Zero Hedge

Tropical Storm Chantal Makes Landfall - All Eyes On Possible NYC Path

Tropical Storm Chantal Makes Landfall - All Eyes On Possible NYC Path

With deadly Texas flooding dominating headlines this weekend, we now shift focus to Tropical Storm Chantal, which made landfall near Myrtle Beach, South Carolina, early Sunday. This marks the first tropical storm to make landfall in the 2025 Atlantic hurricane season—and the earliest to do so since 2022.

Chantal is the third tropical storm of this year's hurricane season, following Andrea and Barry, both of which formed in June. The new storm appeared on our radar Friday, with spaghetti models showing a potential path up the U.S. East Coast, through parts of the Mid-Atlantic, and possibly over southern New Jersey and New York City.

Updated spaghetti models posted by meteorologist Ben Noll on X show a strong level of confidence in Chantal's track into the Mid-Atlantic and Northeast, where severe weather could be seen next from D.C. to New York and Boston.

"In addition to being the first of this season, Chantal's landfall was the earliest in the season since 2022 in the United States," Knoll noted in a weather post featured in the Washignton Post.

Additional forecast models show a high level of confidence that Chantal will track up the East Coast before spinning out into the Atlantic. Models are subject to change. 

The months of August and September tend to be the most active for hurricane activity. 

If you have travel plans along the East Coast this week, keep a close eye on Chantal.

Tyler Durden Sun, 07/06/2025 - 12:15

UK Restores Formal Diplomatic Ties With Syria After Grooming Sharaa For Power

UK Restores Formal Diplomatic Ties With Syria After Grooming Sharaa For Power

Via The Cradle

Britain reestablished full diplomatic relations with Syria on Sunday as part of the visit of UK Foreign Secretary David Lammy to Damascus to meet the country's new de facto leader, Ahmad al-Sharaa (Jolani).

In a video message on X, Lammy claimed the UK had an interest in Syria's recovery after 14 years of war. "It matters that it's stable, because if it's not, the terrorism that can happen here washes up on our own streets back at home," he said.

Image: FCDO

He also stressed the importance of addressing illegal immigration, noting that "it's hugely important we continue to support progress here."

"This is a country that is ancient, made up of many different people. The future has to be an inclusive one. It has to be a peaceful one. And I hope for prosperity for all of the Syrian people," he said.

Britain played a key role in sparking the war in Syria in 2011, which killed hundreds of thousands, and in bringing the current government, led by Sharaa, to power in December 2024.

Sharaa previously fought for the Islamic State of Iraq (the precursor to ISIS) after the 2003 US invasion. He was detained in Iraq in 2006 and released by US officials in 2008.

After his release, Sharaa was appointed head of Islamic State operations in Mosul Province, dispatching suicide car bombers to kill Shia Muslims and Christians. In August 2011, he was dispatched to Syria by Abu Bakr al-Baghdadi to establish the Nusra Front.

That same year, UK intelligence facilitated the travel of British extremists of Libyan and West and South Asian backgrounds to Syria to fight against the government of Bashar al-Assad. Many joined the Al-Qaeda-affiliated Nusra Front and ISIS.

The same year, former UK Prime Minister Tony Blair's chief of staff, Jonathan Powell, founded the NGO Inter Mediate, a Foreign Office-funded project aimed at establishing secret channels with insurgent groups. 

He boasted that his group worked closely with the UK foreign office and UK intelligence. Powell personally met multiple times with Sharaa in Idlib Governorate in an effort to rebrand his terrorist image and groom him as Syria's next leader.

The Nusra Front was later rebranded as Hayat Tahrir al-Sham (HTS). Sharaa and HTS captured Damascus in December, ousting Assad.

Syrian analyst Malek Hafez told the Syrian Observer that Powell, who became UK National Security Advisor in November, has a team running a media office inside the presidential palace, "reportedly run by two women – one British, the other of Lebanese-British heritage."

As Hafez concludes, "The rise of Ahmad al-Sharaa was not spontaneous – it was carefully engineered through a long-term, western-backed strategy, in which Britain played a disproportionately influential role among western powers."

Since Assad's fall, Syria has moved toward becoming an extremist Islamic state based on the violent ideology of the medieval Islamic scholar Ibn Taymiyyah.

In March, extremist Islamist gunmen affiliated with Syria's Ministry of Defense and General Security massacred at least 1,500 Alawite civilians, often referring to them as pigs and dogs before killing them.

Tyler Durden Sun, 07/06/2025 - 11:40

Rickards: Superintelligence Will Never Arrive

Rickards: Superintelligence Will Never Arrive

Authored by James Rickards via DailyReckoning.com,

Readers know at least two things about artificial intelligence (AI).

The first is that an AI frenzy has been driving the stock market higher for the past three years even with occasional drawdowns along the way.

The second is that AI is a revolutionary technology that will change the world and potentially eliminate numerous jobs, including jobs requiring training and technical skills.

Both points are correct with numerous caveats. AI has been driving the stock market to record highs, but the market has the look and feel of a super-bubble. The crash could come anytime and bring the market down by 50% or more.

That’s not a reason to short the major stock indices today. The bubble can last longer than anyone expects. If you short the indices, you can lose a lot of money being wrong. But it is advisable to lighten up on equity allocations and increase your allocation to cash in order to avoid the worst damage when the crash does come.

On the second point, AI will make some jobs obsolete or easily replaceable. Of course, as with any new technology, it will create new jobs requiring different skills. Teachers will not become obsolete. They’ll shift from teaching the basics of math and reading, which AI does quite well, to teaching critical thinking and reasoning, which computers do poorly or not at all. Changes will be pervasive, but they will still be changes and not chaos.

The Limitations

Artificial Intelligence is a powerful force, but there’s much less there than meets the eye. AI may be confronting material constraints in terms of processing power, training sets and electricity generation. Semiconductor chips keep getting faster and new ones are on the way. But these chips consume enormous amounts of energy, especially when installed in huge arrays in new AI data centers. Advocates are turning to nuclear power plants, including small modular reactors to supply the energy needs of AI. This demand is non-linear, which means that exponentially larger energy sources are needed to make small advances in processing output. AI is fast approaching practical limits on its ability to achieve greater performance.

This near insatiable demand for energy means that the AI race is really an energy race. This could make the U.S. and Russia the two dominant players (sound familiar?) as China depends on Russia for energy and Europe depends on the U.S. and Russia. Sanctions on Russian energy exports can actually help Russia in the AI race because natural gas can be stored and used in Russia to support AI and cryptocurrency mining. It’s the law of unintended consequences applied to the short-sighted Europeans and the resource-poor Chinese.

AI Lacks Common Sense

Another limitation on AI, which is not well known, is the Law of Conservation of Information in Search. This law is backed up by rigorous mathematical proofs. What it says is that AI cannot find any new information. It can find things faster and it can make connections that humans might find almost impossible to make. That’s valuable. But AI cannot find anything new. It can only seek out and find information that is already there for the taking. New knowledge comes from humans in the form of creativity, art, writing and original work. Computers cannot perform genuinely creative tasks. That should give humans some comfort that they will never be obsolete.

A further problem in AI is dilution and degradation of training sets as more training set content consists of AI output from prior processing. AI is prone to errors, hallucinations (better called confabulations) and inferences that have no basis in fact. That’s bad enough. But when that output enters the training set (basically every page in the internet), the quality of the training set degrades, and future output degrades in sync. There’s no good solution to this except careful curation. If you have to be a subject matter expert to curate training sets and then evaluate output, this greatly diminishes the value-added role of AI.

Computers also lack empathy, sympathy and common sense. They process but they do not really think like humans. In fact, AI does not think at all; it’s just math. In one recent experiment, an AI computer was entered into a competition with a group of 3- to-7-year-olds. The challenge was to draw a circle with the tools at hand. Those tools were a ruler, a teapot and a third irrelevant object such as a stove. The computer reasoned that a ruler was a drafting instrument like a compass and tried to draw a circle with a ruler. It failed. The children saw that the bottom of a teapot was a circle and simply traced the teapot to draw perfect circles. The AI system used associative logic. The children used common sense. The children won. That result will not vary in future contests because common sense (technically abductive logic) cannot be programmed.

High-flying AI companies are quickly finding that their systems can be outperformed by newer systems that simply use big ticket AI output as a baseline training set. This is a shortcut to high performance at a small fraction of the cost. The establishment AI companies like Microsoft and Google call this theft of IP, but it’s no worse than those giants using existing IP (including my books, by the way) without paying royalties. It may be a form of piracy, but it’s easy to do and almost impossible to stop. This does not mean the end of AI. It means the end of sky-high profit projections for AI. The return on the hundreds of billions of dollars being spent by the AI giants may be meager.

Sam Altman: Innovator or Salesman?

The best-known figure in the world of AI is Sam Altman. He’s the head of OpenAI, which launched the ChatGPT app a few years ago. AI began in the 1950s, seemed to hit a wall from a development perspective in the 1980s (a period known as the AI Winter), was largely dormant in the 1990s and early 2000s, then suddenly came alive again in the past ten years. ChatGPT was the most downloaded app in history over its first few months and has hundreds of millions of users today.

Altman was pushed out by the board of OpenAI last year because the company was intended as a non-profit entity that was developing AI for the good of mankind. Altman wanted to turn it into a for-profit entity as a prelude to a multi-hundred-billion-dollar IPO. When the top engineers threatened to quit and follow Altman to a new venture, the board quickly reversed course and brought Altman back into the company, although the exact legal structure remains under discussion.

Meanwhile, Altman has charged full speed ahead with his claims about superintelligence (also known as advanced general intelligence (AGI) with the key word being “general,” which means the system can think like humans, only better). One way to understand superintelligence is the metaphor that humans will be to the computer as apes are to humans. We’ll be considered smart, but not smarter than our machine masters. Altman said that “in some ways ChatGPT is already more powerful than any human who ever lived.” He also said he expects AI machines “to do real cognitive work” by 2025 and will create “novel insights” by 2026.

This is all nonsense for several reasons. The first as noted above is that training sets (the materials studied by large language models) are becoming polluted with the output from prior AI models so that the machines are getting dumber not smarter. The second is the Law of Conservation of Information in Search I also described above. This law (supported by applied mathematics) says that computers may be able to find information faster than humans, but they cannot find any information that does not already exist. In other words, the machines are not really thinking and are not really creative. They just connect dots faster than we do.

A new paper from Apple concludes, “Through extensive experimentation across diverse puzzles, we show that frontier LRMs [Large Reasoning Models] face a complete accuracy collapse beyond certain complexities. Moreover, they exhibit a counter-intuitive scaling limit: their reasoning effort increases with problem complexity up to a point, then declines despite having an adequate token budget.” This and other evidence point to AI reaching limits of logic that brute force computing power cannot overcome.

Finally, no developer has ever been able to code abductive logic; really common sense or gut instinct. That’s one of the most powerful reasoning tools humans possess. In short, superintelligence will never arrive. More and more, Altman looks like just another Silicon Valley salesman pitching the next big thing with not much behind it.

Tyler Durden Sun, 07/06/2025 - 10:30

It's Official: Elon Musk's 'America Party' Registers With Federal Election Commission

It's Official: Elon Musk's 'America Party' Registers With Federal Election Commission

Update (Sunday):

A new filing with the Federal Election Commission (FEC) confirms that Elon Musk's America Party (AMEP) is now official, as the billionaire sets out to challenge the entrenched "uniparty" duopoly in Washington.

Musk has voiced deep frustration with GOP lawmakers over their failure to codify DOGE cuts and President Trump's "Big Beautiful Bill," which was signed into law on Independence Day.

FEC Filing:

Filing #1898441 states that AMEP will be headquartered at 1 Rocket Road, Hawthorne, CA 78725—the same address as Musk's rocket company, SpaceX, according to public records.

Leadership:

AMEP's Custodian of Records and Treasurer is listed as Vaibhav Taneja, who also currently serves as CFO of Tesla, per publicly available filings.

The Filing:

.    .     . 

One day after his latest poll asking his followers on X whether the USA needs a new political party, Elon Musk announced on Saturday that the "America party has formed."

"By a factor of 2 to 1, you want a new political party and you shall have it!" Musk wrote. 

"Today, the America Party is formed to give you back your freedom."

The announcement comes after 1,248,856 people voted 'yes' to whether he should "create the America Party."

The announcement comes one day after President Donald Trump signed his signature tax and spending bill, which Musk has vehemently opposed for weeks, and which resulted in a very public falling out with Trump - whose campaign Musk spent hundreds of millions of dollars promoting. 

Musk also led the Department of Government Efficiency (DOGE), which found billions of dollars in waste, fraud and abuse - virtually none of which was included in Trump's so-called "Big Beautiful Bill."

While the Trump-Musk spat has simmered in recent weeks, Trump earlier this week threatened to cut off billions of dollars in subsidies to Musk's companies. 

Meanwhile, Musk foe Steve Bannon tore into the plan for a third political party - saying on his "War Room" podcast on Friday: "The foul, the buffoon. Elmo the Mook, formerly known as Elon Musk, Elmo the Mook. He’s today, in another smear, and this — only a foreigner could do this — think about it, he’s got up on, he’s got up on Twitter right now, a poll about starting an America Party, a non-American starting an America Party." 

"No, brother, you’re not an American. You’re a South African and if we take enough time and prove the facts of that, you should be deported because it’s a crime of what you did — among many," Bannon added. 

Musk, meanwhile, wrote on Friday that "The fat, drunken slob called Bannon will go back to prison and this time for a long time. He has a lifetime of crime to pay for."

Tyler Durden Sun, 07/06/2025 - 10:15

Tesla Sales Drop 60% In Germany In June

Tesla Sales Drop 60% In Germany In June

Tesla's sales in Germany dropped 60% in June to 1,860 vehicles, according to the KBA. For the first half of 2025, sales fell 58.2% year-over-year to 8,890 units, despite overall growth in battery EV sales., according to Reuters.

Tesla has also now seen six straight months of declining sales in France, Sweden, Denmark, and Italy. Chinese EV maker BYD saw its German sales nearly quadruple in June to 1,675 and surged over fivefold to 6,323 year-to-date.Recall, Tesla's company-wide Q2 delivery numbers came in at 384,122 vehicles last week, just below the estimate of 389,407. 

While estimates had been lowered multiple times, the number was still better than whisper numbers as low as 350k or 360k that were starting to make their way around the street.

Production beat expectations. Tesla built 410,244 vehicles, compared to the forecast of 400,083. Model 3 and Model Y deliveries totaled 373,728, slightly under the estimate of 377,295. The “Other Models” category — including the Model S, X, and Cybertruck — showed Tesla delivered 10,394 vehicles, below the expected 14,644.

Production of these models also came in slightly under, at 13,409 compared to the estimate of 13,616.

Model 3 and Y production reached 396,835 units, higher than the expected 383,567, suggesting Tesla had ramped up output of its most popular models.

Deutsche Bank analysts noted late last week that the surprise upside came mainly from the U.S. (likely due to tax credit pull-forward) and stronger sales in parts of Asia, though China was weaker than expected.

Model 3/Y deliveries outperformed forecasts, while S/X/Cybertruck lagged. Energy storage deployment missed estimates. Deutsche Bank sees potential margin upside from the delivery beat but notes that full-year volume growth remains challenging due to policy headwinds and Model Q delays. Elon Musk’s renewed focus on U.S. and European sales could help in H2, the bank said.

As we noted last week, ahead of Tesla’s Q2 2025 delivery report, expectations were subdued amid signs of continued demand weakness and investor concerns over the company’s growth trajectory. Analysts widely anticipated another disappointing quarter, despite hopes pinned on the rollout of a refreshed Model Y and the company’s long-term robotaxi ambitions.

The Bloomberg consensus projected Tesla would report global deliveries of 395,328, representing an 11% year-over-year decline, though still higher than the 336,700 vehicles delivered in Q1. Production was expected to hit 443,321 units, up from 410,800 in the same period last year.

Tyler Durden Sun, 07/06/2025 - 09:55

To Make America Great Again, Start Here

To Make America Great Again, Start Here

Authored by Charles Hugh Smith via OfTwoMinds blog,

Our status quo is so thoroughly corrupt that it's no longer even seen as corruption, it's just BAU--business as usual.

It's a big ask, but let's depoliticize the phrase "make America great again" and consider what this would actually entail, not as a lobbyists' grab-bag of tax breaks for the wealthy and arcane giveaways in 500-page Congressional bills, but as a restoration of the fundamental foundations of greatness.

In the conventional contexts of the current era, this boils down to ideology and finance. If we dial back culture-war over-reach and free up "market forces," for example, this will restore America's greatness.

The problem with all this kind of thinking is it's superficial and banal, for it ignores the real source of America's decline: the moral rot that has eroded every institution and every nook and cranny of our society. Whenever I mention this moral rot, I get immediate push-back of this sort: corruption has always been around, so today is no different from previous eras.

While it's self-evident that self-interest and greed manifest as corruption, it's not true that the systemic corruption of the present is no different from previous eras--it's worse, much worse because it's now normalized, and so we accept the most outrageous forms of corruption as "normal."

So private equity buys a company, loads it with debt, transfers all the borrowed cash to the private equity "owners," and then leaves the company a sinking hulk that soon declares bankruptcy. Or when private equity snaps up hospitals and healthcare clinics and prices rise not for better service but to "reward the owners," this plundering of "healthcare" is just good solid MBA-school maximization of shareholder value.

What few seem to notice is the barriers that limited the pillage and plundering of the private and public-sectors have all eroded or been hollowed out. The legal framework is now a mirror-image of the financial sector, a series of facades that mask the pillage and plundering: of course it's profitable, but it's also legal.

The social barriers have also been dismantled. There are no taboos left, as "anything goes" is the modern zeitgeist. The notion that corporations have a social responsibility to the community they're embedded in is now a quaint whiff of nostalgia, along with the notion that corporations have an implicit responsibility to serve the larger national interests as well as "shareholder value."

Every institution has been hollowed out by self-service. Is it any wonder than younger generations have near-zero trust in institutions, given that their PR veneer of "public service" is just a cover for milking the system for private gain?

If you read histories of capitalism--for example, Fernand Braudel's three-volume Civilization and Capitalism, 15th-18th Century ( Volume 1Volume 2Volume 3you discover that "capitalism" only functions as advertised if it is embedded in a moral order, something Adam Smith understood.

In early European capitalism, Christianity (Catholic and Protestant) provided this moral order. In China, Confucianism provided the moral foundation of the society and the economic - political structures.

Consider Xi Jinping's campaign to unify Confucianism and Marxism. This is not an anachronism, it reflects Xi's understanding that Marxism does not provide the moral foundation needed to limit the corruption undermining China. Only restoring a Confucian moral order can do that.

I explored this in some depth in this essay Pieces of the China Puzzle (April 27, 2024).

Here is an excerpt:

As the author noted, "his attempted synthesis of Marx and Confucius has prompted bafflement, even mockery, among observers outside and inside China."

To me, there is nothing baffling in this synthesis; it not only makes perfect sense, it can be understood as essential in the broader context of China's history and culture.

If we truly want to make America great again, as opposed to using the slogan as cover for more grift and graft, then we have to start by recognizing the moral sinkhole we're in. Institutions, the government and corporations have all lost our trust because they're all cesspools of self-serving corruption.

No, this is not "normal" or "the way it's always been." Those are the excuses we deploy to avoid facing the truth: our status quo is so thoroughly corrupt that it's no longer even seen as corruption, it's just BAU--business as usual.

There will be consequences, for a society that lacks a moral foundation is a society shorn of value, a society of fakery, PR and narrative control designed to mask maximizing my gain regardless of consequences pillage and plunder.

When a hard rain finally falls, it will surprise us, for in our grandiosity and hubris, we imagined we were gods, immune to the fatal consequences of our corruption.

*  *  *

Check out my new book Ultra-Processed Life and my new fiction/novels page.

Become a $3/month patron of my work via patreon.com.

Subscribe to my Substack for free

Tyler Durden Sun, 07/06/2025 - 09:20

Which Countries Invest In The US The Most?

Which Countries Invest In The US The Most?

Foreign direct investment flows have steadily climbed in recent years, fueled by the expansion of multinational companies.

A growing share of that capital is now concentrated in a small number of economies, including the United States.

This graphic, via Visual Capitalist's Kayla Zhu, visualizes foreign direct investment (FDI) into the U.S. by country or region of origin in 2023.

Data comes from Citigroup.

Which Countries are Investing in the U.S?

Below, we show 2023 FDI inflows into the U.S. by country or region.

The U.S. attracted $311 billion in foreign direct investment in 2023, making it the top global recipient by far.

According to Citi, the U.S. saw a growth of 13% between 2023 and 2024 while most other regions saw declines. The U.S. also recorded the highest growth in greenfield projects, including Taiwan Semiconductor Manufacturing Company’s $65 billion investment into constructing a new chip plant with three fabs in Arizona.

The European Union accounted for the largest share of FDI into the U.S. at $140 billion, or 45% of the total.

European companies like Volkswagen have long invested heavily into the U.S., including Volkswagen’s recent investment of around $800 million to electrify its Tennessee assembly plant.

Japan, Canada, and the United Kingdom were also major investors, each contributing over $35 billion in FDI.

The U.S. has consistently ranked among the top recipients of global FDI in the past decade alongside China

To learn about the global FDI landscape, check out this graphic that visualizes the decline of FDI into China.

Tyler Durden Sun, 07/06/2025 - 08:45

Jaguar Sales Plummet By 97.5% After Awful They/Them Rebrand

Jaguar Sales Plummet By 97.5% After Awful They/Them Rebrand

Authored by Steve Watson via Modernity.news,

Yet another stunning example of ‘go woke, go broke’ has come to pass after high end car brand Jaguar has seen vehicle sales fall off a cliff following a mind blowingly stupid non-binary rebrand.

Sales in Europe dropped by a whoppping 97.5 percent year-over-year in April 2025,  figures from the European Automobile Manufacturers’ Association (AECA) reveal.

Jaguar sold just just 49 cars in April 2025 compared to almost 2,000 in April 2024. Year-to-date sales from January to April have also plunged by more than three quarters with just 2,665 vehicles sold.

Around the world, Jaguar sold under 27,000 vehicles for the 2024/25 financial year, 85 percent fewer than just six years prior.

It’s the most catastrophic decline in the history of the company, and it comes as a surprise to absolutely nobody.

The company had a glorious history of producing sleek and iconic cars associated with James Bond and Steve McQueen, yet the handed their branding over to an LGBTQ activist who decimated it by ditching the classic big cat logo and designing a car that looks like a big pink cardboard box.

Worse still, they announced this rebrand with a commercial featuring cross dressers that look like they belong on the set of Dune.

The stock price of the company instantly sank.

Formula One racing legend Johnny Herbert commented on Jaguar’s bizarre rebranding of itself into some sort of LGBTQ activist campaign, calling it ‘confusing’ and revealing that no one he’s spoken to in the auto world understands what the company is doing.

“I would say the biggest problem is the Jaguar product. It is not selling,” Herbert added, further noting that “To take the cat off Jaguar just seems the most unbelievable marketing decision I think I have ever seen.”

Following the immediate backlash, the new weirdos at Jaguar declared “you’ll soon see things our way.”

Jaguar is insisting that the collapse in sales has nothing to do with the rebrand, claiming that “Comparing Jaguar sales to 2024 is pointless as we are no longer producing vehicles in 2025 with low levels of retail inventory available. Jaguar’s rebranding is not related to a sales decline.”

“A spokeswoman said: ‘”Jaguar’s transformation towards a new portfolio of pure-electric vehicles was announced as part of the Reimagine strategy in 2021. JLR always envisaged a period when the current range would ‘no longer be on sale’ before the introduction of the new Jaguar collection,” the company further declared.

Rest assured, no one is buying this car.

Your support is crucial in helping us defeat mass censorship. Please consider donating via Locals or check out our unique merch. Follow us on X @ModernityNews.

Tyler Durden Sun, 07/06/2025 - 07:00

France's Fiscal Reckoning: Is The Eurozone's Second Giant Next In Line?

France's Fiscal Reckoning: Is The Eurozone's Second Giant Next In Line?

Submitted by Thomas Kolbe 

France is caught in a debt spiral. Now the president of the French Court of Auditors is warning of the consequences of political inaction.

Pierre Moscovici has served as president of the French Court of Auditors for five years, overseeing regular audits of the nation's public finances. From 2012 to 2014, he was France’s finance minister and then spent five years as EU Commissioner for Economic and Financial Affairs, Taxation and Customs. The man knows his way around empty coffers.

On Wednesday, Moscovici called on Prime Minister François Bayrou to take urgent steps to consolidate public finances. France’s budgetary situation, he said, has spun out of control, especially in 2023 and 2024. If a turnaround is not achieved soon, the capital markets will force one. “We can still act voluntarily,” he warned the government, “but tomorrow, the markets may impose austerity.”

For Now, Calm in the Bond Markets

Once the dominoes start falling, it goes fast. Investors dump French government bonds en masse. Yields spike, prices plummet, and refinancing the country’s massive debt becomes even more costly. Already, interest payments consume 10.6% of France’s state budget—roughly the same as education spending. As debt levels rise, fiscal maneuvering space shrinks.

With sovereign debt at 114% of GDP, the trap could snap shut unexpectedly. For now, European officials still point fingers at the U.S., whose debt ratios are similar. But no one can say how long that deflection tactic will work. Credit risk materializes suddenly—usually without warning.

Point of No Return

What we do know is this: historically, a debt ratio above 100% of GDP is already considered critical. At that point, even ambitious reform efforts are rarely enough to grow out of the mess. And unless the indebted country happens to issue the world’s reserve currency, capital markets will deliver their verdict—as we saw during the Eurozone debt crisis fifteen years ago.

What follows is familiar: central bank intervention to keep government finances liquid by running the printing presses—transferring the bill to citizens through inflation.

France has never been known for fiscal conservatism. Years of political stalemate, shifting majorities, and unstable coalitions have pushed annual deficits far beyond the Maastricht 3% threshold. In 2024, the deficit reached 5.8% of GDP. Even with early consolidation steps, it is expected to remain at 5.5% this year—far above the target.

No Economic Comeback in Sight

If French policymakers are banking on a comeback in economic growth, they may be disappointed. In May, the Purchasing Managers' Index (PMI) for manufacturing came in at 48.1 and for services at 49.6—both in contraction territory. PMIs reflect business sentiment, with readings above 50 indicating growth and below 50 signaling decline. They are considered early indicators of economic and industrial trends.

In other words: despite—or perhaps because of—massive government spending, the French economy is stuck in recession.

Contagion Risk

France’s brewing fiscal crisis is more than a national tragedy. Alongside Germany and Italy, France is under close scrutiny from analysts and investors worldwide. Can Paris pull off fiscal consolidation? Confidence in France’s creditworthiness has been shaky for years. In 2023, Moody’s was the last major rating agency to downgrade France’s AAA status, assigning a negative outlook.

If capital markets further downgrade French debt, the consequences would spill across the Eurozone. Here, the old rule applies: hang together, or hang separately. Bond markets tend to move from one weak link to the next, rigorously reassessing creditworthiness in crisis situations. Those who falter pay higher interest—or lose market access altogether. Moscovici knows this.

The pressure is mounting on national governments: either push through tough budget reforms or increase the tax burden on citizens.

The French Exception

France is a special case. With a government spending ratio of 57.3% of GDP, it ranks among the top welfare states in the world. Accordingly, the overall tax burden has risen to 45.6%—well above the EU average of around 40%. Citizens are already surrendering nearly half their income to maintain Paris’s welfare illusions.

Social peace is being purchased with money that no longer exists—financed by debt and propped up by the illusion of fiscal sovereignty. When even the nation’s top auditor demands consolidation, one thing is clear: it’s about to get serious. The social budget—the bedrock of the political quiet pact keeping unrest in the banlieues at bay—is at stake.

History teaches us: when governments cut social programs in France, social peace crumbles. Then the suburbs—from Paris to Marseille to Lyon—go up in flames.

* * * 

About Thomas Kolbe: for over 25 years, he has worked as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination.

Tyler Durden Sun, 07/06/2025 - 07:00

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