Wednesday, October 28

Live on air

For Pope Paul IV in the 16th century, we Spaniards were “those heretics, those cursed schismatics of God, the seed of Jews and Moors, the dregs of the earth.” It was the bad thing about having an Empire. Similar cuteness has been heard by Yankees for the past 120 years.

Newspaper articles that are published about Spain abroad they are being of that kind lately, and they will continue to be that way over the next few months, if not years, so we better get used to it.

When at the end of February and the beginning of March the pandemic progressed silently here, without anyone in the Government appearing to take action on the matter, I cried out on Twitter for something to be done, not only for the obvious reasons of protect the health of all but for others that could be derived from reaching what was reached: that Spain will become famous as the worst place in the pandemic, with which we could end up carrying the sambenito that this Covid-19 would end up being called with the same lack of apprehension, or bad grape, as the 1918 flu, “the Spanish flu”.

And that, for a country so dependent on tourism, such as Spain, there is no doubt that it would be a very bad letter of introduction.

Well, unfortunately, we are already on the way to preparations for that stage. Luckily Pope Paul IV did not cut anything and added: “both the French and the Spanish are barbarians, and the best thing that could happen is that they stay still in their house ”, with which the jury is still deliberating on who could be awarded this false guilt, the French or the Spanish. Unless Trump wins the election again, which is guaranteed to continue to blame the Chinese …

For a country so dependent on tourism, such as Spain, there is no doubt that it would be a very bad cover letter

Meanwhile, the Italians, uchronic countrymen of Pope Paul, the previously feared Bishop of Chieti (Theate) co-founder of the Teatines, elegantly make “exit from the forum.”

The succession, separated by just twelve years, from the financial crisis and Covid-19 and its disastrous economic consequences, has caused us to be attending the greatest monetary experiment in history since those years in which the hatred of the powerful Neapolitan Caraffa family (to which Paul IV belonged) towards Spain was shown with that virulence.

Those were the times of the arrival in Seville of the gold of America that, together with the taxes paid mainly by Castile, served to finance imperial glories that, nominally, however, had already passed to another branch of the Augsburg family that it harassed. to the east the other empire, the Ottoman, and that, perhaps for that reason, has not gone down in history with such a bad international reputation: Poor people, they already have them at the gates of Vienna again!

The parallelism between the two episodes is surprising: a great monetary experiment, then, thanks to American gold, and another fiscal one, that of overflowing public spending to finance the wars in Flanders and “against the Turk.” And both experiments, the monetary and the fiscal, repeated now to combat the economic consequences of the pandemic.

The succession of the financial crisis and Covid-19 has caused us to be witnessing the largest monetary experiment in history

To make matters worse, with the picturesque borders of the coincidence that in “the Turk” the imperial anxieties have been reborn (Erdogan harassing Greece, intervening in Syria and Azerbaijan and pressuring the European Union on the issue of refugees) and that it be the Prime Minister of the Netherlands who hinders the financing of extra spending in which the Spanish Treasury incurs due to the coronavirus.

As then, public spending has exploded everywhere to try to cushion the lethal economic impact of the quarantines decreed to contain the spread of SARS-CoV-2.

The photo a month ago, according to the International Monetary Fund (IMF), is that world public spending rises to the equivalent of 6 trillion (trillions) of dollars to which we must add, another 6 billion more, between guarantees granted by the states to companies to obtain loans (4 trillion) and other diverse ways of supporting liquidity, either through the purchase by the states of shares and business assets, or through the granting of direct loans to companies (in addition to what the IMF calls “ quasi-fiscal operations ”). The amounts are exorbitant and as they had not been seen before in times of peace.

To this must be added the monetary experiment that, if in the 16th century it consisted in the circulation of the gold that arrived in Spain from the Americas, today it materializes in what we could call, metaphorically speaking, “The gold of central banks”. (For specialists: with the great difference that it has gone from an asset that generated a liability to a liability that finances the asset).

In this regard, the last twelve years must be divided into two phases: that of the financial crisis and its aftermath (2007-2019) and that of Covid-19 (2020). Because is what the great monetary experiment started in 2007 And, to get an idea of ​​how colossal it has been and continues to be, it is enough to note that the balance sheet of the US central bank, formally known as the Federal Reserve Bank (Fed), has grown from a size of 0.9 trillion from dollars in 2007 to just over 7 trillion in October 2020. In other words, it has almost multiplied by eight. The second phase (that of COVID-19) corresponds to the last 3 trillion added.

To the rest of the central banks of most industrialized countries have experienced something similar. Thus, from August 2007 to today, the balance sheet of the European Central Bank (ECB) has gone from the equivalent in euros of 1.3 trillion dollars to almost eight trillion dollars today.

The world’s two largest central banks have put into circulation the equivalent of six trillion dollars created out of thin air.

During the eight months since Covid-19 set foot in Europe, it must be attributed an increase that ranges from the equivalent in euros of 5 trillion dollars to almost eight trillion dollars at the end of last week. That is, also the equivalent of 3 trillion dollars.

In other words, between the two most important central banks in the world (the Fed and the ECB) they have put into circulation the equivalent of six trillion dollars “created from scratch”. Literally, DE-LA-NADA… It is a property that, since the creation of the world, only central banks own. We will see for how much longer.

The comparison with the times when “the sun did not set in the Spanish Empire” is still surprising because the gold that arrived in Seville from America was nothing more than money created out of thin air as well. It was formed at the same time as the Earth and arose, therefore, “out of nowhere”, and, if we except its extraction costs (which, judging by what Fray Bartolomé de las Casas said, it does not seem that they were very high) and of transportation and surveillance, it came to be the equivalent of the current “free money”.

Focusing on what happened in 2020 (second phase of the monetary experiment) the sum of the colossal increase in public spending, together with the risk that the public sector has assumed with the private sector by granting it loans and guarantees (12 trillion dollars) and the irrepressible expansion of the balance sheet of central banks (6 trillion dollars, limiting ourselves only to the Fed and the ECB, and forgetting what the Bank of Japan, Bank of England, etc.) the total amounts to well above $ 18 trillion, which is scary, and a lot.

A gigantic effort and that only a world in which global wealth has increased enormously since 1980 could afford

Although it must be recognized that in this calculation there are many duplications, of which the greatest is the one that affects the public debt issued by the states and that the central banks have been buying: it would be the equivalent of 3 trillion dollars ( 2 billion from the US and 1 from the Eurozone).

Eliminating this duplication, the sum that took us to 18 billion dollars remains at ‘only’ 15 billion. Similarly, other adjustments could be made that further reduce the $ 18 trillion. For example, if we estimate, optimistically, that only 25% of the 4 trillion guarantees will be unsuccessful, which would bring us down to 12 trillion in joint monetary and fiscal effort.

And so on, up to a level of precision that is adequate and heavy to describe and read. In any case, a gigantic effort and that only a world in which global wealth has increased enormously since 1980 could be allowed.

The part of money created out of nothing is (today and without thinking about failed guarantees or other complications), however, smaller (the 6 trillion dollars created by the two large central banks, to which must be added the added for everyone else). With that, economies are working badly than well (In some ways, even very good. For example, there are now slaps in the Pacific between shipping companies to get containers to handle trade between China and the US.

But that money created out of nothing is what Anglo-Saxons call earned money out of thin air, which, translated word for word, is like saying money taken from the very air. Which reflects very well what is happening right now both in Spain and in the rest of the more advanced world: we are living, in part and literally, from the air.

So when you look at your income, think wistfully that 25% of it this year has come out of nowhere. As the economist Herbert Stein, who was an adviser to President Nixon, used to say, if it’s too good to last, it won’t last.

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