France is full of tricks - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 24 August 2012
France is full of tricks A  A  A

Ouzilly, France

Yesterday, we got a little more enthusiasm in the markets...a little more spark....

Unfortunately, the juice was a little sour, with the Dow falling 131 points. Gold, by contrast, rose $32. Gold buyers seem to be anticipating more QE. Stock investors, on the other hand, seem to have given up on it.

We're not going to waste our time trying to analyze a single day's movements. They're meaningless. And investors don't know what to think anyway. They're filtering back to work after a few weeks of vacation. They're catching up on their reading...finding out what has happened...trying to make sense of it...picking up the latest claptrap ideas as if they were the new fall fashions.

In these scruffy pages, we try to help. Not that we have any better idea than anyone else. But we're more suspicious and cynical than most investors. And we spend more time thinking about it. Most people have real jobs! They're too busy waste time thinking.

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"The trouble with you Americans," said a woman at last night's dinner, "is that you only care about making, work, work... But the important thing is to learn how to live better. I spent a lot of time in America. People have money...but the quality of life is often not very high."

She had a point. More important, she had a pretty face; we wanted to listen.

"Oh...but France is full of tricks," said another new friend. "Nothing really is exactly as it is supposed to be...and certainly not as we say it is."

We're starting to like France's new socialist president, Francois Hollande. He reminds us of the Argentines, ready to do precisely the wrong thing at precisely the wrong moment. France's economy is not growing. The cost of living is much higher than in the US...with the minimum wage is at least twice as high as in America. Unemployment among the young and the poor is very high. And employers are reluctant to hire anyone, partly become new hires are so expensive...and partly because they know they will have to spend half their time on labor disputes.

Meanwhile, the whole country now risks sinking under the heavy burden of debt and dysfunction, just like Greece, Spain, Portugal, and other European economies. In fact, our colleague, Simone Wapler, has just written a book showing why bankruptcy for France is now inescapable.

"Oh...we French like a challenge," our companion explained. "We work with a ball and chain around on our we have to use our heads!"

Regulations...interference...meddling...just like the US. People spend more and more time trying to comply with...or skirt around...regulations and less time actually producing anything.

"It's much worse here," the conversation continued. "Even petty things. Here, the police set up road blocks late at night to catch people who've been to parties. They make you take a breathalyzer test. If you fail, they take away your license to drive.

"The next thing on the agenda is that they are going to force us to all carry two breathalyzer know...those things you breathe our own cars. We're supposed to test ourselves to determine whether or not we're fit to drive. Then, I guess if we're over the limit, maybe we're supposed to call the local gendarmerie and ask them to come arrest us!

"Of course, this is still people are very reasonable, even the gendarmes, when you know them personally. I was driving with my mother when I was stopped at one of these traps. I had had a few glasses of wine so I was worried that I might have my license taken away. But when my mother saw the gendarme...she leaned across the seat...

"Didn't I have you in my catechism class," she asked.

"He looked at her...and he recognized her. He saluted...and he let us go.

"What people do is that they decide who's going to drink and who's going to drive. Typically, the husband does the drinking and the wife drives home. But this couple I know got to a party...and they were both having a good time. And then, when it was time to go they realized that they had come from different directions in different cars. So, no problem, they set off...with the husband following the wife in his car and she in hers.

"Well...wouldn't you know it...they are stopped. She pulls over. He pulls over behind her. But the wife, in the first car, quickly rolled down her window.

"She said to the gendarme: 'Thank God you're here...this guy behind me has been following me for the last 10 miles!'

"Don't worry, madam,' said the gallant policeman... 'You go on your way...we'll take care of him!"

So, what does President Hollande do to try to make things better? He wants to raise taxes, especially on 'the rich.' "I hate the rich," he has been quoted as saying, proposing to put up the top rate to 75%, much higher than his European neighbors and practically guaranteeing an exodus of the most productive people in the country. And he'll raise the minimum wage even higher. That ought to help too, right?

Another reason to like the French president, in addition to the entertaining damage he does to the economy, is that his personal life is so colorful. In appearance, Mr. Hollande is a drab functionary...middle aged...dumpy...with narrow shoulders and a paunch. He is surely smart and is said to have a sense of humor, but as far as we know he has never had an original thought, built anything worth having, written anything worth reading, or done anything worth doing.

"Still, he has a very rich story," the woman next to us explained. "He had three children with Segolene Royal [an attractive socialist politician]...another child with another woman...then went back to Segolene and had another child. And now he lives with a third woman, Valerie Trierweiler. We call her the "Rottweiler." He has married none of them."

"That would never work in America," we said to our dinner companions.

Mr. Hollande blames 'capitalism' for widening the gap between the rich and the poor. But it is not capitalism that did the job...but the interference, the meddles...and the scammy, rigged-up fixes from people like the French president and the rest of the controlling elite. And here comes more proof, from The Guardian in London:

The richest 10% of households in Britain have seen the value of their assets increase by up to £322,000 as a result of the Bank of England's attempts to use electronic money creation to lift the economy out of its deepest post-war slump.

Threadneedle Street said that wealthy families had been the biggest beneficiaries of its £375bn quantitative-easing (QE) programme, under which it has been buying government gilts for cash since early 2009.

The Bank of England calculated that the value of shares and bonds had risen by 26% - or £600bn - as a result of the policy, equivalent to £10,000 for each household in the UK. It added, however, that 40% of the gains went to the richest 5% of households.

Although the Bank said it could not come up with precise figures for the gains from QE, estimates can be produced using wealth distribution data from the Office for National Statistics. These show the average boost to the holdings of financial assets and pensions of the richest 10% of households would have been either £128,000 per household or £322,000 depending on the methodology used.

However, Threadneedle Street said that QE had helped all sections of the population by sparing the country from a deeper slump. The rise in asset prices after QE was announced in early 2009 followed sharp falls in the two previous years.

"Without the Bank's asset purchases, most people in the UK would have been worse off," it said in a paper prepared in response to queries from the Commons Treasury committee.

Wrong! People in the UK are not better off. They are worse off. The Bank of England took real resources that were owned, broadly, by the English people and gave them to a small part of the population. This prevented many of the rich ...and their bankers...from going broke. But going broke is just what they should have done.

And if they had been allowed to do so, the rich wouldn't be so rich...but the UK economy would be recovering now...instead of stuck in a Japan-like slump that could last another 10 to 20 years.

That's our story...and we're sticking with it.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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