Retirements, euro, bubble and crisis
In France, pension liabilities are not accounted by companies or by the state.
These debts amounted overall to €4,500 billion or 3 times the GDP at the end of 2004!
The unearned money circulates in France and in other countries of the euro zone, thereby inflating the money supply, artificially boosts the activity and attract capital, which reinforces the euro.
A financial bubble is being developed in the euro zone.
It will explode in the near future in a major crisis and it will have huge consequences. Explanations…
Pension funds are already banned in France!
The system of retirement benefits based on compulsory levies to pay pensions, with substantial deductions from wages.
Based on the demographic characteristics, these pensions always have been paid, which will no longer be the case from the 2020's after all concurring projections.
Contrary to the requirements of IFRS, the pension liabilities are not accounted by the French companies, but the public retirement system guarantees employees the payment of a pension when they retire.
Therefore their receivables are not registered in company accounts nor in other parts of the state.
As equity capital is inadequate to meet these commitments, these receivables have to return for debts that are not accounted and which amounted to the whole of France to €4,500 billion, i.e. 3 time the GDP at the end of 2004, according to concurring estimates of economists Work For All, ABN Amro and an official report of Michel Pébereau, chairman of the board of BNP Paribas.
To fund the pension obligations in maintaining the same profit margins, wages should have been lower (from 10 to 15%) that they were.
In this case, the accounts would have to comply with the IFRS and gave an accurate picture of reality.
French employees benefit of unusually high wages.
The receivables and the debts of pensions are not accounted: that is monetary creation and unearned money visible especially in the monetary aggregate M1, which is bloated with €3,800 billion (over 40 % of GDP) against $1,350 billion in the United States (10% of GDP) to 300 million people around in both cases.
€2,500 billion at least are currently in surplus in the euro zone.
This monetary creation increases: M3 increased by 11% from one year to another, which is much higher than the nominal GDP growth at 5.0%.
The free money supply increases, accentuating the decline in real GDP growth.
In France and in euro zone, wages have unusually high demand, thereby offering: GDP growth is abnormally high.
The strong apparent growth (and misleading because it does not correspond to reality) of the euro zone attracts capital, which increases demand for euros and decrease that of United States dollars, which strengthens the euro and weakens US$.
A financial bubble is being developed in the euro zone.
To stop it, we should put an end to its root causes, i.e. save the pension obligations in accordance with IFRS.
However, no government will take such decisions (which are indispensable), because in this case, most public companies in France and other countries of the euro zone would be bankrupt, most private companies have great difficulty to adjust (due to a lack of equity) and pension liabilities of the employees of the state would significantly increase the public debt.
The financial bubble which is being developed in the euro zone will burst so in the near future in a major crisis will have huge consequences.
The disorder is going to increase, fueling speculation winner for those who have done good analysis.
Thanks to Fred Rabeman, an expert in technical analysis, which highlighted the importance of the game bubbles and crises which can explain the strength of the euro, the weaker dollar, the apparent good health (and misleading) the economy and the current problems related to monetary slippage in the euro zone.
The whole issue of growth and fluctuations is renewed.
See his site (in English): http://www.maestrade.com
The yields of the public bonds give good indications on the evolution of the sub-prime crisis and the bubble in the euro zone: the 2-year plunged since early June, which shows that the capital took refuge on shorter maturities,
Figure 1: http://s3.archive-host.com/membres/up/2107676425/20071120US1TX02.gif
And the fall is accelerating at this time,
Figure 2: http://s3.archive-host.com/membres/up/2107676425/20071120US2TX06.gif
The spread with the 10-year (which normally fluctuates around 4.0%) increase, which shows that the disorder increases,
Figure 3: http://s3.archive-host.com/membres/up/2107676425/20071120US3SP102.gif
The forecast is the same in the euro zone,
Figure 4: http://s3.archive-host.com/membres/up/2107676425/20071120US4EZ.gif
The markets absorb more or less the sub-prime crisis, but it is more difficult to absorb another crisis, especially of this magnitude.
Financial bubbles are formed from accounting records which do not give an accurate picture of reality.
For example, the corporate profits of the new economy have been artificially inflated in the late 90s, the risks of sub-prime were not properly recorded recently, debt retirement are improperly removed in France and some European countries today.
When a financial bubble came into being, it increases it even as everyone earns money by investing until it explodes…
A strong and sustainable growth based on the required sound money, which is the case in the United States but not in the euro zone.
A bubble encourages capital to invest in the wrong place (in the euro zone), while healthy sectors (in the United States) are being left behind.
The dollar is not weak because of the weakness of the United States economy, but against the euro, which is artificially strong (but weak in reality) as a result of that bubble.
These are aspects of the paradoxical logic…
To avoid another catastrophe in France with the collapse of the pension system, it is imperative to establish as soon as possible a system of pension funds.
SNCF (which has a monopoly on rail transport in France) gives a good example of the mechanism of monetary creation with pension obligations that are not provisioned…
The decree of May 7, 2007 enables SNCF eliminate €116.5 billion of pension commitments to June 30, 2007 according to the consolidated accounts for 6 months 2007, note 17 page 51 (p. 90 the online version), only in French:
These €116 billion are claims that are not provisioned, so the debts that are reported to public pension system that does not counts!
They disappear: it is monetary creation.
The problem is that the French have done the same with debts of public enterprises, those employees of the state and all businesses: these pension debts that are not recorded nor are provisioned debts which amounted to €4,500 billion or 3 times the GDP at the end of 2004! What feeds the financial bubble…
A portion of these €4,500 billion is unearned money circulating in the euro zone.
Credit rating agencies give AAA borrowings of SNCF because they are guaranteed by the state, but they do not retire these debts in the debt of the State!
They have not correctly noted the risks of sub-prime, which caused a bubble and a crisis, the bubble that has emerged in Europe is much larger and the crisis is much more serious than that of sub-prime!
IFRS: International Financial Reporting Standards