Year 2002, the Chaos Begins
According to a study in the financial daily Expansión, since the Euro was introduced in 2002, the cost of living has risen three times faster than salaries: having a coffee now costs double what it did in 2002; going to the movies is 33 percent more expensive; bread is up 60 percent; the prices for some fresh fruits and vegetables have jumped over 150 percent; chicken spiked 130 percent and textiles 40 percent. This year alone, rent for an apartment has increased 70 percent more than the Consumer Price Index (IPC).
This is, in fact, a ramping up of a previous trend; for example, according to indicators from the National Statistical Institute (INE) and the administration, over the past ten years the cost of housing has outstripped salaries seventeen-fold.
For some, the rounding up of the Euro is to blame for this incredible increase. This is the same as saying we are both irresponsible and suicidal when managing our home finances. Rounding up might have fooled us the first or second month, but not for four years. If this were the case, demand would have contracted causing prices to fall into balance with incomes: clearly, if we can't make ends meet, we would cancel our gym membership, stop going to the movies and taking trips; we wouldn't go into debt or indulge in any luxuries. But this isn’t the case. We have maintained the same standard of living.
Why didn't demand contract? Because of increased credit. "Cheap money" allowed us to go deeper into debt. We cannot blame this situation on contractors, real estate speculators, bankers or evil butchers charging more for "jamon." The blame lies with the monetary authorities who decided to create "credit inflation" which has nothing to do with the IPC, an arbitrary numbers index that measures prices only for a small basket of goods and services. Aside from government "experts," does any still believe the IPC numbers? Is it not infuriating to hear Solbes say everything is fine because inflation rose three precent? On what planet is this man measuring inflation?
In just the first year of the euro, the number of notes in circulation grew 21.7 percent, according to the Bank of Spain. Since then, monetary aggregates have continued to increase. The Bank of Spain confirmed this in its October bulletin: "in inter-annual terms, loans to the private sector still register double digit rates."
Let’s look at this another way: since 2002 the Ibex 35 has doubled in volume and is up more than 140 percent. Housing prices continue to rise, although at a slower rate of late. But isn’t it odd there is enough money to make everything so much more expensive all at the same time? Central banks have created an excess of liquidity, a credit inflation or "cheap money," which is sapping our purchasing power month by month. Moreover, banks, developers and electric companies are enjoying consistently high profit levels that are anything but normal. These too are inflated thanks to the new International Accounting Standards (NIC). A portion of these companies’ results stems from real productivity, another from the NIC. The rest is nothing more than inflation, smoke and the illusion of profits.
Most probably, a significant amount of this inflation or extreme liquidity will flow into the stock market for a few more years. We will witness greater profits and rising stocks. At some point, the "experts" will begin to shout that it cannot last. That means there are few more good years left. In the end, the contraction will come, and the later it comes the worse it will be. The causes of this calamity are the euro and "price stability," a bureaucratic euphemism meaning instability and the continual loss of purchasing power. This is what happens when a bunch of civil servants, unaccountable and irresponsible, manages our money as if it were their own and. Of course, afterwards they will blame us for having gone too far into debt. Intolerable.