Spanish banks are the ones that pay their clients the least for their deposits. Currently, several academics attribute the responsibility for the Great Inflation of the 70s of the 20th century to the fact that citizens stopped seeing their savings remunerated, pushing them to spend and boost inflation.

Spanish banks pay 0.04% for their clients’ demand accounts and 0.64% for deposits. They are, by far, the stingiest in Europe since in the EU they pay, on average, 70% more. This happens while posting record profits. The data not only speaks of crazy greed on the part of the Spanish banking system, it could also be a threat to the economy as a whole. And the reduction in the remuneration of savings was key to causing the Great Inflation of the 1970s in the United States, with a devastating effect on economies around the world.

Fewer returns, more spending

All this is explained in a scientific article by economist Itamar Drecshler, professor at the University of Pennsylvania and author of the aforementioned article, in collaboration with two researchers from New York University. In the article, the academics propose a rereading of the triggers of one of the biggest financial crises in history, which took away the savings of millions of people. Then, the inflationary period lasted from 1965 to 1982 and reached 14%.

At that time, a series of factors came together that terribly affected the economy: the enormous public spending to pay for the Vietnam War with the consequent abandonment of the Gold Standard due to the impossibility of supporting that volume of debt; the oil crisis and also a wage-price spiral that was chasing and pushing each other. All of this could not be brought under control until Federal Reserve Chairman Paul Volcker aggressively raised the price of money, pushing the country into a recession, to restore the Fed’s authority.

But there is one more element on the table that, until now, had not been pointed out as responsible for inflation and that could have had a lot to do with it. In 1965, financial legislation known as Regulation Q was implemented. In practice, it imposed a limitation on the remuneration of savings, which limited citizens from benefiting from possible interest increases. Penalizing savings in this way caused many people to stop seeing any point in saving, so they preferred to spend. As a consequence, the increase in demand caused prices to rise. Inflation evidently had the effect of reducing savings even further, because more money was needed to buy previously cheaper consumer goods. This spiral intensely damaged the United States economy and spread internationally.

History repeats itself?

The current scenario has points in common with what was experienced in the 70s or, at least, some errors are being repeated. The main thing could be to penalize citizens’ savings in an inflationary cycle. Because both the Federal Reserve and the ECB have already decidedly raised interest rates, but the banks have not passed this on to their clients. In this context, it is worth remembering that in 2021 inflation in Spain was 3.1%, in 2022 it was 8.4%, and in 2023 it returned to 3.1%. This implies an average price increase of 14.5% in 3 years. But, in addition, we must take into account that for some basic products in the shopping basket, prices have risen by more than 30%. If we add the very high public spending to support the ongoing war conflicts, we have a panorama surprisingly familiar to what happened in the 70s. And, not learning from historical mistakes, banks continue to be driven by greed instead of passing on the benefits to client returns generated by the ECB’s high interest rates.

One of the best options at an individual level to begin to stop this spiral is to find savings formulas that avoid excessive consumerism that further fuels the inflationary whirlwind. At 11Onze we strive to offer options so that our users do not see their savings degraded. We do this through products such as Preciosos 11Onze’s Gold, but also through products such as Litigation Funding that 11Onze recommends and that allow us to achieve profits of more than 9% for the money contributed. What, without a doubt, does not help stop inflation is spending our savings on products overvalued or letting the money dwindle in accounts without returns.

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