Tag Archives: Europe

Adios Pesetas: A look back at adoption of the Euro in Spain

3/18/2013 Portland, Oregon – Pop in your mints…

The following is an essay written by a dear friend of ours, Tom Baker, in February of 2002.  Tom and his wife have lived in the region of Catalunya for a number of years.  His observations regarding the currency transition which was about to take place in Spain from pesetas to the full adoption of the Euro may prove timely if and when a similar event takes place in your locale.  Enjoy!

Adios pesetas

A major milestone has come to Europe with the introduction of the common currency known as euros.  Actually the Economic Union of 12 countries (Trivia question–can you name the 12 countries? answer below) has been on the euro standard for the last 2 years, with exchange rates fixed permanently between the currencies of the member countries.  Everyone was really using euros, but they just looked different in each country.

Now in the last month, the last major hurdle has been addressed with the withdrawal of all local currencies from circulation, and their replacement with euro coins and bills.  Think of the problems involved in changing the currency of 12 countries (approximately the size of the US) with 12 different monetary systems simultaneously.

Prices for goods have been posted in both pesetas and euros in the larger stores for the last year to accustom people to thinking in euros.  It isn’t easy-we have gotten used to valuing items in pesetas, and even though the euro is close to a dollar in value, that hasn’t helped much.  So it must be worse for those that have lived with pesetas all their lives.

Spanish FlagThe schedule is for 2 months of dual circulation, with only euros after that.  Now for some details of the tactics used.  Most cash registers are electronic and have been reprogrammed to handle both currencies.  Banks had kits of euro coins available in December for their customers so people could start getting used to the feel and appearance, but they could not be used until Jan 1.

The big change-over day (Jan 1) was of course very quiet, the major change being that most cash machines only dispensed euro bills.  Then the tactic to force the change-over was that customers could pay in either currency, but always received their change in euros.  So all the stores were sucking pesetas out of circulation.

It was a bit chaotic in the first week, with small merchants having to do the conversions on calculators.  Lots of mistakes were made, lots of people were confused, but the pesetas were disappearing briskly.  A few operations had problems with machines that accept coins, especially the toll roads.  So they decided to shut down the automatic coin machines until the conversion period is over, giving them time to convert them to euros.  If you want to pay cash, you have to give it to a human operator, otherwise use a credit card for automatic payment.EU-flag

The use of credit cards in general was encouraged to reduce the demand for change initially.  There were some shortages of coins, especially when the big traditional sales kicked in on Jan 8.  Now after a month of usage, the euros are seeming more natural and the prices are starting to make sense.  Pesetas have disappeared-all transactions are in euros now.

[A cartoon that I saw showed a bank robber at the counter, and the cashier asked if the transaction would be in pesetas or euros].

In our house, and I’m sure in most others, there was a sweep to collect all the pesetas and get them spent.  Then you find another coat pocket with a handful of coins, plus an envelope with French francs, another with Italian lira, etc.  There are cans with slots in all the banks for those last few stray pesetas to help children around the world.  We’re going to haul our francs to France for one last meal there before the pumpkin-hour.  The lira we sent with friends that are visiting Italy.

If you are holding on to European currency, send it to me immediately :-).  No, just kidding, but you do need to change it.  Bills you should be able to change at major banks until March 1 when all local currencies will disappear; after that you will have to change the money at the state bank in the country of the currency.  They predict that at least a third of the currencies will never be turned in.  That is pure gravy for the governments.

A side effect of the change-over is its effect on black money.  Spain and other areas of Europe have a sizeable underground economy, with all transactions in cash, not reported to the government for tax purposes.  Now some people are stuck with bundles of currency that will soon be unusable.  So the sales of luxury items skyrocketed in December, especially expensive cars.

Also there seemed to be a lot of money being poured into new construction, and housing prices have risen dramatically in the last year.  We will see if they subside in the coming year.  The government has promised to look into suspicious purchases of luxury items.  There were reports of Germans hauling carloads of marks into Switzerland.

On your next trip to Europe, you will find things much easier, with only one currency to carry unless you visit England, Switzerland, Denmark, Sweden, or Norway.  I wonder how much this will affect tourism into these countries?

The last thought is the number of colloquial sayings that will disappear from the language.  “No vale ni un peseta” = “It’s not worth even a peseta”.  The common words used for money were duros (5 pesetas, or like a nickel), and pelas (1 peseta).  These will disappear.

Euro coins:

1, 2, 5 Cents, Centims, Centimos-Copper colored
10, 20, 50  Cents-Gold colored
1, 2 Euros-Gold outer band, silver inner section

The “front” side of each coin is unique to each country, while the “back” side is common to all.

Euro Bills: 5, 10, 20, 50, 100, 200, 500

Euro countries:  Spain, Portugal, Ireland, France, Germany, Austria, Italy, Greece, Holland, Luxemburg, Belgium, Finland

We wish to thank Tom for allowing us to share his essay with you, our fellow taxpayers.  It is both an interesting, first hand look at a significant event in the history of world currencies as well as an instructive guide as to how one may prepare and what to expect should the monetary authorities in your locale choose to swap their existing national currencies for some flavor of supranational currency, such as the Euro.

At the time the Euro was adopted, it appeared to have a number of benefits for the adherents despite the minor inconveniences and sometimes painful price adjustments (we are told that the typical café, which before the Euro went for 100 pelas (see above) was immediately repriced up to a round 1 Euro (roughly 162 pesetas), an instant 62% increase) that were experienced in its adoption.

Now, some eleven years later, five of the countries on the above list have experienced significant economic distress, while others teeter on the fine line between growth and solvency.

It is important to note, however, that the countries that are now in distress experienced substantial economic booms related to the Euro adoption.  Their governments were allowed to borrow at rates which were aided by the strength of their European neighbor’s finances and, as Tom pointed out, the Central Banks made a windfall profit on the quasi confiscation of nearly 1/3 of the currency in circulation.

Was it worth it?  In terms of currency history, 11 years is a bit too soon to make a call, but either way, we have a feeling that a similar sort of currency “consolidation” awaits many in the not too distant future.  It will not be some sort of conspiracy, as many believe, but simply an attempt by the desperate governments of the world to shore up their ailing finances.

It will ultimately fail, but that time may be farther off than it seems.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for March 18, 2013

Copper Price per Lb: $3.51
Oil Price per Barrel:  $93.21
Corn Price per Bushel:  $7.16
10 Yr US Treasury Bond:  2.01%
FED Target Rate:  0.14%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,596 THE GOLD RUSH IS STILL ON!
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.7%
Inflation Rate (CPI):  0.7%
Dow Jones Industrial Average:  14,496
M1 Monetary Base:  $2,466,100,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,499,300,000,000

Why European leaders have forced Draghi’s put

Another great piece by George Friedman explaining what is going on in Europe. Will the new economic ties trump not so ancient rivalries? Only time will tell, but European leaders will do everything within their power, including a trashing of the Euro’s value, to ensure they do. Via Stratfor:

Financial Markets, Politics, and the New Reality

Putin’s Evolving Strategy in Europe | Stratfor

As Vladimir Putin takes the reigns once again (in truth, he never really gave them up) as Russia’s President, he faces a new European landscape, one in which He will navigate without the benefit of the personal alliances which were the core of his European strategy during his first two terms.  Read more in this fascinating analysis by Stratfor:

Putin’s Evolving Strategy in Europe

ISLANDIA TRIPLICARA SU CRECIMIENTO EN 2012 TRAS ENCARCELAR A POLITICOS Y BANQUEROS | DESPERTARES – La revolución pacífica

The story Europe desperately wants to keep quiet.  A great piece on how Iceland triples its GDP growth by throwing their corrupt bankers and politicians in jail.  In spanish:

http://teatrevesadespertar.wordpress.com/2011/12/07/islandia-triplicara-su-crecimiento-en-2012-tras-encarcelar-a-politicos-y-banqueros/

Sumo Wrestling in Europe, Can America afford to be Frugal? Not as long as Debt = Money

10/5/2011 Portland, Oregon – Pop in your mints…

In Europe, the sumo wrestlers have resumed their battle royal on the edge of the cliff.  In this metaphor, the wrestlers conveniently represent the various banks, semi-sovereign governments, central banks, and other unproductive, parasitic organizations with the words “Monetary Fund” in their name.

Up until now, with the exception of some jeering from the spectators, the battle royal has been good natured fun.  Each time one of the wrestlers has tumbled towards the cliff, several of his benevolent fellow competitors have come to his rescue.

First Greece, then Ireland, Northern Rock, Anglo-Irish, and The Bank of Ireland.  Now Alpha, Spain, Caja del Sol, Portugal, Italy, and Dexia.

Each time, they get up, dust each other off, and go back at it.

But the competitors are getting weary, as are the spectators.  With each new stumble towards the cliff, more competitors and even some spectators are required to jump in to avert certain disaster.  If this continues, when one of the weary wrestlers finally tumbles over the cliff, it is increasingly likely that he will take the rest of his competitors and a decent number of well meaning spectators over the edge with him.

Now things are starting to get interesting as BNP Paribas, SocGen, and France herself began to stumble towards the edge.  Who will save them?  Certainly not the Swiss National Bank, which last month stumbled to the edge of the ring and ironically may be the first to fall off.

Any sober observer will quickly point out that this is an insane pastime.  Why would a group of sweaty fat men repeatedly try to push each other from a ring along the edge of a cliff?

We can only venture a guess, and our guess is along the lines of “they somehow believe that they must.”

Why ask Why? Just stay away from the edge!

It doesn’t make sense, neither do a great number of things that occur in the current, insane, “debt is money” currency system in which we live. 

People and institutions are trained to make decisions regarding money based on the assumption that money in and of itself has value.  This assumption, under which the world currently toils, was debased along with the US Dollar back in 1971.  Money today has very little in common with the money our fathers grew up with.  Peter Schiff, the outspoken CEO of Euro Pacific Capital, has gone as far as to call modern currencies the “hidden portfolio risk.

Our father’s money was based on the assumption that men were dishonest, and what they used as money (gold and silver) served to keep them honest.  Today, money is widely assumed to be honest, a fact which has served to make a great number of men dishonest.

Debt is not money, the proof

The only way that the illusion that debt is money can be perpetuated is when debt, and therefore the perceived money supply, is increasing.  First of all, who has ever been known to turn down free money?  When the exponential increase in the perceived money supply is occurring, it creates the welcome illusion of wealth.

Second, people quickly learn that the easiest way to make money is to position oneself as close as possible to the creation of new debt.  This is essentially the business model of Goldman Sachs and every other consumer and investment bank on the planet.

The money is so easy that no one stops to consider what would happen if aggregate debt were to begin to decrease, in turn decreasing the money supply by the same multiples with which it was created.

It will never happen, right?  People will never turn down free or almost free money.

Yet they are.  It turns out that people have a propensity for austerity when they have no choice.  If money were based on something real, austerity would be extremely healthy for the economy which would be accumulating a capital base from which to make the next series of technological advances.

In the current, insane, debt is money currency regime austerity (the reduction of aggregate debt) removes the life blood from the monetary system and causes the underlying economy to die a slow, then sudden and altogether painful, death.

The mirage of the debt fueled economy quickly vaporizes and the debtors and creditors in the system find themselves in the middle of an economic desert with a long road ahead of them.

There will be much struggle along the way, and their only hope is to walk together.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 5, 2011

Copper Price per Lb: $3.13
Oil Price per Barrel:  $79.51

Corn Price per Bushel:  $6.05  
10 Yr US Treasury Bond:  1.91%

FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,640 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.4%!!!   UP UP UP!!!
Dow Jones Industrial Average:  10,940  

M1 Monetary Base:  $2,052,100,000,000 RED ALERT!!!
M2 Monetary Base:  $9,511,300,000,000 YIKES!!!!!!!

The Move to a European Government, Caesar can keep his money!

8/16/2011 Portland, Oregon – Pop in your mints…

The markets seem to be enjoying a relative calm after the record setting volatility they experienced last week.  It turns out that one would have hit a home run by buying the VIX as the debt ceiling debate was dragging on.  We’ll keep that recommendation tucked away for a later date as the conditions which created last week’s tremors still exist and continue to intensify.

A headline caught our eye today, from BloombergGerman, French leaders propose European ‘economic government’

This caught our eye because it is further confirmation of what we have long suspected here at The Mint.  Specifically that giving up the right to coin currency (seigniorage) essentially means giving up a nation’s sovereignty.  Any sort of puppet government may be set up to give the appearance of sovereignty.  They may even give the people the right to vote for their own government.  No matter how the government is chosen, the puppet will move in accordance with the way its strings are pulled.

In practice, the monetary authority becomes the sovereign.

We have further speculated that the current sovereign debt crisis in Europe would serve to erode the sovereignty of the governments being bailed out.  It now appears that even wise users of the Euro, such as Germany and the Netherlands, will have to give up the illusion of budgetary authority to save the currency.  Think of it as guilt by association.

What happens next in Europe will be the true test of the Euro’s ability to exist.  Can Greeks and Spaniards manage finances to German standards?  Can they alter their production and consumption patterns to the German standard?  If the answer is yes, then we will have confirmation that a shared fiat currency (and by default fiscal policy) is all that it takes to break down borders and achieve world peace.
If the answer is no, then the Euro, the latest entrant in a long line of doomed experiments in fiat currencies is…doomed.

The leaders in the Eurozone are dealing with a problem that has no solution.  What is unfortunate is that they are taking a considerable amount of time and other people’s money in a vain attempt to solve it. 

The problem is simple enough.  A fiat currency, such as the Euro, is a faith based currency.  One needs faith that the currency will maintain its value and continue to be accepted in trade.  The bedrock of this currency faith is that credits must be created which are repayable in the currency.  This gives people, who naturally want to improve their circumstances by attending to the most urgently felt need, the incentive to productively trade in the currency.

If the currency is something tangible and can be produced in sufficient quantities, this is all that is required for something to be accepted as currency in society.  Production and circulation of the currency would occur organically as the needs of the economy dictated.

The Euro’s faith based currency is doomed

 

On the other hand, if the currency is a fiat, faith based currency, such as the Euro, much heinous effort is required for it to be accepted as currency.  The first requirement is a decree that all taxes must be remitted in the fiat currency.  This is what Jesus referred to when he told the spies of the Chief Priests to “give to Caesar what is Caesar’s and give to the Lord what is the Lord.”

Once it is decreed that taxes will be remitted in the fiat currency, the fiat currency must be produced in sufficient quantities without the guidance of the free market signals (known today as monetary policy).  Finally, the system of taxation and redistribution of the tax revenue (known today as fiscal policy) must be perceived as either inconsequential or fair in order for those subjected to the fiat currency regime to continue to assent to using the currency.

The Eurozone’s incurable ailment is that its single monetary policy cannot respond to the multitude of fiscal policies that are operating in the currency zone.  If the currency were tangible, production in the economy would properly adjust and fiscal policy would be less pervasive and dictated by reality.  But because the Euro is simply a faith based currency, fiscal and monetary policy have no chance of harmonizing themselves.

The Euro is doomed and its handlers must at least suspect it by now.  Their only hope is to quickly form a unified fiscal government in the Eurozone which is what in theory they are doing.  In practice this may be nearly impossible.

The US Dollar faces a similar problem which has been slower to manifest itself because its problem is on a global scale.

As Jesus said, the fiat authority only owns the coins, scraps of paper, or electronic bits that consist of money.  True ownership of real things, and especially people, ultimately is the Lord’s.

How important this simple teaching will be in the years to come.

Stay tuned, Trust Jesus, and Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for August 16, 2011

Copper Price per Lb: $3.99
Oil Price per Barrel:  $87.14

Corn Price per Bushel:  $7.14
10 Yr US Treasury Bond:  2.21%

FED Target Rate:  0.10%  TIGHTENING?  NOT!

Gold Price Per Ounce:  $1,787 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  -0.2%!!!  PULL OUT THE HELICOPTERS!!!
Dow Jones Industrial Average:  11,406  TO THE MOON!!!

M1 Monetary Base:  $2,140,300,000,000 RED ALERT!!!
M2 Monetary Base:  $9,404,000,000,000 YIKES!!!!!!!

New Bans on Short selling in Europe, Margin Requirements for Gold, Money’s role in Climate Change

8/11/2011 Portland, Oregon – Pop in your mints…

Fresh injections of electronically printed cash from the US and Euro FEDs appear to have tranquilized a market in free fall.  That, along with a ban on short selling in Europe seems to be sufficient to continue the illusion that the financial system is operating normally.

Elsewhere, we see that margin requirement for Gold contracts were increased by the Chicago Mercantile Exchange in an attempt to arrest Gold’s parabolic rise over the past several days.  This must have been what Obama and Bernanke talked about last night at the White House.  They probably made a few revisions to the jobs numbers that were printed today while they were at it.

The ban of short selling in Europe is eerily similar to the ban placed on short selling large bank stocks in the US not so long ago.  The increase in the Gold margin requirement is eerily similar to the increase in Silver margin requirements by the CME last spring.

What is going on?  Nothing good, fellow taxpayers.  A tip, if you see the Government actively trying to stop something, it is good idea to be on the other side of the government’s trade.  In this case, sell European bank shares and buy gold.  Think of it as an indirect governmental subsidy to little old you.

The markets are desperately trying to correct nearly 40 years of errors that have been created since the US Dollar was officially de-pegged from gold.  The FED’s, who see currency that can be created on a whim without the inconvenience of having to either mine it from the earth or earn it in honest, fair trade as extremely convenient , are desperately trying to fight the correction. 

If the numbers just look normal, they think, people will continue to pacifically labor under the illusion that the Government has everything under control.

Nothing could be farther from the truth.

It occurred to us that we may need to clarify what the money problem is and why it, and not fossil fuels, are the cause of economic imbalance and may lead to what is popularly referred to as climate change.

Many deride the use of gold and silver as money because it must be mined from the ground, refined, minted, carried around, kept secure, etc.  It is inconvenient.  They see money created out of thin air as a simple net gain to society.

 Presto, you have, with a stroke of the pen, saved the miners from years of hard labor underground.  You have saved who knows how many trees, fossil fuels, and other elements required for the refining process.  And you have saved Jack and Jill consumer and shopkeeper from the inconvenience of carting around loads of heavy coins.

So what is the matter with instant money?  The problem, if you have not identified it, is precisely in the fact that it is easy to create.  When you remove the effort required to create money for trade, you free that effort to be spent in a lot of other ways.  That is great, except for the fact that no one considers that instant money would give people the time to scorch the earth in a thousand other ways which are much more harmful than mining.

By making money “free”, you throw the economy completely out of balance and perpetuate bad decisions for a much longer time than if the wrong speculations were limited by the need to back them with real money, acquired by difficult toil both under and above the earth.

The problem with “free” money is that it has no value, and it serves to devalue the production and lives of all who are forced to circulate it.  The longer it circulates, the more damage it does.

Worst of all, it concentrates power in the hands of those who create it out of thin air and enjoy it first.

The world has gone 40 years down this insane path.  How much more can it take?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for August 11, 2011

Copper Price per Lb: $4.03
Oil Price per Barrel:  $85.42

Corn Price per Bushel:  $7.02  
10 Yr US Treasury Bond:  2.34%

FED Target Rate:  0.10%  TIGHTENING?  NOT!

Gold Price Per Ounce:  $1,768 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  -0.2%!!!  PULL OUT THE HELICOPTERS!!!
Dow Jones Industrial Average:  11,143  TO THE MOON!!!

M1 Monetary Base:  $2,140,300,000,000 RED ALERT!!!
M2 Monetary Base:  $9,404,000,000,000 YIKES!!!!!!!