France Approaching Economic Zombiedom

Europe may be out of sight for now, but that’s only because it’s not out of the woods.

Draghi be damned: Spain still in a debt death loop.  And that doesn’t even take into account the fact that 90 percent of the Spanish state pension fund is invested in Spanish government debt.  Or that Spain has long leaned on its banks to buy its debt, meaning that Spanish banks buy the bonds of the government that is supposed to bail them out if they get in trouble.  There’s a financial Escher etching for you.

So what does Spain do? It begs Germany to increase growth. As if it’s like turning on a faucet.

And if there is such a faucet, the handle has come off in Germany’s hand: the economy contracted more in 4Q12 than at any time since the depths of the financial crisis.

Meanwhile, France is getting deeper into Mali.  IMO, best outcome: something like the American Punitive Expedition to Mexico in 1915, which futiley chased Pancho Villa around the deserts of northern Mexico for a year. Worst case: British army in Afghanistan, 1842, or Islawanda.

US support-per the linked FT article-is lukewarm at best.  We (and the Brits) are supplying airlift.  A telling illustration of the lack of sustained expeditionary capability in NATO outside of the US.  Given the extreme logistical challenges of operating in the Texas-size wilds of northern Mail it is hard to imagine a force of a few thousand frenchies doing anything but getting swallowed up in the vast, desolate expanses.

And as I noted yesterday, France is approaching economic zombiedom.

So yeah. Everything is just hunky dory. Maybe as long as Draghi’s paper lasts.  Or more accurately: as long as the bond markets believe in the magic of paper.

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About Craig Pirrong 238 Articles

Affiliation: University of Houston

Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

Professor Pirrong's research focuses on the organization of financial exchanges, derivatives clearing, competition between exchanges, commodity markets, derivatives market manipulation, the relation between market fundamentals and commodity price dynamics, and the implications of this relation for the pricing of commodity derivatives. He has published 30 articles in professional publications, is the author of three books, and has consulted widely, primarily on commodity and market manipulation-related issues.

He holds a Ph.D. in business economics from the University of Chicago.

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