Oh Merde!
As I write this nine days ago, France is in an imminent financial crisis. Their debt is now forecasted to be around 116% of their GDP (Gross Domestic Product) which is essentially everything of value that they produce in any given year. In other words, they owe more than what they sell and are running a deficit. They are forecasted to lose nearly 170 billion Euros this year. The will likely see a credit downgrading by the time this post is published on blogger which means that debt payments will increase only making their deficit worse. If it gets bad enough, other countries will stop lending them money and they will default and collapse much like Greece did back in 2009.
When Greece collapsed, their unemployment surged to nearly 25% for adults and 55% for youth. 111,000 companies went bankrupt overnight causing their GDP to plunge by 26%. Public debt doubled overnight. Over a third of their population lived in poverty. Many government subsidies were cut or stopped altogether. Riots broke out. To reverse course, Greece had to implement our equivalent of a sales tax to around 23%. For reference, where I live now is considered high at 7%. When I visited Greece last year, I estimated that in some areas of Athens, 25% of the shops were still boarded up some 15 years later! They still have a debt that is north of 160% of their GDP right now.
Now we are going to witness first hand what happens to France. Are they going to raise their taxes? Frances income taxes already top out at 45% compared to the U.S. 37%. Payroll taxes are also 45% compared to the U.S. 7.65%. There sales tax is nearly 20% where in the U.S. sales tax averages around 7.5%. Are they going to cut spending? Prior cuts have nearly always led to protests and riots and those cuts are miniscule to what is needed to reverse course.
The key measure of debt is percent of GDP.
Frances debt is now 114% and forecasted to be 116% by the end of this year.
The United States debt is 120% and forecasted to be 124% by the end of this year.
Sobering, Especially your last line.
ReplyDeleteVery much so.
DeleteFrightening on many levels. I'm glad you brought up the US. People think the problem is only in Europe and it isn't.
ReplyDeleteI think it was Steve's blog on which I made a comment that you responded too in agreement, but along the same lines, I think the U.S. is probably to blame for spreading deficit spending to the rest of the world. I maybe wrong but I don't recall much talk of it happening overseas until the last couple decades or so where as deficits have been talked about here my entire life.
DeleteThere's a school of thought out there among government types, which I don't quite understand, that says we never have to pay these debts. We just live in a perpetual state of indebtedness. This seems crazy to me, but I think many people who run our governments simple never imagine having to repay this money. We just keep making payments and refinancing and borrowing ad infinitum.
ReplyDeleteI think being able to have debt is a benefit in the sense that it allows flexibility in times of need and allows us to make long term investments in infrastructure and other things. But I think we are long past that and are very quickly approaching the point where we aren't taking in enough revenue per year to even make the interest payments on our debt, much less pay down the principle. I think the only saving grace is that the U.S. dollar is still considered the global standard for reserves, i.e. our debt is desirable to buy for other countries. As soon as another currency, say the Yen replaces the dollar, we are instantly in a world of hurt.
DeleteSteve, I believe this is an indirect belief of modern monetary theory, that the government should not be constrained by budgets as it "doing good" and that taxation is the method of controlling it. Debt does not figure into the equation - except in the real world.
DeleteSheesh. We may be taken over by the Chinese. And add to that the new tax reductions that the Big Beautiful Bill gives us. Higher taxes are just around the corner.
ReplyDeleteThe jury is still out but it does seem our current president is trying to surpass former President Biden who currently has the record of adding to our debt the most of any president at 8.4 trillion.
DeleteGood to see the proper ways of recording debt and how it is compared to make sense.
ReplyDeleteSadly, I think the U.S. is just inside the top ten in this category. There are over a half dozen other countries in slightly worse shape.
DeleteEd, neither restraining government spending nor increasing taxation are options for any government at this point - at least, any government that intends to survive a vote. In that sense, Greece - and Iceland before it - can serve a cautionary examples.
ReplyDeleteI say "examples" rather than "stories", as I think the course is set at this point.
Sadly I think you are right. It is just a matter of of it happening in our lifetime or our children’s lifetime.
DeleteReading here, my remembering goes to this: Oh, the shark, babe, has such teeth, dear
ReplyDeleteAnd it shows them pearly white
Just a jackknife has old MacHeath, babe
And he keeps it, ah, out of sight
You know when that shark bites with his teeth, babe
Scarlet billows start to spread
Fancy gloves, oh, wears old MacHeath, babe
So there's never, never a trace of red
And so on. Why does everything keep repeating itself!?
Human nature is my guess.
DeleteWe have the best of the best in DC to take care of us so no worries. Right? The big guy keeps telling us how hot and strong the American economy is right now so no worries. Right?
ReplyDeleteThis nightmare keeps getting worse.
Especially since neither party seems keen to reverse the trend. They only seem like they want to spend more than their predecessor.
DeleteI have always said a housewife should be in charge of government spending because she knows how to curb spending or make do with what she has or finds a way to increase cash flow....he cannot run a household on a deficit:)
ReplyDeleteI’m okay with a housewife for president!
DeleteOH good grief! This is all sounding so spooky, but no one seems especially worried.
ReplyDeleteSometimes I feel we are spending all our time fighting over how to pay or who will pay for things but not asking ourselves if we should be paying for them at all? Then on top of it all, it is hard to pull away from funding when it directly affects those depending on it and whom are quickly interviewed by the news.
DeleteAll of this is over my head, especially since a household budget could never be managed the way governments do theirs. I suppose it's because they assume they have the taxpayer to fall back on. Either that or they're clueless as to how to manage money.
ReplyDeleteI've always been taught and believe that unlimited pockets will bring reckless spending. In this case, our government has unlimited ways to access money from us through increased taxes and borrowing money. I'm not arguing that we should pay taxes for the good of society or borrow money when in need, but when one doesn't have to worry about choosing between a bill and food on the table like the rest of us do, it leads to some decisions that perhaps were not the best thought out.
Delete