Thursday, March 21, 2013

"No, France is Not Bankrupt"

From Mish's Global Economic Trend Analysis:
This amusing headline story by Bruno Moschetto, a professor of economics at the University of Paris in the French newspaper Le Monde has me laughing out loud this morning: "No, France is Not Bankrupt"

No, France is not bankrupt ... The claim is untrue economically and financially. France is not and will not bankrupt because it would then be in a state of insolvency.

A state cannot be bankrupt, in its own currency to foreigners and residents since the latter would be invited to meet its debt by an immediate increase in taxation.

In abstract, the state is its citizens, and the citizens are the guarantors of obligations of the State.

In the final analysis, "the state is us." To be in a state of suspension of payments, a state would have to be indebted in a foreign currency, unable to deal with foreign currency liabilities in that currency.
Economic Illiteracy

Economic illiteracy is nearly everywhere you look and that article is a prime example. Bruno Moschetto suggests France is not bankrupt because the state is not indebted in a foreign currency.
Actually, France does have its debts in a foreign currency, euros. Note that France cannot print euros at will to pay its debts (the very essence of a foreign currency)....MORE 
Other than that Le Monde stands by the story.
See also:
 
 
PMI®
Flash Markit pour la France
L’Indice Flash Composite de l’Activité Globale en France(1)
se replie à 42.1 (43.1 en février), un plus bas de 4 ans. 
 
Yeah, you read that right. The collapsing Purchasing Manager's Index at 42.1 (down from 43.1 in February) is a four year low.