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At a brief glance the analysis looks sound to me. However it does not change the simple fact that all debt has to be paid. All debt will eventually be paid by either the debtor or the creditor. At the moment the struggle to keep the Euro afloat is imho mostly aimed at ensuring the bondholders (creditors) do not share in the pain.

So the only arguement is who is going to pay for the last decade of Euro mirage and party. At the moment it seems to be all down to the atttendees of the rave ( the taxpayer) and no blame to be held by the rave organisers. I think that an arguement can be made for pain to be shared, afterall noone was forced to drink themselves silly, but then the booze was artifically cheap.

The problem remains that nothing is going to get better despite what the politicians and the papers tell you, until this debt is defaulted on or repaid. Ideally it would be repaid, but the fractional reserve debt based money system we live in does not allow for repayment of debt, unless new debt is issued in excess of the old debt. Since the credit crunch new debt issue is not keeping up, so debt default is a mathematical certainty.

The bailouts for the PIGS will not work either, because you are coming to the "rescue" of someone who's problem is too much debt, with yes MORE debt. 

Austerity will not work either, just imagine that you are a family whose debt burden is too much and the answer is to cut your wages and raise your taxes!!!!

Spain is caught between a rock and a hard place, some form of default is inevitable, its just a question of time and what form the default takes. The honest and drastic form is simply to hold up your hands and say you cannot pay. Governments are not keen on this as the article rightly points out because it make future borrowing nigh on impossible. The favoured way out is stealth default, which is just to print money and try and paper over the cracks. HOWEVER this just delays the painful day as inflation comes back to haunt people.

The public servants of Spain MAY still get their 2000 euros a month, but they will find it does not buy them much when a litre of petrol is 5 euros. 

The public needs to get seriously real and seriously quickly, like a non paid parking ticket, the bill just goes on getting bigger and bigger the longer it is left unpaid. The arguements for keeping the Euro together beacuse of the costs and difficulties of unwinding it, is the same as keeping thorwing good money after bad into your pet business, or a too big to fail car manufacturer or bank. It does not change the facts.

I see one of three thing happening

1. Austerity gets too painful for Spain and there is too much civil unrest - its not hard to see this as its escalating across europe already. Spain then decides to pull out of EMU voluntarily.

2. Spain gets ejected because the bailouts are too big or too unpopular. There is already a German court case still pending questioning the validity under German law of the bailout mechanism. Merkel and her party are on a knife edge with voters already, the current bailouts are deeply unpopular.

3. Germany goes back to the DM and the Euro immeditely devalues by 30% plus. I think this would shortly be followed by a complete return to single currencies as the Euro is only strong due to Germany.

The longer the powers that be try to hold it together the bigger the bill and the bust will eventually be.

 A financial Advisor in the Uk whom i have known for 20 years recently told me that we could end up with an exchange rate of £1=3€!!

He did explain the reasons behind this but to be quite honest the exchange rate was the only thing i really remember from the conversation.

Do you think this is possible TJ222 ?and what do you think are the repurcussions of this apart from the obvious?

Great to see you back, TJ, by the way - where have you been?

Personally, I find all this rather depressing, not to mention confusing, so, thanks to the straight-thinking Aussies, here's a little light relief, and a clear, concise explanation of wot it's all abou'.

 georgia

I don;t think that is very likely, not atleast with Germany as part of the EMU. If Germany left which I do think is a possibility depending very much on who is in power at the time and prevailing voter mood, then the Euro would crash aginst other major currencies, but I think 3 to 1 would be a catastrophe which is very unlikely. The Euro would have dissolved long before that.

A major current theme is the devaluation of currencies in general which is not apparent when measured against each other. For example both the USD and the GBP have lost around 98% of their purchasing power since losing the gold standard, but this is not apparent when measured in currency terms. All major ecomomies are destroying the value of their currencies together, so as to not lose out on the exporting front and so that major currency upheavals are not apparent.

So all major currencies could get printed into oblivion, but if it was all done in concert and relative to GDP, there would be no change in exchange rates - a sort of stealth destruction of value.

Spain exits from the euro would entail a huge reduction in the standard or living for its people, particularly in relation to imported goods and dollar based commodities. Since like the UK, SP does not produce much, it would mean massive inflation in virtually all goods, but not in the price of national services such as a hair cut or local produce.

In time if SP got its act together and got rid of these disasterous socialist policies and made Spain and its attractions competative again, it could make a very solid recovery. Spain has many endowments that could and should make it a very attractive place to live, work and retire to.

 Tj222

Thanks for that but i thought that when the Euro agreement was reached there wasn't an exit option in the clauses?

Can anyone actually leave the Euro.

I think we are all in for torrid time whatever....

In my opinion the biggest factor to hold Spain back from any recovery is it's labour laws.

We have cheap labour in the droves,cheap land,cheap industrial units and plenty of places to build them if needed.

We have seen both Paramount and Microsoft invest in the area in the past few months but the archaic labour laws restrict any real volume of investment from Blue chip companies, if this changed Spain could be the next India.

Nice to have you back for your input.....i think everyone is getting tired of second guessing the economic volcano that is next in line for eruption.

I thnk the bond issue in Spain in the next 6 weeks will tell a few tales.

Tj 222

Great posts

In my opinion it will be Germany that dicates the future of the euro, they are the only country within EMU that can walk away from the situation without debt or any fear of devaluation of there currency.

Georgia

A good article on the BBC yesterday about  capital flight should any pigs be thinking of leaving

http://www.bbc.co.uk/news/business-11830532

Steve

"The longer the powers that be try to hold it together the bigger the bill and the bust will eventually be."

TJ222, does this still hold true if the US enters the equation as described in this latest headline “Global financial markets rise amid bail-out rumours” see http://www.bbc.co.uk/news/business-11884132

What do you make of this latest move?

For those interested Planet Money did a fanstic show on how the small local Spanish Cajas could very possbily bring down the entire financial system, very interesting. You can download if for free on itune, search planet money and exposide 239 and 241

The baisic jest is they went wild borrowing and loaning money, now most of the loans are bad (hense the reason why it is so hard to get a mortgage from a Spanish bank) and everyone is worried what happens when people wake up and panic. Banks stop lending money etc etc

http://www.npr.org/blogs/money/2011/01/07/132717135/a-theme-park-an-airport-and-the-next-banking-crisis

And when you didn't think it could get anyworse

The ugly reality of Spanish sub prime mortgages, oh it gets better and better all the time.

http://news.kyero.com/2011/01/04/the-ugly-reality-of-subprime-mortgages/

Dear All,

it seems to me that there are many factors that affect the Spanish property market, some of which may be under attack.

it has been suggested that prices are stubbornly high because many sellers, even of multiple properties are mortgage free.

isn't it also the case that "normal" market conditons will always be boosted by "laundry" money as they have in the past?

Just a thought.

Regards

Norman

Oh god!

Here we go again!

Second guessing 'when' Spain will default and need a 'bailout'.

Have none of you been listening!

The EU and the IMF cannot afford to bail out Spain... simple!

Spain is Europe's third largest economy, so how the hell do you think the EU can afford to bail them out!

And, by the way, that also includes the UK in the melting pot, when it comes to an economy being over-extended

If we all believe the 'financial experts' on here that quote 'wall street' articles ... all I can say is that it was the USA that got us all into this problem to begin with!

I could go on and on (and invariably I do) with my own interpretations as to what 'may' happen, quoting the world's press, however do they 'really' know what is going on? Do they really know what 'will' happen?

No! They don't!

Nobody does!

So I for one don't care anymore and will continue to enjoy my life whilst I can... and the day I don't, will be the day that everyone cares what the USA say!

Why! Because on that day the USA will have sent troops into every corner of the world that poses oil reserves, so that they can keep it all for themselves!

No!

The USA is the world's largest consumer (scroll down the page for the chart) of oil and consume over 25% of the worlds oil!

On average the USA consumes 19 million 650 thousand barrels of oil per day! As compared to Germany's 2 million 831 thousand, UK's 1 million 710 thousand or Spain's 1 million 497 thousand barrels of oil, per day!

You lot should be more concerned about when the worlds oil reserves start running out.... oops! sorry! they already have!

NOTE: You may notice that the information was based on a CIA World Factbook page, dated 2001 - that's 10 years ago!

It's not about how much oil, or any other resource (water for example) is left or not, rather about how many people there are on the planet wanting (or needing) it. 9 billion people by 2045? Better reverse the smoking ban ASAP or we'll end up killing each other by other means anyway soon enough!

"Better reverse the smoking ban ASAP or we'll end up killing each other by other means anyway soon enough!"

LOL!

Can you imagine if we had a world wide 1920's style Prohibition!?!?!?

Don't think anyone would care about the Smoking Ban or Oil running out then!

Mind you, when you say about the amount of people on the planet by 2045, surely that is if we get passed 2012?

The consumption figures are changing.  Whilst it is still true that the USA consumes by far the most oil per head of population, China is rapidly climbing up the table for overall consumption in oil and most other natural resources and that's what is fuelling much of the current inflation.  What worries me most is that in a few years the only remaining supplies of oil and gas will be in Russia and we know what they will do when they have got the market cornered!  In addition the USA is trillions of dollars in debt to China and I believe that China's latest largesse in offering to bail out the PIGS is an effort to take Europe in the same direction.  Once your whole economy is in debt to another nation, they can dictate their terms at will.

Mike

Hello Mike,

glad you are back, are your pm's working?

trust that means that the NHS has done it's job well.

the future for this little island is bleak unless we crack the energy "thing", it is quite absurd that we have not cracked the H2O puzzle, or in this corrupt and selfish world the solution is buried by vested interests.

I am currently inundated with the wretched stuff and cannot pump it away fast enough.

Best regards

Norman

Hi Norman,

I think my pm's are working OK, although it's some time since I received one, I will have to look into it.  Yes, I am more-or-less back in working order, I had to drive down to Ashford this morning to be prodded and told that they didn't want to see me anymore (a mutual feeling) although having damn near killed me, I am not sure whether I can say the NHS did it well.

I will make this a quick reply as I am trying to work out how much the UK tax man owes me at present.  I used to be in the energy business and am still a retired member of my institutions, so I get the professional mag's etc.  The no 1 thing to do is stop waste, at least 30% of the fuel we use is wasted, I have shown companies how to save 50% quite often and on one occasion 70%, although I don't think they actually took my advice.  Technology must eventually come to our rescue, but whether it's in my lifetime, I do not know.

Must get back to the HMRC website.....

Mike

"Must get back to the HMRC website....."

Please give them a gentle prod kick from me!

Austerity

http://www.youtube.com/watch?feature=player_embedded&v=FmsjGys-VqA

Thanks for that.  Austerity is not a word any of us like to apply to our own circumstances, but although I make no claims to being a financial wizard and I am certainly not a professor of anything, the whole thing smacks to me of slight of hand made digestible by speed of delivery, some clever graphics and "reasonableness" presented by an "expert".  What is not to believe?  Quite a lot actually and I need more time to think about the whole prospect.  An example though is that the "Professor" assumes that reducing public services by getting rid of public servants will only increase the call on Government funds due to people claiming benefits because they have no work.  However, in reality, although the public will suffer from reduced services, the exchequer will benefit because despite being less tax take from employees on the the public purse, that is an entirely mythical sum.  Putting those people on the dole will actually cost the Government less than paying them to provide a service, especially when you then reduce the availability of out of work benefits at the same time.  I will have to think about it and play the film again, but thanks for giving me something to think about other than my tax bill!

Mike

 Having just read Justin's appraisal of his property to put some perspective on prices, I thought I would post a few comments.

I have not commented on this thread for a while mainly because the only news I have is much more of the same and  am aware that is not something most people want to read. I recognise that many people are now in a postion whereby there  is little they can do and I feel for these people and do not want to add to there anguish. I did spend a lot of time writing on this thread in 2007 when there was still time, to try to get people to avoid this sort of situation and not to listen to all the vested interest on this board, telling people that it was great to buy for lifestyle reasons and property allways recovers in time. Justin can probably afford to be sanguine about his loss, I doubt that is the same for most people.

Justin says he first noticed something going wrong in 2009, its a shame he didn't read my posts which began on Aug 20 2007. In the thread I detailed carefully exactly what I thought was going to happen. I challenge anyone to go back through it and find anything I got wrong.

Amoung other things I said that alot of property would be unsellable at ANY price and unemployment in Spain would hit 20%. I also said that Spanish banks were foolishly hanging onto foreclosed properties to try and cushion the impact on the market and that this would compound the problem and lead to a catastrophe later on. We are now approaching that time.

What follows is a very quick shot at what I think is coming. If you are of a nervous dispostion or cannot do anything anyway pls do not read on. IF you can sell or are thinking of buying PLS read on.....

Very shortly Spain will be forced to recapitalise its banking sector as the loans are coming due for roll over and the EU is requiring much tougher rules on core capital held by banks. However Spain does not have this money and unlike the Uk and US which had to do the same, Spain cannot print money by itself. Even if there is a bailout for Spain, which I doubt, one fo the first conditions on examining the banks books, will be an immediate dumping of their foreclosed property book.

Spain along with the other PIG countries are now all but locked out of international money markets and credit default swaps are at all time highs, indicating much worse to come despite the bailouts. Tolerance to more bailouts is puting so much strain on the northern european countries that Merkel risks losing her power in Germany along with anyone else that defies voters wishes for an end to bailouts.

No one actually knows what is going to happen and when, but its becoming clear that a one size fits all monetary policy across Europe is not sustainable. Many prominant economists at the time stated this. The most likely outcome is that all the so called periphery countries leave, either by volition or otherwise.

I applaud Justin for his honesty, unfortunatley he is way too optomistic. There are two big flies in the ointment for any soft landing anytime soon.

1. No one is talking about interest rates, but it was cheap money that built this boom and it will be the lack of cheap money that finishes it off. Most people are under the mistaken impression that government sets interest rates, they do set short term money, but its the markets that really set rates and the market has said no more. This is what started the whole Greek crisis off. Despite all the pledges and all the wringing of hands by the EU, Greek and other Med country bond spreads are the highest they have ever been today. Once bond rates get to 7% ish, actually it does not matter what they go to on the upside.

Trichet has just said that EU interest rates need to go up to maintain credibility in a rising inflationary environment. Germany will not tolerate inflation above the mandate. The problem is that Germany having a real economy is now growing too fast for emergency rates and risks inflation. Meanwhile the Med countires are on their knees even with emergency rates.

To go back to any historical norm, interest rates need to double and then double again. The longer real interest rates are negative, the more eventual trouble will be stored up. Just as house prices doubled as rates halved, so the REVERSE must happen. Its incredible to think that house prices have crashed so far, BUT yet interest rates have hardly even moved off the bottom. It does not take an economist or any number of articles written on eye of spain to sum up what is going to happen. I was sick to the stomach to read that article by the bank property man, trying to lure people onto the Titanic.

2. As interest rates double, prices will fall another 50%, but this is excluding any devaluation from a return to traditional Meditterean currencies. Countries exiting the Euro will devalue quickly compared to say the Euro or GBP. By the time a person from the UK converts his house back into GBP it will probably have lost another 50%. The worst case will be for those who have a loan in say GBP on a property in Spain. The loan will remain in a hard currency, but the property will be priced in a rapidly depreciating one.

TJ, thanks for your recent post which I thought was a fascinating read. Also, thanks to Justin for his excellent,  honest appraisal of his property situation which gave a context to TJ's post. All in all it makes very concerning reading. I'm surprised that there has been no response as yet. I took the opportunity to read all 19 pages of the thread. Your first post on 20 August 2007 certainly got some responses ( if I'm honest I'd have been a doubter too at that time too) . It was like living history and I agree, what you predicted has all come to bear (if you can give me 6 numbers for Saturday evening I'd be grateful!)

Taking what you have said alongside the re-rating of Spain's economic standing by Moody's Rating Agency yesterday makes me concerned that some, if not all of what you now predict for the future, might also occur. I hope not but Justin himself is also talking about further falls in value of his own property! I've spent many hours reading the broadsheets and comments on the current economic situation, particularly as it pertains to Spain. Justin talks of estimating 3000 empty/unfinished properties on his walk to Manilva. Anyone who plays golf on the CDS will have seen the courses surrounded by thousands of closed up apartments/empty shells and empty building sites. The golf courses are surrounded by them. There have been estimates from credible commentators and economists of one millions empty properties and a bank debt of €2.5 trillion. This needs re-financing and from where?

With the spectre of EU interest rate rises, which will further exacerbate the issues in the peripheral countries (whilst looking after the core countries like Germany), the outlook is bleak and I worry when I see some articles on here encouraging people that the time to buy is Spain is now. From all that I have seen and read it certainly isn't.

We bought in early 2001 solely as a holiday home. Whilst the nominal value tripled and is now back to double our purchase price another 50% fall will bring us back to base but we've had wonderful holidays and since early retirement four years ago long stays in the sun. Other are not so lucky. A close friend, seeing what I'd done bought two places "off-plan". He's one of the lucky ones. He got both properties. One he uses for holidays and lets out, the second which he bought as an investment which he now needs as he's been made redundant, has been on the market 4 years, lost half its original value and has not had one viewing!!!

Taking all that and the loss of many ex-pat friends who own businesses/properties who have handed in keys and lost leases and returned to the UK with nothing, it is some consolation to read that many contributors to EoS, including ourselves, are still enjoying what we have and making the most of it. However, for each one of us there are many personal tragedies. They have not been as fortunate in their pursuance of living the dream. For some it's too late to hope that the good times will come again in time, for others I hope you return soon.

It's not all gloom and doom but I am realistic and believe in facing the future as informed as possible. We want to sell and buy another property which will require further UK savings to be sent to Spain so I, for one, will be keeping a watch and waiting for more favourable times.