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There is no simple mechanical explanation here, which says that funds flowing out of Spanish government debt has to create a credit bubble somewhere else in the Spanish economy. There were, and are, other asset classes available for investors.
Yes, there is. Three-sector national accounting.

You can't have growth, public sector surplus, private sector surplus, and a structural trade deficit. Something has to give. Structural trade balances take years to change. Public sector surplus is mandated by the GSP. Growth is a political necessity. Therefore, you get private sector deficit. Therefore, foreign agents' surpluses get intermediated into private debt. And the structural imbalances don't get corrected.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:39:42 AM EST
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