Oh shit, we in a crisis!

Spain has had some economic ups and downs the past several years. First, when the country switched to euros from pesetas, it suffered major inflation. Businesses got lazy and didn't convert the prices correctly. Por ejemplo, at the birth of the euro, approximately 1.7 pesetas equaled 1 euro. Because bars were so lazy, they decided that 1 euro = 1 peseta. So if a cup of coffee was 1 peseta pre-euro, people wound up paying 1 Euro per cup post-euro! This means that in reality they were paying 70 peseta cents more than before the currency change. All prices went up, while wages and salary stayed the same!

Despite all this, Spain's economy grew. It became one of the best in the EU. The construction industry, #1 in the country, increased. Everyone bought houses. Well, just like the American housing bubble, Spain's property bubble also recently burst. It doesn't help that the EU Economic chief increased the Euribor, which forces all the Spanish banks to also increase the interest of hipotecas, or mortgage. I believe the Euribor is equivalent to the U.S. federal funds rate. All other interest rates move according to this rate...I think (if only I remember more from my Econ classes!). And also, how sucky would it be to be the EU Economy guy??!!! I mean it sucks enough to be in charge of one country's economy, but to regulate multiple countries?! I would just kill myself...or be really happy to have that much power and wealth.

Anyway, because of the rising interest rates, everything has increased in price also. If people are struggling to pay their hipotecas, property owners are also force to raise rent. With higher rent, people cut back on buying the basics and luxuries, which then affect other industries. It has become one terrible snowball effect. As one of my bank students explained to me, high interest rates combined with high prices is never good!

And to make it worst, truck companies and their drivers have gone on a huelga, or a strike. Starting yesterday, they are protesting against rising gas prices. To make a bigger impact, not only are they not driving and not delivering necessary products, they are blocking major highways. People are going nuts! People are stuck in ridiculous traffic jams for hours (in the news today they showed a guy flicking off one of the demonstrators), and with no one delivering food and oil, people are panicking. Yesterday, just after a day of strike, many gas stations ran out gas. People are buying them out! All my students said I need to get myself to a supermarket before all the supplies run out and I have nothing to eat. Of course I don't do this. I'm lazy and I figure if I got no food, I lose weight...hahaha!

Regardless of the result of the huelga, this whole thing is a lose-lose situation. If the huelga succeeds and the government provides the truck companies with subsidies or lower gas tax, they still have to compensate for the loss revenue. So they will probably raise taxes on something else, most likely food. If the huelga fails and the drivers are forced to pay the ridiculous gas price, they also charge shops more; consequently, food and other products will also increase in price. And either way, wages will remain the same. We just screwed!

And there you go. That's your Econ lesson for the day! All this brings me back to my Econ classes - Sr. Bailey and her "priming the pump" and "stroking China" comments - and makes me wish I had paid more attention...this would all make so much more sense! This is all so interesting but I really could care less back then. I seriously wonder how I passed college. Last night I went out for tea with Fatou ad couldn't figure out a 2.50 Euro bill!!! Thankgod I abandoned the business route!

Disclaimer: My "facts" might not be 100% true. Everything I've talked about here I've learned from my students, both business and non-business ones. So if you want to learn more, do your own research!