Spain's Death Spiral

Here are the facts to nations who borrow money...at some time it has to be repaid.  Yes, of course, you can pay interest on the money you have borrowed and as long as that interest rate stays low, you can just keep muddling along paying interest, technically forever.  But what happens when the folks who loaned you the money start to doubt whether you are going to repay it all?  Well, of course, they will want to receive more interest to atone for the increased risk.  But what happens if the interest rates go to 5% or 6% or even higher?  Then you will end up using all the money that you collect in taxes simply to pay the interest on the $trillions that you borrowed.

And when that happens....all bets are off...because you end up with a crisis of confidence and no one will loan you any money....and your financial system collapses.

Last week Spain broke the supposedly magic 7 percent barrier, its rate to borrow money for ten years rising to 7.18 percent on Friday, 7.4 Monday morning. By contrast, Germany can borrow money at 1.17 percent as I write this; Switzerland, .46 percent; even the downgraded, living-beyond-its-means, politically paralyzed U.S., 1.41 percent, the lowest rate we've had to pay for a 10-year loan in our entire history.

By way of comparison, when Spain adopted the euro as its currency back in 1999, it was paying just under 4 percent to borrow for ten years, the same interest rate Germany had to pay back then. And the identity of Spanish and German interest rates held steady for almost a decade. Same for Greek interest rates, which tells you the basic story: investors thought that any country borrowing in euro was as safe a credit as any other.

It was after the Crash of '08 that investors turned forensic. Not all euro borrowers were the same, they discovered. And so rates began to diverge; lenders simply began to demand a higher yield to compensate them for the added risk they had been taking.

Sadly, however -- but also predictably -- the more Greece cuts, the more its economy shrinks, meaning that its tax base shrivels, meaning the greater its deficit, meaning the greater the risk of default. Death spiral (see above).

One way out: default on your debts, quit the eurozone and start over in your own currency. That's what many of our Making Sen$e Greece experts have predicted for a few years. There's been little talk of it with regard to Spain. Until now. 

Here;  http://www.pbs.org/newshour/rundown/2012/07/spains-death-spiral.html

Did you catch the fact that U.S. borrowing rates are at 1.41%...which is the lowest rate EVER!!  What happens when ours goes to 7%....which is where it traditionally has been for 10 year rates??

What happens when many cities start filing bankruptcy in California...and California then seeks help from the Federal government...which is already broke?  What happens when New York, Illinois, Arizona and Michigan also seek help from the Federal government?

What happens when we simply can't find anyone to loan us any more money? 

Then we will simply be done spending other people's money.....and then the unrest will begin.

Friends, this is what happens when we put our trust in man and his schemes.  Only God sets up and tears down nations and I believe we are about to witness some substantial tearing down.