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Simon Black - Sovereign Man

I have been reading this blog for over a year and I have found it very interesting especially simons views on US politics and the potential of south America..

I've stopped briefly for a quick lunch en route to Andorra, which is a scenic three hour drive due north from Barcelona. The spot that I picked to stop and write to you is absolutely stunning.

When I first started traveling years ago, I fell in love with Barcelona and the Catalan region of Spain. Part of it is the beauty, and part of it is the area's staunch independence.

In a way, Catalonia is much like Quebec in relation to Canada-- these people have their own language, their own culture, and they don't take kindly to those bureaucrats in Madrid telling them what to do.

I tend to pass a fair amount of time in Spain and usually find myself here for odds and ends business matters. The last time was almost precisely a year ago when Matt and I were attending the most fantastically bizarre function at a remote, mountainous monastery in Catalonia.

The rest of the group consisted of Russian gangsters, sycophantic European businessmen, jet set playboy types, African royalty, and senior leaders of splinter Christian and Muslim sects.

Supposedly it had something to do with diplomatic positions for a government in exile, though to this day I have no idea how the costumes, chanting, and rituals fit in. Think 'Eyes Wide Shut' without the sex.

Anyhow, since I arrived to Spain a few days ago from London, I've been sniffing around to get a sense of how Spain's crisis is unfolding. We see the news clips and YouTube videos of protests, of governments collapsing, of soaring unemployment, but I wanted to see for myself how feels on the ground, and how things have changed over the last year.

The most startling change that I've noticed, without doubt, is the inflation. Literally everything I've looked at-- food prices at the local market, restaurant tabs, local electronics, highway tolls, raw material construction costs, mobile phone tariffs, taxi fare, etc. are much more expensive, to the tune of 10% to 25%.

So much for the theory that an economic slowdown would decrease prices.

John Maynard Keynes, who is consistently held up as the father of modern macroeconomics, suggested in his General Theory that keeping interest rates low and government spending high in order to sustain a boom (or get an economy moving again) would likely NOT result in inflation.

This has been the underpinning economic theory behind worldwide government efforts since the Lehman collapse... it's the old "spend your way out of recession" play. Politicians and central bankers alike seem to believe, as Keynes did, that inflation is a low risk consequence.

Spain is one of many examples that proves this theory to be utter nonsense. Everyone on the ground knows that inflation is high; local newspapers are even running stories about how to best deal with inflation and preserve your savings.

As an aside, I should mention that I read one such article in a popular newspaper called Money Market in which the reporter interviewed several top fund managers and asked each of them how individuals should preserve their savings.

Most of them responded with the same dangerous herd mentality-- buy stocks. How many recommended gold or silver? Zero. This is a bullish sign for precious metals.

Among other things I have noticed is the decline in service. Part of the reason Spain's unemployment rate is so high is because it is so costly and bureaucratic to keep employees. Payroll taxes are quite high, so businesses have laid off their workers en masse.

You notice it instantly when you try to buy something at a retail shop or restaurant; there may be one person working for dozens of customers, and it takes forever to get anything done.

The other thing that has me quite concerned about Spain is the police presence. I don't think I ever went 5 blocks in Barcelona without seeing a cop on the street. What's more, they don't just stand there waiting for something to happen, they're actively going around harassing people.

My assessment is that the government is intentionally having the police turn up the heat on their intimidation tactics in hopes of squashing any future rebellion before it happens. They want to instill a sense of fear in the society to keep everyone quiet.

On that note, the most interesting part of this trip so far has been passing through small towns outside of Barcelona that are starting to circulate pesetas again-- Spain's pre-euro currency.

Apparently quite a few people have woken up to the euro's fundamental weakness and begun circulating an alternative within their local, internal economies. The post-euro future is already here in Spain, it's only a matter of time before the rest of the continent catches up.

Overall, the situation in Spain is not as dire as in Greece, which is literally burning at the moment. But Spain is running out of cash quickly, and its Keynesian bubble deflating rapidly. There will be a time, probably this year, when the country will need to secure emergency funding just to keep the lights on, and that's when things will really start to fall apart.



Until tomorrow,

Simon Black
Senior Editor, SovereignMan.com
I have to agree on the inflation thing, prices have soared here, anybody have any thoughts on the rest of his assumptions.
 

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Its a difficult one ... as he is very much speaking from a very specific position in economic thinking, a keynes-inspired economist would counter all his arguments with about the same strength and credibility as he makes them. And I cant seem to find any solid evidence of his claims of 10-25% inflation ... and equally, Keynes never claimed to have a solution to stagflation at hand, which makes it a bit of an odd argument, if thats the actual starting position.

But he makes some good points in my opinion -> Bureaucracy is killing the employment, government spending is too high and unfocused, a return to pesetas and the freedom to maintain a sovereign financial policy might be a necessary and positive outcome etc...
 

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Thanks for posting this.
I've only read it through quickly, but picked up a couple of things...
A lot of people have talked about bad customer service and I don't usually agree, but yes, it's true that there are large shop surfaces that are very understaffed. Is that a result of the crisis though? I thought it had always been like that.
Inflation, yes. It seems to me that the cost of living has gone up in general, especially energy.
The pesetas thing. Yes, there are few shops who accept pesetas, but is that because they're turning away from the euro? It's the kind of thing that's reported on local news shows as light hearted news. I've always seen the reason reported as basically another way to get people to spend. Apparently there are millions of pesetas still out there (some say it's the under the table money that was difficult to get rid of when the changeover to euros was made) and in the recession it's a way for shop keepers to encourage people to spend (??)
 

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Thanks for posting this.
I've only read it through quickly, but picked up a couple of things...
A lot of people have talked about bad customer service and I don't usually agree, but yes, it's true that there are large shop surfaces that are very understaffed. Is that a result of the crisis though? I thought it had always been like that.
(??)
Yes I also think it has always been like that, on a selfish kind of way, I think shops and larger stores s are just fine that way. I also find that customer service in other contries is a little suffocating, I much prefer to browse, test, try, think and decide by myself than having a bored assistant following me.
 

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Simon Black - Sovereign Man

I have been reading this blog for over a year and I have found it very interesting especially simons views on US politics and the potential of south America..

I haven't noticed intimidating police presence at all up here. Yes there is police, but not intimidating at all.
I wonder if that's just a Barcelona thing.
Nope, it is a Catalunya in general sort of thing. I live near Tortosa and we regularly have police check points with machine gun toting yobs, (dressed as Mossos and pertaining to be Mossos) whose sole aim it would seem is to harrass both locals and extanjeros (more so) to the point of squashing them underfoot.

With regards inflation, when we first came here 6 nearly 7 years back it cost 4 euros to travel from Tortosa to Tarragona on the AP7 a distance of about 75 kilometres, it now costs 6.70. Now of course one could say that the rise is acceptable given the time span. However, when one considers that in the last 12 months it has gone up four times from 5.20 to 5.70 to 6.20 to 6.70 it makes one realise that inflation is very much a problem.
 

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The pesetas - definitely, the guy is right for the wrong reasons. Those few shops accepting pesetas dont seem to have any ideological reason for doing so, theyre just optimising takings in troubled times. He is right though, that unlike what we´d have thought just 3-4 years ago, the pesetas might return instead of the euro. If and when greece collapses, new turmoil could follow - and the spanish economy is extremely weak. Its not the most likely scenario, but its suddenly possible.

Service in shops - the problem is most often reverse isnt it? In my local tobacco store theres always 4 people on duty...serving a maximum of 2 customers and still often managing to make people wait....its charming and probably ups the quality of life, but it also helps explain why spanish productivity is close to non-existing.

In reality 3 of those 4 should be fired, those 3 should have their benefits cut to inspire them to look for work, everyone should run faster and the social consequences of such policies should be ignored - and in a generations time the spanish economy would benefit from a competitive level of productivity....now thats how Simon Black, the IMF and that line of economic thinking sees it. I hope theres an alternative.


Thanks for posting this.
I've only read it through quickly, but picked up a couple of things...
A lot of people have talked about bad customer service and I don't usually agree, but yes, it's true that there are large shop surfaces that are very understaffed. Is that a result of the crisis though? I thought it had always been like that.
Inflation, yes. It seems to me that the cost of living has gone up in general, especially energy.
The pesetas thing. Yes, there are few shops who accept pesetas, but is that because they're turning away from the euro? It's the kind of thing that's reported on local news shows as light hearted news. I've always seen the reason reported as basically another way to get people to spend. Apparently there are millions of pesetas still out there (some say it's the under the table money that was difficult to get rid of when the changeover to euros was made) and in the recession it's a way for shop keepers to encourage people to spend (??)
 

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I needed a part for my strimmer and so went back to the shop whence it was purchased. After nearly a month of waiting for it to arrive I went back in and was told, because of the crisis the warehouse had laid people off or they were on short time so fact was I would just have to wait.
I contacted the company who made the strimmer direct , ordered the part and had it delivered within a week.
Now that is customer service, not the following one around in the hopes of helping them, as Sonrisa intimated, though I have to agree with her it does irk a tad. But good old fashioned do the job and do it right.
I am still waiting for the part to arrive from the warehouse, I decided to get a spare but am thinking by the time it arrives my strimmer will be too old to use as will I to use it.
 

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I've had a house here in Andalucia for six years now, and been living here full time for three. We live on a small fixed income so I keep a careful eye on rising costs.

Electricity and petrol have gone up a lot. Internet and mobile tariffs have come down a lot. Food and drink is about the same, and other household bills have gone up by 2 or 3% a year.

A beer, coffee or tinto in any bar here is €1, the same as in 2005. Tapas still €1.50 or €2. I can still fill a trolley with good quality vegetables and fruit for less than €10.

In 2008 we paid €100 a month for telephone and internet; it is now €60. My mobile tariff is now 8 cents a minute compared to 38 then.

As for Keynesian investment, it has kept my little town alive during the recession. New roads, drains, sewers, pavements, refurbished parks and historic buildings, a nursery school - jobs for all those builders dumped on the scrapheap after the collapse of the private sector construction industry. What's the alternative - pay people not to work? Give the private sector ridiculous incentives to create jobs?
 

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Where would you advise them to look, Morten, just out of interest?
In reality they might as well not bother of course ... but in Simon Blacks world thats a good thing, as they will undercut the wages of current workers to get a job, thus cutting production expenses and raising competitiveness ... and the ones they undercut will counter-undercut until theres room for 2 for 1 wage, both trained to run twice as fast, which doubles productions without increasing costs - and theres still 2 left to undercut their wages ....
 

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In reality they might as well not bother of course ... but in Simon Blacks world thats a good thing, as they will undercut the wages of current workers to get a job, thus cutting production expenses and raising competitiveness ... and the ones they undercut will counter-undercut until theres room for 2 for 1 wage, both trained to run twice as fast, which doubles productions without increasing costs - and theres still 2 left to undercut their wages ....
Blimey, that's not a world I want to live in, thanks very much!

Why do you think driving down people's wages is a good thing?
 

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I dont. But thats the theory behind the original posters claims.

If you dont want to live in that world - support the Democracia Real Ya or similar, as theyre fighting against exactly such measures ... introduced by Zapateros under pressure from the EU, IMF etc.

Blimey, that's not a world I want to live in, thanks very much!

Why do you think driving down people's wages is a good thing?
 

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I dont. But thats the theory behind the original posters claims.

If you dont want to live in that world - support the Democracia Real Ya or similar, as theyre fighting against exactly such measures ... introduced by Zapateros under pressure from the EU, IMF etc.
I do! I am a fully qualified flag-waving indignada .

I am glad they aren't your views because you come over as eminently sensible and reasonable on all your other posts. Life is confusing enough already ... :juggle:
 

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I do! I am a fully qualified flag-waving indignada .

I am glad they aren't your views because you come over as eminently sensible and reasonable on all your other posts. Life is confusing enough already ... :juggle:
:spit:

I've met him!!!
 

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We have just finished five gruelling but very enjoyable days as Moors in our local towns Moors and Christians Fiesta. Yesterday, the last night, is the Disfrute where anything goes. Banners, Fancy dress had been prepared, hard boiled sweets for slinging hard at anybody in the watching crowd and of course water and confetti just to really please everybody. The key is the banners. As they were unrolled I was surprised to see DRy and 15th May plastered all over them coupled with 'indignada'. Remember this Compasa has 200 plus members, all Spanish (except for us) of all ages. 5 days of talking with them and it is easy to see what is worrying them.
Inflation which they say is getting worse, personally I haven't seen it to be too bad but I could be wrong.
Work, or should I say lack of it.
Do they blame Europe or the Euro, surprisingly generally no! Do they blame the system, again no. The problem, as far as the majority were concerned is corruption, graft and the politicos themselves rather than the structure itself.
I don't think the original blog posted to this thread is that relevant. Catalan, where I have spent quite a lot of time, is a macro culture, a bit like Wales but more aggresive. The smaller villages even have their own cultures within the Catalan one. It gives the wrong impression of Spain overall.
I think that people in Spain are looking to get the political act cleaned up and I have changed my mind, I think they are getting serious about it. The next few months could prove very interesting!
 
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