"France is rotten," said a friend yesterday. "I don't know why you came back. Half the people are broke. The other half are crazy...
"...and you foreigners still come here, pay $1 million for a hole-in-the-wall apartment...and walk around the city and step in dogsh*t."
Yes, dear reader, that is fair description of France circa 2012. The new president, Francois Hollande, says he won't wait for the private sector to create jobs. He will do it himself. He'll hire more teachers. Never mind that the payback on educational spending is zero - or less. It sounds good to the lumpen voters.
And how will he pay for these new teachers? This week, he is expected to raise taxes on the rich. The top marginal rate, he says, will go up to 75%. And the wealth tax will go up too.
In short, the elites who control France will soon control, directly, more of it...and more of the rich will move to Switzerland, England or Belgium.
But here at the Daily Reckoning, we like rotten countries. For example, in a state of even more advanced decay, there is Argentina, where president Cristina Fernando de Kirchner has just announced a solution to the housing problem.
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We pause to give dear readers a quick resume of how housing got to be a problem south of the Rio Plata. In the '80s, the generals who ran Argentina tried to pay their bills by printing money. This led to consumer price increases of more than 1,000% per year. They had to throw out one currency, start a new one, and then throw that one out too. And then there was the war with England. Eventually, people got sick of it and threw the generals out. Then, president Carlos Menem promised a "hard" currency for Argentina, which he would achieve by tying the peso directly to the dollar.
No one is more persuasive than an Argentine when he is trying to borrow money. And since the currency risk was eliminated - or so investors thought - the Argentines soon were able to borrow more money than they could possibly repay, which led to the biggest default - about $100 billion - in world history.
The official inflation rate is now still in single digits. But the actual inflation rate - which is apparently illegal to report - is near 25%. This - combined with the fact that when you lend Argentines money they don't pay it back - greatly reduces the availability of credit...and housing. People have to pay all cash...or nearly all-cash...to buy a house.
Well, you can imagine what America's housing market would look like if people had to save money before buying a house. There wouldn't be so many houses. And that's why there aren't so many houses in Argentina. And many of those that were built in the past are not in great shape.
So, in comes Cristina. Rather that give any hint that her predecessors and her own political party bear any responsibility for the housing problem, she offers another crackpot solution.
We will come to that in just a minute. We just want to point out that this situation is classic. Government causes problems. It then offers solutions that make them worse.
On a macro level that is what is happening in the US. The feds created a credit-based economy, increasing the supply of credit 50 times in the past 50 years. This huge swell of credit swamped the entire world...leading to (among other things) the explosion in factory output in China...the bubble in housing in the US...the big increase in wealth for the 'rich'...the blow up in '08 - '09...high unemployment...and little real growth.
But rather than recognize that they set the house on fire...the feds arrive on the scene like firefighters, pretending to put it out. Trouble is, they keep adding tinder - more credit!
The feds have added $4.39 trillion to the national debt since Obama moved into the White House. On an accrual basis, they'll add $20 trillion by the end of this year.
And that's the fiscal side. Over on the monetary side, the Fed has been doing its part. It has added $2 trillion to its balance sheet (the foundation of the US money supply) since the crisis blew up in '08-'09.
Even with all that gasoline and dry sticks, they've had trouble keeping the fire going. Consumers...and households...have been a wet blanket. They're trying to de-leverage. That is, they want to get rid of credit, not add more.
But the government comes to rescue with more student loans, housing loans, bailouts, subsidies, free bread at home...military circuses abroad.
And Paul Krugman, Joseph Stiglitz, Larry Summers et al urge the feds to do even more! In our view, they've done enough damage already.
Not that we're complaining. It's all very entertaining and instructive.
But today's note is about rotten economies. And while the US is developing large brown spots and a sticky-sweet smell...it's not nearly as ripe as some others. For example...Argentina. Here's Cristina's solution to the housing problem; if the private sector won't make mortgage loans the government will: