Spain's recession (2009) in FT

is · Post by is » Wed Feb 18, 2009 9:46 am

Interesting feature article in yesterday's Financial Times (Feb. 17, 2009) on the impact of the credit crisis in Spain. Here's the link:

http://www.ft.com/cms/s/0/36004b40-fd2a ... 07658.html

Among other things, it mentions how David Villa, the Asturian soccer player that plays for Valencia, has not been paid by the team because of liquidity problems at the heavily indebted club.

In the pessimist camp, there are analysts that say that unemployment will soar from the current 14% to 19% by end-2009. With a government budget deficit of 6.5% of GDP and no rebound in sight, the economy is set to contract by 3% this year. Which means that policymakers will have a hard time masking anything anymore.

Oddly, in Asturias, the media keeps bringing out headlines about how Madrid (the central Spanish government) will guarantee this and that, and how Arcelor-Mittal will guarantee steel output. Things don't work like that and never have. But they still like to put on their blinders and do a disservice to their readers.

In the optimist camp? 2010 may be far away, but that's the new 2009, as they say.

Bob · Post by **Bob** » Wed Feb 18, 2009 10:14 am

In the EEUU economy, there has been discussion that I just don't quite understand. Part of the problem is that banks and other financial institutions have made loans to people who have overspent by taking on debt they cannot afford (very stupid on the part of the banks but quite understandable if we think of thr people who want to own their own homes). We are now told that the solution is to spend more. DUH!

Anuska · Post by **Anuska** » Thu Feb 19, 2009 2:34 pm

You're right. People here is living in a parallel universe. Arcelor-Mittal has already started to pass some client's orders to its branches in France and Italy. And that's just the beginning. I'm sure that soon will have news that many workers will go home with some ERE (Expediente de Regulación de Empleo).

For how long? Nobody knows. But what I do know is the Asturian government is doing NOTHING. I don't think they're even worried. But if Arcelor-Mittal begins to close plants, we'll be in serious trouble.

P.S. Is, how's the weather in Dubai? Don't you miss our chill climate?

ayalgueru · Post by **ayalgueru** » Sun Mar 22, 2009 6:01 pm

The spanish economy is in need of profound structural reform but the problem is that nor the governement or the opposition are willing to make unpopular choices ,,, if they do nothing we will get a 20% ( or higher ) unemployment AND stay there for years to come ,,, that is nothing short of a full scale social and economical disaster ,,,

In addition to the international crisis ,,, Spain's economy is not competive and as a result Spain's current account deficit is enourmous , to give you an idea if Americas current account deficit is already humangous ( something in the region of 5% of America's GDP ) Spain's is double that something like 10% GDP !!

The socialist administration has taken the easy way ,,, spending money we do not have like there is no tomorrow , pay people generous employment benefits to keep them shut ( for now ) , close their eyes , cross their fingers and hope that things will just fixed themselves magically in a few months ,,, that will not work ...

Another thing is that policy makers are pretty much ignoring the role of the fed and other central banks in the whole mess we got ourselves in ,,, they irresponsibly and artificially expanded the credit ,,, the credit binge was started by our central banks ,,, as bob correctly points out retail banks did lend money to people with low credit scores ,,, one of the main roles of a commercial bank is to carefully manage the risk but plenty of cheap credit was available and that encouraged irresponsible lending on a massive scale ,,,

Bob · Post by **Bob** » Sun Mar 22, 2009 6:44 pm

What I really fail to understand is the stupidity of the banks, which have made "bad" loans with adjustable interest rates that jumped to make them unaffordable to the borrowers. Would not it make more sense to reduce the interest rates to what the borrowers can afford instead of calling them toxic mortgages? They are toxic only because the banks themselves have made them so. Better to make a smaller profit than none at all.

ayalgueru · Post by **ayalgueru** » Wed Mar 25, 2009 9:02 am

Repossesions ( foreclosures ) are not at all in the mortgage providers’ interest , the commercial banks want us solvent and paying them back , if they lent us $300k and now the banks gets our house , and the house is now worth $175k , they have made a loss of $125k plus the profits on the interest that they will never see ,,,

In a sound and sane world banks get people to deposit money,,, the bank pays the depositor an interest rate ,,, with the savings deposited the bank lends money to other people that need capital , they charge them an interest rate higher than the one they pay out to depositor ,in my view that is the way it should mostly be.

However things were not quite as sane and sound as they should have been ,,, central banks ( FED, Bank of England , European central bank ) artificially flooded the markets with credit ,,, as a result of this a lot of the banks where not really lending to borrowers out of savings ( deposits ) ,,, the banks were getting plenty of liquidity ( cash ) , borrowing money themselves in the money markets ( short term debt market ) where interest rates were low and lending to home buyers ( mortgages long terms ) where they could get higher rates …this is an unsustainable business model ,,, when the money markets inevitably dried up the whole thing collapsed ! ,,

Retail banks , mortgage providers took poor decisions but I would not mostly blame the banks , it was the FED as well as the ECB or Bank of england and other central banks that created the conditions for the credit binge that then resulted in the credit crunch we are currently experiencing ,,, governments and central banks are now trying to re-inflate the bubble but this is like trying to get out of a hole digging deeper … it will not work ..

To be fair we can not even say it is a political right-left thing ,, from America’s bush to Britain’s Labour and our bank of England they all engaged in the same irresponsible behaviour ,,,

Villamil · Post by **Villamil** » Thu Mar 26, 2009 2:04 pm

It seems that the underlying causes are pretty complex, more than I had thought before. I mean, it seems quite clear that the irresponsability of the central banks has contributed to the current chaos and the lack of control of the banks, but it looks like the problem is the very system where are living in.

The Austrian School, for example, critizes vehemently the fraccionary reserve system blaming it for expanding the credit and, therefore, creating speculative bubbles. When Central Banks lower the money price, the consume, the production and thus the aggregate demand are stimulated, so the economy grows. However, it also stimulates the credit expansion and encorauges the indebtness. It's growing through the leverage. This favors the bubble, as happened in the US or in Spain. I don't know whether this credit system based on fiat money can be maintained much more time. Besides, the debt that has been mounted up is really huge.

A propos, it seems that the US dollar is going to fall due to the Fed policies (at least this is what many analysts say). The money supply hyper-increase that is carrying out the Fed will provoke the dollar to lose value and all the process will cause a hyperinflation in the US economy. Someone is planning to buy gold or silver to be protected if that mad-maxist situation occurs?. I don't know how Spain and the whole EU are going to be affected. Till now we're living under a deflation period, but I don't think whether it will continue for a long time. Having a look at the money aggregates of the EU zone, it looks like that the M3 has decreased whilst the M1 has been increased, but the ECB won't turn a blind eye to this situation. In fact, the media has reported that the ECB is going to lower the rate even until a 0%. Personally I'm thinking in buying precious metals to hold my purchasing power, but maybe this is a very pessimistic attitute

Going to Spain; it's very annoying that our politicians don't have any solution. They lie us constantly but nothing happens. None of them has any interest in building a new economic structure. I think they're just waiting to be saved by the EU, because at this moment it seems that they don't care about the country they're governing.

Greetings!

Post by **Art** » Sat Apr 04, 2009 1:45 am

ayalgueru wrote:,,,if they do nothing we will get a 20% ( or higher ) unemployment AND stay there for years to come ,,, that is nothing short of a full scale social and economical disaster ,,,

What is the official unemployment rate in Asturias now?

If you include all the pre-retired (those who have been forced to retire early when their jobs disappeared) and those who are no longer looking for work, it must be very high.

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¿Cuál es la tasa de desempleo oficial en Asturias ahora?

Si se incluye todos los prejubilados (aquellos quienes han sido obligados a retirarse temprano cuando sus empleos desaparecieron) y aquellos quienes ya no buscan un trabajo, debe ser muy alta.

ayalgueru · Post by **ayalgueru** » Sat Apr 04, 2009 5:55 pm

I have been looking for recent data on the net but I can't find it anything recent ... I understand that asturian official unemployment is not far off the spanish average ( something like 15-16 % now ,expected 20% by the end of 2009 early 2010 ) ,,, , however the difference being that our percentage of people in employment as a percentage of the overall population is the llowest of the whole of spain ( because of large number of young "retirees" that are not officialy count as unemployed , they do not work but they get a state pension ) ... so tthe real unemployment is even higher ,,,

In addition to that take out the public sector and subsided unsustainable companies and the size of the asturian "real "economy is , to put it bluntly , frightenly small ,,,

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tuve buscandote datos recientes nel internet y nun soy a atopalos ,,, entiendo que la nuesa cifra "oficial" de paro nun ta llonhe de la oficial pa toa espanha pero el tema ye que la nuestra tasa d'activida ye munchu menor que la d'espanha , pol enorme numeru de prexubilaos pero esto claro ye solo paro encubiertu ,,,

Si ademas mires a la economia asturiana ,, sacante del sector publicu que ta pagau con transferencies del restu espanha , y de les empreses privaes que dependen pa la so superviviencia de subsidios el tamanhu ridiculu de la economia "real" n'Asturies simplemente mete mieu ...

Llames · Post by **Llames** » Tue Apr 07, 2009 3:51 pm

Equí tienes los datos del mes de marzu, Ayalgueru.

ASTURIES
Cifra total de paraos: 74.381
Variación mensual absoluta +823
Variación mensual relativa +1,12
Variación anual absoluta +21.907
Variación anual relativa +41,75

Post by **Art** » Wed Apr 08, 2009 12:58 am

Estupendo, amigos, gracias! ¿Hay un porcentaje de los que están sin trabajo pero quieren trabajar, y los que están subempleados? Ya sé ... !pido mucho!

(Qué tonto soy; al principio escribí "... !pedo mucho!")

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That's great, guys, thanks! Is there a percentage for those who are without work but want work, and those who are underemployed? I know... that's asking a lot!