Somewhere around 8 million employees, whose salaries are not indexed to inflation, lost a good chunk of their purchasing power this past year. But even those with indexed salaries lost out, as did the many unemployed Spaniards. The self-employed, the retired, people living on fixed incomes have all been pillaged yet again. It is clear this process victimizes most Spaniards, but what is the cause?

 

During a time the majority of the Spanish population decided to cut back on saving and increase consumption, the political class (both national and European) decided to keep interest rates artificially low, allowing for an astronomical expansion of credit. The artificial lowering of interest rates made it appear as though people were making more resources available, in other words, increasing their savings, so they might be transformed by businessmen into future goods. Business read this to mean that it was the moment to invest resources in the future, while consumers are consuming more than ever. What are they consuming? Nothing less than the very resources businesses thought were going to be available. This inter-temporal imbalance, this fight over scarce resources spurred by the artificial expansion of credit is raising prices in step with our money’s loss of purchasing power.

 

We are talking about an economic Molotov cocktail whose main ingredients are, a massive expansion of credit at the same time that the savings rate is incredibly low. Since 1995, private savings in Spain has fallen more than 5 points, settling below 20 percent of Gross Domestic Product (GDP). On the other hand, credit extended to the private sector in Spain grew more than 20 percent in the past year –in the European Union it went up about 9 percent. We must also keep in mind that this expansion of credit is closely linked in our country to real estate (personal mortgages and loans to contractors and developers make up 65.8 percent of savings banks credit and 52.2 percent of regular banks’). In real estate, the goods being bought are used as the guarantee for the credit extended to the buyer. And more than a few people think the prices for homes are overvalued. Looked at in this light, the cocktail couldn’t have more ingredients to ensure a suspenseful unfolding of events. But the victim is obvious: Spanish citizens.