Economists are recognized for being the best predictors of the past and as an economist I am and as a citizen of the suffering middle class in Spain, I will give my view of what has happened in the last 10 years of economic roller coaster and try to explain what has brought us to the current situation. In this way, knowing what has happened and the causes we can think of how to fix it or at least not to fall into the same errors again, or if you prefer to the quote, "The one who ignores history is doomed to repeat it."
Before you spend a certain time of your life reading my ideas I want to warn about some assumptions:
I Don’t think our crisis is the ninja crisis explained by Professor D. Leopoldo Abadía but a local variation of the same applied in Spain at a later time with other very different reasons. I Greatly respect the views of Mr. Abadía, and I read him weekly in The Confidential agreeing with him on most occasions.
I do not think our crisis is due to the action of evil speculators. The story is bullshit the government is selling wonderfully. The fault belongs to everyone as we will reason later.
Many links I refer to the Wikipedia, not because it is my source of reference but it usually has some good summaries of things. My main references are my memory, my experience, my perception and financial newspapers. So I’m happy to accept criticism because my memory is weak, my experience limited, my perception may be distorted and financial newspapers do not possess the absolute truth, not even relative.
I think this crisis is like any indigestion or drunkenness, has a solution, is not fatal for the patient but needs time to recover. And that time is of grief, reflection and purification. And these are our situation.
I accept suggestions, reasoning and am open to your contributions that you can send me to firstname.lastname@example.org if they want to do it privately.
As I usually do not have much time to write, it is possible to alter a post by completing, amending or correcting as you show me or I realize I forgot something. Please note that I am not a professional writer.
Come on with it.
In a nearby galaxy not so long ago ...
Chapter 1. The Euro.
On January 1, 2002 Spain opened currency. I remember the New Year where we all came with our bag of shiny new coins and comments from the first weeks of January. What beautiful, look at the pennies, which seem a little thing, but this is how many pesetas are?.
Already in the 97 from the media warned that for the average citizen the danger was psychological and was going to have a sense fictitious lower prices and rounding was a real danger. When he reached the year 2002, what many feared, it happened. Our fish memory forgot the warnings and the prices seem very low but no one noticed its payroll in euros and made some numbers. In my humble opinion set prices in both currencies after the third month of introduction of the euro I think it was a disaster because it prevented a change in mentality comparing income against expenditure in the domestic economy. Even today they continue seeing conversions tickets to pesetas in hypermarkets, thing that gets on my nerves. We went to draw the cashier to take fifty euros instead 5,000 pesetas. And then we went to burn it happily to the delight of merchants. (Note that 1€ = 166 pesetas)
But let's make a break before continuing. Before the single currency was circulated physically there would be problems in changing a lot of black money that has traditionally been in Spain.The State was rubbing his hands because he thought they would have to make a line infront the Bank of Spain to change pesetas into euros, but again stakeholders found how to bypass the checkout line. How? Well, buying properties in pesetas by 2002. So you see where by 2002 they began to buy homes as never before. In addition, the Euribor was first used from 2000 and as can be seen in figures continued the downward trend of interest rates from bidigitals of the 80s and 90s to less than 5%. These two facts are important to understand what would happen next with the housing bubble.
Continuing our sense of new wealth and power of the Euro only ask them to try to recall those years of 2002 and 2003 in which we use one Euro coins instead of 100 pesetas, which means "mental" inflation 66 percent overnight. The newspapers and coffees took less than two years to make this 1€ = 100 pesetas assumption.
So we have three vectors pulling in the same direction:
- Black money in real estate coming into real big numbers.
- Interest rates down
- Inexplicable feeling of wealth and power.
All this to the rise in house prices which we discuss in the next chapter.
The rise in house prices