Predictive History - The Story of "Civilization", "Secret History", "Game Theory" and more - Game Theory #25: Trump Visits China

Episode Date: May 14, 2026

Game Theory #25: Trump Visits China

So Trump is in China. This happened about 30 minutes ago, an hour south of us. So Trump came in last night, and this morning he met with President Xi at the Great Hall of the People, and let's just have a quick look. This is him getting out of his limousine. This was brought in from the United States by a military transport. he brought his entire cabinet, including Marco Rubio, he's the Secretary of State, as well as Peter Hexev, who is the Secretary of War. The Madamy Holmes bike for brain health supporting Baycrest returns on May 31 for its fifth anniversary

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The last time an American president visited was nine years ago, November 2017. So this is a very historical meeting. And as you may remember, after Trump visited Beijing, they start the trade war and we've been in the trade war ever since. I think that this meeting is very optimistic for US-China relations. A lot has to do with who came with Trump.

So this is from Weibo, the Chinese Twitter, and what Chinese are focusing on is who came with Trump. So many of his family members came with Trump, including his son, Eric, his starting law, Lara. And they were excited about coming to China. Team China, guys. Much more important is the number of business executives who came with Trump. So you have Ellen Musk of Tesla, and of course he does a lot of business in China.

Tim Cook of Apple also does a lot of business in China. is trying to secure a $50 billion sale to Chinese Airlines. And so these are three very important business people. And then you have some of the leading financial people in America, including Larry Fink of BlackRock, Steven Swartzman of Blackstone, David Solomon of Goldman Sachs, you have Citigroup, you have Massacard and Visa. Okay, and these are the leading financial companies in America. And altogether, these business executives,

if you put all their net, the company's net worth together, their companies are worth over $12 trillion. That's a lot of money. And these are very busy people. And quite honestly, I've worked in business negotiations. You do not bring these people to, together one room unless you have a mega deal to announce to the world. Okay?

So my prediction is that by tomorrow we should have the broad contours of a U.S.-China grand bargain where the two nations reconcile their differences and they start a new chapter in world history where they work together to stabilize the global economy. So what I want to do today is discuss how we do. how we got here, why a grand bargain will happen, and what this grand bargain will look like. Okay? All right, so let's discuss some of the events

that led to this meeting between C and Trump. This is David Lee from Twitter, okay? And he's talking about the past month what happened. So the first thing that happened is that China blocked Manus. Manus is an AI company that Marks Zuckerberg try to buy and Manus was incubated in China and if you're an air company you get become very successful you want to go to the United States because that's where all the money is that's where all the talent is that's how you become really

really big but because it was it was incubated in China China said no you can't go to United States because this was said a bad president China is trying to grow its own talent so this shows you the AI war being fought between China and the United States. So that's one thing that happened. Another thing that happened is that the US imposed sanctions on Chinese companies that do business with Iran, including satellite companies that sell commercial intelligence to Iran on where US bases are. Teapot refineries, which take Iran and oil and then convert it,

into energy that China can use, okay? And in response, China said no, you cannot impose sanctions on us. If you impose sanctions on us, if people comply with these sanctions, then with the Chinese government will sanction these people as well. Okay, this is something called the blocking order. And this also seems like an escalation in the US-China trade war, where previously Chinese institutions, banks, individuals, complied with U.S. sanctions.

And this is the first time the Chinese government said to Chinese people, if you're a Chinese citizen and you comply with U.S. sanctions, then we will sanction you. Okay, so this is a very big deal. Nvidia was not able to sell chips into China. And this is going to affect Nvidia's bottom line. Nvidia is right now the world's most valuable company, primarily because AI depends on their chips. Okay?

China invited Iranian former minister Arachi to Beijing because China is very interested in the outcome of this war between the United States and Iran. Right now, Iran is blocking the ship of Homoos, and China depends on 50 to 60% of its energy needs from the Middle East. Okay? Jetsuan Huang was not on the China list. So before Trump took off, it was announced that Jetson Huan, who is the head of Individa, would not come to China. And this is a very big deal because in this grand bargain, what China would want is access

to Nvidia chips, semiconductors, in order to fuel its AI. The United States and 6,7 nations, had a war game in the Philippines and China sent 28 warships, okay? Trump sent Iran an MOU, Iran made modifications, and Trump said no. Okay, so it seems like the war will only increase in the Middle East. After Iran had responded, China announced Trump's state a visit. And then yesterday and the day before, Hei Fong, who is the vice premier in China, and Scott Besant, who is a church secretary,

met in South Korea to try to negotiate a deal, okay? And then what's going to happen is that Putin will visit China after Trump leaves. So if you just look at what's happening, it's a deal. It seems as though there's still a lot of friction between the United States and China. What I want to show you today is that all this, you can just ignore. Okay? This is all that's happening right now. But if we use game theory, if we just look at the broad contours of what's happening,

we would make much better predictions as to what will happen. So all this, I think, is just theater. All right. China and the United States are not actually fighting AI war. It's all theater. They're actually working together to promote AI. These sanctions are happening, but eventually the U.S. and China will come to a grand bargain and they will become much more economic integrated.

And Iran, China doesn't really care about Iran. China cares first and foremost about the relationship with any states. And one piece of evidence for that is that, When Foreign Minister Arachi went to Moscow, Putin met with him for 90 minutes. And Putin expressed his sympathy and support to the reigning people. When Arachi came to Beijing, he only met with his counterpart, the Foreign Minister Wang Yi. Okay? All right. Another important thing is that Scott Bezant is the one who is leading the US team in China.

Scott Besant is the Treasury Secretary. This goes against protocol because it's usually the Secretary of State, Marco Rubio, and the National Security Advisor, who also happens to be Marco Rubio. This team is the one that sets the agenda for the U.S. China visit. Because it's Scott Besant, we can probably guess that this is probably going to be economic negotiation and the focus is on we're on finance basically what America wants is for trying to open up its financial sector for companies like Black Rock and Black sort of come in to sell financial instruments to Chinese

people okay that that's what America wants and we'll talk about more about this as we go along all right let's continue okay so in the geopolitical landscape it seems as though America is trying to contain China. So this is Tehran and this is what China is trying to do. China is trying to build a high-speed rail network from Beijing all the way across Central Asia and into Europe. This is a land route that Beijing wants to take in order to maintain trade with Europe. As you can tell from this map, Tehran is the pivot.

or the hub of this trade network. Okay? Without Tehran, Beijing could not access Europe. And then Moscow also sees Tehran as very important as well for its north-south trade axis. Without Tehran, Beijing is completely reliant on Russia. Beijing does not want to become reliant on Russia. Beijing sees itself as the third axis of power in the world. You have the United States, you have Russia, and then you have China.

From a geopolitical perspective, China doesn't want to become partners with either the United States or Russia. It wants to become independent. It wants to create its own spirit of influence. That's why Iran is very, very important. So a lot of geopolitical analysts believe that Beijing is forced to support Iran in this world. war and what I want to show you is that's not actually the case all right china china may want to become independent of the United States and Russia but it cannot actually all right um now there's a rumor a couple of days ago that one deal that trump and c will sign in Beijing is

is, Xi Jinping will commit $1 trillion, $1,000 investment into America, primarily factories that manufacture EV cars. This is a huge deal. And there are Laura Ingram, who works at Fox News, she thinks it's a bad thing. She thinks that this is about China coming in and trying to buy out. the United States. As I'll show you later, this is retarded. Okay, I think this deal will happen,

but this is a deal that shows that China is ultimately dependent on America as opposed to China wants to take over America. Okay? All right, so how can we understand the Trump visit? Well, again, in this class, what I want to show you is that historical analogies is a real, really powerful way to understand the present. So the Trump visit today is analogous to Nixon's visit in 1972.

Okay? So you don't know this, but before in 1972, America was hostile towards China, primarily because of Taiwan, where during the Chinese Civil War, the Americans were very supportive. of Chiang Chai Shed and the KMT. They lost, they went to Taiwan. And when that happened, America said that, first of all, we will only recognize Taiwan

as the official government of China. Second of all, we will refuse to do any business with the PRC. And third of all, we will help Taiwan eventually try to take over China. In China, when Nixon visited, this marked a radical departure from 20 years of American foreign policy. And the question then is, why would he do that? And the answer is, in 1971, the Nixon shock. So if you talk to historians, they'll give you lots and lots of different reasons as to why Nixon

visited China. The main reason from their perspective is that Henry Kissinger, who is national security advisor to Richard Nixon, he was trying to triangulate between China and the Soviet Union, right? He was trying to get China on the side of the United States in order to defeat the Soviet Union. That's not true. That's something that historians made up. The real reason is that in 1971, Nixon removed the US dollar from the gold standard. And now the US dollar is worth nothing.

Before you could take the US dollar and change it's for gold, now it's worth nothing. If it's worth nothing, what to do now is create a demand for it. You basically have to create a Ponzi scheme. And so Nixon did two things to resolve this issue and create the US dollar Ponzi scheme. The first thing he did was create something called the Petrofurt dollar. Okay? The petrol dollar is where Saudi Arabia and other Middle East

countries like Qatar, UAE, they only sell their oil in US dollars. So now, before the value of your dollars was pet was tied to gold, the gold standard, now the value of your dollars is tied to oil. Okay, if you want to buy oil and everyone wants to buy oil, you need US dollars. There's something called a petra dollar. Okay, that's the first thing. Second thing, which is relevant to us, is China, okay?

Opening. The strategy is to turn China into a manufacturing base for the global economy. Right? So the Middle East sells

oil to the world. But China now will sell manufactured goods to the world and China will also do so using US dollars. And these two things together create the current global economy. All right. Okay, so what I'm going to do now is I'm going to explain to you why America did this, okay? This is we're going to call the Shanghai This is published from 1972. And this basically spells out the basic premise framework for all future US-China cooperation and dialogue.

And the Shanghai framework basically resolves the Taiwan question. And with regard to Taiwan question, America practicing call strategic ambiguity, meaning the United States will not be clear about the issue of Taiwan with regard to China. So what the United States has been saying for a long time is, we do not support Taiwan independence. That's just strategic ambiguity.

China would prefer the United States to say, we oppose Taiwan independence, in which case the United States is obligated now to prevent Taiwan from becoming independent. from becoming independent. That's what China would prefer, but the United States practices strategic ambiguity saying,

we do not support. I wouldn't be surprised if, over the next few months, Trump rapidly changes this attitude and declares that the United States is opposed to Taiwan independence. In fact, the United States supports the unification of China and Taiwan.

This would be a radical C-shift from previous administrations. And I'll explain later on why Trump would do this, and also why it's actually very strategic and smart for the United States to want to support Taiwan and China reinvocation. All right. So let me explain now what the China-U.S. relationship really is using the theories that we've learned in this class. Okay?

There's something that you will never learn, that you will not learn anywhere else. And this is speculation on my part. Please take it with grain of salt. Please question me. Please debate me, okay? But this is my theory of how the U.S. and China work together. And once you understand this theory,

you can then go on to make certain predictions about how the United States and China will behave moving forward. And based on whether these predictions are correct or not, you can then figure out if this theory is correct or not, okay? All right. So, the first thing understand, and something I've been teaching a lot in this class is that reality is a hallucination.

It is something that we collectively imagine together. And again, the analogy, the metaphor I use is Plato's Allegro, the Cave, where you imagine about a million people, chain together and they're all looking at a wall. Okay, this wall is empty. Behind the wall, behind the people, it's this great fire where the elite,

okay, we don't know who they are, okay? But they project shadows onto the wall. And then the people who are chained don't know what's going on behind the scenes. They only see what's in front of them, which is the wall. They see these shadows. and they start to create a reality around these shadows.

They think these shadows are real, and they think, and they create mythology, religion, an entire framework around these shadows. Okay, and this is what we call reality. All right, so the main message here is that true wealth is our attention. Okay? Our consciousness is what's true wealth. In fact, our consciousness is what's true wealth. In fact, our consciousness is what's real. Everything else is an illusion. Everything else is a shadow. Your body is a shadow.

Okay? The person in front of you is a shadow. This blackboard is a shadow. What's real is the thing inside your head. Your conscience is what's real. Now what power is, is the capacity to direct and control this attention. Okay? How I exert power over you is by making you think the way I want you to think, by making you see what I want you to see. Okay, so I can make you see these shadows and make you think it's real, and that's what true power is. And this idea, once you understand it, explains the reality that we live in. Okay, so I'm going to take this idea and apply it to reality and show you how it works. So, at the very basis of reality is the empire. Okay? It is the American Empire that's able to force you to sit down and look at the wall.

Then the people manipulating the fire, cast on the shadows, are the game masters. And these are the financial elite, including the Bank of National Settlements, the Federal Reserve, Wall Street, City of London, basically private capital. They together create the conditions for this game. They're able to direct our attention. And the mechanism they do this with is of course with capital, or US dollars. And then from, and then the game to create something called the global economy, of course, right?

The global economy. In order for this game to work, it has to, the game masters have to this, the fact that they're really in charge. So they create institutions that pretend to be objective, international, and impartial, and fear, but are in fact in trouble the game masters. These are included, of course, the UN, the WTO, the EU, the World Bank, okay? Lots and lots of these organizations. And then in order to justify and legitimize this system, in order to make you think these shadows are real, The media, education, and culture,

brainwash you, and doctrine it you, interviewing this system is real. It's all just a hallucination, okay? And then from this, of course, you have the legal system to enforce the system as well as customs and habits, values, and norms. Okay, so this is an enforcement mechanism to force you to believe that the system is real. Okay, media, education, culture brainwashes you to believe the system is real, and then you yourself want to enforce the system on others through customs and norms. Okay? Now, this is a very fragile system because it's all just a hallucination. So there are enforcing mechanisms, okay, that make sure this system is stable.

And these enforcement mechanisms are crime, intelligence, spies basically, spy networks, and science. Okay? And these three mechanisms are controlled by the true powers of this world. And they include transnational capital, basically private capital, secret societies, and elite families. And what binds them together, they're basically software. the operating system is what we're called the occult. Okay? And we'll study more about the occult later on.

All right. Okay, so this is how the world is designed. Again, this is all the hallucination. One thing that you don't appreciate it of the system is that from this hallucination, I can actually project myself onto another force and create another hallucination. Okay?

And that's what Richard Nixon did. From this system, in order to maintain the empire, in order to maintain the supremacy of the US dollar, okay? He created two new hallucinations. And there are the GCC and China. GCC and China. All right.

So what underpin this system before was gold. The fact that U.S. dollar could always be exchanged for gold. Once that's gone, then you need to create two new hallucinations in order to disguise the hallucination, okay? So what happened was that over the next few decades, this system will transport itself and impose itself on the GCC and China. Okay?

This system here, it will impose itself into the GCC as well as China. In other words, and this will impose itself, important for you guys to understand, China is a hallucination of a hallucination. It's not real. Okay, I'll explain more about this later on, okay? All right. So, once this hallucination is imposed onto the GCC in China, this creates demand for the U.S. dollar. Okay, and this creates certain instability for the U.S. dollar. And it made China very, very, very, very, very. wealthy, okay? But it's all just an illusion, it's all just a mirage. There's different problems with the system. First of all, China doesn't have any creativity, okay? Why? Because if you're

a hallucination of a hallucination, there's nothing for you to base yourself on. You're shadow over shadow. That's the first problem. Second problem is wealth extraction. Okay? The idea here is that whatever wealth China creates has to return to the source. Because the people inside China appreciate that the Rimming B, its entire value, is based on the US dollar. So you're that Rimming B or US dollar.

Of course you want US dollar. Okay? And the third problem is the fragility of this system. meaning that if this system, the hallucination is unstable, then China is even more unstable because it's a hallucination of a hallucination. Okay, do you understand? Okay, so once we understand this, then we begin to reassess what happened these past 10 years. Why do the United States and China fight this trade war? The reason why is that

China believe that it could be independent of this hallucination. In fact, it could create its own hallucination. And the United States says, no, no, no, no, no. You're going to be dependent on us. So then they started to fight this trade war. Once this trade war happened, what happened? A lot of money and people start to flee China and move back to the United States. Okay?

And now what China has recognized is, okay, first of all, We can't actually leave this hallucination, because if this hallucination would collapse, we collapse as well. So one of the only thing we can do is actually to recouple, okay? To buy ourselves even greater to the system. Another thing is that the U.S., the global economy is under a lot of strain. There are two main beneficiaries all of the global economy, the United States and China. So both are heavily invested in maintaining the illusion,

the hallucination that is the global economy. Okay? And to appreciate how fragile all this is, think of the UAE. Okay? The UAE. The UAE seen as though it was a very prosperous place. Right?

It had universities from America, like Georgetown, Cornell. It had people, the wealthiest people flocked to Dubai. It seemed invincible. But the moment you attack the UAE, like Iran just lobs a missile at UAE, the illusion shatters, and now the UAE is gone. You understand?

That's how precarious these hallucinies are. One hit at the right spot, the entire illusion is shattered. You can never bring it back. Okay? And so that's what China's afraid of now. So that's why China, in the United States, States have to work together because what's important is to maintain the nature of reality itself. The worst thing that can happen is if people wake up from the stream. Because people waking

from the stream, everything collapses all at once. Okay? Does that make sense, guys? Any questions so far? Are we clear about this? Okay. All right. So now that with this theory, let's talk about this idea concretely, okay? All right. So, the United States, used to be the world's most powerful manufacturing country, okay? So before it was the UK, then you have the United States, okay? The United States is in the blue, right? And then China surpassed it. This is intentional, okay?

The intention is to use manufacturing to extract the wealth of China and transfer it to America. So now China is the world's most powerful manufacturing country, okay? And this is a map that shows it better, where China is now number one, the United States has moved on number two, Japan and Germany are pretty flat. This is intentional. The intention is to bind China to the global economy, to become dependent on the global economy, and therefore save the global economy when it's under strain.

One major consequence of this of China's rise is the trade deficit between America and China. Unfortunately, this trade deficit is a natural consequence of China's manufacturing a cent. Okay? Why? Because the purpose is to force China to buy more US dollars. Okay? In order to support the policy scheme.

So this is the system that benefits the Americans. When Trump came into power in 2016, he said, no, no, no, no, it shows that China is taking advantage of us. And Trump doesn't really appreciate that. No, it was designed this way. You need to create demand for US dollars. If China is buying a lot of US dollars, that's a good thing. of US dollars, that's a good thing, right?

China's trading real assets, the energy of its people, for fake assets, which is this US dollars. Okay, so it's a great deal for America, but Trump said, no, this is a bad deal, and this was what led to the trade war. Okay, so what led to the trade war is the WTO. So in 1999, China negotiated to join the WTO, the World Trade Organization.

And this is what's going to make China rich and the largest manufacturing power in the world. But in order to join WTO, China had to agree to a lot of conditions. The two most important conditions was protect IP. Okay? You have to protect other nations and intellectual property. And you're to enforce it.

And the other thing was open the financial sector. The goal is US the Ribbon B convertibility. Okay? So these are the two things America wanted from China. First of all, to ensure that all US IP would be protected in China rigorously. Second thing is to allow any Chinese to convert their money into US dollars. As you'd appreciate, these two demands, actually bad for China. So China was not very stringent about protected IP.

This is what led to the rise of Huawei. Basically, Huawei can take Apple IP and make these great computers. So in the year 2016, when Trump first came into power, Huawei computers are actually better than Apple computers because Huawei was constantly innovating, and they were trying to make their computers as cheap as possible,

whereas Apple was essentially monophobic. essentially a monopoly. Okay? And this led to the United States imposing trade sanctions on a hallway because it was too competitive against Apple. The second problem is even worse, because you think about it, if you just open up your financial sector,

all the money in China runs off the United States because Chinese appreciate that we are a hallucination of a hallucination. Your stock is more valuable. It means based on your stock So when it make more sense, just convert oil and be into US dollars. But then this would, of course, cause the collapse of the Chinese economy. Right?

So the trade agreement would refuse to open the financial sector, and that's what started the trade war in 2016. Oh, sorry, not 2016, in 2018, okay? 2018 is when the war actually started up to today. So for the last eight years, this war has been going on because America's true. trying to protect its IP and because America wants trying to open up its financial sector. The reason why Trump has come to China, the reason why he's brought so many executives

is because China has essentially agreed to open up its financial sector, okay? I'll discuss this later on. But you have to appreciate how this work started and why it's going to end. All right, now the thing about the thing about this war is that for the past eight years, China and the United States have been attacking each other.

There are two, there are two main mechanisms in which China attack the United States. The first mechanism is by restricting the supply of rare earth minerals to the United States. Because as you can see from this chart, China actually produces most of the rare earth minerals. Now you may not know this, but actually rare earths aren't that rare.

The problem is in the extraction. It is very expensive. It is very environmentally costly. China is when to pay these costs, the rest of the world isn't. That's why China has essentially a monopoly over lithium, cobalt, ground bait, and other rare earths that the EV industry,

the solar industry, the semiconductor industry, are highly dependent on. Okay? That's the first attack vector. Second attack vector is China appreciates that China's value to the global economy is that it purchases a lot of US dollars. So then China started to buy more gold, okay?

So you can see how the US treasuries went down, but then gold went way up. Okay? And so this is the way that China's trying to exert pressure on the United States. The problem is that China is much more vulnerable to attack than the United States. Okay?

The United States is a hallucination, but China is a hallucination of a hell of a, hallucination. The first thing to appreciate is that China's energy dependence is huge. China spends, sorry, China uses twice as much energy as America for its manufacturing sector in order to create exports. Therefore, China is vulnerable to embargoes and sanctions, okay? And so what America is doing right now with this war in the Middle East by kidnapping Maduro and Venezuela, it's basically choking China off from its energy supply. Okay, that's one problem.

Second problem is that China is very export-orientative. Okay, so the entire economy is just basically on exporting manufactured goods cheaply to the rest of the world. And you can tell because most of the world's business is poor are actually based in China, okay? The business is Shanghai, followed by Singapore, for Ningbo, Shenzhen, Qingda, Guangzhou, Okay, so four, sorry,

five of the world's top six export hubs are based in China. That shows you China's dependence on exports. But if America's controlling the seas and controlling chute points, like the shore of Malacca, and the shirt of hummus and sort of Gibraltar, kind of canal, it's created a huge problem for China. for China.

And the third thing is how much resources China uses. China in only three years time, okay, from 2011 to 2013, use more cement than America did in a hundred years. That's crazy to think about. All right? So this shows you how dependent China is on the global economy. It also shows you how dependent China is on the USD. It's only because the Roman B can be exchanged for the USD

that allows China to purchase so many resources from abroad. All right. The reality is that China is too dependent on America. This is something that Chinese politicians have been trying to change for the past 10 years. It doesn't work because what Chinese politics Possemakers don't understand is that you're in a hallucination of a hallucination. Okay?

You only exist because America created you. All right, so this is consumer confidence. You can see, so 2018 is when the trade war started, okay? And at this time, people are still okay, they're still bearing the brunt of it, but then COVID happened, right? And then you saw this massive drop. And they never really recovered, guys. guys. All right? It never really recovered. Consumer confidence. People don't believe the economy is

doing well. People are not willing to buy things. People aren't working. People are losing income. Right? The economy is not doing well. At the same time, this is really interesting. More of our Chinese students are choosing to study abroad. Even as economy, is failing. Even as though there are less and less opportunities to do well in China, more and more Chinese are going to America to study. And guess what? The very best are not clearing back, okay? There's a gap of about a million students who stay in the West, and these are often the very best students. All right? So I hate to say this, but if you're hallucination of a hallucination, you're anxious.

You want to go back to the source, right? So you know the remedy is based on your dollars. If you can change your remit for your dollars, you will do so. If you can flee the country, immigrated abroad, you will do so. All right. This is a pretty stark data, okay? So this shows you the current account balance. Current account.

Current account just basically means how much Chinese have in the bank due to trade. This is the trade account. How much Chinese actually traded. The blue tracks the current account, okay? How much Chinese have in the bank because of the trade? the red tracks the actual trade. Okay. As you can see, for most of Chinese history

up until about, you know, 2022, it tracks pretty closely. But starting in 2022, there's this divergence. A huge diverts. You know about $500 billion a year, guys? Why is this happening? Capital flight, money laundering. People are using exports in order to move their money out of the country.

It's a very simple thing where, okay, maybe I buy a refrigerator from you, right? It should be $500. We're good $500, but you charge me $1,000. Why? Because you take the $500 and you put that money on my money. we have into a US real estate. You buy property or buy stocks from you, okay? Does that make sense?

It's all just money laundering. So in other words, what's really driving China's export mania, a lot of it is is money laundering as people try to flee the country. Okay, so this is not good for China. All right. Another major problem in China is the household savings rate where it's the highest in the world okay the highest in the world why is why are Chinese savers why are they saying 40% of their income well a lot of reason is because

Chinese aren't that wealthy okay so even though the Chinese economy has boomed these past 30 40 years the Chinese individual has not seen a huge improvement in his um, set of living, okay? And so there is not a great confidence in the future, and that's why Chinese save a lot of their money. And there are that many actual, that many investment vehicles as well. So from a US perspective, this is a great opportunity, right? If Chinese are saving all this money, if you're a financier, if you're like blackstone or block, you're like, why don't give it to me? And I'll and invest some money for you and give you bigger returns.

Right? This is why they're here in China, because they want this. They want all that capital stored in Chinese banks not doing anything. They give it to us and we'll make you more money. Okay. All right.

So this shows you the capital account. All this is saying is that you can't actually convert your ring B into other currencies. So most countries full open capital accounts, okay? The black is most countries. The bottom quarter of nations have closed accounts and China is part of the quarter that have closed accounts. Okay?

So, Chinese can actually take their money and lead the country. Okay, so the other thing that I want you guys to understand is, from a U.S. perspective, there's still a lot of potential in China. And the reason why is China still has a lot of debt capacity. That capacity just means your ability to carry debt. Why? Because China doesn't have much debt relative to other nations. Look at this, okay?

China, in terms of like assets and liabilities, don't have much invested in abroad. You can compare that with like other countries, like Japan, United States, Germany, United Kingdom. They have a lot invested abroad. China doesn't have that much invested abroad. So in theory, you can encourage the Chinese to buy more things abroad,

which would help the global economy, right? In theory. Now what's interesting is that China doesn't invest much abroad relative to other rich nations but China doesn't invest much abroad relative to all nations okay so this is China it's not the same as India which doesn't have that much capital then like if Indonesia Turkey Mexico actually invests more broad than China does Brazil Russia Saudi Arabia invests a lot South Africa invests a lot more than China okay so again from my

U.S. financial perspective, China is the last great opportunity in the world. That's why they're coming here. Okay? They want to strike a deal where they can financialize the China, the Chinese economy. Basically use the Chinese economy as collateral to engage in financial regulation everywhere in the world. Okay, so let me explain how they're going to do so. All right. So China has a closed capital account. Why do you have a closed capital account? Because you know for a fact that if you open it, Chinese take the ring B and convert all into US dollars.

All right? And that causes your economy to collapse, your bank system to collapse. So what's the solution here? Okay, first of all, what we need to understand something. And this is like really important for you guys to appreciate. Banks create money out of finare. Okay? Money is just an illusion.

So the example is, let's just say you're a depositor and you put a million dollars into a bank. Okay, and the way the bank makes money is by letting it to entrepreneurs, right? So you then, as a bank, you give a million dollars a loan to a restaurant entrepreneur. Okay? And this is how banks work. And you think that, okay, well, if the possible million dollars in the bank, the bank then

loans it to the restaurant entrepreneur, then in theory, the bank should have zero in the bank, right? No, the bank now has $2 million. Okay? The banks are allowed, according to accounting, they're allowed to create money every time they issue a loan. So not only they keep that million dollars from the depositor, but they also are able to print a million dollars to give to the restaurant entrepreneur.

Does that make sense to you guys? Okay. Do you guys want to know why this is the case? Okay, I'll tell you anyway, okay? All right. Okay. So before, where were banks? Banks were just merchants, okay?

A merchant alliance. Why? Because merchants needed capital in order to trade. So they came together and they created their own bank. Okay, so they were an alliance. And so what merchants would do is basically deposit their gold into this alliance so that it can be distributed elsewhere. Okay? Now, the problem of gold is that it's heavy, it's hard to transport.

It's also dangerous because they're pirates. Okay? So the way that they use, the way that they use gold in order to create an exchange. in order to create business is they use receipts, receipts or contracts. So rather than me give you the gold physically, I just give you a piece of paper saying that I guarantee that this paper can be redeemed for gold at my bank.

It doesn't make sense. All right, and then you have to keep track of these exchanges. So the reason is called double entry bookkeeping, which is basically assets and liabilities. Okay? And that's double entry bookkeeping, something that we still use today. So let's just say I have a million dollars in gold.

Okay? Well, that's easy. I just put it into assets, right? Okay? Then someone comes and says, I need to borrow a million dollars of gold. And I'm like, fine, I'll give you receipt for it. Now the problem, my problem is,

do I put the receipt in liabilities or assets? Assets, of course, right? And that's how the system works. And it's a system we still use today. That's why banks are allowed to create money out of fin here because of double-entry bookkeeping. Are you guys clear about this? Yeah?

Is it because the banks have powers to print money when they make loans or, because I think like if some people deposit their money into the bank and the bank need to give it back, it might be light into the law. liability. Okay, all right, you don't understand what's going on. Okay. All right, listen, it's not that hard, okay? I have gold. I put the gold into the bank. People come to borrow the gold, right? Then I give a paper saying, this is gold. It's money, okay? Money. Okay? Is this money a debt or a liability? It doesn't make sense. It doesn't make sense as a liability because I don't always

that thing. Okay? And the fact that I can use this money in order to create more money, creates, means it's an asset. Okay, does that make sense? All right. So, so now this becomes a basis of the global banking system. All right, so let me show you how. All right. So what happens is this. You have these banks in America, in the world. They're private banks. They're run by private people who put all their money in the banks. Okay? You have to use, government, yeah the government. Okay, this government does not have any money. The US government wants to borrow money. The question then is like, how do you borrow money? If you borrow money from these banks individually, that's too hard, okay? So what happens is

this. What happens is in 1913, the banks got together and created something called the Federal Reserve. All right? Federal Reserve, it's not hard. It's just a hard. It's just a hard. cartel of private banks in America. Okay, do you understand? Now the US government can just work with the Federal Reserve and borrow money directly from the Federal Reserve, which represents all the banks in America. Okay?

So how does the US government set, like borrow money from the Federal Reserve? It issues bonds. That's called US Treasuries. Okay? So the Federal Reserve can print money to buy U.S. treasuries and then this money goes to U.S. government and the US government can then pay for expenses.

Okay, doesn't make sense. All right. Now, this system is fine. The problem is that the US government spends a lot of money. It fights wars, it wants to send man to the moon, it wants people to have a good life, okay? So today, America has $39 trillion in debt. And you're like, well, who cares?

Well, the problem is this. The problem is the problem is the issue. interest rate which is about 5% okay because in order to get the Federal Reserve these private banks to lend you the money you have to give them an interest rate otherwise why would they give why would they lend you the money right okay so in other words 5% means that the US government has to pay the Federal Reserve of two trillion dollars a year which is in there to $2,200 a year it has to borrow more money from the Federal Reserve All right? So this system is really, really unstable.

So now your problem is like, how do I solve this problem? You solve this problem by getting more people to buy US treasuries. Okay, does that make sense? All right, so you can get governments to buy US treasuries, including the Chinese government, the Japanese government, the UK government, okay? And that's what's what's been happening. The problem is they only have a certain amount of money they can borrow. So how do you get rid of this problem? You get rid of this problem by getting more people to buy your treasuries.

And who are these people? Everyone in the world. You, me, everyone in the world. This is what we call retail. So previously it was only institutions that want to buy your treasuries. And what the strategy now is to get everyone to buy U.S. Treasuries. How? You create a new financial mechanism called stable coins.

Okay? Stable coins. And the two most popular stable coins are something called Tether and Circle. Okay? And the idea is very simple. The idea is stable coins are backed by U.S. treasuries. Meaning, Teter and Circle have to buy US treasuries in order to sell stable coins. And then you can sell stable coins to anyone and everyone, including in China, which has 40% savings rate.

Through institutions like Apple, Black Rock, Visa. Okay, does this make sense? Now you get around the problem of the close capital account. Close capital account means you cannot use Rubin B to buy US dollars. With stable coins, you can use now use Ruby B to buy tether or circle. Do you understand? Okay? So now what the US government is going to do is they're going to transfer that debt

onto the Chinese people. Okay? Okay, and so you're like, okay, wait, wait a minute here. Third and $2.9.20 is a lot of money, man. Chinese people don't have $3921. America will never ever get rid of this debt, okay? But there's a mechanism American can use to control this debt. And this is called financial repression.

How does this work? Very simple. Okay, so, U.S. treasuries. are at 5% right? Really simple. I don't make this 0% guys and you're like, wait a minute here no, no, no, no, I don't understand this. If it's at 0% I'm not going to buy your treasuries.

The answer, the solution is, I'll make you buy it, guys. Okay? I force you to buy it. How do I force you to buy it? By passing laws called the Genius Act and the Clarity Act. which compels stable coins

to use US treasuries as the basis of their digital currency. And again, remember, if you're Chinese, if you can keep even be at 5% a year or US dollar at 0% a year, what do you choose? You choose the US dollar at 0% a year. Does that make sense, guys?

Okay? So that's a solution, financial repression, where I drop the interest rate of the US treasuries to nothing, which case inflation will destroy the debt over 50 years and I force people to buy it by passing laws that force companies to back the digital currency with US treasuries. Forcing them buy US treasuries.

Doesn't make sense, guys. And why do they want to do this? Because now they can access a Chinese consumer. You can sell digital currency to your Chinese consumers. That's a grand plan. Okay. And you're like, okay, wait a minute here. Why would China agree to such a stupid deal?

Well, there are actually lots of reasons, okay? The first major reason is Taiwan. Okay. So again, the United States doesn't really need Taiwan. Taiwan is over here. And what Taiwan does, that's very important for you for you I say strategically is it blocks China from the Pacific okay something called the first island chain it's part of the first island chain it

that's in the blue so that's why Chinese American policymakers think Taiwan is important but you think about it okay if you're American you're like wait a minute here okay let's just say I lose Taiwan let's say I say to China I want Taiwan to return to the motherland. What happens now? Well, now you create a problem because Taiwan now can block this area. It can separate Southeast Asia into two parts. South Korea, Japan on one part, the Philippines,

South East Asia, Singapore, another part. Do you guys see this map? You can now divide Southeast Asia into two. This is important, why? because, guess what? Japan and South Korea gets most of their energy for the shirt of lacca. It basically block off South Korea and Japan

from a lot of the global economy. In which case, there's actually no way in how South Korea and Japan agree to let Taiwan return to China. Doesn't make sense. So by saying, by saying, hey, I want China and Taiwan to make, If you're very again, what you've done is you've now transferred the Taiwan problem from

you the United States to South Korea and Japan. You understand? That's why strategically, it makes perfect sense for Trump to say, Taiwan belongs to China. Okay? Okay, so Taiwan issue problem is solved. Now, there's another issue in that China, as we discussed, is very dependent on energy and food from South America. So you can see, this is South America.

And you can see all these projects in the yellow that China is building. Okay, so the pink is something that's already built or under construction, the yellow or plant. It's, these are huge projects. Okay, so what America has done is basically taken over Venezuela. And Trump,

announced this like I think two days ago. We're gonna make Venezuela the 51st state. Well, what would we want to do that? Because now he blocks China from South America. And if you look at this math, this tells you energy supply, okay? So if you, so this is war in the Middle East, which means that the Middle East you can forget about.

So China now can get energy from Russia or the Western Hemisphere. China doesn't want to depend entirely on China will buy more Russian oil, but it does not want to become entirely dependent on Russia. Also, Russia cannot actually meet all China's energy needs, okay? So now China is forced to negotiate the United States to have access to the Western hemisphere. Does China care?

The answer is no. China only cares about stability and price, stability and cost. I want to have things at a fair price, and I want this to be a staple and pretty typical relationship. If I'm trying to, I would prefer if America control the entire Western Hemisphere because now I can just negotiate with one government as opposed to like all these other governments, many of whom are corrupt. Doesn't make sense, guys. So we're trying to agree to this? Absolutely. China has actually no problem with America controlled in the Western Hemisphere if it means stability and cost are controlled. Okay? Does it make sense to

guys okay yeah but does China holds attitude like about America controlling when Australia because like using morals like this that they come no no no no no no but will they do this China doesn't care I don't keep don't guys don't talk about sovereignty rights morality in this class okay it's all game theory I don't care about these things. Game theory is people are going to behave in their best interests. It's that simple. No morality, no human rights, no sovereignty. All right. Okay, so China doesn't care who controls Venezuela as long as it's a stable place where China can get cheap oil. It doesn't make sense. Okay, all right, the last thing is

AI. Okay? All right, so as you can see, the United States is the world's leader in I simply because that's the most data centers. In fact America plans build more and more data centers. China is trying to compete but its data center development is constrained by the fact that it has limited access to semiconductors to chips and so China wants more chips from the United States and the United States can say yes but you're like no no wait wait wait no no no no does it not mean that China could one day overtake the United States? Could China just reverse engineer and steal the IP from these semiconductors?

No, that's not how some semiconductors work. Simicctors are so sophisticated that it's an entire global supply chain. These semiconductors are designed in California, then they are sent to Taiwan to be manufactured then they're set onto the Philippines to be value added, then set to China to be added to components, then they're sold to Europe. And all the while, you have to extract resources from Africa, from South America,

in order to feed the semiconductors, you understand? So in other words, there's actually no way that one nation, only one nation, can control the entire supply chain. So as long as America can control the... the trade network, America will always have the advantage in semiconductors. Okay? There's actually no way China can reverse the production of the semiconductors because it's too sophisticated. It's too expensive. Only one country can specialize only one field.

Okay? Doesn't make sense. Okay, so that's why this guy is important. Okay, Jiangxuan. Nvidia. Before he was not supposed to come to China. Okay, it was announced he was not coming to China. Then as Trump was flying to Alaska to refuel, he got on board in Alaska. It was a last minute addition. But not only that, but there are two business people that were with Trump on his plane. Al-Musk and Jensson Huang. Okay? So what happened? So I work in business negotiation. I'll take exactly what happened. What happened was that Scott Besant and Helle-Fung,

they were negotiating this grand bargain, just the contours of this grand bargain inside Korea. China wants first and foremost invidia chips. Scott Besant wants first and foremost access to the Chinese financial market. Okay? There was an impasse. So Trump just basically said, I'm not going to bring this guy.

Okay? And then as Trump was going to come to China, there was a breakthrough. And Trump's like, okay, as a sign of goodwill, I will now bring him. Okay? That's how business negotiations work. This is confusing for people because usually we don't want business people to run politics, to run diplomacy because they are unpredictable, okay?

But this is how business negotiations work. All right. So this is just the basic framework for how the U.S. grand bargain will turn out, in my opinion. Okay, so to summarize, what China wants is access to cheap energy of the Western Hemisphere. It wants invidate chips to fuel its AI, and it wants access to the U.S. market, okay? Those are three things that China wants. America wants access to Chinese financial markets. Basically, it wants Chinese consumers to buy stable coins.

in order to finance the US debt. It wants to better control China's AI development. Why? Because with AI, China and America are not competitors to their partners. Because as I told you last class, the entire part of AI is to create a surveillance state. Okay? Now, America has technology, but China has a lot of people, and there's no privacy here. So in other words, what America can do is use China as a lab in order to... in order to test out surveillance technology,

that you could not test out in America. Okay? So America wants access to China's AI market. And the third thing that America wants is Chinese manufacturing. Why? Because Chinese manufacturing is the best in the world. So not only does America want China to continue manufacturing in order to buy US dollars,

but also wants to import manufacturing, Chinese manufacturing into America and to Venezuela as well, right? Because Venezuela has all these resources that can be extracted and turned into manufacturing goods. America doesn't want to do it because it's too expensive, it's too hard work, but the Chinese will do this. Okay? So this is what the grand bargain will look like. Any questions?

Okay, so these are predictions. This is the way I see the situation. And we'll know in a couple of days if I'm right or wrong. wrong. Okay. So we'll talk next week.