A Quick Reminder Ahead Of Tomorrow's Spain Debt Auction

From Mark Grant, author of Out Of the Box

Devoured By Snakes

“'Tis an old saying, the Devil lurks behind the cross. All is not gold that glitters. From the tail of the plough, Bamba was made King of Spain; and from his silks and riches was Rodrigo cast to be devoured by the snakes.”

                                                     - Cervantes


Spain’s GDP                                                      $1.295 trillion


Admitted Sovereign Debt                                 $732 billion

Admitted Regional Debt                                    $183 billion

Admitted Bank Guaranteed Debt                      $103 billion

Admitted Other Sovereign Gtd. Debt                $ 72 billion
Total National Debt                                          $1.090 trillion


Spain’s Liabilities at the ECB                             $332 billion

Spain’s Cost for the EU budget                         $ 20 billion

Spain’s Liabilities for the Stabilization Funds     $125 billion

Spain’s Liabilities for the Macro Fin. Ass. Fund    $ 99 billion

Spain’s Guarantee of the EIB debt                     $ 67 billion

Spain’s Total European Debt                              $643 billion


Spain’s National and European Debt               $1.733 trillion

Spain’s OFFICAL debt to GDP Ratio                    68.5%

Spain’s ACTUAL Debt to GDP Ratio                    133.8%

These are the figures that I compiled and printed on March 29, 2012. They are not the opinions of Mark Grant but just the cold and hard facts that I was able to pull together from Eurostat and from the Bank for International Settlements. It is a long slog to find the truth but it is there if you look long and hard enough. Unfortunately the data for Spain’s GDP is deteriorating rapidly. The IMF is now projecting at 6.00% contraction in the Spanish GDP for 2012 which changes the numbers dramatically putting their GDP at $1.217 trillion. This then provides a debt to GDP ratio of 142.3% and likely to escalate further given the very serious problems with the Spanish banks and the Spanish Real Estate market. The question now in my mind is one of “when” and not an “if” any longer of when Spain hits the skids and requires European intervention. The problem of course here, unlike Greece, Ireland and Portugal, is that the needed amount of capital will overcome the present resources of the Stabilization Funds and require substantial additional funding which is likely to lower the credit ratings of every nation in Europe. If one of the two major Spanish banks hits the wall then the problem becomes magnified further as it would be catastrophic for the other major banks in Europe. Already we are seeing a sort of run on the Spanish banks as money is fleeing each day from their coffers. Any assumption that “muddle through” will be the outcome here is a mistake in my opinion and I would begin to prepare for that which is almost inevitable now as the crisis worsens.

The Centre for European Policy Studies published their own findings this week and they estimate that the Real Estate accumulated overhang is actually almost $500 billion which equates to 59% of the IMF revised projections for Spain’s GDP. The EU and the ECB may not mandate that the Spanish banks have to mark-to-market in the normal fashion but a quick calculation indicates that the equity of the major Spanish banks is well into the red and past the blood line of any sustainable position. In my opinion, I would state, that the Spanish banks are in fact bankrupt and are only still alive given the financial shenanigans of how Europe allows the numbers to be calculated. I am well aware that many in Europe do not like to be confronted with the truth and that the stock market in the United States is so myopic that they wish to ignore the truth but the numbers are right in front of your nose if you care to look and reality has a funny way of catching up with the markets and reminding them one still equals one in the end. I am an adherent of the Greater Fool Theory and the trick is to let the other guy be the Greater Fool and not one of us. The “when” is unknowable but the “if” is behind us now and I suggest great caution.