CRISI : CINISME O INCOMPETÈNCIA

CYNICISM OR INCOMPETENCE? : CINISME O INCOMPETÈNCIA

Here we go again. The herd of economists telling what happened, why .. when it is too late. And some pretentious arrogant jerks pretend that Economy is a Science¡¡¡ They have not studied enough Mathematics, Physics or Chemistry... They do not know what the scientific method is : make an hypothesis, design many experiments , make sure the model works without exceptions and your hypothesis becomes a theory..

Economy does not work that way. Too many factors, inefficient models and very little control . And always why it happened.. afterwards.

Basically very low interest rates triggered investment and expenditure. Spanish businessmen decided to invest on house building. Pure imagination. Some got 5000 Million € on credit loans.... More than 600000 new flats a year. The financial institutions gave easy credits to be returned in 30, even 40 years. The requirements to get a loan were almost nonexistent... lso, luxury cars were paid with 30 year loans¡¡¡¡¡ People started to spend more money than was advisable from their incomes. It seemed an endless wonderland. A politian said that Spanish people wer e a lot richer¡¡¡¡¡

Real state prices increased to a level which meant the same monthly mortgage payment than previously, when interest rate were at a 15% but 2 things had changed : instead of 10 years we were talking of 30 and interest rates were at a 2-2,5% .. Financial decisions were taken by individuals without considering that interest rates would go up.. probably to a 5-6%.

The internal demand stopped (too many flats to be bought) and money stopped flowing. The financial crisis exploded in the States due to doubtful payments. Financial institutions do not have money so they had to give high interest rates (6%) to get it from the market.


Now, inflation has increased due to the energy crisis. The ECB wants to control inflation and keeps on pushing the Official Interest Rate. EURIBOR increases consequently. Oil by costs by the way are made of aprox 70% taxes and 30% raw materials+ hand labour. Pure speculation... I wonder what the Irak's war has to do with it.....

Now, one for the so called ecologists : Bioethanol implies less cereals available so food prices go up.

Less financial resources slow down the Economy.. Bankruptcies, job losses...

It will take long to sort it out.. One thing is sure : The Government will not do it : 2 months ago, the Spanish Economy Minister said that it was a "periodo de problemas transitorio". (temporary period of problems). Now he has said that "this is the most complex crisis we have ever had"

A change of view like that is due to two possible causes : incompetence(? ) or cynicism.. What feature is best for a Minister? Would a lady Minister change things? Is it question of sex? As the Goverment has run out of ideas ( have you alreday spent your 400 € which were supposed to boost the Economy?) a lady Minister would give some colour to that dismal picture.

Knowing that the government cannot solve it (they do not have a long term strategy, just keep the power), we have to find our own way out..

In the new series of posts I will suggest some actions . I would appreciate if you provide useful ideas.

Jordi Delcor , PhD