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Post Tagged with: Bailouts

Kicking the Can

Kicking the Can

Saw the news today on Spain’s bailout. The market seems to favor this news. I don’t see how it can. We’re about to see the biggest market correction since the 30’s. And you thought 2008 was bad.

There’s a very simple principle at play here. The more you borrow, the more you owe. If you borrow more to pay back your debts, you will end up owing more. Now that Spain has intermarried its bank debt and government debt, when it borrows $100bn to stay afloat, this isn’t just a bank bailout. The people of Spain wake up today in legitimately more trouble than they were in yesterday. Spain has officially entered the part of the Eurozone that’s beholden to the other members. This part–Greece, Spain, Ireland, Portugal–is growing, and the number of countries with money to bail out the others is shrinking.

At this point, we’re just kicking the can down the road. And one of these days, there isn’t going to be any bailout money left. Germans will put down their foot. And the country needing the bailout this time is going to be a big player like France or Italy. And no one’s going to be able to pay it.

Sound familiar? At this point we’re just waiting for a Lehman Brothers of Europe. That’s all it will take: one country that’s too big to fail, failing. And when that happens, it’s all over. The moral hazard will be broken. The markets will crash. Capital will fly to Switzerland, the US, the Caymans, or Canada (the rats have been fleeing the ship for a long time already). Debt ridden countries will have billions in liabilities with no way to pay them. Populations will be left without jobs, food or security. People will riot. Tyrants will come to power. What little capital is left will be divvied up by cannibals looking for scraps. The ironic twist is that the only country that will be stable and productive enough to weather the storm will be Germany.

So-called democratic socialists of the world beware: there is no such thing as a substitute for a productive society. Anyone can borrow their way into an easy lifestyle. But eventually the bill will come due.

June 11, 2012Comments are DisabledRead More