My daughter lives in Fenland, which is boringly flat. I like to see a bit of undulation, but in Fenland there is none. It’s the home of agribusiness. The fields contain rich black earth, and food grows everywhere on a large scale. Large tracts of land are owned by the Coop, and there is a brisk turn-round in trucks on every road in the area. Wind turbines dot the landscape, and remind me of that concrete poem by Iain Hamilton Finlay:

The Horizon of Holland is all Ears

He is, of course, referring to the blades of the windmills sticking up. Obviously we must think of the ears of hares poking up. I’ve tried to find a photo of the construction which has the words reaching upwards like windmill sails, but cant find one. My own copy is in storage back in London. (By the way, it’s worth visiting his home in Scotland, where he constructed his concrete poems in the garden.)

Somewhere to the east is the lost treasure of King John, sucked down into the Wash. The wind races across the vast open spaces from Siberia, and in the winter the temperatures sink seriously low. My daughter tells me they hit -17C last winter. That is colder than I was one awful february night in Bulgaria when we were walking from the hotel to the local night-life all of 200 yards down the road. Half-way there we stopped, so cold we were seriously thinking of turning back.

Inside the rather nice little club we eventually reached we were served by tall thin girls with ridiculously short skirts and socks, with long bare white legs showing. I have never before noticed how cold legs can look. But I digress.

The only point of interest for me is the river Nene and it’s so-called valley. It must be the flattest valley on the planet. But it’s a charming little river. And somewhere running along the valley is the old railway line, once used by dear Freddie and Queen to record one of their singles while riding the wagons. Nice base line, guys.

Just to the south of this table-land is the town of Godmanchester and on the other side of the river, Huntingdon. The towns straddle one of the many rivers in the UK called Ouse. Quite why so many rivers are called Ouse is probably due to downright laziness. Apparently the name derives from the Celtic word for water or slow flowing river.

It’s one of the rivers that has been constantly altered and treated almost like a canal, with navigation being possible right the way to Bedford. The river was first modified way back in 1236. After the coming of the railways traffic on the river declined and by the end of the nineteenth century the navigation was virtually non-existent, and the river was subject to continual flooding.

Godmanchester is an old settlement dating back to pre-Roman times. Apparently there are 130 buildings there listed for special architectural interest, so if that is your baby, you really should drop in and wander around. The place is very picturesque.

The town is situated at an important crossing point, where the Via Devana and Ermine Street cross the Great Ouse. The Romans called it Durovigutum, but it changed to Godmundcestre in the 11th century, and the spelling moved about a bit until it settled on today’s version.

Just across the river is the more industrial town of Huntingdon. This is another of those places plagued by government boundary commissions. The town was once a county town, but Huntingdonshire no longer officially exists. Maybe things will change again. I note that Rutland is back again despite once being amalgamated with Leicestershire.

Famous (if that’s the right word) as being the birth-place of Oliver Cromwell, it was also for a time where Samuel Pepys was secretary to the Earl of Sandwich. However, I prefer the other side of the river.

The property market out here is very slow. It’s a rather depressed region of the UK. There is very little work about, and what there is happens to be poorly paid. With petrol prices so high it also means that if you live in an outlying village it costs a fortune getting to work. That all tends to depress house prices in the villages.

I had to make a trip across country, first to Somerset and then to Birmingham, which meant I escaped the fens along that great artery that runs from the East Coast ports to central England, the A14. The route goes through some interesting countryside but the road itself is clogged with trucks.

I shall be driving west next week.


France Part 3


The question is: Is France living on imaginary money?

The answer is in part “yes”. The running costs of France S.A. are greater than the government’s income. They cant print money to pay the difference so they have to cheat. They have already raided various pension funds. Excuse me, but I remember a certain Robert Maxwell raiding the Daily Mirror pension fund. You just dont do that. The French government has done it. What happens when so many hapless French folk retire? They are going to be in trouble.

I’m sorry to say that the French have just voted in a socialist president. That’s the last thing they need. Way back in Part 1 of this saga I noted that capitalism is the system that pays socialism’s bills. We are in a bit of a spot because so much socialism across the western world has made a good attempt at muzzling capitalism. The trouble is, there is no longer enough money to pay the bills. Socialism’s days, in its present form, are numbered. The socialists have run out of capitalists’ money. The trouble is, capitalism isn’t looking too healthy in many parts of the world either. It’s a disaster in America, total chaos in China, and looking dodgy just about everywhere else.

The current way round this problem I noted in Part 2. Think War Bonds in 1940’s Britain. Do any of you remember what your parents or grandparents had to say about them? Does anybody know of anyone who got their money back? Of course not. That’s not how these things work. It’s fraud. It’s theft. It’s crooked accounting. It’s sleight of hand. It’s survival. And that is how France is surviving.
The banking system is bankrupt. Loans outstanding cannot be repaid. Everything hinges on the skyhooks provided by the ECB.

This brings us to one very simple question which no-one dares ask. How much is a euro worth?
Look at a sterling currency note, then look at a euro note. The sterling note is backed by a guarantee. Dont ask too closely what that guarantee is worth, but what’s on a euro note? Nothing, absolutely nothing. Who even issues it? It’s a joke. No-one guarantees anything. It’s just a bit of paper. It is worth what anyone says it’s worth. While people think it’s worth something, then so it is. When people lose faith in it, it becomes worthless. It’s a fib which people in believe because it is convenient to believe it. I would not like to put too much store by it. I think it is dangerous to have one’s wealth denominated in euros.

In this respect France is not much different from any other euro-zone country. On the other hand, France does have a world class economy. It will survive, euro or no. However, I would not buy into France any time soon. You would be buying into a lottery. Buy in Norway, buy in Singapore, but dont buy in France.

I dont know whether we are entering the end game of this particular mess, and I dont know how it will turn out, but I dont like uncertainty, and neither do financial markets. If you are thinking of putting more money into France, then change your mind. You can wait. France wont go away. Wait till the disaster happens, then buy.

There was a second question in that original email that started me off on this rant: why is everything so expensive in France? I dont know. Is it? I was last there about nine months ago and I didn’t notice. If things are expensive it is because the place is falling apart. That’s one of the things that happen. It means no-one can survive at the normal level, so the level is ramped up, and so many people are sucking value out all along the food chain. More evidence that all is not well.

The third question is: Is France falling apart economically speaking?

I dont think so. But it is not a healthy economy. Two points need to be made here. The first is; it’s the government that’s broke not the country itself. Secondly, it’s all very well to claim that France is a socialist country. That is simply not true. It is a capitalist country that spends all the profits of capitalism on socialism. That’s not the same thing at all. Being a capitalist country it runs on capital. That means it can only function properly with a clean efficient banking system. That it doesn’t have. If the banks are broke then the oil that keeps the wheels of industry turning is not available, and industry starts to creak.

France is not that much different from any European state. The tentacles of government have encroached so far into every aspect of life that it is, like ivy up a tree, slowly killing the source of its lifeblood. Things have to change, but I dont see that people are ready for change. After all, what is happening across Europe? Folks are voting for more ivy to suck more lifeblood from a stricken tree.
This thing has to get worse, and it is going to take time. There is a long way to go yet, and most of that journey is, I am sorry to say, down.

One other point. Countries are trying to pay down debt. Make it simple. Think of someone trying to pay off an underwater mortgage. The more money you throw at it the more money you are throwing down a hole. The money vanishes. Why? Because the value of the asset is decreasing, sometimes faster than you can throw money at the debt secured on that asset.

If you print money to pay off government debts what’s the difference? The money goes down a hole It isn’t spent, it was already spent before. You are trying to pay back a debt, not increasing the money supply.

Hold on, that means all this money printing wont bring on inflation. That means inflation wont eat away the debt. Deflation will continue making the debt bigger. Oh shit!

That’s what’s currently happening in Europe. The central banks are hastily printing money to fill a hole that gets bigger with each day. In short, this mess gets worse month by month, and will continue to get worse until someone stops playing silly buggers, and looks out the window and finally sees the massive train-wreck.

The cost of living may be going up, that’s because of taxation — money sucked out of the economy — and some commodities like corn, wheat, sugar, oil, and so on gaining in price, but how much are large items like houses going down? Balance one against the other and we have deflation not inflation.

My survival bill for the year is about £6,000. A 3% rise in that equals £180. My home was worth about £400,000. That’s decreased in value by 5% over the past year. That means I’m poorer by £20,000. Take off the £180: hey guys, that’s some deflation.

Back to France. One final small point. You should also remember that France’s financial system has a nasty habit of crashing. It’s done it four times in my lifetime. The £ sterling has been a reliable store of wealth at least since the thirteenth century. France has had four different currencies in my lifetime. Do you need me to spell it out?

Maybe one day in the not too distant future I will retire to southern France and live a disgustingly self-indulgent lifestyle drinking fine wine and eating far too much rich food. In the meantime I’ll wait until things get much worse. Then I’ll buy. But I wont rely on the French economy to provide me with a pension.

Invest in France -2

Invest in France

In part 1 of this discussion about whether to invest in France I said that money used to be made from gold and silver, and the amount of precious metal in each coin gave that coin its value. Further, the amount of money in circulation stayed roughly the same relative to the goods that could be bought and sold within the community. If the community produced more goods then that store of money was worth more. The money supply could reasonably be expanded to keep goods and money in equilibrium.
Once the money supply is extended beyond the increase in goods then you have inflation: money begins to be worth less. That is what has happened throughout the twentieth century. However, there is a period when you have more money in your pocket and the value of that money hasn’t yet dropped. There is a delayed effect to inflation. The usual theory is that inflation is generally 2/3 years behind the increase in the money supply. That means that the money gets into your pocket before prices go up, and you always feel more wealthy despite the fact that the value of the money is decreasing.
There are problems with this. The first is that in order for the wealthy feeling to persist inflation has to be continuous. Once the vicious circle stops, people start to feel poor. This is why we are always told that a little inflation is a good thing. We are continually feeling more wealthy, and in order not to allow inflation to have it’s real effect on us we spend our increased money supply buying things before they rise in price. They then rise in price, but we’ve already bought them so we feel even more wealthy.
Obviously there are times when the whole system comes adrift, and there is a crash. That usually happens about once a decade as no-one has worked out how to really manage this form of economy. Often the crashes are minor adjustments. Occasionally those adjustments are of a more serious nature. We’ve hit one of those right now.
All of this is down to one very simple problem. Prior to the twentieth century most countries either had no plan to cope with the poor, or they had one based on a redistribution of a certain amount of the wealth of the community. That was in Europe mainly derived from tithes, or the appropriation of a tenth of the wealth created. This was distinct from taxes which were in the old days basically a device for collecting money to pay for wars.
In the twentieth century our whole way of doing things changed drastically. Socialism became a political force. Capitalism was seen as a way of making lots of money. Governments began to see that socialism could be harnessed and used to extend government, and socialism could be paid for from the profits of capitalism.
Unfortunately, that system creates an ever expanding bureaucracy which eventually becomes top heavy and strangles the wealth creating side of the community. It has been the downfall of every state since records began. Once the payouts become too large to be supported by the payers the system implodes. That’s happened in Europe, Japan, and the United States.
There is scarcely a European state that lives within its means. That means deficits just increase and increase. Central banks have found a way to deal with this. They print money. That causes inflation, and inflates away the debt. Let’s go back to my example of the US$. If you had bought US government bonds in 1912 and they matured 100 years later, when you went to the government to get your money back you’d only get 3 cents. The American government would have had 100 years’ use of your money, and returned you only pennies.
That’s why governments like inflation. It’s a form of taxation. It has been rampant throughout the western world for the past 100 years.
Now let’s answer that question I left you with last week. Will the French banks get their money back?
No. They’ve lent it, and it has been spent. It’s evaporated, and wont be coming back.
On the other hand the central bank, the ECB, will issue bonds which will cover that debt with more debt. The bonds will be equal to some of the debt, and those bonds will be negotiable. That means the banks who receive these bonds in return for the debt that wont be repaid can borrow against those bonds at an interest rate below the level of inflation (the ECB loan rate is currently 1%), and invest in something else for a much higher return, and thus re-build their finances.
By the wonders of capitalism money is created out of nothing, borrowed against, and lent out to make more money which can then pay back the original loan, and everybody is happy. I devote a whole section to this method of making money in my book on buying and selling property. I am currently revising this book. If you want a copy, let me know and I will reserve one for you. I hope the revised version will be ready by the end of this month. It is essential reading for anyone interested in real estate and money.
Back to the plot. Let’s now answer question number one. Is France living on imaginary money? It’s taken us a while to get there, but you can now see that the answer is “Yes”.
But so is almost everyone else. Next week I’ll show you what this means, and why it is almost impossible to work out what happens next. And maybe you will find that it doesn’t really matter. What an intriguing possibility.

Invest in France?

Should I invest in France?

“I read your comments about the debt problems of various european countries and the difficulties likely to face France’s banks – it seems according to the blog dates that you wrote this in 2010 and yet a) they seem just as relevant now and b) if this was true in 2010 then how is it that France continues to operate an economy which seems to rely for support on the intervention of fairies or imaginary money.  For example, my neighbours in France are farmers; they grow a few cows, some eggs and a small field’s worth of various veg.  This seems to be the norm in the area.  I find the prices for almost everything in France breathtaking compared with the UK – food is +20 to +70% higher; a USB hub which would be a suitable item for the pound shop in the UK is ¢25; even French wine is looking uncompetitive with imports.  How do they live?  How does the government make ends meet? Do you have any insights?”

I have received the above request in a recent email. First, let me refer you to the article I wrote on France back in 2010:


Now let’s try and break this email down into various slightly simpler questions.

  • Is France living on imaginary money?
  • Why is everything in France so darn expensive?
  • Is France at risk of falling apart economically speaking?

Underlying all of this is the implied question: should one be investing in France?

I have for the past five or six years been saying that France is, in many respects, an enigma. If I had to make an investment decision about the place I would have to say that the pros and cons would just about outweigh each other. Not much help in that. Let’s go back to the original questions.

1    The first question does not just relate to France, but to most of the world. We can go back a little to the nineteenth century and look at the way money functioned. Then we can look at the way it functioned in the twentieth century, and wonder.

If we look at money prior to the twentieth century we find it was always based on some basic concept of wealth. If you live in a country with a lot of diamonds, and other folk want diamonds, then the basic currency would be based on diamonds. If it’s potatoes, then that’s the basis of your wealth, and the country is wealthy inasmuch as it can produce lots of cheap potatoes and export them for good prices.

In the old days that was the way you appraised any country’s basic economic position in the world. You can look at France in that light and see that France has an economy worth approximately the same as the UK’s. It isn’t about to fold up any time soon. In terms of the planet, it’s economy is in the top ten. What would alter that? In the short or medium term, nothing.

In the old days that wealth would translate into a means of barter called money, and that money would be represented by gold and silver. In short, the coins in your pocket would contain silver and gold that were a direct division of the country’s overall wealth. That was the case up until the first world war. After that the world changed drastically.

One other point to note: the value of money stayed pretty much the same over long periods of time. As I mentioned in my 2010 article, John Law introduced a great new concept into the French way of life. It was based on credit. It was based on sleight of hand, illusion. It worked brilliantly while the illusion lasted, and ultimately crashed, bringing the whole French economy and financial institutions into total chaos.

The country recovered. That’s the way things go. A country can be devastated by raging forest fires, and the following year the place is a charred ruin. But things grow again, and the world continues to turn. It’s the same with banking, economies, capital, countries, and so on.

What happened throughout the western world after world war one was that deficits became a way of life. Money became divorced from one form of value (gold and silver backed by the productivity of the nation) — in other words, money became divorced from a tangible base upon which value could be mathematically computed.

Keynes and co ushered in a general view that money could be looked at in a totally different way, and economies and governments should have a relationship much the same way as the Pharoanic tradition of the seven lean years and the seven fruitful years, and an overall economy should function based upon hoarding in the good times, and spending in the bad times.

This eventually became debased into a totally hopeless system whereby governments spent the money during the good times, because good times encourage spending, and everyone feels good about it, and subsequently having to go into debt in order to spend during the bad times. Thus the deficits build and build.

250 years ago the UK national debt was a million pounds. Now it’s a trillion. in 1900 the £ was worth roughly what it was in 1800. In 2000 it is worth about tuppence. It’s all down to the way deficit spending is handled by a government with the aid of a nasty little device called a central bank.

In the US the Federal Reserve Bank was founded in 1913 to help stabilise the economy. There had been a decade of violently gyrating values and a couple of nasty encounters with bankruptcy. However, the dollar had roughly maintained is value throughout the previous century. Now, 100 years later a 1912 dollar is worth 3 cents. If a bank had handled my investments in such an appalling fashion I wouldn’t sack the directors, I’d lynch them.

But, there is a corollary to this.

Americans are a hell of a lot better off in 2012 than they were in 1912. Since their currency has crashed so spectacularly, how is this?

Another point: not only has the $ and the £ crashed in value, but so has just about every other currency. If only one currency had crashed that would be a serious state of affairs for that country, but with everyone in the same boat, does it matter?

Okay, France is in a similar state. It’s currency has fallen and fallen in value over the years, and now it’s banking system is in disarray. France is technically bankrupt. Frightful amounts of money are owed to its banks by the Greeks the Italians and the Spanish. The banks aren’t going to get that money back. Or are they?

Let’s leave this discourse on a cliffhanger. Answer next week.