China to Continue German Bund Purchases Until They Become Too Risky

China Offers Cautious Support for Europe –

The Wall Street Journal  is a newspaper aimed at businesspeople and investors. What businesspeople and investors want to see is an eternal bull-market and an ever-growing economy.

Murdoch’s media empire revolves around the tenet of giving the people what they want. The tabloids focus on celebrity scandals to sell papers; the Fox News Channel tells conservative voters what they want to hear about politics; the WSJ gives businesspeople hope about improving economic conditions.

If you subscribe to the paper, you are presumably a businessperson or an investor. This is the headline you saw regarding Merkel’s visit to China to meet Prime Minister Wen:

China to Continue Investing in Europe

Now, people who were looking for articles through a search engine received this headline instead:

China Offers Cautious Support or Europe

Which headline do you think is more optimistic? I think it’s the first one. Which one do you think is more accurate? Let’s see.

The article opens by indirectly quoting Wen who said that China pledges to continue buying European bonds. This pledge is meaningless. China has $3.2tr in foreign currency and needs to place this cash somewhere. Note that Wen did not say that China would continue buying PIIGS bonds, just European bonds. German and French bonds are trading around record low yields and are not distressed. China is probably buying these bonds and will continue to do so.

What is more telling about China’s position is this direct quote by Wen:

“The European debt crisis recently has continued to deteriorate, giving rise to serious concerns in the international community.” Mr. Wen said. “Frankly, I’m also worried.”

And this statement from the article:

But Mr. Wen stopped short of concrete pledges and noted that China’s purchases would require “fully evaluating risk,” suggesting that meaningful aid still can’t be assured.

From these quotes, China’s actual position regarding Europe is clear. The Chinese government is worried about getting its money back. Furthermore, why does the article state, “China pledged…” and then turn around and state a couple of paragraphs later that Wen stopped short of concrete pledges. Well, did he pledge or didn’t he?

The net result is that China did not pledge to do anything. A more accurate analysis of the quotes is that the Chinese government will continue buying European bonds, but that it will stop if the bonds become too risky.

The article then relays to the reader the usual talking points about how important the relationship between China and Europe is and offers examples of trade between the two. Then, the writer tells us that Merkel believes that China should improve working conditions for foreign journalists.

Whenever a Western leader meets with her Chinese counterpart, China has to be reminded about being a totalitarian state with human rights abuses, and the journalist has to include that statement in the article. What is actually significant about this is that Merkel used kid gloves to deal with the issue of the Chinese government attempting to silence German journalists. Germany must need the money more than we realize.

The last indirect quote by Wen is utterly meaningless:

Mr. Wen said Beijing will also strengthen talks with the European Central Bank, the European Union and International Monetary Fund to help Europe get through the turmoil.

What exactly does “strengthen talks” mean? Will the Chinese Olympic weightlifting team be participating in the talks? It’s one thing for a politician to make a nonsensical political statement. It is quite another for the journalist to choose to include it in the article.

After reading the article and comparing the headlines, I find that neither is accurate. This is my headline for the article:

China to Continue German Bund Purchases Until They Become Too Risky


One thought on “China to Continue German Bund Purchases Until They Become Too Risky

  1. Per strengthening talks with the ECB, Wen might have his eyes set on a collateralized ginseng obligation the ECB can take on its books to offset its risk in non-sovereign “assets.”

    I have to take issue with the notion of the sovereign debt in industrialized countries becoming “too risky.” This is not to say there is unlikely to be a crisis of confidence whose effect results in sovereign debt of industrialized nations coming under duress on the open market. Indeed, this is all too likely. As such, a shortening of maturities would seem most prudent. Yet there really is no good reason to suppose massive sovereign defaults are on the horizon. Of course, this assumption hinges on belief that, the very notion of the sovereign nation state is going to survive the current onslaught from a supra-national banking dictatorship being run out of London and New York in particular.

    Now, for sovereign nations to survive there is going to have to be a massive reorganization of the banking system along Glass-Steagall lines followed by massive investment in physical economies the world over. Only this will assure the sure payment of today’s sovereign debt obligations, as well as survival of the sovereigns, themselves.

    Here’s the clincher, though. We have to assume the bodies politic of those nations currently threatened by a supra-national banking dictatorship have it in them to wrestled back control over finance. Indeed, this effort must begin in the United States, as well, as constitutionally defined powers uniquely give the U.S. body politic capacity to ultimately control every aspect of financial affairs within the nation. Once the U.S. goes the Hamiltonian route, then, many a sovereign, which today are hopelessly insolvent, surely will follow.

    They say, “Necessity is the mother of invention.” Well, 2008 plainly was not the end of financial crisis, but rather only the beginning. So, over the period immediately ahead will the reawakening of all things “great” in American history likely come. Furthermore, were a patriotic current to sweep over the United States during the frightful period now at our door, the U.S. finally — finally! — could put closure on its Revolution of 1776 by offering statehood to every land where English is spoken. Indeed, notwithstanding the nation’s present bankruptcy, still very much intact is the power to bury the U.K. and its supposedly “symbolic” monarchy (which in fact is not so) once and for all. Maybe, too, as each member of the Royal Family dies, we could bronze them and place them kneeling at the Statue of Liberty for all posterity to adore.

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