Posted on 05/12/2013 7:07:27 AM PDT by Kaslin
It should be obvious, to anyone reading this, that Spain is in an economic depression as well as bankrupt. It is equally obviously that eurozone imbalances and a flawed treaty are to blame.
Finding mainstream organizations willing to admit Spain is bankrupt is another matter. Yet today, Jeremey Warner writing for The Telegraph says just that.
Warner says Spain is officially insolvent: get your money out while you still can
I'd not noticed this until someone drew my attention to it, but the latest IMF Fiscal Monitor, published last month, comes about as close to declaring Spain insolvent as you are ever likely to see in official analysis of this sort. Of course, it doesn't actually say this outright. The IMF is far too diplomatic for such language. But that's the plain meaning of its latest forecasts, which at last have an air of realism about them, rather than being the usual dose of wishful thinking.
Let's take the projected budget deficit first. This is expected to decline quite steeply this year to 6.6 per cent of GDP, but that's mainly because the cost of bailing out the banking sector fell substantially on last year's budget. On a like-for-like basis, there has in fact been very little fall in the underlying deficit. And nor on the present policy mix is there ever likely to be, for that's where the deficit is projected to remain until the end of the IMF's forecasting horizon in 2018.
Next year, the deficit is expected to be 6.9 per cent, the year after 6.6 per cent, and so on with very little further progress thereafter. Remember, all these projections are made on the basis of everything we know about policy so far, so they take account of the latest package of austerity measures announced by the Spanish Government.
The situation looks even worse on a cyclically adjusted basis. What is sometimes called the "structural deficit", or the bit of government borrowing that doesn't go away even after the economy returns to growth (if indeed it ever does), actually deteriorates from an expected 4.2 per cent of GDP this year to 5.7 per cent in 2018. By 2018, Spain has far and away the worst structural deficit of any advanced economy, including other such well known fiscal basket cases as the UK and the US.
So what happens when you carry on borrowing at that sort of rate, year in, year out? Your overall indebtedness rockets, of course, and that's what's going to happen to Spain, where general government gross debt is forecast to rise from 84.1 per cent of GDP last year to 110.6 per cent in 2018. No other advanced economy has such a dramatically worsening outlook. And the tragedy of it all is that Spain is actually making relatively good progress in addressing the "primary balance", that's the deficit before debt servicing costs.
I don't advise getting your money out lightly. Indeed, such advise is generally thought grossly irresponsible, for it risks inducing a self reinforcing panic. Yet looking at the IMF projections, it's the only rational thing to do.
Inquiring minds with time on their hands may wish to slog through the 93 page IMF World Economic Financial Survey, Fiscal Adjustment in an Uncertain World that Jeremey Warner mentioned in his article.
Even the likes of CNN and BBC have reported on Spain’s whopping unemployment rate of 27% (as of April 25, 2013)! Not surprisingly, this was an increase over the previous quarter.
The reality is that not only Spain, but Italy, France and roughly half of the EU are bankrupt. You cannot consume more than you produce for three generations and expect to fix it with financial gimmickry. The bottom line is that most of the Western world will experience a painful,very painful lower standard of living for the next two or three generations. There will be much less consumption and declines in the native populations. This will of course make the neo pagan environmentalists quite happy. Most however will see it as a decline of civilization and civil behavior.
This result is defined as “Success” in their socialist government.
WHOA! Not a minor comment...
In other words...they ate their “seed corn” and spring is here...
Oh, it’s in the TELEGRAPH, then it must be TRUE.....
Somewhere around here, I have a bunch of pesetas, from back when I was stationed in Spain in the late 60’s...everything always comes back....
How beautiful were the women and how awesome was Franco?
another Keynesian success story....like the success story our own Kenyasian is perpetrating.
We have a week, maybe two, before the economic house of cards here comes crashing down.
The prediction concerning Europe and the U.S. has been that a week after Spain and Italy go bankrupt, a week later the U.S. will tumble into the bankruptcy abyss.
I guess we’re going to find out, huh?
True, but the US is going that same route, too.
Naa,
Actually we have about 5 to 10 more years, as the gov can seize our private retirement accounts, which total something like $15T - to pay for the Winnebagos of today’s Social Security and Medicare takers - and they will, because they have no other choice.
That’s not possible in Europe because people never saved there. But once our government bleeds out our retirement savings, then it is game over.
They have been able to ring fence Greece and Cyprus. Spain will be a little tougher.
People with money know what is going on in Spain and Italy. Unfortunately for them, they have to put their money somewhere. They will be putting it in Germany, the UK, and the US, for now. The influx of hot money will bolster the banking sectors in those countries, for now.
Loved the food...and the wine....tapas are fantastic..
Got to meet Franco once..at a reception..for about 10 seconds..the Guardia Civil..man those guys were tough..no nonsense...in Cataluna..they'd patrol the countryside in 3 or 4 man squads, riding the big Butalco bikes, with German Mausers in quick release holders strapped to the side
That’s not possible in Europe because people never saved there. But once our government bleeds out our retirement savings, then it is game over.
All in all, the Govt gives with one hand and takes with two hands.
Enough of the wine and I suspect the unshaved armpits become much less of a issue. ;)
At this point, you have to wonder that if Britain just announced that it was leaving the currency union, or just that there would be a referendum, how much European wealth would flood there.
If there was a UKIP led coalition with the conservatives, the money would be a godsend to restore Britain’s economy, but if there was a Labour government, it would be squandered and then some, leaving Britain as bad off or worse than the rest of collapsing Europe.
The irresponsibility is entirely the Fed and other central banks (e.g. Japan) that loan at absurdly low rates pretending that the money will spur economic growth somewhere. But what it does is the opposite, mostly because it creates uncertainty in the long term value of the currency. Instead of economic purposes the cheap credit is forwarded to basket case countries like the PIIGS which are backed by the Euro (mistake #2). That carry trade is doomed to unwind. When it unwinds it causes the self-reinforcing panic. It is low rates and the resulting carry trade that makes the panic inevitable.
Lending might not be the right word. The Fed prints monopoly money and gives it to the politicians to spend (99% of the pols think this is a good thing). In return the Fed collects treasuries which it can never sell without crashing the market and bankrupting the government. Since it won't sell, it is not really a loan but a gift. The rest of us get the gift of inflation that will result.
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