{"id":123325,"date":"2022-07-08T07:21:05","date_gmt":"2022-07-08T11:21:05","guid":{"rendered":"http:\/\/stateofthenation.co\/?p=123325"},"modified":"2022-07-08T07:21:05","modified_gmt":"2022-07-08T11:21:05","slug":"european-economic-collapse-did-we-do-this-to-ourselves","status":"publish","type":"post","link":"https:\/\/stateofthenation.co\/?p=123325","title":{"rendered":"

European Economic Collapse: \u201cDid we do this to ourselves?\u201d<\/b><\/h2>"},"content":{"rendered":"

China Queues Up to Join the Davos Beatdown<\/strong><\/h1>\n

\"\"<\/p>\n

Tom Luongo<\/p>\n

The headlines are full of abject terror that Germany\u2019s vaunted industrial base can collapse, and with it the banking sector, if Russia pulls all natural gas supplies.<\/p>\n

Of course, this is exactly what the EU said they wanted, and the question now is will they get it, to quote H.L. Mencken, \u201cgood and hard.\u201d<\/p>\n

So, finally, after destroying their own economy, the politicians in Europe are considering the right question, \u201cDid we do this to ourselves?\u201d<\/p>\n

The Euro\u2019s collapse this morning to a new twenty-year low below $1.03 is answering a resounding, \u201cYes. Yes you did.\u201d\u00a0I\u2019m sure the board at Uniper<\/a>, now staring at a $9+ billion bailout after Vice-Chancellor Robert Haebeck and the rest of his Green\/Neocon zealots destroyed their investment in the Nordstream 2 pipeline, would agree with the market.<\/p>\n

And so much of this is because now the markets are fully handicapping a global recession based on a spate of terrible economic news, including Germany running a trade deficit in May for the first time in 30 years.<\/p>\n

So much for that argument that Europe has a positive cash flow statement and can\u2019t\/won\u2019t break down because of it, c.f. my\u00a0podcast from February with Peter Boockvar.<\/a><\/p>\n

But to understand why things are accelerating this quickly, beyond the Fed\u2019s hawkishness, I think it\u2019s high time we look at what China\u2019s role in this is and will be.<\/p>\n

There\u2019s been a lot of discussion about China\u2019s lockdown policy since the beginning of the War in Ukraine.<\/p>\n

What did it mean? Are they seriously paranoid or was this their very Chinese way of supporting Russia\u2019s efforts in Ukraine by exacerbating the massive supply chain breakdown created by\u00a0Davos\u2019\u00a0<\/em>Coronapocalypse? You know I side with the latter position.<\/p>\n

So, after a successful BRICS Summit which saw both Iran and Argentina apply for member status (and China inviting Saudi Arabia to join it and the SCO<\/a>), China announced a week ago they are loosening the\u00a0COVID restrictions on foreign travelers into the country.<\/a><\/p>\n

China unexpectedly slashed quarantine times for international travelers, to just one week, which suggests Beijing is easing\u00a0COVID zero policies. The nationwide relaxation of pandemic restrictions led investors to buy Chinese stocks.<\/p><\/blockquote>\n

Inbound travelers will only quarantine for ten days, down from three weeks, which shows local authorities are easing draconian curbs on travel and economic activity as they worry about slumping economic growth sparked by restrictive COVID zero policies earlier this year that locked down Beijing and Shanghai for months (Shanghai finally lifted its\u00a0lockdown measures<\/a>\u00a0on May 31).<\/p><\/blockquote>\n

The result is, as Zerohedge pointed out at the time, the return of capital inflow to China\u2019s equity markets on the announcement. But the markets had been forecasting capital flight into China for weeks since bottoming in April.<\/p>\n

\"\"<\/figure>\n

That said, this is a perfect example of what I talk about all the time with respect to potential changes in the US political situation. \u00a0Markets are always looking for changes in intentions by the political class.<\/p>\n

These little changes are seen by traders and investors as\u00a0edges<\/em>\u00a0to be played. \u00a0They may not pan out, but are bets based on a probability calculation of a state change in public policy.<\/p>\n

To this end, Fungal Joe is going to lift the Trump tariffs on Chinese imports this week to buy votes by hoping inflation moderates. I\u2019m okay with him doing this trying to right the ship. Tariffs are\u00a0never\u00a0<\/em>the answer, just like sanctions. Notice also this has zero to do with monetary policy and everything to do with supply disruptions caused by government diktat.<\/p>\n

This change by China signals an intention by the CCP to open China back up to tourism and business development that isn\u2019t likely to be reversed. \u00a0I expect this to be real and for China to make even more little moves like this as the summer drags on and markets churn in the West.<\/p>\n

With that change, capital inflow lessens the pressure on both the Hong Kong dollar (HKD) and the Hang Seng while giving China more cover to loosen monetary policy without necessarily raising rates and creates another place for capital to flow now that the ECB has capitulated.<\/p>\n

\n
\"\"<\/figure>\n<\/div>\n

Christine Lagarde\u2019s recent statements about fighting inflation being \u201cmore art than science\u201d is just saying the quiet parts out loud. But it was what came out of the ECB\u2019s emergency meeting a couple of weeks ago that finally signaled the end for the euro in the minds of investors.<\/p>\n

Not only is Germany\u2019s industrial base being literally destroyed gleefully by its government, now the ECB is going to sell German debt to buy Italian and Spanish debt to keep from drowning. This is akin to bailing water out of one end of the boat only to throw it in the other end.<\/p>\n

Couple these things with the frankly, disastrous G-7 Summit where the biggest collection of unserious buffoons gathered to ban the sale of Russian gold and contemplate a global price cap on oil.<\/p>\n

\u2026 words fail me.<\/p>\n

Honestly, after this G-7 the rush into the BRICS Alliance as well the Eurasian Economic Union (EAEU) will be unstoppable. \u00a0What serious investor with real capital appreciation goals is going to look at this group of committed (and committable) lunatics and think, \u201cYes! I can trust my money with Boris Johnson, Joe Biden and Ursula Von der Leyen!\u201d<\/p>\n

No, they are looking at this crap and opening up Tradestation.<\/p>\n

The fact that Justin Trudeau was even invited should have been your sell signal.<\/p>\n

While the BRICS were talking about a new trade settlement currency and adding members, the G-7 was talking World War III while getting caught spending more time on photo ops than substantive dialogue.<\/p>\n

Unserious people with sophomoric ideas and an antiquated sense of their global importance (especially true of the UK and Germany) is not a recipe for global capital inflow over the long term.<\/p>\n

When you look at the fragility of the EU, the UK, and Canada you realize that the only thing propping up global markets at this point is the hope that the U.S. mid-terms are a complete refutation of the\u00a0Davos<\/em>\u00a0agenda.<\/p>\n

If that doesn\u2019t happen, if somehow Soros and\u00a0Davos<\/em>\u00a0steal enough seats and put a bunch of RINOs back into Congress and the Senate to freeze any reform of Washington D.C. the collapse of the West will accelerate very quickly.<\/p>\n

Again, go back to what I said at the outset, the markets are looking for early indicators,\u00a0edges<\/em>, they can play to front run a big change in a country\u2019s domestic\/foreign policy.<\/p>\n

If the US has an honest political revolution in November replete with the stirrings of entitlement reform and fiscal sanity while the Fed continues raising rates, then that would be a massive buy signal for not only the US but also China.<\/p>\n

If not the US begins its collapse and happens for multiple reasons.<\/p>\n

The first is obvious. \u00a0Insane Progressives and Commies will be emboldened to destroy what\u2019s left of the Rule of Law in the US.: pack the SCOTUS, ban guns, etc.<\/p>\n

That will send capital fleeing to relatively safe places like Pakistan.<\/p>\n

The second is almost as obvious. \u00a0It will confirm and solidify for a critical mass of people that the government is irredeemable and it\u2019s time for either a new convention of States,\u00a0per my recent conversation with Bill Fawell<\/a>, or secession as the only real options left.<\/p>\n

Because when all peaceful means of revolt are taken away from people, violence ensues.<\/p>\n

While these evil people think they are unassailable, the reality is that they are not. If you doubt me, go look at video of the Dutch Farmer\u2019s Revolution for confirmation of just how angry people truly are.<\/p>\n

None of the issues surrounding the Dems have worked at this point.<\/p>\n

No amount of SSRI-addled, known-to-law-enforcement-enabled shootings will roll out gun control in the US.<\/p>\n

No amount of screeching from unfuckable purple-hairs will bring back Roe v. Wade.<\/p>\n

No amount of sexual deviance at the public schools will usher in legalized pedophilia.<\/p>\n

These are the positions Democrats have staked their future as a party on and most of America is sincerely fed up with it while their businesses are looted, their bank accounts are emptied and their kids sexually-assaulted at school by strippers.<\/p>\n

This is why I fully expect voter fraud costs to soar this November and for the 2000(00) Mules strategy to fail as a result. Proud Boys and Oathkeepers will gladly stand outside drop boxes looking for some douchebag with a handful of fake ballots to \u201cquestion.\u201d<\/p>\n

This means they will just print votes out of thin air, but they can only really do that in places like California.<\/p>\n

China opening back up for business is good news. \u00a0Ending COVID restrictions are necessary to shifting the flow of capital from mattresses back into the global economy. \u00a0\u00a0But it won\u2019t happen fast enough without a political revolution in the US to stave off a year or two of messy activity as supply chains reroute.<\/p>\n

If China opens up more and the mid-terms are a blowout for normal people there is ample room for the Fed to keep going higher with rates from a US gov\u2019t budget perspective. \u00a0A good article recently from Wolf Street\u00a0<\/a>reminds us (and me) that only new debt is subject to the higher rates the Fed is now charging.<\/p>\n

We have historically low debt servicing costs.<\/p>\n

?token-time=1658275200&token-hash=PF-dJKZooZQWFJK7FDdAHgK3mJFstmXDsm2hS_jb9_0%3D\u201d alt=\u201d\u201d\/><\/figure>\n

The budget is still a mess and it\u2019s why entitlement reform is the key political issue going forward. \u00a0So, if Soros wins this fall and\u00a0Davos\u00a0<\/em>remains firmly in control of Washington, then there is no hope for America\u2019s future as a 50-state compact. \u00a0They will burn the rest of this country to the ground before giving up control of it.<\/p>\n

Even if the mid-terms go well, the transition period before the new Congress is sat will be horrific.<\/p>\n

Between now and then expect them to push a NATO\u00a0casus belli in Ukraine<\/em>\u00a0on us to try and save Biden\u2019s Depends budget, Johnson\u2019s terrible hair and Scholz\u2019s saggy man boobs.<\/p>\n

This is how they will counter China moving to attract capital, by starting another war.<\/p>\n

The problem for all of them is that China ultimately wins either way. \u00a0All they will do is delay the inevitable because\u00a0as I pointed out the other day<\/a>, there isn\u2019t the productive capacity TODAY to fight a two-front war in Europe and the Pacific.<\/p>\n

If NATO moves on Russia, China will move on Taiwan. The Russians are salivating at the prospect of the\u00a0Brits coming in to fight them in Ukraine<\/a>\u00a0to free up the US to take on China.<\/p>\n

And the West will lose both wars simultaneously, on the off-chance the whole thing doesn\u2019t go nuclear. I do believe pushing the US into political crisis is the ultimate\u00a0Davos<\/em>\u00a0play here. \u00a0The problem is, since Putin moved on Ukraine the way he did, there is no pulling that off without atomizing Europe in the process.<\/p>\n

So, for once,\u00a0Davos\u00a0<\/em>is staring at a Hobson\u2019s Choice rather than their victims. That Vlad, what a card!<\/p>\n

China doesn\u2019t want war with the US anymore than Russia does. \u00a0So opening up China\u2019s economy and Biden lifting tariffs here are the right capital-attracting moves to force even more instability on Europe.<\/p>\n

If we avoid WWIII, along with the Fed putting Congress in a fiscal straightjacket, then we can effect real political change in the US<\/p>\n

Everyone wins.<\/p>\n

I do believe this is the single most important point every other analyst has missed over the past couple of years. \u00a0The point of beating\u00a0Davos<\/em>\u00a0is to stop WWIII, stop the messy dissolution of the US which would be a catastrophe for everyone, and end the cycle of violence which has emanated from the European colonial powers for centuries.<\/p>\n

The US can survive this fiscally and politically. \u00a0The SCOTUS just flipped off the commies. \u00a0The people are rejecting woke anti-storytelling like\u00a0Lightyear\u00a0<\/em>and nearly everything\u00a0Netflix\u00a0<\/em>and\u00a0Amazon\u00a0<\/em>produce.<\/p>\n

Seen recently in the Financial Times, even Blackrock is seeing the light.<\/p>\n

\"\"<\/figure>\n

This tells me that Blackrock\u2019s balance sheet is in serious trouble. \u00a0It tells me their AUM is falling and their ESG\/DEI strategy is gutting the company from within. \u00a0I wouldn\u2019t doubt for a second that Larry Fink bet the farm on Obama\/Schwab getting rid of Powell and now they are staring at a collapse as Powell says, \u201cMy turn.\u201d<\/p>\n

For all of their power, this is still a company with just $36 billion in shareholder equity. Apple sells that many iPhones in 2 months.<\/p>\n

\"\"<\/figure>\n

I\u2019d love nothing more than to see Blackrock become the next Lehman Moment. \u00a0I\u2019m sure most of Wall St. wouldn\u2019t either. \u00a0There is blood in the water folks and the sharks are circling Europe. Maybe Jamie Dimon will change his middle name to Bruce just to make the point clear to everyone.<\/p>\n

I\u2019m sad I gave up popcorn.<\/p>\n

___
\nhttps:\/\/tomluongo.me\/2022\/07\/05\/china-queues-davos-beatdown\/<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

China Queues Up to Join the Davos Beatdown<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-123325","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts\/123325","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=123325"}],"version-history":[{"count":0,"href":"https:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts\/123325\/revisions"}],"wp:attachment":[{"href":"https:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=123325"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=123325"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=123325"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}