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.
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.
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
One Response to “Euro Area – It Isn’t Over Yet”
Most read in the last 20 days:
- Alan “Bubbles” Greenspan Returns to Gold
Faking It Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961 He was in it for the power and the glory... Alan Greenspan gets presidential bling...
- End of an Era: The Rise and Fall of the Petrodollar System
The Transition “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
- Writing on the Wall
Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so. It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
- A Fully Automated Stock Market Blow-Off?
Anecdotal Skepticism vs. Actual Data About one month ago we read that risk parity and volatility targeting funds had record exposure to US equities. It seems unlikely that this has changed – what is likely though is that the exposure of CTAs has in the meantime increased as well, as the recent breakout in the SPX and the Dow Jones Industrial Average to new highs should be delivering the required technical signals. The bots keep buying... Illustration via...
- The Central Planning Virus Mutates
Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination. A...
- Destination Mars
Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks. If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical. But, in certain economies, this is now standard operating procedure. The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
- America Has Become a “Parasitocracy”
Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to. Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
- Fat People for Trump!
Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot. The protest vote attractor with the funny hair. Image credit: Liberty Maniacs Trigger warning: In the following ramble, we make fun of...
- Long Term Market Perspectives
Methuselah Tree When looking for a good theme for this post I pondered for a while and then decided to use a picture of a bristlecone pine, which are widely considered to be the oldest living trees in the world. Ye olde bristlecone Photo credit: Kosta Konstantinidis You can find them near the Nevada/California border and if you wind up traveling in the area then I strongly recommend that head over to Bishop and from there head up high up into the White...
- EU Sends Obsolete Industries Mission to China
“Tough Negotiations” The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”) and European Council president Donald Tusk, has made landfall in Beijing. Their mission was to berate prime minister Li Keqiang over alleged “steel dumping” by China and get him to cease and...
- The Real Reason the “Rich Get Richer”
Time the Taskmaster DUBLIN – “Today’s money,” says economist George Gilder, “tries to cheat time. And you can’t do that.” It may not cheat time, but it cheats far easier marks – consumers, investors, and entrepreneurs. Tempus fugit – every action humans undertake has to take time into account. In the economy, interest rates serve as the signal and regulator of the inter-temporal structure of capital. In an unhampered free market economy, they tell...
- Celebrating 45 Years of Phony Money
$300 Trillion in Debt DUBLIN – After our trip to Las Vegas, we spent one night in Baltimore and then got on another airplane. Standing in line, unpacking bags, getting zapped by X-ray machines – it has all become so routine we almost forget how absurd it is. Get ready to be invaded, citizen... Photo by David McNew / Getty Images While armies of TSA agents pat down grandmothers and Girl Scouts, ex-soldiers take aim at the police... nutcases run...