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China & the American Imperial Economy | Louis-Vincent
China & the American Imperial Economy | Louis-Vincent Gave
#China #American #Imperial #Economy #LouisVincent
“Hidden Forces”
In Episode 364 of Hidden Forces, Demetri Kofinas speaks with Gavekal CEO Louis-Vincent Gave about de-dollarization, U.S. re-industrialization, and his case for a Chinese “deflationary boom” and revaluation of the renminbi.
In the first hour of their conversation, Demetri asks Louis-Vincent…
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Investors are still in denial about the fundamentals of the economy. They expect rares will soon be cut and believe the topline GDP numbers signal a strong economy. However, they dont. Credit card balences are maxed out, more credit is hard to come by for consumers, a ton of companies are about to beforced into refinancing their debs at far higher interest and the regional bank backstop program is out this month. There's also the fact that inflation ticks higher than expected every single time the markets believe a rate cut is around the corner and a rate cut would cause a surge in inflation. The fed sees this stuff, guys. The only wild card for us investors is to actively engage the market by trading, we always over complicate things when we speculate. It's not about guessing the market's next move; it's about playing it smart and steady during trading…managed to grow a nest egg of around 100k to a decent 732k in the space of a few months… I'm especially grateful to Linda Wilburn, whose deep expertise and traditional trading acumen have been invaluable in this challenging, ever-evolving financial landscape.
8min into your video you are still at the induction level, I am afraid it takes you far too long to come into the meat/body of the discussion.
Amazing Gave. Always insightful.
What does it matter about government subsidies when the bottom line is that the Chinese have a better system of capitalism than America does?
Good to know what a China schill sounds like in this sector. Not a single probing question. Your channel just went to zero value.
The US national debt is more than $34 trillion, with 22% of it held by foreign entities. The US also has $40 trillion in unfunded Medicare liabilities and $26 trillion in unfunded Social Security liabilities.
The US dollar is the dominant reserve currency, backed by its perceived strength, allowing the US to print unlimited dollars as long as the world maintains trust in it. The US dollar is the backbone of US power, and any actions that undermine confidence in the currency threaten to destabilize its position of dominance. Each unilateral sanction imposed by the US risk damaging the stability and credibility of the US dollar, leading to dire consequences for the nation's power and influence. The US is the only country actively undermining the strength of the US dollar. The freezing of Russia's $300 billion currency reserve by Western governments may lead countries to reconsider investing their funds in US Treasury bonds and finding ways to reduce their use of the US dollar.
A significant portion of US dollars is held outside the US, estimated at 60-70% of all US dollars in circulation, due to its status as the dominant reserve currency and wide use in international trade and finance. The one trillion dollar trade deficit of the US is a consequence of being the reserve currency, as a strong dollar makes it difficult for US businesses to export goods and services while simultaneously making it easier for other countries to sell to the US. Countries are expending resources and labor making goods and shipping them to the US in exchange for green pieces of paper. The US is sending back mostly empty containers.
The US budget deficit is $1.7 trillion in 2023 which must be paid for by selling more Treasury bonds. The interest on this debt is greater than the military budget. To pay the interest on its debt, the government sells more Treasury bonds, leading to a cycle of increasing debt. The US printing of dollars has been exporting inflation in other countries for decades, but will eventually increase US inflation. Raising interest rates to fight inflation decreases consumer and business spending, increases the trade deficit, and higher interest payments on government debt. Other countries will respond to the US raising of interest rate by raising their interest rate, risking global recession. The Plaza Accord addressed this issue in the past, but it will be challenging to implement such measures now.
A well-run country collects taxes to fund essential services and infrastructure. In the US political system, wealthy corporations and individuals can lobby for tax breaks. The shortfall in funding for the US government has reached $34 trillion. Instead of collecting taxes from wealthy corporations and individuals, the government pays interest to them.
Banks hold Treasury bonds for their safety, liquidity, regulatory compliance, and potential profitability. When interest rates on Treasury bonds rise sharply, the decrease in existing bond values reduces liquidity and makes it harder for banks to raise cash quickly. This causes depositors to lose confidence, triggering a bank run. In response to the current bank run, the government is issuing Treasury bonds to raise funds to compensate depositors for any lost funds. There are $19 trillion in deposits in US banks. The estimated unrealized loss on US banks' financial assets is $1.94 trillion, while the total size of their equity is $2.1 trillion. SVB had taken a $15 billion loss, while their capital is $16 billion. Around 2,315 of the 4,800 banks are currently sitting on assets worth less than their liabilities. It's a systemic issue.
A similar issue is being played out with risker Mortgage-Backed Securities (MBS) valued at $12 trillion.
The new Bank Term Funding Program (BTFP) helps prevent discounted bondholders from taking losses when they have to sell them urgently. The BTFP accepts discounted bonds at face value to be used as pledges for loans to inject more money into the economy. Risking more inflation.
It's a Ponzi scheme. Ponzi scheme cannot taper. We reached the can and there is no more road.
Following the September 11, 2001 attack, the U.S. shifted attention from China to the Middle East, easing China's entry into the World Trade Organization (WTO) in December 2001. As China emerged as the "world's factory," producing inexpensive goods that lowered global inflation, central banks, including the U.S. Federal Reserve, maintained low-interest rates, fostering excessive leveraging in the U.S. and Europe. This, coupled with risky financial practices and the housing market's collapse, led to the 2008 Global Financial Crisis. Despite feeling unsettled by China's economic growth, the United States actively pursued financial support from China, for China to continue purchasing U.S. Treasury bills.
In 2011, Obama proposed the "Pivot to Asia" strategy, which shifted the focus of US foreign policy from the Middle East to Asia. This, along with the wargaming of a sea blockade of Chinese commercial ships on a global scale, the formation of the Trans-Pacific Partnership (TPP), which deliberately excluded China, the establishment of a 2500-strong US marine air-ground task force in Darwin, and an increase in the rotation of both US Air Force planes and US Navy vessels through Australian bases, alarmed the Chinese leadership.
Unable to remain passive, hide their strength, and bide their time, Xi Jinping was selected as the leader of China in 2013 to make China more secure. These included the establishment of the Asian Infrastructure Investment Bank, the Belt and Road initiative, and the building of artificial islands in the South China Sea. In 2015 the "Made in China 2025" initiative was announced. These policies directly responded to the perceived threat posed by the "Pivot to Asia" strategy. No country is excluded from joining the AIIB or the Belt and Road Initiative. Obama's intentions were clarified when he responded to Xi Jinping's proposal on September 25, 2015, to make the South China Sea (SCS) a non-militarized zone by initiating freedom of navigation operations in the SCS on October 27, 2015.
Economic activity is energy transformed. What happens when Aneutronic Fusion and Thorium Molten Salt Reactors become a reality?
Politics determines how wealth is distributed within a country, while wars and diplomacy determine how wealth is distributed between countries.
De-dollarization and the re-industrialization of the United States are not going to resolve these chronic outcomes for US citizens of US Government policies: Economic inequality, inflation, stagnant real wages for the last fifty years, costly healthcare, an expensive education system, student loan debt totaling $1.7 trillion with an average balance of $38,000, poor public transportation systems, racial inequality, mass incarceration, the militarization of police, deteriorating infrastructure, housing affordability, homelessness, the opioid epidemic, and gun violence.
The US lost its superpower status in 1971 when President Nixon suspended the convertibility of the U.S. dollar to gold, effectively ending the Bretton Woods system. The US can no longer keep its commitment to exchange gold and the US dollar at a fixed rate of $35 per ounce. It was financially exhausted by spending on the Space program, the Great Society program, and the Vietnam War. A nation's power is based on its economic strength. The last time the US had a positive trade balance was in 1975, according to the U.S. Trade Balance report for 1970-2023.
The US is now the world's largest debtor, reflected in its net international investment position (NIIP) of -$14.3 trillion. In comparison, China (including Hong Kong) is the world's largest creditor with a NIIP of $4.3 trillion. The last time the US had a positive NIIP was in 1988. A superpower does not borrow money from other countries to fund its military.
Who is the most powerful country in the world – the world's largest debtor or the world's largest creditor?
Agree with most he says except about BRI, which is driven by China' s excess capacities and savings instead of any imperial aspirations. Also he's wrong about Made-in-China 2025. First if you actually read the original, it calls for not "dominance" but in the top rank. The diminishing demographic dividend and aggressive Western tech restrictions have made it imperative for China to move up the value chain.
A very balanced view from Louis – always a pleasure to listen to his common sense logistical approach to macroeconomics
Thanks, great discussion.
8:20 3 critical pieces: price of energy, price of USD, interest rate 9:00 US shale revolution 11:20 entering a fundamentally inflationary tume 12:40 deficit 15:40 US debt went into things that gave no good returns 17:05 two kinds of empires, land and sea. Empires pull in raw materials, made them into high value goods and push them out to other places 21:20 Before Xi: China made low margin goods. Post Xi: up the value chain. China builds whole eco systems for industries 31:30 US glorifies money, huge income discrepancies, detrimental to industry 36:20
Both Biden and Trump will have similar easy money policy 37:40 Yen hugely undervalued
Super smart…
👍👍
Why so soft of China’s spending?
They haven’t done useful infrastructure spending for decades. The past decade saw a large amount of spending to build enormous ghost cities, and they recently switched to building enormous over-capacity in wind, solar, EV’s, and batteries.
There’s a reason why China has one of the lowest birth rates in the world and why their people are emigrating in large numbers, and it isn’t because their economy is booming.
I’m not defending the US’s spending pattern, I’m just saying that this top-down economic decision making doesn’t work anywhere – in the US or in China.
Louis Gave = Amazing 🙏
Why can't we just say that Boomers ran everything into the ground for their own short term benefit and now are reaping what they have sown?
Great stuff, thanks again!
When you give away the cow to your competitor you can't cry foul when they sell you the milk.
Excellent insights about deficit spending that creates NOTHING!
I kept slapping my forehead while listening how he was praising totalitarian dictatorship that has no respect for human life. China is keeping Russian war machine that has killed hundred of thousands in Ukraine. France is social failure.
Dimitry, this was CCP propaganda BS. The worst show of the year. Just delete this dude from your list. Like LENIN said- "The capitalist will sell you the rope you will hang them with"
Luis-Vincent, it was thoughtless wester capitalist that invested western capital and technology to pull China out of SShole of communism central planning economy. They thought China will become democratic and will drop its imperial ambitions. They will jail you there eventually, and "imperial" America will have to save you and your motherland. 🤦♀🤦♂
The French hate America. When you are in France, you feel like you are in east Africa. His nation doesn't really exist anymore and he keeps blubbering about greatness of China and CCP. He will move to Russia next
Already talking about high structural inflation? I'm in.
Waste of time. Guy based in China, can't say bad things about China then. China prints money on a huge scale. What happens to China is Australia decides to move up the value added chain and starts refining the ores themselves over sending them to China and then buying back the refined goods?