Wednesday, August 01, 2018

Thoughts from Galicia, Spain: 1.8.18

Spanish life is not always likeable but it is compellingly loveable. 
- Christopher Howse: A Pilgrim in Spain. 

If you've arrived here because of an interest in Galicia or Pontevedra, see my web page here. Garish but informative.

  • I've wondered here how long Spain can go on being the main target of African migrants. Here's an article on the strain being suffered.
  • And here's the positive view.
  • It's widely felt that the new PP party leader – a pious Catholic and Macron clone - is taking it even further to the right, in pursuit of ex-voters lost to the newish 'centreist party[?], Ciudadanos. He's inevitably taking a populist stance over immigration and has been compared, by his PSOE oppo, to to Matteo Salvini, Italy’s controversial interior minister. “His words are unfortunate and alarmist,” Ms Rumí says.
Life in Spain
  • Even here in Galicia, a heatwave begins today, after 2-3 days of welcome cloud and cool in our case.
  • Right on cue comes The Local's guide on how to avoid heatstroke.
  • I mentioned the other day that Spain's 'low ethics society' – a Spanish reader's phrase, not mine – means that the public - both Spaniards and foreigners - is regularly exposed to scams. Yesterday a friend sent me this latest example, courtesy of some criminal folk up in La Coruña here in Galicia.
  • During a meeting of the Zaragoza council, one of the members dozed off during an address by the mayor. Unfortunately for him, he was snapped. All down to his 'health problems', said a PSOE spokesperson.
Nutters Corner
  • Our old friend, televangelist Jim Bakker – who previously averred that 100 hitmen had been hired to kill Donald Trump – has now said liberal activists are about to start murdering Christian leaders. Some hope!
Galicia and Pontevedra
  • I read a report yesterday about the many derelict properties around the region whose ownership is unknown. This is the reason I guess at when visitors ask me why there are such properties in Pontevedra's old quarter lodged in between 2 perfectly kept houses. Or even cheek by jowel with an impressive palacio. So, I might be right.
  • There are reported to be 104,000 single mothers in Galicia but only 22,000 single fathers. Actually, my note says 22. Which I might have suspected was the correct number, until I saw another note that said the female to male ratio was 5:1. For 125,500 kids.
  • A young Gallego was arrested recently for driving at 199kph in a 50kph zone. He'd crashed and killed one of his passengers. His comment: “I'd had only 3 glasses of wine but was sure I was OK to drive. I'm normally a very careful driver.” I can't imagine that will bring him much comfort during the rest of his life.
Finally . . .
  • The 2 articles below look at what might happen this month and beyond, aiming to prove we're living under the ancient Chinese curse of 'interesting times'. As ever.
© David Colin Davies, Pontevedra: 1.8.18


1. If you think August will be a quiet month for the world, you could be in a for a few surprises.
Pack the sun cream, pick out a couple of paperbacks, and choose the right shades to wear by the pool. From Wednesday, it is August, and we can all relax, secure in the knowledge that nothing much will happen for the next four weeks.

The markets will be about as busy as the headquarters of the Theresa May fan club, while the office will be safely in the hands of a couple of interns and they will be too busy checking their Instagram accounts to do any actual work. Everything will be on hold until autumn rolls around.

Except, uh oh, in fact anyone who thinks August is a quiet month for the markets obviously hasn’t checked a history book recently. Often, it is the month that sees the major upheavals.

Not convinced? Well, the credit crunch started in August 2007. The Asian financial crisis kicked off in August 1998, the Dow Jones peaked in August 1987 before starting its dramatic collapse, and president Richard Nixon took the United States off the gold standard in August 1971, ushering in the era of purely paper money.

Plenty of stuff happens in politics too. Take your pick from the start of the First World War, the end of the Second World War, the Russian invasion of Prague, the resignation of Nixon, or the Iraqi invasion of Kuwait (August 1914, 1945, 1968, 1974 and 1990 respectively).

So what could get investors desperately searching for the hotel Wi-Fi code so they can quickly re-juggle portfolios this August? Here are five possibilities to watch out for.

First, Donald Trump resigns. The US president’s position is already precarious, and there appear to be so many smoking guns it is hard to keep track of them all.

With the US economy growing at 4pc a year and his ambitious tax reforms in place it might occur to the Donald that a sudden departure, along with a full pardon for any crimes or misdemeanours committed over the last four decades, would be a lot more satisfying than years of legal arguments leading up to a drawn-out impeachment. After all, he is predictable only in his unpredictability.

If he dramatically departed office, it would rock the markets – although investors would quickly like the look of the soberly conservative president Mike Pence, and his new vice-president Jeb Bush.

Next, a German bank collapses. Rewind a few years and there was nothing more solid than a major German bank. Dull, sure. Slow-witted, perhaps. Yet completely dependable.

But that was before the euro area turned into the most dysfunctional currency zone ever created. The massive imbalances between the core and the periphery have to show up somewhere – and one place is the German banking system. Deutsche Bank shares have almost halved in the last year, and are down by 80pc since 2006. If a German bank has to be bailed out, it will not only rattle the markets, but will provoke a fresh eurozone crisis as well.

Thirdly, Italy quits the euro. Italy’s new populist government is made up of leaders who have publicly toyed with leaving the single currency, or else launching a parallel currency as a first step towards getting out. True, they appear to have backed away from their hostility to the euro since taking office. But who knows what they are planning? One thing we know for sure about quitting the euro is that, rather like a military operation, it would be best to make it a complete surprise. A quiet weekend in the middle of August would be the perfect moment.

Fourthly, Bitcoin rises to $30,000 a coin, and then collapses. After a wild 2017, this year the digital currency has done the one thing no one really expected. It has become a bit dull.

From February through to July, the price stayed between $6,000 and $8,000, with no dramatic spikes. Maybe it is starting to find its real price and settle down? Or perhaps it is just taking a breather? In a thin month for trading in other assets, it could suddenly surge, and quickly collapse.

Lastly, the UK concedes a second referendum. Britain’s exit from the EU is drawing closer, and yet there is still no agreed plan for getting out. The arguments are growing more bitter, and the negotiators in Brussels remain implacable, while the Government’s majority is too thin for Britain to play hardball.

One way out of the impasse? To keep her party and the country together, the Prime Minister might concede a second referendum, offering a no-deal exit, a bad deal, or staying in.

All of a sudden, the UK would be plunged back into months more uncertainty while diehard Remainers and Leavers engaged in a bitter civil war. The economy was coping fine with getting out – but another referendum would knock the confidence out of it, and the pound and the FTSE 100 would plummet.

2. Interesting times ahead: Moisés Naím 

Political instability distracts us from economic challenges while economic crises distract us from our political problems

"May you live in interesting times." This expression, which seems a blessing, is really laced with stinging irony: interesting times are often fraught with conflict, instability, and danger.

Who can deny that we are living in interesting times? And what could be more interesting than the Helsinki press conference in which President Donald Trump stated before the whole world that he trusted Vladimir Putin more than his own intelligence services? The spy agencies insist that they have definitive proof that the Russian government interfered in the 2016 presidential election. But Putin told Trump that he didn’t, and the American president believed him…at least for a few hours.

The backlash against Trump’s conduct was so intense and widespread that he had no choice but to retract his comments, in typical Trump fashion

The backlash against Trump’s conduct was so intense and widespread that he had no choice but to retract his comments, in typical Trump fashion. According to the President, his error was grammatical, not geopolitical. He meant to say “wouldn’t” not “would” .The next day he invited Putin to Washington for a second meeting.

Meanwhile, two pieces of news were quietly published that will have enormous consequences for Russia, the United States, and the relationship between them.

The first was a prediction by the respected energy analysis company Wood Mackenzie that world oil demand will peak in just 18 years, much earlier than previously expected. The report cites "tectonic changes" in the transport sector—especially the use of more efficient electric and autonomous vehicles— to argue that peak crude oil demand may come as early as 2036. From that point on the world's appetite for oil will wane. Of course, hydrocarbons will not disappear as an energy source, but their importance will decline more rapidly than experts had anticipated previously.

What does all this have to do with the Helsinki meeting? Well, Russia is a petrostate, a country whose economy is critically dependent on oil and gas exports. Putin has failed to diversify the Russian economy and reduce its dependence on oil and gas. As a result, a drop in the world’s demand for its main export product will reduce the nation’s revenues and thus have a major negative impact on the lives of ordinary Russians. And history shows that dictatorships are not immune to the adverse and unpredictable political consequences of a deteriorating economy.

The second piece of news is an alert from the Institute of International Finance (IIF), a private organization based in Washington D.C. that collects and analyzes information on the health of the world economy. According to the IIF, the world suffers from a serious addiction to indebtedness. Global debt has grown at an alarming rate and has reached levels never before seen. Back in 2003, total global stock of debt amounted to 248 percent of the world economy. Today it is 318 percent.

Are we on the verge of an economic crash like the one that shook the world in 2008? Not necessarily

Debt is not a problem for a person, a company, or a country if they have the income to service it. Or if they can find someone willing to lend them the funds. But if one’s income is not enough to cover the interest due, or if the lenders lose confidence in the borrower’s ability to pay, then they will stop lending. When this starts to happen, the lenders also try to recover what is still owed to them as quickly as possible. This is how financial crises are hatched.

Does this mean that we are on the verge of an economic crash like the one that shook the world in 2008? Not necessarily. The global financial system is stronger today and is relatively better regulated. High indebtedness can be sustained without giving way to a crisis as long as the world’s economy grows and generates the income necessary to service the debt. The concern is that global economic growth, which had been recovering, will be hamstrung by the trade wars unleashed by Donald Trump.

Laurence Fink, the CEO of BlackRock, the largest investment management company in the world, has just warned that the White House’s continued increase in import tariffs, as well as the tit-for-tat reprisals that the affected countries have taken, could hinder economic growth and cause the stock market to fall. Jerome Powell, Chairman of the Federal Reserve, issued the same warning.

The main lesson of the 2008 financial crisis is that the economic diseases of one country infect others very quickly. What happens to the American economy will shake the rest of the world and, of course, Russia, too. Naturally, this will affect the relations between the two countries. Another lesson is that economic crises distract us from our political problems, while political instability distracts us from our economic problems. This is precisely what is happening now.

Alas, it’s safe to say that our times will remain enormously interesting.

1 comment:

MIxlong said...
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