From Simon Black of Sovereign Man
While Greece burns, Spain test drives a post-euro future
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
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
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
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.