Jonathan Yates: As dire as economic conditions appear in Europe (NYSEARCA:VGK) due to the debt crisis, the tactics of the European Central Bank in financing rescue packages has actually made them worse.
If the European Central Bank, like the Federal Reserve under Chairman Ben Bernanke, were not expanding its balance sheet to acquire debt paper, conditions would be even more woeful.
Still, while all this has been taking place, investors ranging from Warren Buffett to Jim Rogers to the Chinese have shunned euro bonds as irresponsible.
Meanwhile, growth in emerging markets is still much, much stronger and much more enduring. Russia will post economic growth of 4.5% this year. For Brazil, it will be 3.1% China and India will be much stronger at 9% and 7.3%, respectively.
Europe will be lucky to even have any economic growth for 2011 and the future. The theats of downgrades on a variety of European entities, both public and private sector, as detailed in many articles on www.emergingmoney.com, is ample proof.
This emerging market growth has been built on the selling of goods and services, not the buying of bonds through a bookkeeping measure by a central banking authority.
Even though exchange-traded funds for emerging markets such as iShares Emerging Market Index (NYSEARCA:EEM) and Wisdom Emerging Markets Equity Income (NYSEARCA:DEM) are down for 2011, economic growth of this magntiude will raise the share prices when European currency assets, such as CurrencyShares Eurotrust (NYSEARCA:FXE) must meet the test of the market to be sold through offering higher interest rates.
As detailed in an article in the Financial Times by Chris Giles, David Oakley and Claire Jones, “Haven buying sees surge in demand for gilts,” financial weakness in Europe is keeping rates low. That is hardly encouraging for the long term economic future of Europe.
About this, Jonathan Portes, Director of the National Institute of Economic and Social Research, cautioned that, “Our current historically very low level of interest rates is — just as in Japan — a sign of economic failure, not success.”
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