Benchmark rates rise; Brazil votes; US service sector expands; Canada's doesn't; China holiday spending good; France stressed; UST 10yr at 5.34%; gold softer and oil eases slightly despite renewed attacks; NZ$1 = 55.9 USc; TWI-5 = 59.7

Russian lab worker dies of suspected plague in Siberia; US monitoring case | Health News | Al Jazeera

Potentially pneumonic plague. 

"...Fervo becomes the first enhanced geothermal company to reach a key commercial milestone. The power plant synchronized with the grid about a week ago, bringing online the first third of what will soon become a 100-megawatt power plant.

The entire site could be much larger, though, with the potential to generate as much as 4 gigawatts of electricity, Fervo previously told TechCrunch.

...From groundbreaking to commercial operations, the first block at Cape Station took 23 months to complete. As Fervo refines its process, it is aiming to complete future blocks in as little as 18 months.

...While traditional geothermal power taps heat sources close to the surface, Fervo and its peers are drilling deeper because deeper rock is hotter, opening more opportunities for development."

 https://techcrunch.com/2026/10/01/worlds-first-enhanced-geothermal-power-plant-completed-in-just-23-months/

"....with news benchmark interest rates are rising quickly again today, especially in the US and Europe."

And all of this when David McLeish in yesterday's article stated... "I’d argue, high global yields aren't a warning sign of financial doom. They are a return to sanity."

But a return to sanity for who...

For the US Treasury refinancing $40 trillion of debt?

For Britain paying 6% at the long end?

For France whose spread over Germany has just blown out to euro-crisis levels?

For heavily indebted households and businesses?

Or for an AI investment boom whose economics become progressively more precarious as its cost of capital rises?

The problem isn't that 5% money is historically abnormal. The problem is that we spent fifteen years building a historically abnormal mountain of debt on the assumption that money would remain almost free.

That, I think, is the hole you could drive a truck through in his article.

And yesterday I was researching this very subject before I saw the McLeish piece and this is what I found.... warning - this is long...

......................................................................................................

LET THEM EAT CAKE - THE FRENCH CONNECTION

France is beginning to look decidedly uncomfortable.

Not because one economic indicator has suddenly gone bad, another government has fallen, or another ratings agency has belatedly discovered that Paris has been spending rather more than it collects.

The problem runs much deeper.

France has spent decades building an enormous financial superstructure on top of an increasingly diminished productive economy. Now the bond market appears to be testing the foundations.

FOLLOW THE MONEY

Years ago I did some work with Toulouse-based neuroscientist Simon Thorpe on the possibility of replacing conventional taxation with a tiny Financial Transaction Tax.

Thorpe isn't a trained economist - which may have been one of his greatest advantages.

Instead of starting with the accumulated doctrine of the economics profession, he asked an extraordinarily simple question.

How much money actually moves through the financial system?

His early work using BIS payment and settlement data produced an astonishing result. Across 13 countries he examined, annual financial transactions approached US$9,000 trillion - US$9 quadrillion - against less than US$9 trillion of tax revenue.

Those gross transaction figures obviously include settlement flows, intermediated transactions and substantial double counting. But that wasn't really the point.

The point was the sheer scale of the financial machine.

France was particularly interesting because even then it was becoming obvious how financialised its economy had become while the productive economy underneath it steadily lost relative importance.

That process has continued. Manufacturing has fallen to only around 11% of French value added, while services account for close to 80%.

GDP counts all of it, of course.

But GDP doesn't ask the question that increasingly interests me.

What does the economy actually produce?

That is why I prefer what I call Productive GDP - PGDP.

France still possesses some outstanding productive companies and industries - Airbus alone makes that obvious. But there is a fundamental difference between an economy producing food, energy, machinery, chemicals, aircraft, vehicles and exportable goods, and one increasingly dominated by finance, property, asset trading and rent extraction.

€22 SITTING ON €1

Now look at what sits on top of that economy.

BNP Paribas has roughly €3.08 trillion of assets supported by only around €138 billion of accounting equity.

That is approximately €22 of assets for every €1 of shareholders' money.

Société Générale isn't vastly different, with equity amounting to only around 4-5% of assets.

We can bury this beneath CET1 ratios, risk-weighted assets, AT1 securities, CoCo bonds, Tier 2 capital, TLAC, MREL and the rest of modern banking's alphabet soup.

But none of it makes that basic arithmetic disappear.

There isn't much actual shareholders' money sitting underneath these colossal balance sheets.

Which wouldn't be quite so interesting if the market underneath those balance sheets were behaving itself.

It isn't.

FRANCE IS STARTING TO TRADE LIKE ITALY - ONLY WORSE

For decades, whenever anyone went looking for the large sick man of European sovereign debt, the finger normally pointed south.

Italy.

Something extraordinary has now happened.

French 5-year sovereign CDS - effectively the market price of insuring French government debt against a credit event - have exploded from roughly 34 basis points in early September to around 80-87.

Italy is around 66.

France's 10-year government bond yield has climbed to around 4.86%, against Italy at roughly 4.61%.

France's 30-year is around 5.42%, against Italy at about 5.16%.

And the French 10-year spread over German Bunds has blown out towards 150 basis points, compared with roughly 120 for Italy.

Read that again.

Markets are now demanding more compensation to lend money to France than to Italy across important parts of the sovereign curve.

Italy hasn't suddenly become Switzerland.

France has deteriorated.

And this is where the French Connection becomes decidedly scary.

NOW MARK THE BANKS TO MARKET

French banks inevitably hold enormous quantities of bonds, loans and other interest-sensitive financial assets. When yields rise, bond prices fall.

So imagine for a moment that these enormous French banking balance sheets were genuinely marked to market.

Forget regulatory risk weights.

Forget convenient accounting classifications.

Forget models.

Simply ask the wonderfully old-fashioned question -

What would somebody actually pay for these assets today?

With roughly €22 of assets sitting above every €1 of BNP equity, it doesn't require an enormous percentage impairment across the balance sheet before the arithmetic becomes uncomfortable.

A hypothetical 1% loss across those assets would consume roughly 22% of the equity.

Two percent - 44%.

Around 4.5% - essentially all of it.

Obviously a real bank balance sheet isn't that simple. Different assets have different durations, hedges offset exposures and many loans wouldn't suffer anything approaching those losses.

But that qualification doesn't make the leverage disappear.

It tells us where to look.

THE DOOM LOOP

France potentially contains the ingredients of the same sovereign-bank doom loop that nearly tore Europe apart during the euro crisis.

French sovereign risk rises - French bonds fall - Bank balance sheets weaken - Bank funding costs rise - The potential liability sitting behind the French state grows - Markets demand an even larger premium for holding French sovereign debt.

Around we go.

And after taxpayers were forced to rescue banks during the GFC, we were presented with another ingenious solution - bail-ins.

No more putting taxpayers on the hook. Wonderful. Except losses don't disappear because regulators change the vocabulary. Someone still wears them.

So we constructed an elaborate waterfall involving shareholders, AT1s and CoCo bonds, Tier 2 capital, unsecured creditors and, under some resolution regimes and circumstances, uninsured depositors.

The taxpayer hadn't escaped the room. We had simply developed a more sophisticated system for deciding whose pocket gets emptied first.

THE FTT IRONY

Which brings me back to Simon Thorpe.

France actually introduced an FTT in 2012 and eventually increased it to 0.4%. But it bears little resemblance to the universal model Simon and I were examining.

The French tax principally targets purchases of shares in large French-listed companies and contains substantial exemptions. Despite that comparatively hefty 0.4% rate, it raises only a few billion euros.

Thorpe's proposition turned the whole thing upside down.

France - tiny base × comparatively high rate = modest revenue.

Thorpe - enormous base × microscopic rate = potentially enormous revenue.

The French experiment nevertheless demonstrates something interesting.

An FTT has operated there for fourteen years. The financial heavens didn't fall in.

What France has never seriously tested is the much more radical proposition - stop hammering wages, productive enterprise and everyday consumption while largely ignoring the colossal financial flows coursing through an increasingly financialised economy.

Thorpe simply looked at those flows and asked why. It was a very good question then. It is an even better one now.

LET THEM EAT CAKE

France therefore isn't merely facing a government debt problem.

It potentially faces something much more dangerous - a heavily financialised economy, a diminished productive base, enormous leveraged banks and a deteriorating sovereign balance sheet sitting directly on top of one another.

Each feeds into the others.

None of this means France collapses next Tuesday. The ECB possesses enormous firepower. France remains wealthy, possesses excellent infrastructure, skilled people and some world-class industries.

But markets have an unpleasant habit of discovering vulnerabilities before politicians acknowledge them.

Right now the warning lights are beginning to flash together - sovereign CDS, 10-year spreads, 30-year yields, a steepening yield curve and the broader currency environment.

Now add the extraordinary leverage sitting inside the French banking system. Perhaps the bond market settles down. Perhaps the ECB rides over the hill again. Perhaps Brussels invents another acronym and applies another regulatory sticking plaster.

But there is a wonderful historical irony in all this. France gave the world the most famous expression ever attributed to an elite hopelessly detached from the economic reality beneath it.

Whether Marie Antoinette actually said it hardly matters - two-and-a-half centuries later, the metaphor remains perfect.

France has built an enormous financial cake on top of a shrinking productive base - and now the bond market has finally started asking who is going to pay for it.