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The Daily Reckoning | Saturday, July 28, 2012 How France could bring the EU to its knees... Readers weigh-in on Congressional stupidity, Marxist philosophy and the issue of self-sufficiency Plus, all this week’s reckonings archived for your weekend perusal... ------------------------------------------------------- What to Expect in 2013... Between 2004-2007, Bill Bonner and Addison Wiggin did their best to alert their loyal readers to the dangers of the housing bubble well before the mainstream said anything about it. Well, today, they see something even worse looming just over the horizon. It’s not often our Reckoner-in-Chief agrees to appear on-screen, but this was just too important. Click here (or the image below) to see what they’re talking about now... Ed. Note: Your editors are returning to their respective from- whereabouts this weekend. They’ll return next week with all new musings and adventures. In the meantime, please enjoy this week’s feature essay, by none other than our Reckoner-in-Chief, Bill Bonner... [This essay first appeared in these pages July 24, 2012] The Daily Reckoning Presents Turning Into PIIGS: Why France’s Debt Crisis Could Doom the EU Bill Bonner From one ragged country to another. We are on a tour of Europe’s unraveling economies. Ireland...Spain...and now France. Spain was in the news again yesterday. Its borrowing rate rose to 7.5%...a level that everyone says in “unsustainable.” We haven’t done the math ourselves, but we will take their word for it. Policy makers in Madrid were rattled. Naturally, they took no responsibility for the mess. Instead, they blamed...short sellers! Yes, and banned short selling for 3 months. That ought to do it, right? Everybody knows markets go down because people sell. So make selling illegal. Problem solved! Now our travels have brought us back to France. At the heart of Europe...and at the heart of the alliance with Germany and the whole European Union project, if France can’t keep itself together...the whole EU is doomed. And yet, France seems to be hanging by a thread too...while Francois Hollande reaches for a pair of scissors! The Telegraph: The debt levels which the country has are as unsustainable as Britain’s, yet its policies are more irresponsible and its remedies more restricted. Although it is considered a core country in the eurozone, France’s economic profile now bears more resemblance to Greece’s [than] Germany’s. Public debt in France is at 86.1pc of GDP (146pc if ECB liabilities and bank guarantees are included). The projected budget deficit this year is 4.5pc, with France having exempted itself from the EU’s instruction to bring deficits down to 3pct by the end of the year. These numbers are not unusual in the context of eurozone economies in general. What distinguishes France is the lack of political will to address them and, as a consequence, a projected debt to GDP ratio which would place it firmly amongst the PIIGS grouping... France’s numbers are not so different from those of the US. But America has a very big bazooka....one that France does not have...at least not yet. The US can give out the word to its central banks to buy its own bonds. It can ‘monetize the debt’ in other words. This is always a disastrous policy...but that doesn’t make it unpopular. And in a period of debt destruction, the disaster may be far in the future...and it may not be suffered by the people who cause it. But France doesn’t have that option. It has to operate in a more honest system...like the individual US states. Which means, it has to cut spending. But Mr. Francois Hollande doesn’t seem particularly interested in addressing the situation in a reasonable way. The Telegraph describes his efforts so far: Lowering the pension age from 62 to 60. Increasing the minimum wage above inflation (albeit not much above inflation). Demanding that the EU take even more money from the national governments than was planned, violating a prior agreement and potentially adding £3bn to Britain’s annual tribute. Introducing a top rate of income tax at 75pc for those earning €1m or more — a move which gives a marginal rate of tax of 90.5pct on certain types of income. Introducing a tax on anyone owning assets in France but living abroad which will see 15.5pc of the rent or capital gain on property transferred to the state. Introducing a one off wealth tax at double the rate which had been previously trailed. Yesterday, a lunch companion explained how the French are reacting: “France is finished. We’re leaving! Well, of course, I’m exaggerating. Young people with talent, brains and ambition are leaving. And old people with money are leaving. That leaves the middle classes...and what you call the ‘zombies.’ And there are more and more of them. France is becoming a divided place. But it’s not divided between those with money and those without...it’s divided between those who work and those who don’t. Those who do honest work have to work harder and harder to support those who don’t work.” Meanwhile, from back in the USA, the Dow fell another 100 points yesterday. Why? Word got out that corporate earnings projections show the slowest growth in 4 years... This was reported as more evidence of approaching recession. ..and more evidence that the Fed needs to take action. “Touch us. Heal us. Give us more QE,” said the multitudes. And the economists. It is probably just a matter of time until the big bazooka fires off another blast... Regards, Bill Bonner for The Daily Reckoning [Ed. Note: Bill’s annual speech at the Agora Financial Investment Symposium is always one of the highlights of the week. And his presentation this year — on the theme of “The Declining Marginal Utility of Stuff” — will likely prove no different. It’s truly something every loyal DR reader should witness. So, if you were unable to make it to the symposium this year but would still like to check it out, we invite you to click hereand pick up a copy for yourself. And this year we’ve included, for the first time ever, HD video of the entire event. So click here now to secure yours today. But hurry... The price shoots up at least 33% as soon as the event is over.] Only 62 People Know Exactly Why These Four Companies Could Change the World Now you’re #63 “on the inside” — and you’re on the verge of raking in lasting wealth. This could go down in history as he story of our era. Click here for all the details. ALSO THIS WEEK in The Daily Reckoning... Jim Grant on the Bubble in Perceived Safe-Havens and On LIBOR Rates and Black Walnut Trees Jim Grant, founder and editor of Grant’s Interest Rate Observer, recently sat down with Capital Account’s Lauren Lyster to discuss what he calls a “bubble in perceived safety”, and goes on to discuss potential LIBOR litigation and why he’s bullish on black walnut trees. Take a look at each segment, below... Lessons from the Irish Elk: Why the US Debt Burden May Facilitate Its Extinction Our own Eric Fry sat down with Capital Account’s Lauren Lyster to discuss, among other things, the US debt crisis, the “bubble in safety” — which Jim Grant touched on last week — and how that all relates to the extinction of the Irish Elk. Take a look at this clip... The Recessionary Implications of a Chinese Slowdown The good folks at RT continued their excellent coverage of this year’s AF Symposium, with an insightful interview with Dr. Marc Faber. In this “video essay” Capital Account’s Lauren Lyster asks Dr. Faber about the larger problems that might arise should China experience a significant economic slowdown. Take a look below... Is Farmland in Bubble? When the mainstream media starts touting “dirt” as the new “black gold”, does that mean farmland is in a bubble? In this “video essay”, Capital Account’s Lauren Lyster poses that very question to Brad Farquhar, manager Co-Founder of Assiniboia Capital — the largest farmland fund in Canada. Take a look below... Cash and Courage: Rick Rule Discusses Gold and Currency Holdings In this “video essay”, Capital Account’s Lauren Lyster asks Rick Rule if now is a good time to hold cash in addition to physical gold, and when it might be advantageous to transfer your holdings across asset classes. Take a look below... The One Retirement Plan Obama Can’t Touch If you’ve already retired, or want to retire soon, I urge you to watch this video presentation before we have to pull it down. This “Secret $200 Retirement Blueprint” shows you step-by-step how to grow a monster-sized nest egg with a little time and a tiny grubstake. Click here to watch this video presentation now. The Weekly Endnote... And now, it’s over to a few readers for some thoughts, ideas and rumors... First up, Reckoner Christopher P. writes... Every time I hear that Congress has passed a new bill I think, “Here comes the pusher man”. Within every new bill are goodies and perks along with new rules. And as with the new health bill, you don’t know what you get until you accept it then get hooked. Zombies are the addicts, governments the pushers and banks the cartels. And when the bank-cartels can’t get enough “stuff”, they tell their government-pushers to cut or dilute the “currency-stuff” so the zombies get their “fix. I wonder what happens when the zombies find out that they didn’t get their money’s worth. Next, Reckoner Barry M. observes... re the Marx quote; I don’t know if you have read much of Marx and his acolytes, but Marx, Engels and Lenin’s rantings are not just chilling but banal in the extreme and a very good example of the gullibility of people to be led by a few demagogues telling them they are victims, oppressed by a privileged minority and the only way to change the situation is by violence. The sad reality is that Marxism Leninism would not have succeeded except for the fact that there were a lot of people suffering serious privation and hardship under the Czars, and many were ready to grasp at the opportunity to redress grievances whether real or imaginary. A vital factor in the success of the Marxist revolution was the sealed train journey of Lenin out of Germany to Moscow by the Germans who were then at war with Russia. Disrupting the Czars from prosecuting the war seemed like a master stroke at the time, but look what happened to the Czars and their poor murderously maltreated subjects in the aftermath. It’s a very good example of the advice “be careful what you wish for,you might get it.” Private property is a keystone of a free enterprise civilised social order and as more people lose their tenuous grasp on the dream of at least some capital and the ideal of their own home the more many will turn to the state or demagogues for protection or to vent their spleen upon a system they rightly or wrongly feel has let them down. To paraphrase Lenin when explaining how to bring about the revolution and the destruction of the ‘capitalists’, he replied ‘The capitalists will make the bullets for us to fire at them.’ Looking from afar at the US today it is easy to imagine a lot of disgruntled disenfranchised people only too willing to listen to a demagogic type like Obama. Apparently his figures are almost as good as Romney’s when Romney should be streets ahead. Putting up a multi- billionaire like him with the albatross of Baine Capital around his neck during a period when people are being laid off around the country doesn’t strike me as very smart. The best system I have read about so far is that of the system of cooperatives in Mondregon Spain and of worker consultative enterprises in America like Nucor, where the workers have an interest in the success of the enterprise rather than just seeing themselves as pawns or functionaries caught up in the gyrations of a system that seems to care little about them as individuals. And finally, departing from conventional fuel sources, another Reckoner Chris writes... I believe there is a fix to the economy based on the fundamental principals of self sufficiency. Agrarian based societies improvised and traded among themselves for their fundamental daily needs. Technology has given us new tools to be applied to the age old self sufficiency formula. Imagine governments promoting growing your own food, heating & cooling using solar electric and heat collection panels. How about high efficiency insulations and efficient home design and best-exposure house orientation? There’s an entire industry waiting to happen in both product manufacture and installation. And, the end product would give both pride and savings to the homeowner and deliver a lesser impact on world resources. Sadly, no government wants nor would let its people become self sufficient because self sufficient people don’t need government. --- As always, we welcome your thoughts. Email them to the address below and... ..enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning