The author returns from a few weeks travelling around Spain and gives his opinions on Spain through his economist’s eyes.

I must admit that I’ve commonly regarded Spain as a bit of a basket case. It suffered a similar fate to Ireland in the GFC with a big housing bust, though, unlike Ireland, it didn’t have a large tech sector and dodgy international finance dealings to keep things ticking over. I always had the impression in my youth that it was on the verge of collapse, though this opinion was never based on extensive research! 😄

Not so says Mr. Caplan - while things are not all rosy, he reckons there is massive untapped potential, particularly if immigration is encouraged from the half a billion Spanish speakers worldwide.

After I visit a new country, Tyler Cowen always asks me, “Are you long or short?” In terms of potential, I’m very long on Spain. The trinity of “deregulate immigration, employment, and housing” is vital in almost every country, but this formula would do more for Spain than nearly any other country. Wise policy would make Spain the biggest economy in Europe in twenty years flat.

So Hank Paulson travelled to China to tell the Chinese not to devalue the yuan against the dollar. China’s response: we own you, and we’d appreciate it if you’d start looking after our investments.

But Mr Paulson also found himself facing calls for the US to address its own economic problems. Wang Qishan, a vice-premier and leader of the Chinese delegation at the two-day talks, called on the US to take swift action to address the crisis.

“We hope the US side will take the necessary measures to stabilise the economy and financial markets as well as guarantee the safety of China’s assets and investments in the US,” he said.

The dialogue was dominated by the global crisis. Zhou Xiaochuan, governor of the Chinese central bank, urged the US to rebalance its economy. “Over-consumption and a high reliance on credit is the cause of the US financial crisis,” he said. “As the largest and most important economy in the world, the US should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits.”

Good Math, Bad Math has a post entitled Economic Disasters and Stupid Evil People which provides a nice summary of how the US financial system got to be in such a mess.

What we’ve been seeing over the last couple of weeks is the same basic scam as the mortgage mess, but on an even larger scale. Lending money is a profitable business. Bundling loans into investment vehicles is an incredibly profitable business for producing what appear to be high-yield, low-risk investments.

Naturally, when there’s a big opportunity to make lots of money, there’s a ton of people looking to get in on it. Of course, just like with the mortgages, there’s a limit. Realistically, there’s only a certain amount of money that can be loaned at any time to people who can pay it back. But there was so much money to be made that as the high-quality loans ran out, they started looking for other things that they could wrap up as investments. Of course, since people who buy these kinds of investments are typically looking for something really safe, that means that they can’t just give money out any-which-way; they need to have some plausible way of saying “This is really safe”.

And here’s where the stupidity really started kicking in.

How do you take a bunch of loans that might not be repaid, and turn them into something that’s safe? Well, what do you do if you had a lot of money tied up in a piece of property that you could lose in an accident? Like, say, a car or a house? You’d buy insurance!

That’s basically what the investment firms did. They gave out shit loans that any sane person should have known couldn’t be repaid, and then they bough insurance on them to guarantee that at least the principal would be safe.

So who did they buy insurance from? Mostly each other.

The whole article is worth a read, as are his earlier pieces on the Subprime Crisis: Part 1 & Part 2

The Independent has an interesting piece on how various parts of the world are coping with the rapid increase in oil prices over the last two years.

British pensioners who cannot afford to heat their homes. European hauliers and fishermen whose livelihoods are under threat. Palestinians forced to fill up their cars with olive oil. Americans asked to go down to a four-day week.

All around the world, in a multitude of ways, the soaring price of oil is hurting rich and poor alike. For the lucky ones, it is simply a matter of changing their lifestyle. But those most vulnerable to the price of oil have been driven on to the streets in angry protests, which raise a fundamental question: what can we do to survive in a world where a barrel of oil costs $127 (£64)?

The good news is that demand from consumers is decreasing, but that’s more than offset by increases in industrial demand.