Contributed by Mr. Jeff Xu, Co-Chief Investment Officer and Chief China Strategist of Laurence Holdings Group.
To read the original Chinese version, click here
"Those who do not seek eternity are not enough to seek a moment" If you don't understand the global situation, how can you understand China?
01 Behind the rise of the financial empire
First is gold, then oil
In July 1944, in order to take over the currency hegemony from the British Empire, President Roosevelt promoted the establishment of three world systems in the United States: one is the political system - the United Nations; the other is the trade system - the General Agreement on Tariffs and Trade, which is later the WTO; one is the monetary and financial system, which is the Bretton Woods system. The Bretton Woods system, in accordance with the wishes of the Americans, established the hegemony of the US dollar. But in fact, after more than 20 years of practice, from 1944 to 1971, for 27 years, it did not really allow Americans to gain hegemony.
What is blocking the hegemony of the dollar? It's gold.
At the beginning of the establishment of the Bretton Woods system, in order to establish the hegemony of the US dollar, Americans once made a promise to the world that the currencies of all countries should be pegged to the US dollar and the US dollar is pegged to gold.
How to peg it? One ounce of gold is exchanged for every 35 dollars.
With this commitment of the US dollar to the world, it is impossible for Americans to do whatever they want.
To put it simply, $35 is exchanged for 1 ounce of gold, which means that Americans cannot just overprint dollars. If you print $35 more, you will have to store an extra ounce of gold in your vault.
The reason why the United States has the confidence to make such a commitment to the world is because it held about 80% of the world's gold reserves at that time.
Americans believe that I have so much gold in my hands and it is no problem to use it to support the credit of the US dollar. However, the situation is not as simple as the Americans think.
After World War II, the United States was involved in the Korean War and the Vietnam War stupidly. These two wars cost the United States a lot, especially the Vietnam War.
During the Vietnam War, the United States almost wiped out 800 billion U.S. dollars in military spending. With the increasing cost of war, the United States is a little bit overwhelmed.
Because according to the United States' commitment, every 35 dollars lost means the loss of 1 ounce of gold.
By August 1971, Americans had more than 8,800 tons of gold. At this time, Americans knew that it was a little troublesome, and at the same time, some people were still creating new troubles for Americans.
For example, French President Charles de Gaulle did not believe in the US dollar. He asked the French Minister of Finance and the Governor of the Central Bank to look at the US dollar reserves in France, and the answer was about US$2.2 billion to US$2.3 billion.
De Gaulle said that not all of the points left should be given to the Americans and replaced with gold.
The French attack on the Americans had a demonstrative effect on other countries. Other countries with foreign exchange surpluses told the Americans that we don’t want dollars, but we want gold. This forces the Americans to have nowhere to go.
Therefore, on August 15, 1971, the then-U.S. President Nixon announced that the gold window would be closed, and the U.S. dollar was decoupled from gold.
This was the beginning of the disintegration of the Bretton Woods system and a treachery of the Americans to the world.
However, for the world as a whole, people at that time could not fully understand the clues.
It turns out that we believed that the US dollar is because there is gold behind the US dollar. The US dollar has become an international currency, settlement currency, and reserve currency for more than 20 years. People have become accustomed to using the US dollar.
Now the US dollar brakes suddenly, and there is no more gold behind it. In theory, it has become a piece of pure green paper. Do we still use it at this time?
You don’t need to use it, but what is the value of commodities used in international settlements? Because currency is a measure of value, if you don't use US dollars, can you trust other currencies?
For example, between the renminbi and the ruble, if the Russians (the Soviets at the time) did not recognize the renminbi and we did not recognize the ruble, we could only continue to use the U.S. dollar as the medium of exchange between us.
Therefore, the Americans took advantage of the world's inertia and helplessness to force the Organization of the Petroleum Exporting Countries (OPEC) to accept the American's condition in October 1973: global oil transactions must be settled in U.S. dollars.
Prior to this, global oil transactions could be settled in various international currencies, but after October 1973, everything changed. OPEC announced that global oil transactions must be settled in U.S. dollars.
In this way, the Americans decoupled the U.S. dollar from gold and precious metals and pegged it to commodity oil. Why?
Because Americans see it very clearly, you can dislike the dollar, but you can't dislike energy, you can not use the dollar, but can you not use oil?
For any country to develop, it must consume energy. All countries need oil. In this case, if you need oil, you need US dollars. This is a very clever move by the Americans.
Since the peg of the U.S. dollar to oil in 1973, in fact, after the U.S. dollar was decoupled from gold in 1971, the U.S. dollar began a new journey with the United States.
Few people in the entire world clearly saw this at the time, including many economists and financial experts. They were not able to point out very clearly that the most important event of the 20th century was nothing else, not World War I, World War II, or the Soviet Union. The most important event of the 20th century was the decoupling of the U.S. dollar from gold on August 15, 1971.
Since then, mankind has truly seen the emergence of a financial empire, and this financial empire has incorporated the entire mankind into its financial system.
In fact, the establishment of the so-called U.S. dollar hegemony began at this moment, and it has been around for more than 40 years.
And since this day, we have entered a real paper currency era. There are no more precious metals behind the US dollar. It is fully supported by the government's credit and benefits from all over the world.
Simply put: Americans can obtain physical wealth from the world by printing a piece of green paper.
There has never been such a thing in human history.
There are many ways to obtain wealth in human history, either by exchanging currency, you can either use gold or silver; or you can use war to plunder, but the cost of war is very huge. When the U.S. dollar became a piece of green paper, the cost of profit in the United States could be said to be extremely low.
Because the U.S. dollar is decoupled from gold, gold no longer drags the U.S. dollar back. The U.S. can print U.S. dollars at will. At this time, if a large amount of U.S. dollars stays in the U.S., it will cause U.S. inflation; if U.S. dollars are exported, it means that the world will replace the United States. Digesting inflation is the main reason why the dollar inflation rate is not high.
In other words, the export of U.S. dollars to the world by the United States also dilutes its inflation.
But after the U.S. dollar is exported to the world, Americans have no money in their hands. At this time, if Americans continue to print currency, the U.S. dollar will continue to depreciate, which is not good for the United States.
Therefore, the Fed is not a central bank that overprints money, as some people think.
The Fed actually knows what restraint is. From the establishment of the Federal Reserve in 1913 to the present 105 years, how many US dollars has the Federal Reserve issued? About 14.5 trillion.
In such a comparison, some people began to blame China's central bank.
Our central bank has issued 188 trillion M2 since the issuance of a new currency-the new renminbi in 1954. If the exchange rate is 6.8 to U.S. dollars, we probably issued 27 trillion U.S. dollars.
But this also does not mean that China is printing currency indiscriminately, because China has earned a large amount of US dollars after the reform and opening up, and a large amount of US dollars have entered China as overseas investment during this period.
However, due to foreign exchange controls, the U.S. dollar cannot be circulated in China, so the central bank must issue the renminbi corresponding to the U.S. dollar and other foreign currencies entering China, and then circulate the renminbi in the country.
How much is the RMB issued with foreign exchange as the base currency? It accounts for 70% of our total. But after foreign investment has made money in China, it may be withdrawn.
At the same time, we will also take out a large amount of foreign exchange to purchase resources, energy, products and technology from abroad. As a result, a large amount of US dollars are gone, and the renminbi is retained. You cannot destroy the corresponding amount of renminbi. The renminbi can remain in China and continue to circulate, so the stock of renminbi in our country must be greater than the dollar.
This in turn proves the astonishing development of China's economy over the past 30 years.
The huge amount of super hair was all left in China in the end, which involves the question I will talk about later-why the RMB should be internationalized.
02 After becoming a financial empire
The U.S. began to use U.S. dollars for hidden "colonial expansion"
The reason why the United States has no inflation is largely due to the global circulation of the dollar. However, the United States cannot issue dollars uncontrollably and keep the dollar depreciating, so it must be restrained.
But what should I do if I don’t have US dollars in my hand after restraint?
Americans have another set of solutions to solve this problem, that is, to issue treasury bonds, through which the exported U.S. dollars can be returned to the United States.
Americans have begun to play the game of printing money with one hand and borrowing with the other hand. Printing money can make money and borrowing money can make money. Money makes money. The financial economy is much faster than the real economy. Who wants to sweat it hard? Real economy of manufacturing and processing industries with low added value?
After August 15, 1971, Americans gradually abandoned the real economy and turned to the virtual economy, gradually becoming a semi-hollow country.
Today the GDP of the United States has reached 18 trillion U.S. dollars, and the real economy's contribution to its GDP does not exceed 5 trillion. Most of the rest is brought about by the virtual economy.
Through the issuance of treasury bonds, the United States has allowed a large amount of US dollars circulating overseas to return to the United States and enter the three major U.S. markets-the futures market, the treasury bond market and the securities market.
In this way, the Americans make money and then export it overseas, so that profits are generated cyclically, and the United States has thus become a financial empire.
The United States includes the world in its financial system. Many people think that after the decline of the British Empire, the history of colonization is basically over.
In fact, this is not the case, because after the United States became a financial empire, it began to use US dollars for implicit "colonial expansion", and used US dollars to covertly control the economies of various countries, thereby turning all countries in the world into its financial colonies.
Today we see many sovereign and independent countries including China. You can have sovereignty, a constitution, and a government, but you can’t break away from the U.S. dollar. In the end, everything you have will be expressed in U.S. dollars in various ways, and finally let Your physical wealth continues to enter the United States through exchange with US dollars.
This point can be seen very clearly through the chart of the US dollar index cycle over the past 40 years.
The decoupling of the U.S. dollar from gold on August 15, 1971 meant that Americans got rid of the shackles of gold and could print U.S. dollars at will. The issuance of U.S. dollars increased greatly, and the U.S. dollar index would naturally go down.
Since 1971, especially after the oil crisis in 1973, the U.S. dollar index has been falling, which shows that the U.S. dollar has printed more.
This has lasted about 10 years. A decline in the dollar index is not entirely bad for the world economy, because it means an increase in the supply of dollars, which means an increase in the flow of capital, and a large amount of capital will not stay in the United States, but will overflow abroad.
After the first decline in the U.S. dollar index, a large amount of U.S. dollars went to Latin America, which brought investment and prosperity to Latin America. This was the economic prosperity of Latin America in the 1970s.
The dollar flooding period lasted about 10 years or so, until 1979, the Americans decided to close the floodgates. (A drop in the U.S. dollar index is equivalent to the Americans opening the gate to release water, and closing the gate actually reduces the liquidity of the U.S. dollar.)
The dollar index began to strengthen in 1979, which meant that the delivery of dollars to other places decreased.
Latin America was already thriving because of a large amount of U.S. dollar investment. Suddenly, investment has decreased, liquidity has dried up, and the capital chain has broken. Can the economy not be in trouble?
1. The Battle of Falkland Islands broke out
Latin American countries in trouble began to think of ways to save themselves.
Take Argentina as an example. Argentina’s per capita GDP has once entered the ranks of developed countries. However, as soon as the Latin American economic crisis appeared, Argentina took the lead to enter a recession.
There are many ways to solve the recession, but unfortunately, the Argentine government at the time was a military government that came to power through a coup, and the president was Galtieri. He had no economic acumen.
As a soldier, Galtieri’s only idea is war. He hopes to get out of trouble through war.
He set his sights on the Malvinas Islands, 600 kilometers away from Argentina, which the British called the Falkland Islands.
This archipelago has been ruled by the British for more than 100 years, and Galtieri decided to take it back.
But Argentina is a South American country, and South America has always been regarded as the backyard of the United States. Fighting in the backyard of the United States has to ask the United States for instructions.
So Galtieri asked American President Reagan to give a message to see the attitude of the United States.
Reagan knew clearly that this battle at Galtieri would lead to a larger war with the United Kingdom, but he lightly stated that this is a matter between you and the United Kingdom and has nothing to do with the United States. We do not hold a position. We remain neutral.
Galtieri thought this was the acquiescence of the President of the United States to him, so he launched the Falklands War and easily recovered Falklands.
Argentina cheered up and down, like a carnival.
But the British Prime Minister Margaret Thatcher declared that she would never accept this ending and forced the American president to express his stance.
At this time, Reagan immediately tore off the mask of neutrality, issued a statement strongly condemning Argentina's aggression, and firmly stood by the side of Britain. Subsequently, the British dispatched an aircraft carrier task force to expedition to 8,000 nautical miles and took the Falkland back in one fell swoop.
At the same time, the dollar began to strengthen, and international capital returned to the United States in accordance with the wishes of the United States.
Because when the Falklands War broke out, investors around the world immediately judged that a regional crisis in Latin America had appeared, and the investment environment in Latin America had deteriorated, so they withdrew from Latin America one after another.
Seeing that the time had come, the Fed immediately announced a rate hike in the U.S. dollar. After the rate hike, the U.S. dollar accelerated the pace of capital withdrawal from Latin America. The Latin American economy is in a mess.
Almost all of the capital withdrawn from Latin America went to the United States to pursue the three major U.S. markets (bond market, futures market, and stock market), which brought the U.S. the first bull market after the decoupling of the U.S. dollar from gold, allowing Americans to earn money. Full of pouring.
At that time, the US dollar index jumped from more than 60 points when it was weak to more than 120 points, an increase of 100%.
The Americans did not close their hands after their three major bull markets, and took advantage of the money they earned and returned to Latin America to buy those high-quality assets whose prices had fallen to the floor at this time, and severely cut the Latin American economy. This is the situation after the dollar index strengthened for the first time.
If this kind of thing happens only once, then it is a small probability event; if it happens repeatedly, then it must be a law.
After the first "10 years of weakening US dollar and six years of strong US dollar", people were not sure whether it was a pattern or not. After the peak of the Latin American financial crisis, the U.S. dollar index began to fall again in 1986.
After experiencing the Japanese financial crisis and the European currency crisis, the U.S. dollar index was still going down. It took about 10 years. After 10 years, the U.S. dollar index strengthened again in 1997.
After the dollar index strengthened this time, it continued for 6 years. This is very interesting, we see that the US dollar index almost shows such a regularity:
Ten years of weakness, six years of strength, another ten years of weakness, and another six years of strength.
2. The Asian Financial Crisis
After the U.S. dollar index began to weaken for the second time in 1986, the U.S. dollar was dumped into the world like a flood for 10 years. The main flood release area this time is Asia.
What was the hottest concept in the 1980s?
"Asian Four Little Dragons", "Asian Wild Goose Formation" and so on.
At that time, many people believed that the prosperity of Asia was brought about by the hard work of Asians and the wisdom and wisdom of Asians. In fact, a big reason was that Asian countries received sufficient US dollars and received sufficient investment.
When Asia’s economy is almost booming, Americans feel that it’s time to shear wool again.
As a result, in 1997, 10 years after the U.S. dollar index fell, the Americans reduced the money supply to Asia and made the U.S. dollar index reversed and strengthened. Companies and industries in most Asian countries encountered insufficient liquidity, and some even simply funded them. The chain broke, and signs of economic crisis and financial crisis appeared in Asia.
At this time, a pot of water has been boiled to 99 degrees, which is one degree short of boiling. Which degree is the difference?
The emergence of poor regional crises.
So is it also to fight like the Argentines?
To create a regional crisis, war is not the only way.
Since the creation of a regional crisis is to drive out capital, then there are still ways to create a regional crisis without fighting?
So we saw that the financial speculator named Soros, with his Quantum Fund and hundreds of hedge funds around the world, began to attack the weakest country in Asia-Thailand, and attack the currency of Thailand-like wolves. -Thai baht.
After a week or so, the Thai baht crisis that started from this immediately had a transmission effect, all the way south, and then spread to Malaysia, Singapore, Indonesia, and the Philippines, and then spread north to Taiwan, Hong Kong, Japan, and South Korea, and spread to Russia and East Asia. The financial crisis broke out in an all-round way.
At this time, the water has boiled, and investors around the world have withdrawn their capital from Asia one after another judging that the investment environment in Asia has deteriorated.
The Fed once again lost no time to sound the clarion call for raising interest rates, and the capital withdrawn from Asia following the trumpet once again went to the United States to pursue the three major U.S. markets, bringing the second big bull market to the United States.
When the Americans made enough money, they still returned to Asia with the large amount of money they made from the Asian financial crisis, just like in Latin America, to buy high-quality assets in Asia that fell to the floor.
At this time, the Asian economy has been smashed by the financial crisis. There is no way to parry or fight back. The only lucky person this time is China.
03 Behind wars and disputes
Are all economic and trade wars
Since then, as accurate as the tide, the US dollar index has strengthened for six years. In 2002, it began to weaken again. Then, it was another 10 years. In 2012, the Americans began to make the US dollar index about to change from weak to strong. Prepare.
The method is still the same: creating regional crises around China, Europe and Russia, and the Middle East.
As a result, we have seen successively the Diaoyu Islands and Huangyan Island disputes around China. Almost all appeared densely during this period.
Unfortunately, in 2008, the United States played with fire on its own. It first encountered the financial crisis. As a result, the US dollar index was forced to postpone its strength. This time it was 2015.
The Sino-Philippines Huangyan Island dispute and the Sino-Japanese Diaoyu Islands dispute seem to have little to do with the strengthening of the US dollar index, but is it really irrelevant?
Why did it happen exactly in the 10th year after the US dollar index weakened for the third time?
Few people have explored this issue, but this issue is indeed worthy of our pondering.
If we admit that since the decoupling of the U.S. dollar from gold in 1971, there is indeed a U.S. dollar index cyclical rate.
So, based on this cyclical rate and the way the Americans took the opportunity to cut wool from other countries, we can conclude that this time it is China's turn.
Why do you say that?
Because China has now become the country that attracts and receives the most investment from the world, a large amount of international capital is optimistic about the Chinese economy entering China. In terms of economic laws, China cannot be regarded as a country alone.
The economic scale of one China is equivalent to the entire Latin America, or even larger than the total economic volume of Latin America; compared with the East Asian economy, it can also be said that the Chinese economy is equivalent to the entire East Asia.
In the past ten years, a large amount of capital has entered China, which has made China's economic aggregate grow to the second largest in the world at a coveted rate. As a result, it is not surprising that the United States has targeted China for its third sheep shearing.
1. Hong Kong's Occupy Central Incident
If this judgment is valid, then, after the Sino-Japanese Diaoyu Islands dispute and the Sino-Philippines Huangyan Island dispute in 2012, the Sino-Vietnamese "981" drilling rig conflict, the subsequent Hong Kong "Occupy Central" incident, the Sino-US confrontation in the South China Sea in 2016, and the surrounding China Things happened in endlessly until the Sino-US trade conflict that ignited in China last year.
Can these incidents be regarded as accidental?
The "Occupy Central" operation in May 2014 is in the making, and it may happen at the end of May. But it didn't happen at the end of May, it didn't happen at the end of June, it didn't happen in July, and it still didn't happen in August.
what reason? What is this brewing "action" waiting for?
Let's compare the timetable for another event: the timetable for the Fed's withdrawal from QE. Before, the United States said that it would withdraw from QE (quantitative easing). In April, May, June, July, and August, it has not withdrawn.
As long as it does not withdraw from QE, it means that the US dollar is still being issued in excess, and the US dollar index cannot be strengthened, and Hong Kong’s "Occupy Central" has never appeared. The two timetables completely overlap.
It was not until the end of September 2014 that the Fed finally announced that the United States would withdraw from QE and the U.S. dollar index began to turn around and strengthen. In early October, Hong Kong’s "Occupy Central" broke out.
In fact, China-Japan Diaoyu Islands, China-Philippines Huangyan Island, 981 drilling rig, and Hong Kong’s "Occupy Central", these four points are all explosion points. If any one of them is successfully detonated, it will trigger a regional financial crisis, which means investment in China's surrounding areas. Environmental degradation.
So as to satisfy the basic condition of the dollar profit model that "when the US dollar index strengthens, other regions must respond to regional crises, deteriorating the investment environment in this region, and forcing investors to withdraw a large amount of capital."
But unfortunately for the Americans, the opponent it encountered this time was China.
The Chinese used Tai Chi to resolve the surrounding crises time and time again. The last one that the Americans most hoped for when the water temperature was 99 degrees, never completely appeared.
After we have flowed out trillions of dollars, we have basically stopped it through various means.
It seems that the United States knows that it is not so easy to cut Chinese wool, so it has no plans to hang it on a tree. While promoting Hong Kong’s Occupy Central, the United States took a multi-pronged approach and started simultaneously in other regions. Where?
2. Ukraine crisis
The joint between the EU and Russia, Ukraine under the leadership of Yanukovych, is of course not a seamless egg. Therefore, there will be opportunities for flies to lay maggots.
But the U.S. is eyeing Ukraine not only because it is an egg with a seam, but because it is enough to attack Yanukovych, a disobedient politician, block the approach of Europe and Russia, and cause European investment. The environment is deteriorating, an ideal target for killing three birds with one stone.
As a result, a seemingly spontaneous Ukrainian "color revolution" broke out.
The purpose of the Americans was achieved in a way that was unexpected by the Americans and the people on earth:
Russian strongman Putin took the opportunity to take back Crimea. Although this was not part of the American plan, it just gave the Americans more reason to put pressure on the European Union and Japan, forcing them to join the United States in sanctions against Russia and Russia. It also brings tremendous pressure to the European economy.
Why do Americans do this?
People tend to look at this issue from a geopolitical perspective rather than from a capital perspective.
After the crisis in Ukraine, the relationship between Europe and the United States and Russia deteriorated rapidly. However, the result of sanctions against Russia by the entire Western world has directly deteriorated the investment environment in Europe and led to the withdrawal of capital from here.
According to relevant data, about trillions of capital have left Europe. The American two-handed design succeeded.
This is: if capital cannot be withdrawn from China to pursue the United States, then at least European capital should be withdrawn and returned to the United States.
This first step was achieved with dramatic changes in Ukraine, but the second step failed to meet the expectations of the United States. Because the capital withdrawn from Europe did not go to the United States, and other data showed that most of them came to Hong Kong.
This means that global investors are still not optimistic about the recovery of the US economy. And I would rather be optimistic about China, which is already on the economic downturn, but still maintains the world's highest growth rate, and then the yen has become a safe-haven currency.
This is a very important reason why Hong Kong’s "Occupy Central" began to this day, and the "Occupy Central" forces and their behind-the-scenes forces have always refused to give up, always wanting to make a comeback. Because the Americans need to create a regional crisis against China, so that the capital stranded in Hong Kong can withdraw from China to pursue the American economy.
This is also the reason why the US dollar interest rate hike cycle has no longer to increase, the United States is still stirring up turmoil in the Middle East, trade frictions, and corporate sanctions continue to put pressure on us.
The previous return of funds has not yet satisfied the appetit