Spain Rescue By EU Saves No One As US And Britain Go Over Edge

The hoopla about the Spanish bail out has fallen like Facebook stocks.  No one wants to be caught holding this hot tamale.  So gloom enfolds global bond markets while the currency traders ply their trade, betting the euro will weaken.  This, in turn, freaks out the Japanese and frankly, the Chinese who wish to sell to Europe at a good exchange rate.  Time to examine Spain’s problems and compare these with other nations, for nearly all nations are being stressed by this massive global lending bubble’s demise.

 

The European/American entity created after WWII, the IMF, the alter ego of the Bilderberg gang, its credit muscle machine set up to control smaller nations, has a report of great interest because it has a lot of charts and graphs which I love to look at.  Here is the url:  http://www.imf.org/external/pubs/ft/scr/2012/cr12140.pdf:  The Spanish Bubble Pops/Destroys Entire Banking System

 

The Spanish nonfinancial corporate sector is highly indebted, largely as a result of the housing and construction boom. It remains vulnerable and the credit risk in the Spanish corporate sector is expected to increase further. The sensitivity analysis shows that the number of vulnerable firms increase significantly with macroeconomic shocks. More defaults are expected among most vulnerable sectors, including construction and real estate.

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The housing boom has left Spain with relatively high household debt compared to the euro area. The United Kingdom, the Netherlands, Denmark, Sweden and Portugal have all higher household debt to income ratios than in Spain (Figure 1). However, Spain’s household debt to income ratio has significantly diverged from the average of the euro area since 2001. Housing and leverage have also been moving in tandem during the boom. This is reflected both in the increased lending to construction and real estate activities and in the strong co-movement of housing prices and credit (Figure 2).

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Gimeno and Martinez-Carrascal (2006) show that house prices and mortgages in Spain are interdependent in the long run: loans for house purchases depend positively on house prices, while house prices adjust when this credit aggregate departs from the level implied by its long run determinants. In the short run, the two variables have a positive contemporaneous impact on each other, indicating the existence of mutually reinforcing cycles in both variables.2

 

Yes, Spain was flooded with cheap credit by international bankers operating out of various pirate coves owned by Queen Elizabeth II and various Asian and oil pumping entities in the Middle East who are also ‘royals’ of dubious qualities.  That is, credit creation is very easy if one ignores true capitalization to cover potential losses.

 

The Derivatives Beast was going to ‘spread the risks’ of losses and of course, did the exact opposite making things much,  much worse.  And this continues unabated since capital has fled the banking system because any capital put into it right now will be eaten immediately by losses.  So the bankers use government debt bonds as ‘capital’ and as I predicted previously before the bubbles burst, governments will go bankrupt instead of banks and this would lead to global political chaos, riots, revolutions and other events exactly like in 1934-1948.

 

First, we attend to the BIS, the international settlement entity also set up after the 1934-1948 catastrophe.  Their warnings about the quality of capital backing bad loans went nearly totally unheeded because the Bilderberg gang loves the Derivatives Beast and offshore banking and this is due to it being launched by European royals in the first place.  http://www.bis.org/publ/qtrpdf/r_qt1206a.pdf

Optimism evaporates

Hopes for the global economic recovery and concerns about the euro area were the two main competing themes in the marketplace in the period from March to May. These two themes interacted throughout and were broadly reflected across financial markets.
Early in the period, following the ECB’s longer-term refinancing operations, investor sentiment improved substantially. With bank funding strains reduced, the focus shifted to the strength of the global economy. Positive US economic news and the continued resilience of emerging market growth helped raise hopes of a steady economic recovery. The renewed optimism was particularly visible in equity and commodity markets. Fixed income markets saw a compression in credit spreads, especially for banks and selected euro area sovereigns. It also resulted in a spurt of capital inflows to emerging markets.

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But by the middle of May, doubts had returned: doubts about euro area growth; doubts about the financial health of euro area sovereigns; doubts about banks; doubts about the impact of fiscal consolidation on growth; and finally, doubts about political stability inside the euro area. All of this, combined with early signs of more fragile US and Chinese growth, made investors more cautious and drove up global financial market volatility.

 

The Bank of China is dropping interest rates.  ZIRP Japan and US central banks can’t do this anymore, they reached rock bottom.  Japan has given up on the idea of mutual consumption to raise growth (all environmentalists should cheer Japanese suicidal economics!) but China is very interested in raising consumption rates and has the ability to raise them but only if the price of world oil declines.

 

In regards to this, China refused to join the Iran oil boycott and Japan, desperate due to loss of nuclear power, begged to ignore it, too and thus, the boycott has been broken so the price of oil has declined significantly.

 

The IMF report has many graphs and here they are.  First the household debt ratios:

Is Spain the worst off?  The answer is startling: NO.  Denmark and the Netherlands are both twice as bad off!  Whereas, after 2006, the debt to GDP ratio of Spain was a little over 80%, it is nearly 160% for Denmark!  That is amazing, no?  It is even greater with disposable income to debt: 110% for Spain and a whopping near-300% for Denmark!  In both, Italy is the best off.  And we worry about Italy.

 

But like many parts of the US, Spain’s housing has lost great amounts of value.  Note how credit to builders rose rapidly while the price was FLAT!  The mania for building rushed forwards even as this killed the value of existing housing.  A sure sign of a housing bubble ready to pop.  In 2005, no less.

Wall Street Shrugs as JPMorgan Trades Lop Off $27 Billion  after trading losses in speculative markets pound the stock value of this terrible banking entity which both Mitt Romney and former President Clinton love so much.

 

Like Spain, the US family wealth has been hammered by the bursting of our own bubble:  Fed: Americans’ wealth dropped 40 percent so that aggregate wealth of everyone here has dropped back to 1992 levels and is still falling.  This sort of 20 year loss of accumulated value is hammering the US economy since we treated our homes as ATM buying spree machines.  Back to the IMF graphs:

 

Credit mountains on value molehills.  The acquisition of real estate is dwarfed by the credit explosion piled on top of it.  The second graph is a classic ‘to infinity!’ hockey stick graph.  It could never go much higher, this was physically impossible.  It is always impossible.

 

This is why teaching everyone at a young age about infinity and how it reverts to zero when it shoots upwards is life and death for any society.  Nothing in the universe gets to go to infinity forever.  Nothing.  It is impossible.  Far from entropy causing all things to disperse, it actually works the opposite: all things revert to their natural state of balance.  Call this the ‘Libra Ethos’.  Unbalanced systems collapse until they are balanced again.

Over 50% of the Spanish people indulged in the debt bubble.  The house price to income ratio was off the chart but do note how the British are aping the Spanish and indeed, are directly responsible for this housing bubble.  Retiring Brits flooded in to hot, hot tamale Spain because, as I keep saying, humans adore being hot, not cold.

 

It is flooding nearly daily in England ever since the numskulls in the weather service, staying true to their ‘we are going to die of the heat’ beliefs, ordered a drought emergency.  Record floods ensued to the fury of many Brits who long for Spain’s climate quite openly.

 

The movement of Brits into Spain was doomed.  First, they built housing no Spaniard would be caught dead in since it looks like a classic British home like the one Harry Potter’s uncle and auntie lived in: dreary, narrow and unfriendly.  Secondly, the retirees had no intention of becoming Spaniards.  They wanted to be interlopers.  No nation likes interlopers who speak a foreign language and live in odd houses that look ugly (hahaha).

 

This next graph is a classic hockey stick graph only it can’t zero out.  It is a CONTINUATION of a new steady state: bankruptcy.  They shot upwards in 2006 and continue high until everyone that can go bankrupt, does.  This is a time-consuming effort since so many people went foolishly into the real estate speculative markets hoping to sell dreary vacation homes to homesick Brits running away from home but not wanting to really, really leave.

 

And here is a graph Americans can still envy:

Their total wealth is lower today than this graph, it is no longer so high.  But it hasn’t dropped by nearly 50%, either.  Net financial wealth never went much up or down, it is the ‘rock bottom’ indicator.  Soon, the Spanish will have US-level losses or worse as incomes there decline and the Brits lose their ability to retire in warm places as the government cuts funds to retirees.

 

These graphs should scare Americans.  Spain had a higher ownership rate than the US and indeed, the last two years of the US housing bubble was fueled by Hispanics, many illegally in the US, buying homes with ‘liar loans’.  Under 35 years of age Spaniards bought nearly DOUBLE the homes US buyers of the same age bought.

 

The second graph shows the Spanish bought many speculative properties.  Far more than the US, double US rates.  THIS is the real killer.  No capital to sustain a losing property investment requiring taxes and maintenance leads quickly to bankruptcy.

 

The third graph shows debt to income being worse for young people in Spain and Britain but the US debt of the 35-65 group is much higher for the US.  This is were our great middle class resides: deeper and deeper in debt compared even to the Spanish.  The fourth graph shows why this is happening: debts held by our less than 35 year olds is HUGE.  Many times greater than Spanish or British youth.

 

This is education debts.  It is the thing that is going to kill our future economy, it is going to turn the US into a much nastier version of Japan where youth is crushed to nothingness with massive debts piled on top of them killing their future ability to start families, etc.

 

Spain is a bump in the road, the US is a cliff in the road which leads to a crevice a mile deep.

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16 Comments

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16 responses to “Spain Rescue By EU Saves No One As US And Britain Go Over Edge

  1. semiramis

    As always an excellent post: Btw, just a quick note: http://www.opinion-maker.org/2012/06/us-military-suicides-in-2012/

  2. @Elaine: The fourth graph shows why this is happening: debts held by our less than 35 year olds is HUGE. Many times greater than Spanish or British youth.

    This is education debts. It is the thing that is going to kill our future economy, it is going to turn the US into a much nastier version of Japan where youth is crushed to nothingness with massive debts piled on top of them killing their future ability to start families, etc.

    Yet the Republicans will do absolutely nothing about this situation, except make it even worse for young people, such as permitting interest rates on student debt to double, without reducing the unconscionable price of attending a higher education school. At the same time will prevent Democrats from implementing their own ideas to provide relief from this debt, or if they can’t stop that, bollix it up as best they can. All the while they are lecturing us all about “traditional family values!”

  3. payAttention

    Let’s try to examine history with just a dollop of financial memory to guide us, shall we? Britain was bankrupt and General Franco still held Spain off the financialization merry go round when the Brent Sea began to yield oil, particularly the Forties. I know that it is difficult for most people to think, or to attmept to tie together the cultural landschaft, shall you call it, with the financial fortunes of the Empire. The pre Brent England was socially disintegrating, and the thoroughly hedonistic music of artists like the Sex Pistols and the rest of the anti everything punk rang the death knell, no?

    The instant wealth from the oil changed everything and propelled the old 60′s schwingers onto the Costa del Sol for their second go around at youth. I want you to understand that houses built on a cheap foundation will soon enough founder. Since you always tout your builder’s insights, this should at least connect the dots for you, no? The Spanish youth took to the idea of a new patrimony after the General passed away, as if the Tommy schwingers were bringing a new set of ideas, rather than pissing away a fortune that should have lasted many generations. Since the youth of Spain had been sheltered, or so they thought, they displayed a disproportionate enthusiasm to things somewhat deviant, even the Sex Pistols. The Spain bubble had nothing to do with Spain.

    I think I have explained this brief episode so that you should be able to understand it.

    As an aside, and if my memory serves me correctly, the BIS was set up to liquidate Germany after they were coming up a bit short on the Versailles terms, in 1930.

    http://www.bis.org/about/history.htm

    Talk about mean spirited and a long memory, eh? But you choose to ignore that vignette of history. That is why your sort thinks it can just keep shuffling off everyone’s bad debts on Germany. ‘Let us go plowing, you and I, heard the bull and spoke the fly.’ The translation is mine and I think better than the others that I have come accross, but then again, I do not think Brecht has been translated well yet.

    Just one more thing, I have wanted to change my name here for some time, do something that would honor the sage and screeching broken record that never fails to drone around in the comment section no matter what you write. So what do you think about devaulDynamite, eh?

  4. emsnews

    Huh?

    I did what? I defended Germany’s sovereign wealth! You never seem capable of careful reading while criticizing me endlessly so your name is apt if applied in front of a mirror.

  5. papa12inch

    @payAttention

    Your right, I lived in Spain just after the Claudillo died, the “deviant” pace was unbelievable! I agree the Spain bubble had nothing to do with Spain.

  6. Paul S

    Question to anyone who may know (or have an opinion): how long will it be before the US declares a Bank Holiday? Of course, this assumes the US will do so, but there HAS been talk of doing this. Also, will the US reach a point where they will enforce Capital Controls? Things like forcing Pension Funds to purchase US Treasury’s and denying people the right to move their funds overseas? From what I read and hear, both of these options are considered real possibilities. The Fed is already purchasing the majority of Treasury’s sold.

  7. emsnews

    In a crisis anything can happen. I vividly remember where I was when Nixon slunk onto tv on Sunday to announce the end of the gold standard. My parents were overseas doing CIA stuff and suddenly the dollars were viewed as worthless and I had to open a Swiss account for them to use the Swiss currency instead!

  8. payAttention

    Missus Supkis, I enjoy your work, otherwise I would not insinuate any sort of hopefully helpful corrections to your ouevre. I do admit that I am just a bit amused by the mildly stentorian tone of your instruction, however I object to your characterization of me as ‘endlessly critical’. I thought it was all in good fun. The ‘mud walls’ observation was very keen – literary, actually.

    I withhold real criticizm for the droning buzzards who mistake the insistence of their buzzing for talent. Also if you think devaulDynamite is cumbersome for a new name, how about devDyno, and that way I avoid potential copyright infringement on the movie about the high school elections.

  9. igneous

    Actually a lot of modern spanish housing built by spaniards is pretty awful.

    There are two types of english people who are interested in Spain, ones who are inspired by the art and culture of spain and those who like the sun and beaches.

    I think the spanish culture is very attractive to a lot of the English. You have Picasso, Dali, Gaudi and Lorca. Its really amazing how many very middle class arty english people have this affinity to Spain. Its like the spanish compensate for that repressed, serious english personality.

    I’m not sure how the spanish feel.
    .

  10. emsnews

    I love Spanish architecture! I grew up in a Hacienda after all with Spanish tile floors, a veranda that was so cool in summer, adobe walls, etc. I really loved living there.

  11. JT

    Those were good graphs.

    Funny how different the eurozone countries are.
    Here in Finland 40% of households have no debts at all.
    None; no creditcard, mortgage or car loan.

  12. JT

    http://cpi.transparency.org/cpi2011/results/

    New Zealand 9.4
    Finland 9.4
    Sweden 9.3
    Norway 9
    Australia 8.8
    Canada 8.7
    Germany 8
    Chile 7.1
    USA 7.1
    France 7
    ….
    Spain 6.2
    Portugal 6.1
    Botswana 6.1
    ….
    Italy 3.9
    Greece 3.4

    Spain is the good country. The one that has industries and plays at least a little bit by the rules.

    If you asked me Spain is the one that should be helped.

    Italy and Greece… phh…. hopeless

  13. emsnews

    That study shows the US as ‘clean’. HAHAHA. Right.

    The corruption is in the core: in DC and it is the bribery of the politicians that matters! Both Obama and Romney are going to AIPAC and Wall Street for more loot and ignoring the voters who are to be roused by stupid issues, not true economic issues.

    Both clowns claim they will create jobs. Neither will because their buddies on Wall Street want more riches, not more jobs.

  14. JT

    @emsnews

    I think you are “clean” with an 8 or more.
    Uruguay, France, Chile, Qatar, UAE, USA … are in the 7 range.

  15. JT

    @emsnews

    Italy, Portugal and Spain could handle their debts if they paid their taxes.
    Greece is gone anyway.

    Catholics get their sins absolved.
    Lutherans don’t. ;)

    No jingle mail here.
    The debts for your house are for life.
    It does not matter if you lose your house to the bank, the selling price is deducted and the rest you still owe.

  16. JT

    “The ant lost faith in the future.
    In the summer grasshopper plays the violin and the ant collects winter stock.
    In the winter, then all living, the violinist included use the ants warehouse.”

    A war veterans answer to why finns according to a recent poll have no optimism for the future.

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