As a hobbyist investor, watching the financial markets react to the Eurozone troubles provided an insightful barometer into global mind-share.
One way to see it is a distraction from bigger problems.
Europe may be significant as both a large marketplace and source of innovation, but its issues are regional in impact. Its fall will possibly cripple global financial markets, hurt the top 1%, but for the everyday folks elsewhere in the world, it’s not going to break too many rice bowls. It might cascade to the rest, but there is time to recover.
Simple thought experiment: What happens when China is unable to efficiently provide both demand for resources and supply as the world’s factory?
In the context of today’s intricately woven global production networks, we may have a far more crippling global problem.
In related news, another glimpse into the Chinese mind. Pragmatism has been en-culturated into Chinese thinking for millennia. Seeing that change would be significant. Despite being the world’s largest holder of foreign reserves at $3.2 trillion, the Chinese insist on their position of non-interference with the Eurozone woes. They’re now firmly telling Europe despite early hints they might step in, that we have the savings, but we prefer to keep them around for contingencies.
This is revealing in a way, if it turns out true. China has been happy to lead international collaborative efforts in many sectors but when it comes to the bottom line the Chinese remain, Chinese, right on the dollar.
Vice Foreign Minister Fu Ying makes it quite plain – that China prefers to keep large reserves to maintain liquidity based on lessons from the 1997 Asian Financial Crisis: See China Can’t Use Reserves to ‘Rescue’ Countries: Fu (Bloomberg, December 3, 2011)
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Markets Focus on Europe, But China May Be Bigger Worry
by Jeff Cox
Source – CNBC, published December 1, 2011
China’s move this week to keep its economy afloat isn’t generating the big headlines that Europe’s actions got, but is no less important in keeping the world’s economic engine churning.
While coordinated action by the world’s other central banks to enhance liquidity for Europe’s banks stole the focus Wednesday, China’s decision to cut reserve requirements for banks was even more important, some believe.
That’s because the developed world has come to depend on China for a variety of reasons — from buying up American debt to providing loans to growing businesses to keeping its mighty manufacturing base growing. Read the rest of this entry »