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The French Economic Hangover

May 7, 2012

It is human nature; lots of people will drink other peoples booze and spend other peoples’ money.  The French had a chance to sober up, but they found out that the Germans are now throwing the party.  The French selected a Socialist President who advocates continued deficit spending.  Cheers, ma amie!

Lenders should be worried.  I don’t know if France or Germany will abandon the Euro first.

So the French had a chance to change course and they blinked, or belched, or whatever drunken Frenchmen do as they stumble left.  French citizens said they want to drink at the German trough until it’s empty.   It won’t take long.  Then the French will leave the hangover to their children.  Greece and Spain are in the same situation.  We already see their children looking for work in other countries.  The USA and California are half a year behind them.

The Chinese will get tired of buying US debt as inflation erodes the rate of return on their US bonds, though I bet that isn’t a fixed interest rate loan.  Yes, China can play the currency futures market to make up some of the difference.  They can even play the commodities markets as they move out of the dollar.  China owns the dollar as much as the United States does, maybe more.

California’s collapse will come slightly earlier since California can’t inflate the currency.  You and I have assets as collateral, but California can only promise future tax revenues.  California’s lenders will ask for collateral that can be moved out of state.. like counties on the border.   Hey, Arizona always needed some shore-front property, and I’d be willing to vote in Arizona.

Then it is up to a judge to determine if Californians must pay the bloated pensions and medical coverage promised to state retirees.  The judge can afford to be generous since it is the next generation of voters who will be burdened.  I thought that one generation could not sell its children into slavery, but I was wrong.  They can try, but it is a weak threat.  The next generation of California students and tax payers can parole themselves with a bus ticket heading out of state.

Greece, Spain, France and the US have the same problem.  Each loves to tax and regulate.  Businesses will move.  They have to.  Any business in a competitive market will be driven out of business if it stays.  Apple computer is the example of the year.  Their citizens will chase fewer jobs and pay higher taxes.  Fewer children will speak Greek and French, and more will grow up speaking German.  Fewer children will grow up in the California surf and more children will wear cowboy boots.

Maybe San Francisco and Los Angeles will try to sell themselves to China.

My crystal ball is broken.  What will the end game look like?  What are the forces acting on each player?


Rob the curious

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