halfway in revolt against the EU already. We are past 'peak EU' which was in 2010.

Anti-EU parties and platforms are in the ascendancy. The EU will retreat to more of a free-trade-zone organisation, like it was ten years ago.

The big Super-Duper EU Empire plan is in decline, and the Germans will soon be forced to retreat too, by both political circumstances, and the fact the economic blowback will hit Germany shortly too.

GeneMarchbanks's picture

It will probably begin this year in earnest with Hollande who probably will have a more symbolic win than a real division from EU orthodoxy. Still, it is already palpable

Calmyourself's picture

Good thing you have all those guns, lol...

TBT or not TBT's picture

Nuance, European  governments have guns, serious guns made for shooting at people, and the citizens, not so much.   

Forcing utopian civilisational models and central planning values on the subjects requires it, so they got to the gun confiscation early.

Meanwhile, in the USA, gun and ammunition plants have been running three shifts since the 08 election season. 

gatorengineer's picture

Your not thinking quite big enough.......  The EU and the US will become one.......  We already have in effect a monetary union with a soft peg (yes I believe there is a behind the scenes agreement to keep the euro and dollar within a rather narrrow range)........  This is largely done to poke china in the eye, and to bleed their trade reserves back to Arabia......  Ben can and will bail out Spain, initially through the IMF in a semi sterilized fashion and when that is inadequte directly......

Within the next 6 months to a year the globalists hands will be forced.  They were hoping to wait until the second coronation of Barry but I dont think the news cycle is going to co-operate.




tabasco71's picture

I agree. Euro is already the worlds second reserve currency, and its politicians are much more pliable than the Bric's.  With a USDEUR 'currency' the west can maintain sufficient volume to dominate against the strengthening EM currencies.

lolmao500's picture

Erdogan: Turkey will take 'steps' if Syria disregards ceasefire deadline

Uh oh.

Israel threatens to strike militants if Egypt fails to secure Sinai

Uh oh.

N.Korea Expected to Launch Rocket on April 14th

More Furious: U.S. Soldiers Trafficking Arms, Drugs to DEA Agents Posing as Los Zetas

Photos: U.S. Army Domestic Quick Reaction Force Riot Control Training

Sy Hersh: U.S. Funded and Trained (on U.S. soil) Iranian Group on State Dept. Terror List

Fukushima Reactor 4: Life On Planet Earth in the Balance

And in the UH OH department :

USS Enterprise must obtain IRGC permission to enter Persian Gulf: report

And in the Let's make sure a stupid race war begins in the US :

White Gunman Goes On Killing Spree In Oklahoma: 3 Black People Dead, 2 Injured

Neo-Nazis patrolling streets of Sanford, Fla., where Trayvon Martin was shot and killed: report