When one must stop trusting what leaders say

We are at a point in the global economic supremacy game that all (good, less good, bad and really bad news) news are turned into a sociopathic make it positive spew.

The sad part is when the folks delivering the spew are those elected and appointed to tell at least the truth.

We can walk thru examples every single day, super Mario (Draghi) at the EU economic helm, as made a fool of himself by contradicting words against his actions. While saying Greece is OK, two weeks later the EU echelon where getting panicky calls from the US Fed and China’s central bank, and forced to tell the truth to them but the rest of the people, the ECB had to inject untold amounts of capital to the lenders of Greece, that continues to be rule by the same incompetents that worked the deal with Goldman Sachs, that cost them to tell the half truth about lying in the financial condition (and one has to correlate documentation) to join the EU.

Today, April 17 the headlines at some major online publications did not say a single word about the problem that a 6% interest rates in the 12 largest economy will affect the top 10 largest economy.

Not only the pernicious 6% debt service will destroy a generation of Spaniards, it will eventually cripple its neighbors and exporters. How big is the Spainish to matter to the rest of the economic world, a simple way to put in GDP terms it will be:

Spain=Belgium+Greece+Portugal+Ireland+Poland

in numbers looks like this:

1.5 trillion(S)= 0.469(B)+0.308(G)+0.228(P)+0.211(I)+0.470

1/10 of the US GDP.

Reality check, Spain matters and Spain is not alone in its troubles. What is unique is the cause of its troubles, if derivatives where the culprit in the US , Greece was falsifying numbers, Ireland lack of controls, Portugal slow growth due to structural autocracy, Iceland banks ran amock, Italy a submerged economy, England covered with financial instruments to provide impossible pensions, France with a debt service that continues to be hedged , Belgium with a internal political fracturing and large debt services, Germany a too lenient government towards financial institutions that have burdened tax payers for generations, the problems are unique and each country. Each country has a different degree of causation, rationalization and all have a serious economic problem that will last for generations.

All countries are privatizing their economies at rates larger than they have lost capacity to control it.

How do you translate Spain 6% interest rates into real and tangible socio-economic-impact, not in a pleasant way, it is going to get rough and rougher as months forces more and new fiscal restrains to trickle down to the people.

A quick review of present government policies to adjust to a 7.5-6% deficit or GDP or around $120 billion that Spain is looking to borrow this year.

20% cuts in education in one year. Try that at home.

50% cut in all government contracts (tell that to the tea party goers).

A 10 % reduction in all defense expending to less than 8% of GDP (The US has a carry-over of 48% across all departments involved).

The individual cuts are all over to list them in detail, but you get a gist of the quantification.

You might think this Spaniards do not pay taxes, wrong, if you think the IRS is intrusive try to escape taxes in Spain, if you belong to the taxed people (aka the 99%ers) you will place your butt every year for 30 minutes in front of an tax officer, and they check your taxes, and you will file what they tell you to file or else. Add to personal income taxes, as a cherry in the cake, a 18.5% flat tax in most consumer discretionary items a.k.a. VAT. So they do pay taxes and compliance is above 95% The other 5% represents a large amount of the 1 per centers using a the US like laws passed in Spain that allows large wealth to escape taxation.

So how much is that 6% not much, today, but you add it to the present debt service in monthly interest will add $1.2 billion for 2012, but $4.5 Billion 2013, and it explodes to $6.5 billion in 2014. All those interest need to come from raising taxes and more cuts. Considering the last employment legislation enacted in Spain, the central bank (Bank of Spain) is forecasting incomes to stay flat or be reduced for a core 68% of the population and for 21% to grow less than 2%, and for the rest 1% to grow 5%. Spain working force cannot sustain this interest rates growth without the rest of Europe feeling it.

Bottom line, Spain cannot grow or tax itself fast enough to get out of their rat hole. Spain has the potential to join and drag Italy and France into a “real” problem. In the mean time the IMF, the ECB chiefs all are in unison saying "the worse is over" once again and we are going to grow a whopping 3%. Where ?

Solutions are available, are all painful, none provides comfort to the 99% of the population. Will civil unrest be next in the agenda, if past economic extremes are any indication, the probability is low today, and increases every month that a new cut takes place and starts to affect more working people.