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Friday, December 24, 2010

It Isn't Just a River in Egypt Anymore

I just touched down in Paris three hours ago. I am sufficiently jet-lagged, but my boyfriend suggested I take a look at this recent article about France's credit risk. "The credit default swaps tied to the French bonds imply a rating of Baa1, seven steps below its actual top ranking of Aaa at Moody's, according to the New York-based firm's capital markets research group."

Apparently, the French government's "AAA" credit is actually worse than Panama, even though Panama is rated BBB-. CDS, insurance contracts against bond default, cost over one percent of interest, their highest level so far.

Yet the French news is obsessed with unusual amount of snow hitting the country right now. Ignorance is bliss, but maybe things will change once their pension fund runs dry. (In the meantime, I'll be enjoying my baguette and brie.)

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  1. A close friend and his companion recently returned to the US, having spent nearly a decade on his boat, first sailing across the Atlantic after his retirement from his law practice, and then living on the boat in various places, including a considerable amount of time in Greece and Turkey.

    We kept in touch, but did not really get into details about the social and economic conditions, or the politics of places they were staying.

    Last night, we got on the phone and exchanged Christmas greetings, and I asked him if the problems in places like Greece were foreseeable from his perspective while they were living over there.

    He said absolutely. For one thing, he pointed out that revenues are always vastly over-projected. Greece has an income tax, but he said no one pays it. He said their view is that anyone who pays it is a sucker. He said the same is true to some extent in Turkey. So official borrowing for bonding, to the extent it may rely on a base of revenue projections, is often a joke in the making. During an economic downturn, things can quickly go south.

    Greece is one thing . . . as is Portugal. But if nations such as Spain, and as you suggest France, are showing signs of instability, the EU sould be in the tank for a considerable amount of time to come. Relying on borrowing from pension funds is an iffy proposition to begin with.

  2. GOodness, when I saw the "my boyfriend" part, I thought "Oh no! Is Bill gay?!!"

    But then I read further down and saw the Kathleen McCaffrey part.


  3. I'm sure you have lots of good ideas about places to visit. But if you want to take a break in the 6th arrondissement, you might want to check out Le Procope.

    Le Procope is supposed to be the oldest cafe (now restaurant) in Paris. Lots of historic figures have hung out there, including Thomas Jefferson, Ben Franklin, Robespierre, Napolean and Voltaire.

    There's so much to see and do in Paris. Enjoy your visit.

  4. 1) How long can France and Spain sit on unfunded pensions before they run dry?
    2) If Europe goes south, will China bail them out? Why would China bail them out?
    3) How long can WE sit on unfunded pensions before the system collapses here?