The condition of Spain is worse than thought, and so is the solution. We learn that an agreement has been made to bail Spain out via more austerity. However, this time it’s cloaked a little, as though austerity in another color is no longer austerity. First, to gain a little perspective on Spain’s condition, Niall Ferguson gives us an on the ground account of just a few facts.
What do you do with a country that is in debt, has massive unemployment (50% of the young, over 25% overall) and is experiencing bank runs on a bank that was recently nationalized? What else? Give them a bailout.
There’s a sense in which one has to wonder what the world’s coming to. Banks fail, but can’t fail because they’ll get bailed out. National economies fail, but can’t fail because they’re bailed out. Meanwhile, the “bailout” comes from the backs of the people within the nations, not the banks themselves.
These are loans. In other words, they’re sovereign debt. Sovereign debt is paid off in the form of taxes. Some of these taxes come in the form of regular income tax, sales tax and other means of stripping the populace of their hard-earned income. But it also comes in the form of inflation, as more currency is printed; thereby diminishing the value of what the populace relies on for their provision.
Yet the people, strapped and unable to pay, aren’t offered any sort of “bailout.” Instead, they’re told that they’ll have to pay more taxes in order to bail out irresponsible banks and governments. That’s what happens when someone else is given the ability to spend your cash and even take loans on your behalf. They do so, indebting you into oblivion.
This is far from over. It just gets worse with every tick of austerity, ever turn of the debt clock and every effort at “fixing” the euro contagion. This is a disaster. It’s not just bad. It’s not a speed bump. This is a disaster from which it is absolutely impossible, at this point, to recover without default.
If you make $100 a week and your expenses are $125, you’re going into debt. If you get a loan for $150 to get through this month, you now owe more than the $125. So, you take a larger loan in order to pay the original loan, right? This is third grade math. It is impossible to fix this without some very dramatic measures.
Incidentally, Greece and Portugal are already calling “foul” in light of Spain’s bailout. My guess is that such hollering will fall on deaf ears. Spain is Europe’s fourth largest economy and the 12th largest in the world. Portugal and Greece combined don’t even equal a third of Spain’s economy. Where do you think the ECB will concentrate their efforts?
Just like the people of their countries, these smaller PIIGS are now being cast aside as central bankers (not politicians) focus on larger problems. The “too big to fail” line has been moved up dramatically, and anything below that line simply is no longer too big to fail. In other words, let them fail.
This is yet another reminder of how insidious fiat currency is. A currency based on limited materials rather than a printing press restricts the bankers’ ability to enslave the people to sovereign debt.
And, from our perspective, this is the point. We can’t make these bankers change. But we can reduce our exposure and even profit from their efforts. Eventually confidence in fiat currency will evaporate. As that happens, people will need somewhere to place their confidence.
Historically, gold has always come back around to be viewed as true money. There are those who denigrate it, thinking we’re somehow in a new paradigm. All it takes is a glance around at western banking systems to see what that paradigm is all about. It’s a paradigm of sovereign debt. And it may be that gold will be the best way to preserve freedom from fiscal slavery.
For your prosperity,
J. Keith Johnson
The Gold Informant