Jan 312013
 January 31, 2013  Posted by at 12:26 am Finance

US GDP came out today and it was a stinker: -0.1%. Enter a choir of 10,000 pundits who all figured out that all that bad smell was the result of one thing only: cuts in military spending. That's the sort of thing that tells me – or more correctly: confirms – that the optimism bias has become so strong and infectious it's no longer worth even discussing. And that's before I notice – caveat: I haven't read all the eerily similar comments – that nobody I read bothers to explain by how much military spending has raised US GDP lately. Or to what degree they hope it'll go up again. Soon.

So, I then think – I have a hard time focusing when confronted with blinders -, by how much would US GDP have been raised with more military spending? Would it perhaps have reached the same lofty level as French GDP? Here's a graph:


Yes, French GDP rose by 0.3%. Ergo: France is doing better than the US, and quite a bit. Well, you know, assuming that the nouveaux Français theatre de warfare in Mali is not yet included here. Here's a safe prediction all 10,000 can pen in right now: French GDP will rise significantly next quarter; ain't nothing like guns and ammo and military funerals to raise the outlook of an economy.

There is just one problem with this seemingly watertight argumentation. That graph comes from a series of articles by the Daily Mail on French…. drumroll….. bankruptcy. Which is translated as "Banqueroute"; they even invented the word, and imported it into Britain right after 1066, we may assume. Now if France is bankrupt with a 0.3% GDP growth, what is the US with 0.1% shrinkage? Could the answer be: looking for a theater?

Back to France, which, despite those far better GDP numbers, gives the US a run for its money when it comes to make-believe. This week, French labour minister Michel Sapin provided a glimpse behind the Elysee curtain, which of course was promptly denied as soon he spoke out, in these hilariously priceless words by finance minister Pierre Moscovici, as per The Telegraph:

Pierre Moscovici, the finance minister, said the comments by Mr Sapin were "inappropriate".

He added: "France is a really solvent country. France is a really credible country, France is a country that is starting to recover."

Brilliant. Who said the French have no sense of humor? Nonetheless, be that as it may, French news daily Le Figaro did a poll that showed 80.5% of French think their country is indeed broke. And I don't think all 80.5% were joking. What Sapin said comes down to something like: "There's a state captain, but not as we know it, not as we know it". Here's Tim Shipman's Daily Mail piece on the issue:

France is 'totally bankrupt', jobs minister admits as concerns grow over Hollande's tax-and-spend policies

France's government was plunged into an embarrassing row yesterday after a minister said the country was ‘totally bankrupt’. Employment secretary Michel Sapin said cuts were needed to put the damaged economy back on track. ‘There is a state but it is a totally bankrupt state,’ he said. ‘That is why we had to put a deficit reduction plan in place, and nothing should make us turn away from that objective.’

In a frantic damage limitation exercise yesterday, colleagues in the Socialist administration said he was only highlighting faults of the previous government of Nicolas Sarkozy. Finance minister Pierre Moscovici said: ‘What he meant was that the fiscal situation was worrying.’ But a poll yesterday by Le Figaro newspaper showed eight out of ten readers agreed that France was indeed bankrupt.

Data from the Bank of France shows capital investment is leaving the country every day. Rating agencies Moody’s and Standard & Poor’s have both already removed France’s once-coveted AAA credit.

[UK] Tory MP Peter Bone said: ‘This is clearly a case of at least one Frenchman speaking the truth. ‘We need to hear more of this kind of honesty from the French. This man deserves promotion.’

While Mr Sapin's admission was unlikely to have been intentional, it highlighted huge concern at President Francois Hollande's handling of the economy. Despite all this, Mr Moscovici insisted: ‘France is a truly solvent country, France is truly credible country, France is a country which is starting its recovery.’ Mr Moscovici also insisted that France is in a position to ‘meet its financial obligations, including the payment of its employees, thankfully.’

Yes, Mr Moscovici, I'm sure we can all agree that that France is in a position to ‘meet its financial obligations, including the payment of its employees. However, there may be some disagreement on how long it can do that for. The statement itself is true even if it's only good for just two weeks or so, though we all know that's not what you intend people to take home from it. But it doesn't deny that either.

Me, personally, I find it astonishing how little attention Mr. Sapin's comments have attracted. I'm one of those rare people who are all for having these discussions out in the open. All of them, those about today's US GDP embarrassment as well as France's financial perils. Don't tell me that you're "in a position to ‘meet your financial obligations'", show me how and why. We can't all go through life shying away from what really should be obvious questions, only to find out later we've been had by another bunch of lying and cheating politicians, just like generation upon generation of our ancestors before us. We need to have learned at least something from what they went through.

More from that Daily Mail piece:

Since Mr Hollande came to power, unemployment and the cost of living have continued to spiral, while 'anti-rich' measures have provoked entrepreneurs to leave the country. The President is currently trying to revive France's economic fortunes by cutting spending by the equivalent of more than £51 billion.

The Bank of France has already produced data showing that capital investment is leaving the country every day, along with the business people who helped to build it.

[..] There have even been reports that Nicolas Sarkozy, the last President of France, is preparing to move to London with his third wife, Carla Bruni, to set up an equity fund. Prime Minister David Cameron has already said that Britain will 'roll out the red carpet' to attract wealthy French people.

My impression, but that's just me, is the French are still suckers for authority figures – Charles the Gaulle and Napoleon engraved that into their very foreheads -, but they'll have to wake up at some point. From the economical fairy tale that says they're doing fine, and from the grandeur idea they've been fed forever now.

As far as President Hollande is concerned, I'm mostly neutral, but if I were to single out on thing he's done for the biggest fool award, it's his decision to reverse pension reforms, enabling his voters to retire at 60 or even earlier. While at the same time he's part of the Troika cabal pressuring Greeks to work longer, and while all his Eurozone neighbors are pushing up retirement age to 67-68 and onwards. That one thing makes me doubt Hollande will sit out his term. You can fool some of the people all of the time and all that, and all of them some of the time.

The Daily Mail ran a little update by Daniel Miller today:

Bankrupt France's latest efforts to save money… turn off all the lights

The French government has ordered shops and offices to turn off their lights at night in a desperate bid to save vital resources as the country struggles to prevent a looming financial crisis. From July 1, all non-residential buildings will have to switch off interior lights one hour after the last worker leaves the premises while all exterior and shop window lighting must be turned off by 1 am. The announcement follows an embarrassing incident for President Francois Hollande yesterday when employment secretary Michel Sapin admitted the country was ‘totally bankrupt’.

The French environment ministry hopes the move will both save energy and reduce light pollution. Local authorities will be able to allow exceptions for Christmas lighting and other local events. The new law will save about two terawatt/hours of electricity a year – the equivalent of the annual consumption of 750,000 households, the ministry said. Environment Minister Delphine Batho said it would also make France a pioneer in Europe in preventing light pollution, which disrupts ecosystems and people's sleep patterns.

Oh boy, what's not to love? Save face and change tack with "preventing light pollution". And to make it better, don't do it right now, no, wait till July 1. The gift that keeps on giving if ever I saw one. Isn't Paris known as the City of Lights? Well, those days are gone.

What this tells you is that France has not one, but two problems: finance and energy. And that prior to July 1, we can expect a bunch of real nasty announcements on both. Plus also, that François Hollande is not so sure he’ll last that long. That's why he's pushing it forward, hoping for a miracle.

Are things that bad in the US? Who knows, really, given the ever rising extent of opaqueness? Anybody want to bet their children's lives one way or the other? GDP comes in negative and people fall over themselves to declare that it's only because military spending fell. So what does that mean? Does it mean the US has to go back to war to raise its GDP? Look for a new off Broadway theater?

Why is it so hard to call a spade a spade? Because incumbent politicians and wealthy moguls fear that the truth will set them free in a way they don't like. As in "The Truth Will Set You Free, But Not When You Dunnit." And so we make do with the few scrappy shrapnels of truth that fall off their tables. Is that really the best we can do?

Something tells me the French will lead the way, farming equipment and all, in front of the crumbling presidential palaces, come July 1 or so. And when the fires rage in Paris, Americans will still be talking recovery. And if there's anything "positive" to be said about it, it will be that somehow it has something to do with somebody getting hurt in some new theater somewhere in the world.


Home Forums France Is Dead Broke, But At Least Its GDP Came In Positive

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    US GDP came out today and it was a stinker: -0.1%. Enter a choir of 10,000 pundits who all figured out that all that bad smell was the result of one t
    [See the full post at: France Is Dead Broke, But At Least Its GDP Came In Positive]


    Two bordering on to three problems?

    steve from virginia

    France is bankrupt … never to become un-bankrupt. Never is a long time.

    The other countries are bankrupt, too … the entire world is bankrupt. Once upon a fairy-tale time the world was rich with capital which over time was burned up for nothing using the instruments of entrepreneur-devils. What Europe has are some nice buildings … and a bunch of used cars … to show for all that capital it once had.

    Prime Minister David Cameron has already said that Britain will ‘roll out the red carpet’ to attract wealthy French people.

    The same wealthy people who have bankrupted Britain and all the other countries. ‘Entrepreneur’ and ‘innovator’ are big words that mean ‘thief’, France would be well rid of all of them.

    Never is a long time: the world’s capital is exhausted, this is our crisis and nothing else.

    Golden Oxen

    Facts, reality, numbers, how quaint. What spin are the talking heads on the business station placing on the latest pronouncements from Zeus, AKA Bernanke; was there a change in tone, wording, emphasis.? That’s what’s important.

    As far as France goes, is that a city or a country? Wasn’t that the place the artists used to go to hang around in cafes, drink wine and write poetry and paint all day?



    I essentially agree with the analysis on France, but I note an error that has come up repeatedly in the foreign press, that is that Hollande reduced the retirement age to 60.

    That reform applies only to people who started working at age 19 or younger and have racked up an impressive number of “quarters” (points toward retirement are counted on the basis of full quarters worked).

    The number of people concerned by that reform is simply not significant and, given social trends over the past half century, will drop.

    The retirement age in France is creeping up steadily and I know that I will have to work at least until the age of 65 or 67. The required number of quarters for most people now stands at 168 and I bet 172 is not far off.

    By the way, if anyone is interested, there are reports that there will be another “reform” in 2013 and, like Ilargi, I also think Hollande will run into serious trouble before long.




    Here are some points the Daily Mail (first link) claims it got from Le Figaro:


    • Public debt has risen to 90% of GDP, compared to 21.1% in 1974. If trends continue, the figure will reach 91.3% by 2014. The European Union target is 60%.

    • Two key ratings agencies, Moody’s and Standard & Poor, depriving France of its triple AAA rating.

    • France’s reliance on tax increases, including a proposed 75% haul on incomes over 1 million euros

    • Mr Hollande’s decision to reverse pensions reform, meaning that most French people will retire at 60, and many at an even younger age.

    • The figure for long-term unemployed increasing by more than 18% to well over half-a-million.

    • More than a million people over 50 now unemployed – a figure which has jumped 15% in a year.

    • A record trade deficit of 73 billion euros in 2011.

    • Public expenditure of 56.3% of GDP, the highest of all western countries except Sweden.

    • France employs 2 million public officials and Mr Hollande plans to create more, including 65,000 teachers and 5,000 court and police officials.



    I am aware of all that and certainly do not contest it (except the part about retirement reform which, if you look at the data, concerns just over 100 k people in a country of 65 million, i.e. about 0.15% of the total population and 0.35% of the active population).

    The overall situation is deadly serious and people have been writing about it for years (TAE, Mauldin, G. Williams, etc., etc.).

    Yet, we continue full speed into the wall, even taking time off to go on desert excursions. Such is human nature.



    I don’t understand some of your articles mention how 15 years from now people in the U.S won’t be able to get their pensions…then there are ones like this that say we are heading for a wall in the next few years.months etc..when a system breaks down it breaks down….pensions stop, governments collapse..the buck stops. So what is it?


    The US GDP number was bogus. Now far be it from me to defend GDP as a measure of well being but the number is sure to be revised upwards. Tax receipts have been quite strong, job growth decent or as decent an can be expected. These are not the signs of faltering GDP.

    By accident or design the suddenly poor numbers, GDP and unemployment, give perfect cover for the Fed to continue printing and have knocked a little starch out of the risk on rallies in most market. Perfect. If one were managing expectations and the market one could not possibly have done a better job as the sudden near universal bullishness of just last week along with buoyant oil prices were on the verge bringing voices calling for halt to QE4 to the front. So some bad news was needed and presto, it came. Lucky? Who knows and doesn’t matter.



    There are many aspects to the pension question; the 15 years is more or less a “safe” estimate. I think what we’ll see happen is that as we go forward, payouts will be cut more and more. I see in Holland all sorts of funds are cutting by 5-6%, and overall those dependent on fixed income will lose 9-10% in purchasing power just in 2013. That would seem to be(come) the overall trend globally. The speed at which this progresses can be influenced by factors such as bad investments by the funds, declining stock markets and economies in general etc. Also, it seems obvious that young people will at some point refuse to pay in once they understand they’re unlikely to ever get a penny- and that is if they even have jobs: Spain’s 60% youth unemployment must of course devastate its pension funds. How it will all work out will vary across the world, even if the trend direction is clear and inevitable. All pension plans are ultimately Ponzi schemes, and those never end happily.


    I have just read this excellent report by Tim Morgan of Tullett Prebon

    “perfect storm – energy, finance and the end of growth”


    It explains in great detail how the figures for GDP – in the USA and elsewhere – are largely bogus.

    It is a great – and very depressing – read. Much in common with TAE, sadly. 🙁

    He does not dwell so much on the crash of credit – and gives a bit more weight to EROEI

    Viscount St. Albans

    @ rapier

    Re: oil price limits equity prices

    The upper 20% of the wealth distribution owns about 95% of all equities. Stock market pumping becomes an exercise in string pushing; The lower 80% of the pop. doesn’t see any gain. But they do feel the commodity price squeeze. And since discretionary income is so thin for the lower 80%, it doesn’t take much of an uptick in gas and grocery prices before discretionary income vanishes entirely. And that shows up immediately in auto sales, and home sales, and consumer durables etc. The noose around Best Buy’s neck tightens with every uptick in oil.

    I’m very surprised the CFTC hasn’t regulated commodity speculation more tightly. My speculation: Until the CFTC enforces are harder disconnect between equities and commodities, then Oil and Agriculture will put a hard ceiling on the Apples and the Googles.

    Viscount St. Albans

    Re: The lower end of the Treasury Yield Curve

    It amazes me that, despite new highs in the S&P, the yield on pretty much all US Treasuries from 1-month through 2-year duration is still trending lower. A tiny downturn in equities could easily push 1-month and 3-month US Treasuries into negative yield territory. The Fed alone can’t do that. It means that there is still tremendous fear among institutional money managers. Much of global liquidity is still seeking a very safe haven.

    I don’t think the implications for negative yields on 1-month and 3-month Treasuries have been sufficiently highlighted. A negative yield on the short end of the Treasury market would have immediate ramifications for the entire US financial system. Yields on Consumer Checking and saving accounts would need to closely mirror those Treasury yields into negative territory, either that or banks will immediately need to create new fees and surcharges. The psychological impact of paying for deposits could be huge.


    Gravité est un algorithme récursif.


    Wow the dow up 150 well I guess it is all over…can they just keep this going…is the trillions of dollars they gave the banks in there just floating around…the media is so giddy about it…saying that all the money lost in 09 is back. I have to say I missed the boat on that listening to here I pulled my money and am sitting on cash…I have to say I am secretly hoping for a crash but so far the opposite is happening..I just


    Here is a piece of news from the Figaro which does not seem to have gone international:


    Essentially, a group of young French/North Africans from Marseilles stopped a high-speed train and tried to rob it. They were chased off by the police.

    Google’s translation was so bad that I reworded it:

    Twenty youths forced a TGV to stop on Saturday when it was returning from Marseilles to Nice and attempted to board before taking flight on the arrival of the police.

    It had left the Saint-Charles station in Marseille a little after 14 pm when the driver was forced to stop by torches placed on the line in the district of La Pomme.

    “These red flame torches are security tools that is commonly used to indicate a big problem and in this case the drivers are instructed to stop,” said a spokesman for the regional management of the SNCF Provence-Alpes-Côte d’Azur.

    Some damage

    The police were alerted immediately and the attackers fled on foot. Five of them were arrested. The train, whose doors remained locked, suffered minor damage and left shortly before 16 hours, according to these sources.

    Nine young people from a city in the 11th arrondissement of the city were arrested and placed in custody at the Police department.

    “We went back to the time of attacks on stagecoaches, it is full Wild West … We’ve had attacks in Marseille freight trains in the northern suburbs, and assault regular controllers now was taken a step further with this unconventional attack. Pending understand the motivations of those thugs a city that more sensitive (classified Priority Security Zone, ed.), we welcome the swift action of our colleagues who acted to preserve the safety of passengers and who put themselves in danger, “said David-Olivier Reverdy, Deputy Secretary zonal police union Alliance.

    It is pretty obvious to me that this can only escalate with copy-cat activities by others around France. The gulf between the passengers on these luxurious trains and the people who live near the tracks is growing too large. It is one thing defending airports, but defending a railway line is a lot more difficult.


    Hi, first post here, but most people in the UK never believe a word the Daily Mail says. Its a far right paper never slow to put down any form of Socialism. Check out this web site for putting right most of the nonsense in the Mail & other similar UK tabloids.
    Otherwise, keep up the good work…


    ted post=6585 wrote: Wow the dow up 150 well I guess it is all over…can they just keep this going…is the trillions of dollars they gave the banks in there just floating around…the media is so giddy about it…saying that all the money lost in 09 is back. I have to say I missed the boat on that listening to here I pulled my money and am sitting on cash…I have to say I am secretly hoping for a crash but so far the opposite is happening..I just

    Ted, you might do well to read Nadeem Walayat, the proprietor of
    marketoracle. He’s a very smart guy, and right more often than
    wrong. He talks a lot about the inflation mega-trend, in the
    context of which the decline of 2008 was just a minor blip. I’m
    afraid he is right about this. Sitting on cash is a guaranteed loser.
    He has a free newsletter, which you might want to sign up for.

    A few of his recent pieces:


    alan2102 post=6608 wrote: …Nadeem Walayat, the proprietor of

    A few of his recent pieces:

    The pitfall in his analysis in this article is in thinking that the “big picture” begins in 1996.


    SteveB post=6610 wrote: [quote=alan2102 post=6608]…Nadeem Walayat, the proprietor of

    A few of his recent pieces:

    The pitfall in his analysis in this article is in thinking that the “big picture” begins in 1996.

    Actually, Steve, as you know, the very same trend that
    he highlights there goes all the way back to 1980 (33
    years), or even back to 1942 (nearly 70 years). From the
    low of 93 in 1942, the DJIA has gone now to 14,000, for
    a 150-fold return. Viewed another way, that’s 7+ doublings,
    a little more than one every 10 years. Of course, during that
    time the currency has been debased considerably, so that
    purchasing power is much less; i.e. you’re much less rich
    (if you were a stock holder) than those figures would
    suggest. The way to stay ahead of the inflation megatrend
    is not to buy and hold forever (like buying and holding stocks
    since 1942), but buy distressed/depressed value and hold
    for long secular bulls (10-20 years), then rotate out when
    the bull has reached exhaustion.


    Hi Folks,

    For those that can, this BBC program on French gardens by the veritable Monty Dom is worth checking out, and while watching remembering that France has seen it all before. Especially relevant is the reference to the ‘paysant’ literally one who lives off the land which in France is an honorific, as opposed to the UK where it is a derogatory title:

    They maybe broke, but at least some of them will still get to eat…



    I’d say anyone who thinks what drives today’s economies is some sort of inflation megatrend has some catching up to do. Of course, if they were, sitting on cash might indeed be that guaranteed loser. But they’re not, and that’s why it isn’t. History is replete with bursting bubbles, and we found ourselves the biggest one in that history, leveraged all the way up into the wild blue yonder. If you would care to look back through prior bubbles, you might just find that those sitting on cash ended up quite a bit better off than those sitting on tulip bulbs.


    France doesn’t control its own currency, so it will be in deep trouble before the US is.


    ilargi post=6618 wrote: I’d say anyone who thinks what drives today’s economies is some sort of inflation megatrend has some catching up to do. Of course, if they were, sitting on cash might indeed be that guaranteed loser.

    Ilargi, sitting on cash has been a big loser for the last 70 years. Of course, that could change. But I don’t expect it to. If it does, it will not be for long.

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