The Run On Spain

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		Tech Entertainment Wall Street Markets Strategy Sports Lifestyle Politics International Video Latest Tuesday, April 17, 2012 The Run On Spain Despite a successful debt auction today, many more economists agree that Spain will now need some kind of bank bailout, definitely from the government and probably from outside organizations like the European Central Bank, other EU countries, and/or the International Monetary Fund. The chart above from a recent Citi report details why. The percentage of banks' assets provided for by domestic sector deposits has dropped off dramatically in the last year—and particularly in the last few months—while the percentage of bank balance sheets funded by Eurosystem funds has grown exponentially. This suggests a couple of things. First, deposits are vanishing as the economy contracts and what money would-be investors hold flees the country. This has an important consequence for sovereign debt, too, since domestic banks have been the primary buyers of Spanish debt recently. Unless asset growth from Eurosystem funding can keep pace with deposit flight, banks will no longer be able to keep up these purchases. In this cynical scenario, the value of bonds will decline, yields will rise to unsustainable levels, and Spain could become insolvent. Second, the Eurosystem is increasingly becoming the vehicle for supporting Spain, making it more likely to embrace a Spanish bank bailout in the future. If the Eurosystem's assets stand to be lost, it will be less likely to allow a series of private defaults to occur. No matter how much banks try to pump up their capital, the unfortunate reality seems to be that they're going about it in an unsustainable way, particularly if there is no third LTRO. Read » Also On Money Game Today: Jeff Gundlach Reveals A New Favorite Investment Idea: 'It's Like Investing In Gold In 1997' 10 Companies Are Buying Back $66.4 Billion Worth Of Stock This Year The Commodity Bubble Is Going To Burst And It's Not Going To Be Pretty The 15 Most Expensive Celebrity Tax Evasions Advertisement CHART OF THE DAY: This Is Why They Call It TAXMAGEDDON CHART OF THE DAY: This Is The Critical Chart For 2013 CHART OF THE DAY: Some Bad Economic News That Everyone Is Mistaking For Good Share this: Facebook Twitter Digg Reddit StumbleUpon LinkedIn The email address for your subscription is: dwyld.kwu.jobhuntportal11@blogger.com Change Your Email Address | Unsubscribe | Subscribe | Subscribe to the Money Game RSS Feed Business Insider. 257 Park Avenue South, New York, NY 10010 Terms of Service | Privacy Policy

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