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The US Is Helping China Take Over The World: Here’s How

Current Events Macro

Where Are The Trillions Of Dollars Going? 

It's going to take trillions of dollars for China to take over the World and it appears they have found their useful idiots for this task. The United States.

It all starts with the trade deficit. Most of you know how the deficit works. The United States consumes a lot but doesn't produce much.

An example to illustrate the trade deficit would be something like Walmart buying all of their goods from a factory in China.

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Walmart pays China in dollars, and China accumulates those dollars. 

Over time, China ends up in a trade surplus with the United States. 

In the old days, China would take the greenbacks we'd give them, and they would turn right around and give them back in exchange for US Treasuries (US debt).

The US would then take those dollars, and spend them into the economy.

This relationship is no longer happening. China is no longer selling us their junk for our debt. Or at least, not as much as they used to. Why is that?

China spends Trillions Of US Dollars On Belt and Road Initiative Instead of US Treasuries

This map shows exactly what China is doing with the majority of the dollars they receive from the United States.

What Is The Belt and Road Initiative?

The belt and road initiative is China's huge infrastructure project that aims to connect China, Europe, India, the Middle East, and Africa. The project is set to be completed in 2047 and will cost between $4 and $8 trillion. 

Again, most of those dollars they're using to fund this project is coming from the United States.

When I say huge, I am not exaggerating. It comprises six proposed economic corridors, including highways, freeway systems, new and existing railways, connecting not only people but probably more important, goods.

This is all through China, Russia, and Africa, the majority of the world's population lives in that area.

It's also energy, gas pipelines, oil pipelines, and seaports where China has an extensive presence up and down the coast of Africa, Egypt, Europe, India, and Myanmar. 

I want to point out another interesting city that's part of The Belt And Road Initiative, Vladivostok. If you remember my interview with Jim Rogers, his two favorite cities are Medellin, Colombia, and Vladivostok, Russia.

He's wildly bullish on the future of Vladivostok because it is the main gateway to all the goods and products going to the West from China and Russia. 

Through our trade deficit, consumption, and China's production, we are paying for an entire infrastructure project that could place China as the number one superpower in the world. 

I know you are probably shocked by this information. So, I went ahead and backed it up with the data. The first chart is the trade deficit with China. 

It goes from 2004 to 2018. On the left, it goes from $50 billion up to $350 billion.

In 2004, the trade deficit was under $100 billion. 

In 2018, the trade deficit was $323 billion. The number of dollars going to China from the United States has increased significantly following 2004. 

The second graphic represents how many treasuries China owns. It goes from 2013 to 2019. On the left, it goes from $1 trillion up to $1.4 trillion.

Us Treasury holdings by China have been dropping since 2013. They are using the cash to fund their Belt And Road Initiative.

The number of treasuries China owns had been increasing, but in the middle of 2013, it started to go down dramatically.

In 2016, treasury holdings fell off a cliff, falling to $3 trillion. 

I know $3 trillion sounds like a lot, but in terms of percentage, the number of treasuries China-owned in 2017 was 30% less than four years earlier. That's a big, big deal. 

Later on in the year, holdings did move back up, but the overall trend is down.

China's Timeline For The Belt and Road Initiative 

Pay close attention to 2013, when China announced their project. That same year, China became a net seller of US Treasuries to begin funding their scheme. 

If China pulls off the Belt And Road Initiative, it will potentially make them the number one superpower in the world.

The Global Reserve Currency Network

The Belt And Road Initiative includes 68 countries, 65% of the world's population, and as of 2017, 40% of global GDP.

Of course, I believe this number will be increasing dramatically over the decades to come. 

The Petrodollar and Eurodollar system as a network

The system got its start back in 1944, in Bretton Woods when the dollar was still pegged to gold. 

The United States had to run significant trade deficits to get dollars outside of the domestic economy, so economies of scale could function. But it wasn't working.

There weren’t enough dollars outside of the United States (there still isn't), so the international commercial banking system started creating dollar-denominated loans to satisfy demand.

This is how we got the Eurodollar system.

In the 1970s, the US took it a step further, and increased the power of the dollar network, by cutting a deal with Saudi Arabia, where they would price their oil in dollars.

As a result, Saudi oil was now priced in dollars (petrodollar) as the global economy grew as it now had easy access to dollars through the Eurodollar system.

Dollar-denominated loans and dollar-denominated oil makes for an incredibly powerful monetary network with zero competition, and it's the primary driver for the success of the US.

But it does have its problems and countries like China would prefer to avoid the dollar altogether if they could.  

Could a better system/network come along and potentially compete with the petrodollar system?

Someday a new system will come along and replace the petrodollar system. But it's going to take some serious effort to get there.

In the meantime, try to imagine the global monetary system from a different perspective, where the United States is no longer the center, but China is.  

It's clear that China is quietly working towards a new reserve currency that they hope will replace the US Dollar someday.

Network Effects Are Mandatory

One big reason for the success of the dollar is its powerful network effect. The world is hooked on USD. Nations that trade with other nations have no choice but to use dollars. If there wasn't economic activity requiring dollars, there wouldn't be any demand. 

Whether it's the dollar, bitcoin, or the digital yuan, it doesn't matter. The more people you have relying upon a given currency, the greater the network effect and the increased probability that the currency proves useful and sticks around. 

China's Digital Yuan will connect 65% of the Entire World's population

If China succeeds, it will have joined together 68 countries by 2047. That's 65% of the entire World's population and one heck of a network.

Coincidently, China happens to be giving away free digital Yuan, its new Central Bank digital currency, to beta testers in select regions throughout the country.

We could be looking at an economic area that makes up 65% of the global population, and runs on the digital Yuan, China's Central Bank digital currency, in the future.

China is interacting with India. India is interacting with Iran, and with Egypt. Egypt is interacting with Spain and Italy, and then China is interacting with Russia, which going back and forth with Iran, with Turkey, India. 

Remember this is 65% of the entire world's population, 68 countries. One of the things that made the Eurodollar strong overtime was smaller countries trying to grow their GDP. 

China is hinting at the digital Yuan as the currency of choice for the Belt And Road Initiative.

Countries like India, Iran, Turkey, Russia. And most importantly, I would argue Malaysia, Singapore, Indonesia, and this whole area surrounding Myanmar and Eastern Southern Asia. 

As these developing economies grow, their corporations are going to need capital. The banks are going to have to provide them loans.

Is it going to be the commercial banking system, or is it going to be one bank?

The PBOC, People's Bank of China. 

The Eurodollar system was set up because the original Bretton Woods system turned out to be very inefficient due to Triffin's dilemma.

Key takeaways from Triffin's dilemma, according to Investopedia:

  • Robert Triffin believed the dollar could not survive as the world's reserve currency without requiring the United States to run ever-growing deficits.
  • A popular reserve currency lifts its exchange rate, which hurts the currency-issuing country's exports, leading to a trade deficit.
  • A country that issues a reserve currency must balance its interests with the responsibility to make monetary decisions that benefit other countries.
  • Another reserve currency replacing the dollar would increase borrowing costs, which could impact the United States' ability to repay debt.
  • A new international monetary system could potentially help countries maintain a reserve currency status.

If you had just one bank, The Central Bank providing all these loans, you wouldn't have the dollar lending bottlenecks that Bretton Woods created, which the Eurodollar tried to fix.

As a result, more developing countries could grow faster if the global dollar system was more efficient.

If you give a third-world country easy access to cheap money, and great terms, then they will grow faster. It's a no-brainer.

If you think about the clumsy inefficiencies of the current legacy petrodollar system verse the efficient blockchain-friendly digital Yuan, who do you think those third-world countries will want to transact with?

Does China Have A Chance To Take Over The World?

What we know so far is that China is at the center of the largest infrastructure project in the history of the world.

It includes 68 countries, 65% of the world's total population, and represents 40% of global GDP.

China has also already rolled out its Central Bank digital currency, the digital Yuan. This is at the center of their Belt and Road Initiative Project.

The more goods and services traded in that region, the more economic activity done in digital Yuan, the stronger their network becomes. The network could grow so significantly in size that it might dethrone the dollar for the world reserve currency network. 

This is all being funded by the United States and our trade deficits. That's where China is getting the dollars they need to fund projects like the Belt And Road Initiative. 

It’s vital to understand what is happening with the trade deficit today and what it did in the past, to determine what it may look like in the future. 

To do so I checked out a recent podcast episode Peter Schiff that walks us through the trade deficit in 2008, the GFC, and what the trade deficit numbers are today.

“Our merchandise trade deficits have never been higher than they are right now.

Well, the total trade deficit, which was supposed to come out at 66.8 billion came out at 68.1 billion. So, that's a big jump above what was estimated and a big jump from the prior month, which was 63.1 billion, but it's still not a record high.

The largest unified trade deficit that we ever had on record was set in the first half of 2008, right before the financial crisis, when everything came falling apart.

That massive deficit was a by-product of the housing bubble, of the imbalances of the housing bubble that allowed Americans to live beyond their means by borrowing money, extracting equity from their homes, and then using it to buy all sorts of stuff that was imported. (Sound familiar, 2021?)

That was part of the manifestation of that bubble. And that was an unsustainable imbalance that blew up.

Well, the bubble that we are experiencing today, dwarfs anything that we experienced back then. And so I'm sure that the trade deficits that this bubble is going to produce are going to eclipse that record.

We've already set new records for goods.

Within another month or two, I think we're going to take out that record from '08. And in fact, we're going to shatter it and we're going to keep making new records until ultimately the dollar completely implodes. And we don't just have a financial crisis, but something far worse, a U.S. Dollar crisis.

The following is a chart of the United States trade deficit. It starts in 2000 and goes to 2020. On the left, it goes from a negative 80 billion up to zero. 

During the late 1990s, our trade deficit wasn't that bad, almost at zero, but then it went down to an all-time high in 2008 because we were producing very little but consuming a lot. 

It went up with the GFC, went down again and up a little bit, maybe because of the trade tariffs with China.

When Covid-19 hit, the trade deficit got worse, almost as bad as in 2008.

Although the trade deficit is bad, I think it's happening as a result of many different dynamics in the market.

Just before the 2008 crash, our consumption was high, and our production was low because we were using our homes as ATM machines to buy more and more Chinese goods.

During the GFC, the production domestically in the United States pretty much stayed the same, but our consumption went down.

That's why during the recession, the trade deficit got less extreme.

But in 2020, the consumption stayed pretty much the same, even though we've been in a much bigger recession if not great depression 2.0.

I would argue a great depression if it wasn't for the Fed and the government coming in and printing more money. So, the consumption has stayed relatively the same because of all the Stimmys and the stimulus checks. 

What has happened to US Production Of Goods And Services?

Covid-19 lockdowns and taxpayers funded “stimmy's” that keep people home instead of working, happened.

In the future, China will have more dollars than they need to execute their plan for The One Belt, One Road Initiative and nobody is stopping them.

Sadly, if they get their way, D.C. Buerocrats and corporate special interests will likely continue cooperating with China until the US is a shadow of its former self.

The closer the largest infrastructure project in the history of the world comes to completion, the more economic activity will occur between those 68 countries.

This means more demand for the digital Yuan network, and the dethroning of the United States greatest asset, the dollar.