Friday, November 30, 2007

France's 35-Hour Work Week: A Mushroom by Any Other Name

That 35-hour work week--the very same one that caused the downfall of French President Sarkozy's top rival, Dominique De Villepin--will hit the dust at some point, to the dismay of French socialists.

In spite of Sarkozy's lack of economic sophistication, he is going to succeed where De Villepin failed. How will he do it? By using common language, a direct approach, and a popular mandate.

For example, instead of attacking the 35-hour week head-on, he nibbles away at it around the edges.

[Thanks to for the photo.]

De Villepin tried to break the will of the people, disdainfully and by force. Sarkozy, on the other hand, speaks softly, with respect, and seduces them with common sense.

The first thing he did was to offer workers the idea of working overtime tax-free. They seemed to understand that a vote for him would mean that if they gave him the power to change the system, they could actually get paid instead of being forced to accept time off in exchange for overtime hours, as was the case in certain companies up until now. They bought the argument without fear that their whole way of life was under attack.

Now that Sarkozy is firmly ensconced at the head of the government, we learn that all his posturing was not just for the vote. He has come through on his word and has now kicked the nibbling up a notch.

His advisers are putting legislation in place so that firms can now negotiate with their employees for higher pay and more hours, and they can offer Sunday work at double the pay, whereas Sunday hours used to be illegal, which was a huge drag on consumption and hence GDP growth, jobs, and pay. (In economics, what goes around, comes around, and it's an upward spiral.)

So in fact, what he has done is call this work-week problem by a different name. People are now able to understand that their whole cultural fabric is not under attack; but rather that he would simply like to improve their purchasing power and take-home pay. He does not try to force rehabilitation and capitulation down their throats; he simply points out the specific home-economic advantages of job suppleness, how it improves one's condition, not destroys it as they feared.

You can sense that the "ruse" hasn't worked on everyone, to wit the following reactions from all over the map of French media:

"Sarkozy opens the way to dismantling the 35-hour week" - from right-wing Le Monde

"The assault on the 35-hour week" - at leftist Liberation

"The end of the shackles of the 35-hour week" - in the government-friendly Le Figaro

(Source at Reuters.)

This French president has got a knack. He's getting done what no government before him has managed to do. The 35-hour work week is no longer the enemy, because he has changed its name, encroached upon it from the edges. Even the usual blackmailing thrust of the massive strikes that were going to paralyze the country petered out after a few days.

The reason for his success: Of course Sarkozy's popular mandate, but also his style--in fact, mostly his style.

Although he sometimes comes off as a bit of a spoiled brat, when you really listen to him you can't help but like the guy--unless you're some wacko who hates everybody that doesn't agree with you.

He is wily, yet he talks with frankness, and you feel his wiliness is on your side. His experience and intelligence serve him well, but he seems like a likable ordinary fellow. He is smart, but understandable. He is self-effacing in his public appearances, instead of haughty and overbearing as his socialist rivals tend to be. Most important, you feel like he's bringing you into his plan, instead of imposing it upon you. You have a choice in the matter. You are a part of the solution, not the problem.

Not only that, but he's chosen people like himself to hold the most important positions in the nation. His justice minister is a down-to-earth young woman of North African descent who seems capable, yet quite sensitive and human. His education minister is a young woman who is eloquent, persuasive, non-confrontational, and who absolutely blew a socialist detractor out the window night before last on TV5 television, by proving that she was as well-read as he.

My hopes are up for the future of France. Now, if we can only teach Sarkozy a thing or two about economics, before he embarrasses himself by trying to impose price controls to manage inflation. (He intends to sit down with the CEOs of the big megastores to discuss the issue. Let's hope this time it's just for show.)

Labels: , ,

Tuesday, November 27, 2007

Hey, Foreigners Holding Devaluing US Dollars: US Assets for Sale

It looks like Citigroup has found a white knight to save their skin, in the person of the Abu Dhabi's national investment fund. According to this article at the International Herald Tribune, Robert Rubin himself went over there to get on his knees and beg them to save the company. (I think I'm exaggerating, I hope I'm exaggerating,....)

[Thanks to for the image.]

I feel like we're living in an Alice in Wonderland kind of reality. You see nothing on the surface; but behind that mirror, there's a whole lot of strange things going on. Sure, unemployment is still under 5 percent, but behind the scenes Wall Street is scrambling, the Dow is jittery, gold keeps testing its nominal high from back in 1980, investors are fleeing to bonds, and credit derivatives are reaching an all-time high (a speculative strategy that wagers on price movements in both directions for all kinds of things, and that are presently betting someone is in for some huge losses).

Countrywide has resorted to borrowing from the semi-government banks to save its skin, the English bank that had lines out its door a few weeks ago is now considering a merger with the Virgin Atlantic people, the economic community is split about our future: either we're headed for a recession or everything's just fine ... all this while we go about our business drinking our coffee, going to work and pulling out the credit cards like nothing was happening.

Yep, the big banks are in trouble, and they're trying not to show it. Meanwhile, the Fed will probably have to lower its target rate in December, contrary to what they said earlier; and this means that the dollar will tank even more.

Holding dollars, therefore, is no longer very interesting from an investment point of view, and large investors are diversifying. One of the things they do to diversify is to buy assets that have a dollar price tag. That way, they can get rid of the silly paper they're holding that is worth less and less, and they get something real in its place. A hefty share of Citigroup is one of those things. We should be seeing a lot more of this (i.e. foreign purchasing of American assets) before all this blows over.

I guess Congress will think twice about questioning this sale to the Saudis. Remember the port deal that fell through? Now we're thanking our lucky stars those same Arabs are still in the game.

Labels: , , ,

Friday, November 23, 2007

Inflation: What a Turkey

Barry Ritholtz often writes articles that I find accurate and pithy. This one, for example, describes how inflation is really beginning to rise it's ugly turkey head right at our holiday table.

[Thanks to for this delicious photo.]

How does 11 percent hit you? Right in the gut, no? That's for a 16-pound turkey, stuffing, potatoes, rolls, green peas, relish, milk, cranberries, cream, pie, and additional cooking ingredients. The price for all this at your local supermarket is now $42.26, compared to $38.10 in 2006.

The information comes from the American Farm Bureau Federation.

Opinions seem to differ as to whether this is more expensive than in 1986 when adjusted for inflation, the Farm Bureau both saying that it isn't, and demonstrating in a chart that it is. You can read one and see the other here.

And then to add to our holiday joy, you can read this article at the LA Times, informing us that milk has risen 32 percent this year, and a group of items including onions, eggs, sugar, flour and butter has gone up 25 percent. (Maybe if I hold the onions....)

I'm sure the Fed has some explanation for why their CPI figures only come up to a little over 3 percent. It can't be just the gasoline, can it? Or increased global demand? For Thanksgiving turkey?

Gobble gobble.

Labels: , ,

Monday, November 19, 2007

New Fed Hot Line?

I just received word from the Fed that they are creating, or had created, a customer service department for the general public. Read more.

This is nice, and a bit late; but I always say better late than never.

[Thanks to for this shot from a Warner Movie called "Deep Blue Sea."]

I don't think this means we all have to worry that the Fed expects a lot of calls soon. I wonder, though, what the market reaction will be to this press release.

Labels: , ,

Sunday, November 18, 2007

Response to a Synical Swiss About the Dollar

Over dinner a few weeks ago, I was discussing the falling dollar with some friends, among whom was a Swiss economics journalist. He said something like, "But is the fall of the dollar really very important?"

[Thanks to for the chart. Click on it for a larger version.]

I piped up that surely it was, if only because the value of the dollar was a kind of contract, a promise to pay and, given its reputation, a promise to remain a good store of value.

He replied, "But I don't think the dollar is a contract anymore. Everyone knows that currencies are floating, and that they are taking a calculated risk when they hold or invest in them."

I was shocked, even though I realized that technically he is correct. The dollar--in fact all currencies--are based on nothing other than our faith in them. They fluctuate today; everyone knows it. Yet I continue to hold that a strong dollar is in everyone's interest, not only those who travel abroad.

I tried to illustrate the kind of damages that were being done, giving the example of Saudi Arabia, where America has the privilege of buying oil in dollars that are getting weaker and weaker, and because of old agreements the Arabs have nothing to say about it. The conversation moved onto other subjects.

Today, I read this article in The Economist. The following sentence jumped out at me:

"The dollar's decline already amounts to the biggest default in history, having wiped far more off the value of foreigners' assets than any emerging market has ever done."

This speaks for itself, and somehow it carries more weight, coming off the black and white pages of a well-known economic magazine. I hope my Swiss journalist is reading it, too.

Labels: , , , ,

France's Strikers More Adamant Than I Thought

I did predict that the recent strikes in France would peter out, faced with the poll numbers showing that the majority of French people (60 percent) do not support the maintenance of the special privileges enjoyed by a minority of government workers.

Well, they haven't yet; they're still at it, although it's only been five days. I suppose the five major unions' very survival is at stake here, so the strength of the effort is understandable.

At the same time, I must point out that there is now, perhaps for the first time in history (or perhaps the second), a counter-movement, displaying public discontent with the strikers. This counter-demonstration was promoted by the free-market sector of France (yes, there is one), and most notably by Liberte-Cherie, Alternative Liberale, and other groups.

French anti-strikers
[Thanks to AFP via]

See more about this story at this Le Figero article (in French).

Labels: , ,

Saturday, November 17, 2007

The Real Face of This American Tragedy

Once again, I had to go to France to get a fabulous video about the U.S. mortgage crisis.

You must watch this piece. You will not see it anywhere else. It was made by a Frenchman, but the dialogue is in English.

[Thanks to Philippe Grangereau, for this image from his video.]

He is a blogger with the Liberation newspaper in France. Here's his blog post. The story takes place in Cleveland.

Folks, this is 1929 with a difference. This time, the damages are being wreaked to specific targets and not to the general population--at least not yet.

I know there is blame all around, that people shouldn't be so stupid as to get themselves into these mortgages and debt overload. That is definitely true.

But the main point I take from this video is that we all knew this was coming. It's just like Katrina, and almost as violent. The BIS (Bank of International Settlements) knew it, the Federal Reserve Board knew it, the government knew it, the semi-government lenders like Freddie Mac and Fannie Mae knew it, the financial companies knew it (or should have, although they were blinded by the inebriation of speculative excess), all the mortgage companies and banks knew it, the mortgage brokers knew it ... and no one did anything.

An American disgrace. I am ashamed. I'm not laughing tonight.

The most pointed comment on this video/blog post says this (my translation):

"Slowly but surely the world population gets poorer, with more precarious employment and reduced purchasing power, while a minute part lives in increasingly showy opulence. The damned of this earth will end up rebelling sooner or later; and then, watch out for the damages !!"

Even though this commentator sounds like a "bleeding-heart liberal" (liberal in the American leftist sense), I can't help but note the truth of his sentiment. Whether or not the world population is really getting poorer is immaterial. The majority of onlookers to this fiasco believe it to be true. And just as the terrorists use fear to achieve their goals, so the leftists will use our empathy about this outrageous moment in history to win the battle between freedom and centralism, just as Franklin Roosevelt did back in the 1930s.

Federal Reserve Governors: Watch this video, and then find the courage to tell us that you've been doing your job. Where have you been for the last six to eight years? You go to those BIS meetings where you have been discussing these problems. And what about the loose monetary policy that has certainly encouraged this housing bubble in the first place? Shame on you.

Labels: , , , ,

Friday, November 16, 2007

FBI Raids Liberty Dollar: What The Hell is Going On?

Ron Paul has been talking up the gold standard for years, and early this year a fellow named Bernard von NotHaus decided to honor him by creating a--well, let's say a "coin-like object" called the Liberty Dollar with Paul's likeness on it. The price for this one troy ounce silver--ah, "piece" is $25, of which $5 is going to the Paul campaign.

[Thanks to for the image.]

Apparently, someone over in Big Government doesn't like this idea. Watch this fun video from for a run-down:

Liberty Dollar Video

I find this rather scary. What could be illegal about creating a collectible--oh let's just call it a medallion? Is it the campaign angle that the FBI didn't like? Or is it something Mr. von NotHaus did?

Well, yes, if the government is correct. According to TheStreet, the raid was "aimed at stamping out an illegal currency."

Here's more on the story from the Associated Press. From this article, we find out that NotHaus is the "founder of the National Organization for the Repeal of the Federal Reserve Act & Internal Revenue Code."

Further down in the article we read this:

"The organization, which is critical of the Federal Reserve, has repeatedly clashed with the federal government, which contends that the gold, silver and copper coins it produces are illegal. NORFED claims its Liberty Dollars are inflation free and can restore stability to financial markets by allowing commerce based on a currency that does not fluctuate in value like the U.S. dollar."

Now, there's a claim that's difficult to prove in today's economic environment. Silver and gold have both been all over the map since 2000 and even before. But that doesn't disprove his underlying thesis, in spite of this apparent inconsistency with reality. (More on that in another post.)

The article says that his organization "has produced an estimated $20 million of its own paper currency in the past two decades, claiming its $1, $5 and $10 denominations were backed by silver stored in Coeur d'Alene, Idaho." Eight months ago, he also "filed a lawsuit in federal court in Evansville seeking a permanent injunction to stop the federal government from labeling the Liberty Dollar an illegal currency."

Apparently, that didn't work.

NotHaus seems to be sacrificing himself for a fight. He's definitely the David trying to irritate Goliath to prove a point--one that is well taken, if you ask me. I applaud this endeavor; but I'm not sure he's going about it in a way guaranteed to win, or even to solicit public support, and even if he takes it to the Supreme Court. That doesn't mean his premise is immoral, or that it's not desirable to change our present laws regarding legal tender.

Other attempts to use private money, whether coined or paper, are going on at the moment. However, the government has raided or challenged none of these. Obviously, von NotHaus has struck a nerve. This case deserves watching closely. We'll have to wait until the courts decide who is overstepping the bounds, NotHaus or the feds. What seems certain is that NotHaus has gotten the fight he was aiming for.

Here's another article on the subject.

Labels: , , , , ,

Thursday, November 15, 2007

Inflation is Up; But Some in Congress Couldn't Care Less

Amazing how some politicians really don't have a clue.

They themselves created a semi-independent entity (the Federal Reserve) to maintain stable prices and a steady economy through control of the money supply and supervision of the banking industry.

Meanwhile, the same legislators are screaming and yelling for that entity to ignore prices, create asset bubbles, and throw our financial industry into complete disarray. To hell with those poor mortgaged schmucks who somehow got themselves plucked like a chicken.

featherless chicken
[Thanks to for the photo.]

What is Congress griping about?

The Federal Reserve has just announced that it will make an effort to become even more transparent. This means that they will try to communicate clearly with the public, so that the marketplace can learn of probable future Fed actions without having to speculate about them. And hopefully, the Fed is serious and not just jawboning as usual.

This is laudable. Industries around the world are spending millions of dollars trying to invent the perfect crystal ball, one that will tell them what the US Fed is going to do with America's interest rates and money supply.

Unfortunately, in the past the Fed has been less than translucent about their reasoning and tactics. (See my cartoon about former Fed Chairman Alan Greenspan's infamous linguistic obscurity.) This obfuscation makes for market confusion and wasteful hedging of risk on the part of all who depend upon a reasonably constant supply of credit at their bank (i.e. most of the world's companies).

Up to now, the Fed has analyzed a lot of data behind closed doors and then has made some seemingly haphazard decisions about which tactic to apply. (One Fed governor, Mishkin, calls it the "art" of central banking, rather than a science.)

The theory behind the Fed's scheming seems to have been that the public should simply have faith in their central bankers; that they shouldn't worry their pretty little heads, and should just go about their business as though everything is under control.

The only problem is that the market players are not stupid. They know that everything is not under control, and that the Fed doesn't have a real handle on the economy, employment, or even the money supply--hence the industrial scrambling to keep from finding themselves behind the fiscal eight ball.

But over the last few months, the Fed has realized the folly of its former ways and begun openly to admit its shortcomings. According to this article in the Financial Times, they will soon "adopt many of the features of an inflation-targeting regime, while stopping short of stating a formal inflation target. The US central bank said it would start publishing more frequent, more detailed and longer-range economic forecasts, including its first forecasts for 'headline' inflation which includes volatile food and energy costs." This would "provide investors with greater clarity about its intentions."

This is really fabulous news for everyone.

So guess who is against this step into the more transparent, more egalitarian 21st century? Why Congress, of course.

According to the FT, the Fed "stopped short [of actually adopting an inflation target] ... for fear of sparking a fight with opponents of such a move in Congress, who suspect that a target would make the Fed more concerned about inflation than growth."

But what's wrong with this picture? One of the principal reasons for the Fed's existence is to control inflation and to avoid the damages it wreaks on an economy:

- Loss of purchasing power of all people on all economic levels including the poorest;

- Dollar devaluation with the consequent increase of import prices;

- Asset bubbles, like boom/busts, housing boom/busts, and the wasteful speculation that they sustain; and eventually

- Loss of jobs and possible recession.

But isn't that exactly what the Congress created the Fed to do?

Labels: , , , ,

Wednesday, November 14, 2007

France Feeling the Pinch

I warned you all about November as being a month that will test President Sarkozy's mettle. Here is a rendition of where the situation is at today.

[Thanks to for this 1995 photo.]

Remember, when they say "extend the retirement age", they are talking about extending them from 37.5 years of service to 40. Now, if you're 20, and you work for 37.5 years, you'll be 57.5 at retirement. Does that seem fair to you? Does it seem fair for some to get this privilege, and others to have to work 40? I don't get the strikers' thinking here.

Watch carefully how this plays out. I will bet (very unscientifically) that this comes in with a roar and goes out with a whimper.

Sarkozy has played his cards well. He has changed some pivotal strike laws that will oblige strikers to pay their own way (previously, they received benefits while striking--sic!). They also must vote by secret ballot (I assume that previously this was not the case). This is essential. Lastly, they must vote every few days.

These are really important changes to strike laws. I think they will force the negotiators to the table, after this laudable effort to show that they mean business, as only the French can do. The majority of the French are behind Sarkozy on this one. After all, they are sick and tired of being the real victims of all of this hoopla.

Labels: , ,

Thursday, November 08, 2007

$25,000 for a Dessert? What is the World Coming To?

This Reuters article tells us about a $25,000 dollar dessert made of gold and diamonds--oh, and a little chocolate to make it glide down more easily.

I don't think even Louis the XIV or Marie Antoinette thought of this one.

A lot less boring that just stacking it in bars in a steel cage.

gold at the Fed Bank of NY
[Thanks to for the photo of the NY Fed's gold stash.]

For those of you with a sweet tooth, a flare for enjoying life, and a good credit score, here are some more tempting outrages.


Tuesday, November 06, 2007

Gold Nearing Nominal All-Time High

Take a look at this Kitco graph to see gold fly up and away.

Time again to repeat my mantra:

You can take gold out of the standard, but you can't take the standard out of gold.

Historically, gold has been a barometer for the value of our monetary units, whatever they are at the time; and today is no exception. By rising to this level, gold is signaling to the world that all is not right with our monetary units, and especially the dollar.

To be a little more cool-headed, we must look at the comparative price of gold after taking inflation into account. When we do that, we discover that today's $824 gold price is only about one-third of the price gold attained in 1980. The peak price of gold in 1980, expressed in 2007 dollars, is $2,145, according to this chart at

[Thanks to for this chart. Click on it for a larger version.]

That means that the price of gold is nowhere near its peak of 1980, in real terms. However, its dollar exchange value has gone from the low $300s (in 2007 dollars) to $824 today. That movement is a signal that people are losing confidence in the dollar's future.

Compared to other currencies too, the dollar has been hitting some long-time lows. Against what they're calling the "synthetic euro" (a euro value estimated for that period before its creation), and the Canadian dollar, the US dollar is at its lowest ever.

Some economists say this doesn't matter, that the dollar may lose some prestige, but that this is a good thing in the long run; that it will help American exports, that it will re-equilibrate the trade deficit, that it will encourage domestic saving, and that the present strength in our economy will keep the system afloat with no major problems.

Other economists say that this devaluation of our currency is nothing less than legalized embezzlement, that it increases the price of America's imports, that it will soon appear in the core price level and inflation numbers, and that the banking and mortgage irregularities that went on for the last five years will cost us dearly.

What is certain is that experts can no longer say that those who control our economy haven't already stolen our purchasing power. I submit that the problems we are experiencing in the credit markets are a direct result of actions by the Federal Reserve to devalue our currency, even though that wasn't their first objective. (They did it in the name of "saving" the global economy.)

By lowering their rates and pumping credit into the system over the last 20 years, the Fed is directly responsible for the various booms and busts we have been experiencing. We may not yet have a rise in core CPI; but we have experienced disruptions. At first it was the hedge fund crisis of the 1990s; then it was the boom/bust cycle; now we're in the housing boom/bust cycle that is touching hundreds of thousands of households.

Economists cannot gloss over the pain of so many people--those who lost money in the stock market crashes of 1987 and 2001, and now those who are having to pick themselves up from some bad real estate investments--and say that it doesn't matter, that these people are worth sacrificing for the good of the global economy. Or if they're going to say that, I say shame on them.

Labels: , , , , , ,

Saturday, November 03, 2007

Basel II: Maybe Not Too Little, But Surely Too Late?

What's this, you ask? And why Basel?

I'm referring to yesterday's adoption by the Federal Reserve Board of what banking circles commonly call "Basel II," heavy banking legislation that's coming down the pike. Unfortunately, although it may not be too little, it's certainly too late. An earlier implementation of these rules could have saved the global economy trillions of dollars and a lot of grief.

Swiss Alps
[Thanks to myself for this great photo of the Swiss alps.]

What grief, you ask? Allow me to explain.

I'm referring to some grief you may never hear about, but which is turning some banking CEOs into nutty-putty. I'm talking about a disguised but huge banking industry "glitch" camouflaging itself behind a housing bust and hiding under some pretty good economic statistics.

Think of this "little malaise" as that undefinable feeling of unease that inspired consumers to lower their confidence rate this month, but that most of us can't quite seem to put our finger on.

Many people have heard of the real estate woes in the US and elsewhere. The housing boom/bust has already touched some of our friends, if not ourselves. Mortgages are becoming fewer and farther between, our home values are plummeting in many parts of the country, and refinancing the adjustable rate mortgage that you thought you could pay off before too late is becoming impossible for a small but significant number of us homeowners.

Behind all this is some hefty banking drama of which only some people have heard, and which is just plain scary. In short, the banking industry has been involved in some very unwise speculative activity. And I'm not talking about those fly-by-night banks; I'm referring to the world's biggest banking institutions, like Citicorp, Bank of America, Bear Stearns, Merrill Lynch, JP Morgan Chase, Deutsche Bank, UBS of Switzerland, and other well-known companies.

An explanation of exactly what these big players have been doing would take many thousands of words. For those who are curious about the gory details, I've written about parts of the games they play here, here, here, here, and here.

Suffice it to say that they have been having a free-for-all feeding frenzy off some credit issued by our friends at the Federal Reserve and at other central banks, and have lost sight of reality due to the blindingly drugged exhilaration of their gambling successes--at least up until June of 2007. (You've heard about those million-dollar Wall Street bonuses, right? Well, the good news is that these could be history, at least for a while.)

You may have read recently about a few bad profit numbers from a number of banking institutions. What looks like a bad hair day is really a frenzy of activity on the part of the financial elite, to save their own skins and to save the entire global banking system.

Oh, you hadn't heard? No doubt true, because our savvy federal money managers have managed to keep a lid on most of the details. (See this post and this post for a few of the ones that got published.)

For those of you who think that your good government watchdogs will be all over any hanky-panky that any dastards might want to perpetrate, let me inform you that your infamous bulldogs have been chewing on this bone since 1999, well before the latest round of unwise speculative activity began. The central bankers obviously knew something was needed in this regard; but unfortunately, the subject has occupied them for the ensuing eight years with nothing concrete to show for it up to now, as far as the public is concerned.

But with the finalization of Basel II, they're finally getting there. Why has it taken them this long? Well, Virginia, that's the nature of government committees. It just does. Meantime, eight years after they began mumbling to each other about the dangers of this evolving speculative situation--a catastrophe that they clearly saw coming and, I conjecture, that they themselves created--the crap has now hit the fan and we're all going to pay for it sooner or later, probably in the form of increased inflation, heavier government, stagnating wages, and reduced government-paid retirement benefits.

And when I think that a liberated marketplace could have eliminated all of this toil and trouble, and for free at that. That means no government bureaucracies, no Swiss holidays, no speculation with our money, no housing boom/bust; just normalcy.

To make a long story short, (1) if governments were smaller, banks would be smaller, and credit would be limited by the system. (We'll discuss that some day.) (2) Any bank that took on the kind of risk those like mortgage lender Countrywide have taken on to date, would already have failed. (In fact, were it not for our government, Countrywide would already be history. See this post for the details of how Countrywide has been bailed out with our money.) Even one such failure would discourage any other banks from trying unwise maneuvers. Heck--in fact, even the fear of failure would probably have avoided any one bank's failure in the first place.


Today, however, the biggest banks in history and the largest mortgage companies in the world have no fear. Why? Because governments have decided they will "lower the Fed rates," lend taxpayer collateral, and perform other banking system interventions to save such big banks from failure, no matter what stupid shenanigans the financiers pull. This is lending your and my money to gamblers so that they don't lose their shirts. Meanwhile, it's you and I who will end up standing around with our pants down.

Do we really want to save gamblers from their own folly? Do we really want banks so big the government doesn't dare let them fail? Do we really want to pay sightseeing pundits to go to Switzerland to write banking policy eight years too late? Do we really need mortgages we can't afford? Do you really need the price of a home to explode (along with your property taxes in most places), only to see it come crashing back down on you a few years later?

Please ponder this, especially next time you have the urge to vote for big-daddy government. It is this very government that got us all into this pickle in the first place.

Labels: , , , , ,

Thursday, November 01, 2007

The Real Cost of the French Social System

My last post inspired me to do some research. I was curious to see exactly how much tax the French minimum wage employee pays, on average, and how much the employer has to set aside from his revenue to employ one person at the cheapest possible rate.

I found that the situation is worse than I thought. I had written that the employee and the employer paid each about $400 in taxes, out of a total employee gross salary of $1,856. I was wrong. The employee pays around $400, but the employer pays $730, that is to say between them, they pay $1,132.45, out of a total gross salary of $1,856.

This sounds impossible; but remember that the employer pays over and above the gross salary amount declared to the employee. Therefore, the employer must set aside $2,589.70 in order to give the employee $1,458. The total taxes paid to the government represent 44% of this total sum set aside, and the employee gets only 56%.

Here is a list of the charges that the employee and employer must pay, in different proportions:

Health Insurance
Old Age Insurance
Family Pension (all families get a sum per child, only paid by employer)
Workman's Comp (only the employer pays)
Solidarity Contribution (kind of a general tax to help pay back the social services deficit; only employer pays)
Housing Assistance (FNAL, employer pays)
Cessation of Activity Insurance (AGS, employer pays to insure payment of an indemnity to employees forced out of work)
Supplemental Old Age Insurance
Another Supplemental Old Age Insurance (AGFF)
General Social Contribution (CSG, another general social services tax, paid only by the employee)


This does not include personal income taxes, which for a minimum wage employee would be minimal.

On the other side of the equation, you must keep in mind that this employee receives medical care at extremely reasonable prices (e.g. $20 per visit, no charge for hospitalization), retirement benefits at about age 65 (some government employees get it sooner), unemployment benefits that are extremely generous--or a pension if the person cannot find work after a year or so (the RMI), disability compensation, housing allowance according to family situation and salary considerations, a pension for each of up to three children until they reach 18, a pension for unwed mothers (and there are many unmarried couples, given this incentive), free state education including university (room and board not included), a workweek presently limited to 35 hours plus occasional overtime, five weeks required vacation (even if they are on unemployment), state-paid job training and reorientation assistance, a guaranteed job contract that prevents the employer from letting the employee go without generous compensation, and other benefits that I forget.

This all sounds great for the employee, doesn't it? The only problem is that the reality of work conditions (sometimes very tough), the level of taxes, the employer limitations, the very competitive black market, plus the cost of this huge government structure where 25 percent of the citizenry are employed, create for job competition where there are 100 applicants for every single offer, if not many more. Unemployment continues to bobble above 8%. The French economy is struggling. It's a wonder they're still a viable nation.

[Thanks to for the chart comparing US and French unemployment figures. Click on it for a larger version.]

And I haven't even mentioned the monopolistic strength of the five official French unions, the other taxes like the 70 percent gas tax and the 19.6 percent sales tax on everything, the penalizing taxes upon the wealthy that chase them from the country, the proportionately more heavy taxation of those earning more than the minimum wage, the dangers of trying to outwit the government inspectors while milking the system, and the social unrest that these collective pressures create. It is perhaps this last that is the most precarious.

There are reforms in the air; but watch your calendars for mid-November. There are also reactionary strikes in the works that should make for good television. It's not easy to take candy this good from such strong babies.

Labels: , ,

$6.26 for a Gallon of Gas: Poor France

Can you imagine? Seeing $6.26 on those ubiquitous gasoline signs? (Or I guess it would be $6.2699.)

That means I'd have to spend $125 just to fill up my tank.

price of gasoline vs price of coke
[Thanks to for the image.]

And in France, just to give you an idea of what we're talking about, the minimum wage is 1,280 euros ($1,856) a month, or 15,360 euros ($22,272) a year. And remember, something like 70% of the $6.26 goes to the French government in the form of taxes.

This price (1.14 euros a liter) is a record for France, although one should keep in mind that inflation has distorted our comparison to past prices, meaning that if you were to adjust this price for the lost value of the currency, 1.14 euros may no longer be a record. Still, it's a lot of money for those poor people earning $1,856 a month gross.

As an aside, the French minimum wage comes to about $1,458 a month net of taxes. Yes, that's almost $400 out of their pocket for taxes. And don't forget, the employer pays just as much again (see my next post, where I correct this figure; in fact, I underestimated the employer's part), making the total $800, or 35% (revised upward) of the total amount the employer sets aside to pay this one person. And that's before deduction of any personal income taxes.

Between the elevated payroll taxes and the 70% gas tax, plus the 19.6% TVA sales tax on everything French people buy, no wonder their standard of living is lower than ours--oh yeah, I forgot. They're paying for that wonderful nationalized health care.

Labels: , ,

The Economics of Dead-Space Rent

I don't know if this is true in the US, but here are some interesting stats from a French newspaper called Le Figaro about rent for your resting place "for eternity" (or at least that's what they call it; in fact, you have to keep renewing something).

French tombstones
[Thanks to for this neat photo. In fact, take a gander at his fun website.]

In Paris, average per square foot cost for cemetery space: 5,455 euros

Average cost above ground: 5,675

You could go for the cheaper 50-year version in Paris at 1,720 euros. Or how about 10 years for 343 euros. (I wonder what they do with you after that.)

In the south of France, the situation is similar--no, it's a little different:

In the city of Nice: Perpetuity will cost you 5,716 euros.
Living real estate is at 3,300 euros.

Hm. Wonder what that says about the death rate there.

In Marseille, 2.80 square meters will cost you 5,107 euros (1,824 per square meter). Or you could opt for 9.7 square meters for 36,187 euros in a central aisle.

And you'd better hurry, because at $1.45 per euro, the price is going up every minute. That 9.7 square meter spot is already at $52,471.15 and rising.

Now, I'm sure there's some economic principle to be squeezed out of these facts.

Labels: , ,