Welcome to the week from Prof G Media, where we break down what mattered and what it all means. I'm George Hahn, and it's Friday, October 23rd. Today, a week of unrest in France. Then, the White House backs off on Russia. And finally, what a 19th century railroad crash can tell us about the AI boom. Let's get into it.
What began as student protests over school conditions has grown into a broader movement over living costs and in some cities violent unrest. As a result, parts of Paris and several other French cities are under overnight curfews this week. Around 550,000 people marched across France on Saturday and police arrested nearly 2400 people over the weekend. On Tuesday's Raging Moderates, Jessica Tarlov walked us through where it started and where it could lead.
If you listen to Macron's address, you can see the pain and anguish at monuments and French cities being destroyed by looters. And you're talking about hundreds of thousands of people that are out doing this. He has linked it back to the rising cost of living, especially fuel prices driven by the US Iran war, which makes clear that France did not participate, but that they are quote unquote suffering the consequences now. But it's important to look at the original impetus which were the conditions in these schools and that they don't have supplies, enough teachers, really an unfair system to give to kids and that was the beginning of this and now it has snowballed into basically any grievance that you might have against the state and then I assume more bad actors that have piled on and are doing things like looting Chanel's and Celine stores, up and down Paris. But when you see the meme come to life of the French couple sitting there and having a coffee and smoking a cigarette as it burns around them, you know you're in big trouble. And this has very real political implications. So they have an election in about 6 months. Marine Le Pen, who runs every time, far right candidate, getting 37, 38% of the vote and then there's a hard left rival, Jean-Luc Mélenchon, which if I butchered that, my French is no bueno, that was a joke, I know no bueno is not French, but anyway it's basically those two candidates with Le Pen holding a bit of an edge there and there is nobody in the middle and we see this bubbling up in countries all over the world where it feels like the extremes are the ones getting all the oxygen. And the raging moderates are sitting there saying, 'Well, who represents us in all of this?' But I don't know how they're going to get it under control.
Markets are rattled, too. France's 10-year yield hit 4.9% on Monday, and its debt is expected to reach 122% of GDP next year. On Wednesday's Prof Markets, Ed asked Terry Weisman, global FX and rates strategist at McGorry, what the red flags are.
Well, one red flag, and I think you just alluded to it, is that there is potentially a connection between what is happening in the bond market and what is happening on the streets and that makes a modicum of sense. If you think about it, the fact that bond yields have been rising is an indication that the market is less trustful of France's ability to rein in its deficits and get to a situation where their debt is sustainable. But of course when the market puts these kind of pressures on a country, what the market is effectively saying is they would like that country to reduce spending or raise taxes, certainly to reduce spending because France, in the case of France at least, the amount of spending that comes from the government relative to GDP is among the highest in the Euro zone, certainly in the EU, and within the broader developed market countries. Now, if that is the pressure that the market is applying to the French state, to the French government, the people effectively know about this pressure. It may not be because they watch the market, but they certainly know because politicians have been talking about reducing spending. That calls them out into the street. The problem is that when they're called out into the street, what they're effectively demanding to some extent is more spending. And of course, when they go out into the streets, it hurts GDP. There are quite a few French businesses that are saying that they're going to suffer this month in terms of their revenues and their sales because of this. But of course, when GDP goes down, tax revenue comes down as well. So it puts even more pressure on the bond market effectively because it detracts from France and the French state's ability to honor its debt obligations. You need growth to be able to pay down your debt. So some people have discussed this in the context of a doom loop, effectively a loop between what the bond market is doing and what the protesters are doing in the street, and one that can only be resolved if the state takes a strong position one way or the other, i.e. with respect to finding its way to austerity or finding its way to some sort of political dissolution of France's ties to the European Union and the Euro zone because effectively those are the constraints that France has right now. It's the constraints on its spending that are imposed by the rules of the growth and stability pact and the Maastricht treaty and its obligations to the EU. France's government spending equals about 57% of its GDP, the highest share in the OECD. Pensions make up a quarter of that.
For Scott, the unrest points to a broader question. What happens when a country protects older generations while leaving young people behind?
France is what happens when a country makes two promises it can't keep. One, to its old people that they'll never have to sacrifice, and to immigrants that they'll be French. The reality is it's kept the first promise and it's broken the second. And young people are the agent for expressing the dissatisfaction here. And I'm just trying to draw a lesson for America. And the way I see it is the biggest threat to social stability isn't immigration or aging. It's a system that rewards people for what they already have and punishes those who are just starting out. Again, the largest transfer in the history of the world happens every year, and that is young people and working age people transfer $1.5 trillion to the wealthiest generation in the history of the planet in the form of social security. I'm going to continue to touch this third rail over and over and over. We are headed towards France if we don't start acting more responsibly and start investing, for example, more money in kids than we're spending more money on ICE right now than we're spending on kids. Kids don't vote and they're paying the price for it.
Elsewhere in Europe, the war in Ukraine took a turn this week. President Trump signed an executive order waving new sanctions and tariffs on Russia, 2 days before they were set to take effect under a law he signed himself. Vladimir Putin has also proposed a summit next month with Trump and Xi Jinping to discuss ending the war. On Monday's Raging Moderates just called it a betrayal of Ukraine.
He is doing absolutely everything that Vladimir Putin wants. I am sure that he's sitting there in Moscow thinking like I didn't realize I could get this lucky at this point. And the narrative around the oil issues being about Ukraine and just ignoring what's going on in the Middle East. Like the Strait of Hormuz is the problem. Zelensky is not at this point and they have admitted as much and just horrified by all of this. The idea that Trump might consider, I mean it's Putin's proposal. We'll see if he says yes, but that he should stand shoulder-to-shoulder with Putin and Xi to talk about Ukraine and you don't invite Zelensky to come or even a representative of Zelensky's government. Like, if you hate the guy, and Zelensky has shown himself to be someone with an enormous amount of flexibility about this, call elections. When we can guarantee that people can get to the polls, that's fine. He's not attached to being president in the same way that someone like Donald Trump is or certainly Putin, she Netanyahu, who we also have to talk about. Like this feels like really getting to criminal stuff in the level of betrayal. Wall Street Journal editorial board to Russia with Love signed Donald and they write when the election is over there needs to be a bipartisan reckoning for Mr. Trump's budding alliance with the Kremlin against Ukraine, Europe, and American interests. Andy McCarthy with similar sentiment in the National Review. I get it that these are like normie Republicans and not whatever this MAGA wing actually represents, but this is harrowing stuff, what we're doing to Ukraine right now.
Last week, Ukraine's military lost speed on Star Shield, the military version of Starlink without warning. The Telegraph reported that Elon Musk pitched the slowdown to Trump and one source said Trump agreed. Both men have denied responsibility. Scott called them both out.
I think Donald Trump, the president, and Elon Musk are traitors to the West. And I really do hope there's a reckoning here. When we think about how many people have risked or given their lives trying to ensure the safety of Europe or how many Americans have died at the hands of people who've been armed by Russia. If you think about the majority of cyber attacks come from one place, Russia. If you look at the fact that Tucker Carlson's engagement declined 72% the day after the Yandex server farms were bombed in Russia, we are now allies with arguably our biggest threat to democracy globally. We've decided to ally with them. And it's also not actually that's the wrong word. President Trump has decided to ally with Russia. The American people are still very much on the side of Ukraine and we have minority rule right now where our president under the cover of darkness is coordinating or conspiring with Elon Musk to turn off battlefield technology that results in the deaths of Ukrainian citizens. If they can't stay on the offensive here, they go on the defense and Russia is going to continue to take out civilian infrastructure and bomb civilian targets. This is what the Ukrainian army has done is basically they are NATO. They are the ones protecting the West right now. And for Trump and Musk to ally with Russia and not give the Ukraine any warning that they're turning off Star Shield and Starlink and then them pointing at each other like the cowards they are. Oh, it's the government. It's President Trump. Look at him. Talk to him. Oh, I have no idea what happened. We'll be right back.
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