Harry S. Dent | Thursday, August 22, 2013 >>
I’ve been saying for some time now that the next great financial crisis (which I expect will finally strike very early in 2014) could be triggered by Spain. After all, the country had the greatest real estate bubble in Europe and it’s still unraveling, just like our very own housing bubble did between 2008 and 2012.
Do you know what triggered the great crash of ’08… and the subsequent pain we’ve all borne since then?
A subprime crisis in just four U.S. states.
That’s right. Thanks to their housing and lending bubbles, California, Florida, Arizona and Nevada brought us to our knees.
But how could a worldwide crisis come from such a narrow event?
Because of the greatest debt bubble in modern history AND the slowing demographic trends in one country after the next as they roll right over the demographic cliff (which is what I’ve titled my new book, due to be released in early January).
The problem is, since the ’08 crisis, public debt levels have only increased in most countries as governments desperately fight the inevitable debt deleveraging that comes after the busting of every such debt and financial bubble. (Just look at history!)
As a result, economies are more overstretched than ever, while demographic trends will continue to worsen, especially in Europe… even Europe’s anchor, Germany, faces trouble (more on that another day).
And Spain is the continent’s Achilles Heel.
It’s simply too big to bail out (with Italy even larger).
Unfortunately, Spain’s real estate bubble tripled during the boom years, while our U.S. bubble doubled. See for yourself…
Now, while Spain’s real estate bubble has already deflated as much as ours, it’s not nearly done. It has much further to go to erase the bubble.
The question is: What is the most likely trigger for Spain’s crisis to blow-up a second and final time?
In a word: Greece.
I’ve always said Germany and the European Central Bank (ECB) should have folded their hand when the first Greek bailout failed.
Of course, Germany, and the whole euro zone for that matter, has too much to lose if they followed my advice: Falling exports… southern European countries that would be forced to devalue their currencies… too many short- and long-term debts to default on…
So what do Germany and the ECB do? They keep increasing their bets in the hope their bluff will pay off.
There is no way this can happen.
Just look at the Greek bailouts. The first one was for $143 billion in 2010. That money was supposed to last three years, but by mid-2012 Greece had burned through it all and then they were allowed to default on 25% of their debt for another $137 billion.
Then Greece got another $220 billion bailout that was supposed to last until 2020. Ha! It’s already practically bankrupt, again, and it’s only the third quarter of 2013. Of that $220 billion, only $14 billion is left.
To date, Greek bailouts have now totaled $500 billion. And how have they worked?
Greek GDP has shrunk from $320 billion in 2010 to $250 billion in 2013. That’s a 22% reduction, similar to the Great Depression in the U.S. And the country’s unemployment is at 27% and rising. That’s worse than the unemployment experienced during the Great Depression in the U.S.
There is no saving Greece… or Portugal… or Spain. These countries won’t be able to turn around because they have some of the fastest aging demographics in the world… because their workforces and industries are simply not competitive in global markets… because their work ethic and worker demands are questionable.
There is only one solution for these guys: To devalue their currencies, to make them more competitive, and to force more austerity on their workers and consumers through higher prices for imports.
Workers in these countries need to work longer and harder, like their peers in Germany. It’s time to leave la-la land and wake up!
Mark my words: A larger crisis is coming to southern and central Europe (Italy, Spain, Portugal, Greece, Germany, Switzerland and Austria) as their demographic and Spending Wave trends point down more sharply from 2014 forward.
If Europe is struggling now with non-competitive workers and industries, and sovereign debt crises, imagine how badly it will fare when the population of each of its countries runs right off the edge of the cliff.
Don’t believe the headlines that Europe is finally turning around. Yes, there are some minor positive signs recently. But this is the calm before the storm.
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