The traffic on Paseo de la Castellana in the centre of Madrid is backed up. This is another sign, according to Spanish commentators, that things are looking up. Just as parts of Dublin are doing well while the rest of the economy is still shuddering from the after-effects of the deepest recession in living memory, both Barcelona and the capital city of Spain are growing rapidly.
Like Dublin, there is a housing shortage in Madrid and Barcelona. This is hard to fathom after a massive property crash, but – like in Ireland – in Spain the houses were built in parts of the country where no one wanted to live.
Walking around the heart of old Madrid, the comparison between both economies is quite interesting. Politicians here in Spain are saying that the recovery is under way and the economy is growing rapidly, yet most people can’t feel this yet. But they probably will.
Like in Ireland, there is a changed mood and this will permeate through the society in time.
It is interesting how both Ireland and Spain are now regarded as doing well while Germany, where I was earlier last week, is faltering. If there was ever evidence that the eurozone is deeply dysfunctional it is the fact that the two countries that were most affected by too much lending in the boom are now recovering, while the country that most people regarded as the frugal dynamo of the continent is now faltering.
Ruling politicians in both Spain and Ireland are saying that austerity is over, which is difficult to understand when both countries still can’t pay their way in the world. If you regard running a budget deficit as an indicator that you are borrowing your living standard from someone else, then both countries’ present standards of living are rented not earned.
However, that’s not to say both economies won’t earn in the future.
What drives economics is human nature and it is very difficult to predict. The economy is an exercise in group psychology, rather than cold science. No one really knows why the economy turns and why it heads up and down. While there are some rules, most of it is impossible to predict because it is so difficult to predict how we behave.
For example, last week listening to the radio I heard one of our politicians crowing about how his policies were working and the new growth rate was evidence of this. Yet no one stopped to ask him why, just one month ago, his own government’s growth forecast was half of what it is today. If he was so confident about why his policies were so uniquely responsible for the recovery in Irish growth rates, surely his own forecast last month should have reflected that?
The truth is, when the herd moves from greed to fear, optimism to pessimism, it isn’t easy to explain. It just happens.
Humans are unbelievably irrational animals, driven by all sorts of excitements, depressions, giddiness and mood swings. Everything you do influences me, even though I don’t usually realise it. And my decisions affect you and vice versa. As JP Morgan observed: “Nothing so undermines your financial judgment as the sight of your neighbour getting rich.” Equally, nothing puts the wind up you more than hearing a good friend has been laid off.
When we are optimistic, we are impossibly so. We think nothing can go wrong. We dismiss risk as something that doesn’t happen to us and we take the plunge confidently. And optimism is infectious. We spend money we don’t have in the belief that our income is going to be bigger next year.
Humans are hard-wired optimists. It may have something to do with survival and evolution, but we must go on – and going on is driven by hope. We always think this time it’s going to be different. When we become optimistic about the economy, we behave like we are in love for the first time. We get giddy, we dispense with logic and we fall headlong into a new adventure.
We also become over-confident. Most of us inflate our abilities. For example, men everywhere inflate their intellect and social skills. We believe we are more able then we are. A recent study revealed that 95 per cent of American men believe they are in the top 20 per cent when it comes to social skills. We exaggerate in lots of areas and our belief in ourselves is where we start.
In economics, this optimism is reflected in more borrowing, more spending, more investing and more debt because we believe we are going to be richer tomorrow as a result of our own genius than we were yesterday.
Similarly, when we get depressed, we become withdrawn, self-doubting and afraid. In economics, this is reflected by a slowdown in spending and more saving.
Because my behaviour affects yours, you feel the vibes from me both on the upside and the downside.
It is almost impossible to time when human nature changes, but we know that when it does the herd can move from pessimism to optimism quickly and unexpectedly. This is what happened in Ireland and Spain. The indomitable spirit – which drives all of us forward, is taking over.
After years of savings, pent-up demand is being released – and as this happens it becomes infectious.
There are a few rules of economics, which will help us along from here.
For example, like the Spanish economy, the Irish economy is growing quite significantly, yet the global economy of which we are both a tiny part is slowing down rapidly. Europe, with which we share a currency, is facing deflation, yet Britain and the US are doing quite well. This is good news for us. We do well when Britain and the USA are doing well and when Germany is doing badly.
This is because we have lots of debts and our interest rates are set by Germany. Therefore, we need Germany to be struggling. In contrast, our two biggest trading partners are Britain and the US, so we do well when they are growing.
Germany, the dynamo of the eurozone, is slowing down, and the ECB – our central bank – is prepared to print money. This cash could well find its way into the Irish economy.
However, ultimately the recovery of the economy is about you and me and our psychology.
The economic conditions this year are not really different from last year, yet last year the economy contracted. Why was this? It was because the animal spirits were muted. Over the last few months, they’ve been let loose. What triggered that?
Hard to say, but let’s not argue against it.
Most definitely to do with Irish folks pissed off at this past few years and are going for it now. Cant take any more recession talk. Hey anyone notice the pso levy on their electric bill? Seems to be a lot more than it was a few weeks back. Subscribe
I monitor bills in the winter months as a service to people who have new installations of heat pumps, they have to determine whether or not the night meter, if they do no already have one, is worth getting. In most cases it is, so I noticed this on Friday with a customer. PSO levy on your electric bill is on the back, I think it has been up for a while but didn’t catch it as I have not been asked since last winter to do one of these, anyone else notice this? I should probably do a web… Read more »
Enjoy it while it lasts. The central bank printing of money world wide is money inflation. It is also inflation of debt world wide. Ever wonder why China now buys and absorbs the equivalent if the annual production of the total mind gold. Do you not think they prepare to dominate the economy of the world. Gold is the money of rulers. They who have the gold rule. JP Morgan noted also. Gold is money, all else is credit. So what has changed? All the gold is rapidly going east. As an aside re Germany. US sanctions on Russia are… Read more »
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“After years of saving” – simply not correct. Many people have been paying off debts. If some debts are paid off that is not saving. Borrowing again would be very foolish. Austerity is a very good choice. Borrowing money is very very foolish…
You’re observation reminds me of the time I used to work in a petrol station that had a lotto machine. (ugh! Nearly 20 years ago, where did that time go) Any way every Wednesday and Saturday night there would be a steady stream of people usually peaking before the cut off time. When the jackpot got bigger the droves of people got bigger as well. It didn’t matter to these people that the statistical odds of winning the jackpot were bigger than getting killed on the way to purchasing the ticket, and the odds of winning actually decreased the bigger… Read more »
>odds of winning actually decreased the bigger the jackpot got,
Nope. The odds of having the winning combination of numbers does not change, although the chances of having to share the prize with other winners does increase as the number of players increases. The way around that is to always pick the bigger numbers (about 30) to avoid sharing with all the people who use dates (birthdays etc.)
The Lotto isn’t totally crazy if viewed from a rational perspective. It’s just an extremely high-risk/high-return investment. Also known as gambling.
The odds of winning the Lotto don’t change with an increase in the number of people playing – what changes are the odds of being a single winner ! Even though the odds are astronomical, people play because they need hope and the chance (however remote) of finding that dream is worth the investment of a few Euros. Eventually, someone always wins – Players just hope to be another Delores McNamara this week rather than see the “Won in Spain” report . As our Economy plummeted it’s been interesting to see the weekly increase in our own Lotto jackpot dwindle… Read more »
@McGoo and @CorkRob yes that is what I meant, if I expressed it a bit inarticulately, apologies.
How on gods earth has his observations of herd mentality and lack of independent thought got anything to do with the lotto? This article is about people returning to the trough to borrow money. My very valuable advice to people at this time in history is to avoid the trough and as the bible put it, “by the sweat of thy brow, thou shalt eat bread”. Save and live within your means as others borrow and squander setting themselves up for an almighty fall because the next credit squeeze will be accompanied with inflation and interest rates. I predicted the… Read more »
So save even one hundred a month. Remember when you spend 100, the bank can lend 1000.
[…] McWilliams – The Indominatable Spirit is Taking Over (Sunday Business […]
“…there is a changed mood and this will permeate through the society in time.” David’s contradiction gave me a giggle. You could call it ‘Trickle Down Mood”. I look forward to this permeation, just in time for Christmas.
ditto
Swordfish-v- Herd I always thought that the long sword of this giant fish was to catch its prey and then eat it from the sword .When you think of it that is impossible .It is true that this fish does eat very small fish that swim in shoals and when he does appear the shoal tightens and does contortions en mass in unison as if all the small fish morphs into a single monster each one forming a new body part of this new animal .This giant body of flesh gyrates with many shape shifting skills. I call this The… Read more »
Concerning this talk of an improvement in Spain and Ireland, there are the upcoming stress tests of banks in the Eurozone.
And they will be ugly. Even accepting the fact that they have proven to be soft tests before.
There is no serious recovery in Spain or Ireland. The debts are too large. Any improvement in income will be struggling to get above debt repayments.
And without debt reduction, the whole things is nonsense – and liable to collapse in a heap at a week’s notice.
http://globaleconomicanalysis.blogspot.com/2014/10/nonperforming-spanish-loans-near-all.html
Thoughts on the economy with a more global outlook, but looking at regional similarities and differences.
http://www.stratfor.com/weekly/similarities-between-germany-and-china#axzz3GhLFXSka
looking at the article and the in general I am struck by the absence of any concern over the economic reality of the cascading debt amounting world wide. This might be seen as a tsunami. The rising tide of debts is drowning the worlds economy. this has caused concern in some places and not in others. Those living on high ground are unconcerned while those on the lowlands are affected disproportionately. Well just look at that the water is lower all of a sudden. The rising debt load is no problem, go out and spend. “Your spending is my income”!!… Read more »
Will the Swiss vote for economic independence and national sovereignty or not.
The poll shows it too close to call.
http://www.goldcore.com/goldcore_blog/First_Swiss_Gold_Poll_Shows_Pro_Gold_Side_In_Lead_At_45_Percent
http://pro.moneymappress.com/MMRBSLG39/EMMRQA40/?email=TONY.BROGAN2002%40gmail.com&wemail=wsii&a=8&o=82955&s=87203&u=2779195&l=424292&r=MC&g=0&h=true
A comprehensive evaluation of the debt structure of the US and the ratio of fractional reserves re the Fed at 77:1. This type of structure is endemic around the world. anyone interested will find it worthwhile to review what Jim Richards has to say.
National Inflation Association: “The U.S. has seen deflation during 14 or 12.1% of the last 115 years and flat prices during 8 or 7% of the last 115 years. 93 or 80.9% of the last 115 years were inflationary. During the 1800s, the U.S. saw deflation during 40 or 40% of 100 years and flat prices during 37 or 37% of 100 years. Only 23 or 23% of 100 years were inflationary. Between 1900 and 2014, real U.S. GDP was negative during 9 or 64.3% of deflationary years. During the 1800s, real U.S. GDP was negative during only 5 or… Read more »
https://www.youtube.com/watch?v=Oxztrc6xBl4&index=2&list=UUhAtvq0H8Im_c6e4owfiw0A
An account of the price setting and collusion of all markets around the world by central bankers and the governments they control. 35 minutes of well spent time to enhance your understanding of what is really going on out there.
This is the indomitable spirit at work for the benefit of humanity!
“The Fed is literally backed into a corner. They have to reflate the system yet they themselves are stretched more than any monetary entity in history. They are levered at nearly 80 to 1. This means the Fed can only withstand a 1.25% loss on total assets before their capital is wiped out. I have a question for you, do you really believe the Fed has not ALREADY lost 1.25% on total assets? Please remember, they “absorbed” the “crappy” assets after the 2008 debacle. They were buying bonds from banks in order to get the assets off of the books… Read more »
“Remember, it’s not our opinion that the global financial system will collapse but a mathematical fact. And whilst we hold out hope for mankind’s adaptive ability, it won’t matter a whit until we get to the “other side” of currency collapse.” –Andy Hoffman
http://blog.milesfranklin.com/a-new-hope
Comments on man’s indomitable spirit. Good winning over evil!
http://financialsurvivalnetwork.com/2014/10/andrew-hoffman-has-the-great-unravelling-begun/
It is all about control over your mind and body.
http://articles.mercola.com/sites/articles/archive/2014/10/21/wisconsin-illinois-raw-milk-fight.aspx?e_cid=20141021Z1_DNL_art_1&utm_source=dnl&utm_medium=email&utm_content=art1&utm_campaign=20141021Z1&et_cid=DM58385&et_rid=700229690
http://dailyreckoning.com/a-glimpse-into-the-year-2024/
totalitarian government will only be avoided by indomitable spirits putting up resistance now to defeat the one world government cabal
Gold does nothing other than impress ones wife if it comes with a stone attached. Its a metalic substance that had value when linked to paper money. Its value now is only measured by how much fiat currency someone is willing to pay to possess it. If you owned all of if, you would basically own a big pile of metal which has no real purpose in a world that has long since moved on. Of course it has value but do not over estimate that value. It wont get you a burger in mcdonalds.
yet Britain and the US are doing quite well.””
Really??
http://www.bullfax.com/?q=node-19-surprising-facts-about-messed-state-us-economy
so how about these “facts”
So we cn all agree that we are witnessing a fake recovery whose roots sprung from pre-crash savings and that while many people have paid down debts they are beginning to save as a cultural thing. Thus, cash in circulation will dry up causing crash 2.0 in real estate beginning in retail properties and spreading then its arms out like an octupus to residentialbin Dublin as retail jobs are lost and renters leave the smoke. This process will be carbon copied in the USA and UK leading central bankers to print 2.0 and war 3.0 which will then cause oil… Read more »
Apologise. I meant ‘if i am right again’.
Buying real physical gold is a fools game because when you sell it you get back worthless dollars and have made zero. Ok so you get back more dollars than you paid but stay the same in dollar terms.
However, you will also be due capital gains tax on the appreciation so its a real fools game.
Gold is an asset that earns nothing.
Regards,
J
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