Spain’s sickly economy faces a “crisis of huge proportions”, a minister said on Friday, as unemployment hit its highest level in almost two decades and Standard and Poor’s downgraded the government’s debt by two notches.
Spain has tried to do what we tried to do, what Greece tried to do, what the rest of the EU tried to do — continually borrow and spend money to prop up a monster lending bubble.
This strategy failed because it mathematically must fail. It is impossible for it to succeed over the intermediate and longer term, irrespective of what politicians would like or what they promise the people.
De Guindos also said Spain would increase the value-added tax and other indirect taxes next year, but would seek to reduce payroll taxes. Spain has a low VAT compared with other European countries even after raising it in 2010.
Which will cause GDP to contract further, since that which you tax must come out of either “C” (consumption) or “I” (investment.)
But — simply cutting spending doesn’t avoid this outcome. That reduces “G”, which in turn reduces GDP.
The problem we continually have in this country and in Europe is that we keep doing the same things that led us down the hole, attempting to protect the banksters who made loans that cannot be covered. Spain remains unwilling to actually force those who made the bad loans to eat their own cooking, even if it chokes them:
Spain’s government and its banks are discussing a new scheme to segregate problematic property loans into one or more asset management companies to relieve the burden on struggling lenders, according to officials and bankers.
That relieves nothing. It is either a scam (that is, it transfers nothing) or it takes the bad debts of private entities and transfers them to the taxpayer, thereby turning them into permanent impairments in the economy that then must be financed and covered from tax revenues.
The latter is an open, public and outrageous act of fraud and sedition that deserves prosecution, imprisonment and were we to still have the original Coinage Act, capital punishment.
The simple fact of the matter is that there is no resolution to these problems until and unless budgets are reconciled with current taxes. That’s the beginning and end of it; that which we demand government provide in services, whether here or elsewhere, must be paid for with current tax revenues.
I know this is politically unpalatable but it simply doesn’t matter — addition hasn’t changed its fundamental character ever in history, and neither has subtraction.
The sooner we stop lying to ourselves and governments stop lying to the people the better off we will all be.