For a couple of decades, the historiography on the Great Depression of the 1929s, traditionally centered on the United States, has been investigating the decisive role of France in precipitating the global situation after 1926. France returned to the system of fixed exchange rates with respect to gold in XNUMX with an undervalued franc. In the following years it therefore had a strong trade surplus which allowed it to accumulate gold.
Between 1929 and 1931, France absorbed 8 percent of all the gold existing in the world without sterilizing it, that is, without creating money for an equivalent amount. In similar cases sterilization, until the Great War, had been the rule (as was the destruction of currency by the countries that lost gold) but the restart of the system in the XNUMXs had occurred without providing for this essential clause.
France hoarded gold instead of spending it on mercantilism, a policy that works if only a few follow it (not all countries can be in surplus at the same time). The 8 per cent of gold withdrawn from circulation, to which must be added an American quota (also not sterilized), caused the global fall in prices, the bankruptcy of many debtors (and therefore their creditors) and the explosion of the unemployment. This fell squarely on France, which maintained the exchange rate with gold while all the other countries, one by one, devalued. In the end, France found itself with lots of gold and lots of unemployed. Peer pressure overwhelmed the government and brought the Popular Front to power in 1936. The Front massively devalued and aggressively raised wages. Two years later, the hoard of gold exhausted and inflation rising, the Front was also sent home, while war, the Occupation and Vichy loomed on the horizon.
We will see in a few weeks if the great French stagnation following 2008 will lead to the election of Marine Le Pen and a new global earthquake. France has one of the most restless and impatient publics on the planet and periodically indulges in outbursts of sometimes creative, sometimes destructive anger.
Marine Le Pen's 144-Point Program makes for interesting reading. The originality lies in having combined traditional elements of the social right with elements of the left pure and simple. Added to these is the stooping down to gather up the hyper-secularist, anti-communist, militarist and ultra-centralist banners of the Jacobin tradition, lost along the way in recent years with the watering down of the presidential character of the Fifth Republic, with the devolution of power from the center to the regions and with the acceptance of forms of de facto self-government in the Islamized banlieues. The final touch of the program is the return to the proportional electoral system, a stab at the 1958 constitution but a vital tactical requirement for a National Front which could find itself in June with a president without deputies.
Today, France is again experiencing minimal growth and has a modest current account deficit. It is not under pressure and does not need to devalue (same goes for Italy). However, if he wants to treat himself to an extra aircraft carrier, one point of GDP more in military spending, 40 new prison cells, 15 new policemen and gendarmes, the retirement age back to 60, lower taxes on small businesses, pensions higher retirement pensions and 10% tax cuts for the first three income brackets, all points of Le Pen's programme, then the money must be printed by the Banque de France. And they would be francs, of course, not euros. The official program speaks (it is point number one, rightly so) of negotiations with European partners followed by a referendum on membership of the European Union. Unofficially, the economic leaders of the Front National have spoken of an exit from the euro in the short term and without going through a referendum, of a Qe of 100 billion francs a year and of a devaluation to be negotiated (10-20 per cent if the euro remains standing, free everyone if the euro ceases to exist).
What are the chances that Le Pen will win? So far, the market has given good opinion from the polls, which indicate both Macron and Fillon winners in the run-off with Le Pen. However, it must be said that their advantage has dropped considerably in recent weeks (although it is still large). Above all, the markets do not consider the hypothesis Hamon, the former left socialist, because he is credited with only 14 percent. However, if Hamon manages to make Mélenchon desist (11 percent) the 14 would rise to 25 and the runoff could very well be between Hamon and Le Pen.
Mélenchon's program is almost the same as Hamon's, even if the former proposes raising the tax rate on income above 360 euros to 100 per cent while the latter is satisfied with the current 75%. The Hamon-Le Pen ballot would see an explosion of abstentions and a highly uncertain outcome. Hamon is not anti-euro, but with his dream plans it would be very difficult to coexist even with Schulz, let alone Merkel. Before running to sell, let's consider that, should the polls indicate a Hamon-Le Pen runoff, the weakest between Macron and Fillon (the second, for now) would suffer immense pressure to desist in favor of the strongest already in the first round. In this case the final victory of a centrist would be certain and the sigh of relief of the markets would be audible even from the moon. Let us remember that the French vote is two months away, not two years.
The duty of the news also requires us to point out another critical situation so far overlooked by the markets, ie the deadlock in which the great reform projects in America are finding themselves on which the markets have bet heavily. We talk about Obamacare reform, tax reform and the infrastructure plan. In the lower house there is such a blockage as to lead to postponing for months or quarters the forecasts that were made until recently on the approval times (and after, of course, there is the senate). Above all, the divisions in the Republican camp between those who are willing to spend and those who want to keep their accounts in order are increasingly evident. Trump could be decisive in unblocking the impasse, but times also seem to be getting longer from his side. The tax reform proposals will not come as soon as expected and in any case Obamacare will take precedence.
With other presidents and with more normal expectations, this slowdown would not be too much noticed, but with a president who loves the war of movement and a market with this level of expectations, a consolidation of the shares would be more than understandable. In practice, if there are positions that are too exposed to equity risk, it will be advisable to bring them back to normal at least temporarily. It is quite possible that equities will not fall much, but it is likely that volatility will increase again. In the meantime, any weakness can be taken advantage of to buy gold.
