China's Sovereign Wealth Fund Warns on Euro

The always outspoken head of China's sovereign wealth fund, Jin Liqun, has once again uttered a warning on the still simmering euro area crisis. China of course has quite a few problems itself, and the euro area's economic contraction is actually one of them. Due to its export dependence, China needs Europe to be in better health than it is. Jin evidently realizes that the attempts to solve the crisis have by no means succeeded yet. In fact, he recognizes that the strategy pursued by the eurocracy isn't likely to get anywhere but 'a blind alley', as he puts it. Unfortunately he too cannot really offer a recipe:


„The current strategy is leading us up a blind alley," Jin said of efforts so far by European policymakers to solve the crisis.

He added that the failure of the European Union to deal with its debt crisis was damaging for the world and that "the eurozone needs to strike a proper balance between austerity and growth".

Jin was speaking at a business forum in Beijing. Talking to the Guardian after his speech, he said: "European governments should be given some time … If you ask the Greek people to slash their spending by 30-40pc, it's not possible. So there should be some tolerance, but the determination to carry on austerity should not be relaxed. It is only the issue of how you can balance one against the other."

Jin has previously said that that working harder and longer would help pull the eurozone out of recession. But, the Guardian reported that on Friday, Jin said that recent protests across the eurozone showed that austerity has stretched the public's tolerance "to breaking point".

China's sovereign wealth fund is one of the largest in the world. Earlier this year, the fund said it no longer wanted to buy European government debt.

 

(emphasis added)

We're not sure what exactly Jin means with his recommendations of a 'mixture of tolerance and austerity', as he didn't go into details on that particular point. Evidently though he can see that the current course has led Europe to a socially and politically explosive juncture. In China the political leadership is extraordinarily attuned to the preservation of social harmony, as that is seen as a guarantee to its own survival. It isn't much different though for the elected politicians of Europe. Today they are facing an ever growing spiral of discontent as the euro area's economies contract.

What makes the situation so explosive can be seen in the chart below – unemployment in the euro area has reached a new record high.

 

 


 

Euro area and total EU unemployment rates have shot to a record high. Obviously there are wide ranges between the different member states, with unemployment in Spain, Greece and Portugal the highest at 25.8%, 25.2% and 15.8% respectively – click for better resolution.

 


 

The Core Lacks the Means for a Rescue

By the way, Jin is certainly not the only one who recognizes these things. It is said that many of Europe's decision makers by now also realize that both the analysis and prognosis of the euro project's critics are correct – but they are unable to take or even contemplate the radical steps that would be required to successfully tackle the problem.

At present an unworkable plan to get the peripheral countries to cede their fiscal sovereignty is being pushed by Germany. Obviously Germany does not want to bankroll the euro project without exercising a commensurate degree of control. However, one question that should be asked in this context (see also this recent missive posted at Zerohedge on Kyle Bass' latest letter to his investors) is whether Germany itself actually has the resources to do that, regardless of how much control it has.

After all, Germany itself is not exactly a fiscal paragon and as we have pointed out several times in the past, its banking system is extremely leveraged and opaque. The same is true of France, only everything is a tad worse  – not to mention that the new socialist administration of France is the incarnation of economic ignorance.

To create a centralized European superstate has long been a dream of France's socialists by the way. The EU was driven off the course intended for it by its founders primarily by figures like Francois Mitterand and Jacques Delors. Germany's political leaders meanwhile have become so deeply invested in the 'Franco-German friendship' project that they have in the end always given their nod to everything France has demanded in terms of European policy, in spite of all their hemming and hawing.

However, the euro area's core can actually not be expected to rescue the sinking ship in the long run. It will sooner or later be forced to think about rescuing itself.

 


 

Germany's public debt in billions of euros as at the end of 2010, via Süddeutsche Zeitung. Europe's fiscal paragon? How can it be expected to bankroll the euro project?  The answer is that it actually can't – click for better resolution.

 


 

The Prison of Debt

In fact, as Der Spiegel points out in a recent article, the entire developed world finds itself in a 'prison of debt' these days. Early on in the article the root of the problem is correctly identified: the ability of fractionally reserved banks and the central banks that backstop them to create credit and money from thin air almost without limit. It also acknowledges that the cutting of the dollar's tie to gold in 1971 was the last straw that allowed debt and the money supply to enter a terminal exponential growth phase. In other words, it really is no big secret anymore what the problem actually consists of. And yet, no-one seems to know how to deal with it. It is still not even up for debate in establishment circles, with the occasional exception provided by figures like Jens Weidmann, the conservative president of the Bundesbank.

 

So why not ask the advice of the economists of the Austrian school, who have always been critical of this monetary system, tirelessly pointed out its flaws and offered alternatives galore along the way? Not only are they the only ones who have analyzed the problem in depth, they are also the only ones who truly understand the economic effects of credit expansion by dint of possessing an extensive capital theory – a subject woefully neglected by other schools of economic thought.

The transition to a system of sound money won't be an easy task, but how can it be avoided in the long run? Unfortunately is seems that only a major crisis will create the necessary incentives – and even such a crisis is not necessarily a guarantee that a sound monetary system will be adopted. In fact, it is our distinct impression that not a whole lot has been learned as of yet from the crises that have struck to date.

 


 

Unemployment in the euro area's periphery, plus US and German federal debt at a glance, via Der Spiegel – click for better resolution.

 


 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

One Response to “Euro Area – It Isn’t Over Yet”

  • No6:

    Only a hyperinflation and currency collapse can hope to cure this mess with a sound money outcome.
    Austrians point out the need for recessions as a correction to credit expansion. The west has gone way beyond the stage of recession or even depression repair. It needs a full and total catastrophic crash to wash out all the vested interests and the festering political system.
    Democracy is not self correcting. Like a bicycle, wants beyond a certain tipping point it will fall down.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • America Goes Full Imbecile
      Credit has a wicked way of magnifying a person’s defects.  Even the most cautious man, with unlimited credit, can make mistakes that in retrospect seem absurd.  But an average man, with unlimited credit, is preeminently disposed to going full imbecile.   Let us not forget about this important skill...  [PT]   Several weeks ago we came across a woeful tale of Mike Meru.  Somehow, this special fellow, while of apparent sound mine and worthy intent, racked up...
  • Retail Capitulation – Precious Metals Supply and Demand
      Small Crowds, Shrinking Premiums The prices of gold and silver rose five bucks and 37 cents respectively last week. Is this the blast off to da moon for the silver rocket of halcyon days, in other words 2010-2011?   Various gold bars. Coin and bar premiums have been shrinking steadily (as have coin sales of the US Mint by the way), a sign that retail investors have lost interest in gold. There are even more signs of this actually, and this loss of interest stands in stark...
  • Credit Spreads: Polly is Twitching Again - in Europe
      Junk Bond Spread Breakout The famous dead parrot is coming back to life... in an unexpected place. With its QE operations, which included inter alia corporate bonds, the ECB has managed to suppress credit spreads in Europe to truly ludicrous levels. From there, the effect propagated through arbitrage to other developed markets. And yes, this does “support the economy” - mainly by triggering an avalanche of capital malinvestment and creating the associated boom conditions, while...
  • Gold Divergences Emerge
      Bad Hair Day Produces Positive Divergences On Friday the ongoing trade dispute between the US and China was apparently escalated by a notch to the next level, at least verbally. The Trump administration announced a list of tariffs that are supposed to come into force in three week's time and China clicked back by announcing retaliatory action. In effect, the US government said: take that China, we will now really hurt our own consumers!  - and China's mandarins replied: just you wait, we...
  • Industrial Commodities vs. Gold - Precious Metals Supply and Demand
      Oil is Different Last week, we showed a graph of rising open interest in crude oil futures. From this, we inferred — incorrectly as it turns out — that the basis must be rising. Why else, we asked, would market makers carry more and more oil?   Crude oil acts differently from gold – and so do all other industrial commodities. What makes them different is that the supply of industrial commodities held in storage as a rule suffices to satisfy industrial demand only for a...
  • Chasing the Wind
      Futility with Purpose Plebeians generally ignore the tact of their economic central planners.  They care more that their meatloaf is hot and their suds are cold, than about any plans being hatched in the capital city.  Nonetheless, the central planners know an angry mob, with torches and pitchforks, are only a few empty bellies away.  Hence, they must always stay on point.   Watch for those pitchfork bearers – they can get real nasty and then heads often roll quite literally....
  • Lift-Off Not (Yet) - Precious Metals Supply and Demand
      Wrong-Way Event Last week we said something that turned out to be prescient:   This is not an environment for a Lift Off Event.   An unfortunate technical mishap interrupted the latest moon-flight of the gold rocket. Fear not true believers, a few positive tracks were left behind. [PT]   The price of gold didn’t move much Mon-Thu last week, though the price of silver did seem to be blasting off. Then on Friday, it reversed hard. We will provide a forensic...
  • Merger Mania and the Kings of Debt
      Another Early Warning Siren Goes Off Our friend Jonathan Tepper of research house Variant Perception (check out their blog to see some of their excellent work) recently pointed out to us that the volume of mergers and acquisitions has increased rather noticeably lately. Some color on this was provided in an article published by Reuters in late May, “Global M&A hits record $2 trillion in the year to date”, which inter alia contained the following chart illustrating the...
  • Cryptocurrency Technicals – Navigating the Bear Market
      A Purely Technical Market Long time readers may recall that we regard Bitcoin and other liquid big cap cryptocurrencies as secondary media of exchange from a monetary theory perspective for the time being. The wave of speculative demand that has propelled them to astonishing heights was triggered by market participants realizing that they have the potential to become money. The process of achieving more widespread adoption of these currencies as a means of payment and establishing...
  • The Fed's “Inflation Target” is Impoverishing American Workers
      Redefined Terms and Absurd Targets At one time, the Federal Reserve's sole mandate was to maintain stable prices and to “fight inflation.”  To the Fed, the financial press, and most everyone else “inflation” means rising prices instead of its original and true definition as an increase in the money supply.  Rising prices are a consequence – a very painful consequence – of money printing.   Fed Chair Jerome Powell apparently does not see the pernicious effects...
  • A Walk on the Wild Side
      A Walk on the Wild Side   “Never play cards with a man called Doc.  Never eat at a place called Mom’s.  Never sleep with a woman whose troubles are worse than your own.” – Nelson Algren, A Walk on the Wild Side   Fresh Fruit or Rotting Vegetables? A subtle gas seems to always be vented into the atmosphere at the sunset of an extended bull market.  As the light fades, an odor that’s indiscernible from that of fresh fruit or rotting vegetables wafts down...

Support Acting Man

Item Guides

j9TJzzN

The Review Insider

Dog Blow

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com