America's Plan to Transfer Its Debt to China - Prof. Jiang Xueqin

Added: 2026-05-15

[00:00:00]Okay. So, the other thing that I want you guys to understand is from a US perspective, there's still a lot of potential in China. And the reason why is China still has a lot of debt capacity.

[00:00:17]Debt 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 investment abroad. You compare that with like other countries like Japan, United States, Germany, United Kingdom. They have a lot invested abroad.

[00:00:39]China doesn't have that much investment abroad. So in theory, you can encourage the Chinese to buy more things abroad which would 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 about the same as India which doesn't have that much capital then like if Indonesia, Turkey, Mexico actually invests more abroad than China does. Brazil, Russia, Saudi Arabia invests a lot.

[00:01:20]South Africa invests a lot more than China. Okay. So again from a US finan financial perspective China is a 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 uh the Chinese economy as collateral to engage in financial speculation everywhere in the world. Okay. Okay. So, let me explain how they're going to do so. All right.

[00:01:53]So, China has a closed capital account.

[00:02:06]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 it all into US dollars. All right? And that causes your economy to collapse. your bank system to collapse. So, 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.

[00:02:30]Banks create money out of thin air.

[00:02:36]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 makes money is by lending to entrepreneurs, right? So you then as a bank you give a million dollars a loan to an to a restaurant entrepreneur.

[00:03:00]Okay? And this is how banks work. And you think that okay well if the pot put a million dollars in the bank the bank then loans it to the to the restaurant entrepreneur then in theory the bank should have zero in the bank right no the bank now has $2 million.

[00:03:23]Okay.

[00:03:25]The banks are allowed according to accounting they're allowed to create money every time they issue a loan.

[00:03:33]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.

[00:03:44]Does that make sense to you guys?

[00:03:46]Okay. Do you guys want want to know why this is the case?

[00:03:51]Okay, I'll tell you anyway. Okay. All right. Okay.

[00:03:55]So, before what were what were banks?

[00:03:59]Banks were just merchants. Okay. a merchant alliance.

[00:04:04]Why? Because merchants needed capital in order to trade. So they came together and create 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 they can be distributed elsewhere. Okay. Now the problem with gold is that it's heavy.

[00:04:23]It's hard to transport. It's also dangerous because they're pirates. Okay.

[00:04:28]So the way that they use the way that they use gold in order to create um um exchanges in order to create business is they use receipts. Receipts or contracts.

[00:04:43]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. Okay? Does that make sense? All right. And then you have to keep track of these exchanges.

[00:04:57]So the reason call double entry bookkeeping which is basically assets and liabilities.

[00:05:08]Okay. And that's double entry book bookkeeping something that we still use today.

[00:05:13]So let's just say I have a million dollars in gold.

[00:05:18]Okay. Well that's easy. I just put it into assets. Right.

[00:05:24]Okay. Then someone comes and says, "I need I need to borrow a million dollars of gold." I'm like, "Fine, I'll give you a receipt for it." Not a problem. My problem is, do I put the receipt in liabilities or assets?

[00:05:37]Assets, of course, right?

[00:05:39]And that's how the system works.

[00:05:42]And it's system we still use today.

[00:05:45]That's why banks are allowed to create money out of thin air because of double entry bookkeeping. Okay. Are you guys clear clear about this?

[00:05:54]Yeah.

[00:05:57]Is it because that the banks have powers to print money when they uh 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 lie into the liability.

[00:06:18]>> Okay. All right. All right. You don't you don't understand what's going on.

[00:06:21]Okay. All right. Listen, it's 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. Basic it's it's a money. Okay. Money.

[00:06:41]Okay. Is this money a debt or a liability?

[00:06:45]It doesn't make sense. It doesn't make sense as a liability because I don't owe that thing. Okay. And the fact that I can use this money in order to create more money creates means it's an asset.

[00:06:58]Okay. Does that make sense? All right.

[00:07:00]So, so now this becomes a basis of the global banking system. All right. So, let let me show you how. All right.

[00:07:09]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 got the US government.

[00:07:25]You have the government.

[00:07:30]Okay, the US 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 create something called the Federal Reserve. All right. Federal Reserve don't it's not hard. It's just a cartel of federal banks in America. Okay. Do you understand? Now the government can just work for 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 sell like borrow money from from the Federal Reserve? It issues bonds. That's called US treasuries.

[00:08:28]Okay? So, the Federal Reserve can print money to buy US treasuries and then this money goes to US government and 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.

[00:09:03]And you're like, well, who cares? Well, the problem is this. The problem is the interest rate, which is about 5%.

[00:09:13]Okay. To 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 about $2 trillion a year. Where's that $2 trillion a year?

[00:09:38]It has to borrow more money from the Federal Reserve.

[00:09:41]All right. So this system is really really unstable.

[00:09:45]So now your problem is like how do I solve this problem? You solve this problem by getting more people to buy US treasuries.

[00:09:57]Okay. Does that make sense? All right.

[00:10:00]So you can get governments to buy US treasuries including the Chinese government, the Japanese government, the the UK government. Okay.

[00:10:11]And that's what that's what 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 you get rid of this problem by getting more people to buy um US treasuries. And who are these people? Everyone in the world. You, me, everyone in the world. Okay. This is what we call retail.

[00:10:40]So previously it was only institutions that want to buy US treasuries and what they what what the strategy now is to get everyone to buy US treasuries. How you create a new financial mechanism called stable coins.

[00:10:59]Okay. Stable coins and 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 US treasuries.

[00:11:20]Meaning tether and circle have to buy US treasuries in order to sell stable coins.

[00:11:29]And they can sell stable coins to anyone and everyone.

[00:11:34]Okay, including in China which has 40% savings rate.

[00:11:46]How?

[00:11:48]Institutions like um Apple, Black Rockck, Visa. Okay, does this make sense? Now you get around the problem of the closed capital account. Closed capital closed capital account means you cannot use rubing B to buy US dollars. But with stable coins, you can use now use B to buy tether or circle. Do you understand?

[00:12:16]Okay. So now what the US government is going to do is they're going to transfer that debt onto the Chinese people.

[00:12:28]Okay.

[00:12:33]Okay. And so you're like, "Okay, wait, wait a minute here. $39 trillion is a lot of money, man. Chinese people don't have $39 trillion.

[00:12:45]Ch America will never ever get rid of this debt. Okay. But there's a mechanism American can use to control this debt.

[00:12:53]And this debt and this is called financial repression.

[00:13:03]How does this work? Very simple. Okay.

[00:13:06]So, um, US treasuries are at 5%, right?

[00:13:13]Really simple. I'm make this 0% guys.

[00:13:18]And you're like, "Wait a minute here.

[00:13:20]No, no, no, no. I don't understand this.

[00:13:21]If it's at 0%, I'm not going to buy US treasuries."

[00:13:25]The answer, the solution is I'll make you buy it, guys. Okay? I force you to buy it.

[00:13:35]How do I force you to buy it? By passing laws called the Genius Act and the Clarity Act.

[00:13:42]which compels stable coins to use US treasuries as a basis of their digital currency. And again, remember if you're Chinese, if you can keep 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?

[00:14:04]Okay. So, that's the solution. financial repression where I drop the interest rate of 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.

[00:14:29]Forcing them buy US treasuries. Doesn't make sense, guys. Okay. And why and why do they do want to do this? because now they can access a Chinese consumer. They can sell digital currency to Chinese consumers. That's the grand plan.

[00:14:45]Okay? And you're like, "Okay, wait a minute here.

[00:14:48]Why would China agree to such a stupid deal?" Well, there are actually lots of reasons. Okay, the first major reason is Taiwan.

[00:14:57]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 United States 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.

[00:15:22]So that's why Chinese American policy makers think Taiwan is important. But you think about it, okay? If you're American, you're like, "Wait a minute here." Okay, let let's just say I lose Taiwan. Let's say I say to China, I want Taiwan to return to the motherland. Okay, what happens now?

[00:15:42]Well, now you create a problem because Taiwan now can block this area. Okay, it can separate Southeast Asia into two parts. South Korea and Japan on one part, the Philippines, Southeast Asia, Singapore another part. Okay, do you guys see this map? You can now divide Southeast Asia into two. This is important. Why?

[00:16:09]Because guess what? Japan, South Korea gets most of their energy through the SH of Malaka. you basically block off South Korea and Japan from a lot of the global economy.

[00:16:23]In which case, there's absolutely no way in hell South Korea and Japan agree to let Taiwan return to China. Doesn't make sense. So, by saying by United States saying, "Hey, I want China and Taiwan to marry again." What you've done is you've now transferred the power from you, the United States, to South Korea and Japan.

[00:16:48]You understand? That's why strategically it makes perfect sense for Trump to say Taiwan belongs to China.

[00:16:57]Okay.

[00:17:01]Okay. So, Taiwan issue pro problem is solved. Now there's another there's another issue in that China as we discussed is very dependent on energy and food from South America. Okay. So you can see this is South America and you can see all these projects in the yellow that China is building. Okay.

[00:17:24]So the pink is something that's already built or under construction. The yellow are planned. It's these are huge projects.

[00:17:32]Okay. So what America has done is basically taken over Venezuela.

[00:17:38]Hey, and Trump announced this like I think two days ago. We're going to make Venezuela the 51st state. What why why would we want to do that? Because now he blocks China from South America. And if you look at this map, this tells you any 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 Russia. China will buy more Russian oil but it does not want to become entirely dependent on Russia. Also Russia cannot actually meet all of China's energy needs. Okay. So now China is forced to negotiate with the United States to have access to the to the western hemisphere. Does China care? The answer is no. China only cares about stability and price. Stability and cost. I want to get things at a fair price and I want this to be a stable and predictable relationship. If I'm trying to, I would prefer if America control the entire western hemisphere because now I I can just negotiate with one government as opposed to like all these other governments, many of whom are corrupt. Does that make sense, guys? So, would China agree to this? Absolutely.

[00:19:00]China has actually no problem with America controlled in the Western Hemisphere if it means stability and cost are controlled.

[00:19:09]Okay?

[00:19:10]Does it make sense to you guys? Okay.

[00:19:12]Okay. Um, yeah.

[00:19:15]>> But does China hold attitude like about America controlling Venezuela because like using morals like they said they can't.

[00:19:26]>> No, no, no, no, no, no, no.

[00:19:28]>> Will they do this?

[00:19:29]>> China doesn't care.

[00:19:31]I don't guys don't talk about sovereignty, right, morality in this class, okay? It's all game theory. I don't care about these things.

[00:19:42]Game theory is people are going to behave in their best interest. It's that simple. Okay. No morality, no human rights, no sovereignty. All right. Okay.

[00:19:52]So, China doesn't care who controls Venezuela as long it's a stable place where China can get cheap oil. It doesn't make sense.

[00:20:01]Okay. All right. The last thing is AI.

[00:20:12]Okay. All right. So, as you can see, the United States is the world's leader in II simply because it has the most data centers. In fact, America plans to 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.

[00:20:33]And so China wants more chips from the United States and the United States can say yes. But you're like, "No, no, no, wait, wait, wait, no, no, no. Doesn't that mean that China could one day overtake the United States?"

[00:20:52]Could China just reverse engineer and steal the IP from these semiconductors?

[00:20:58]No. That's not how semiconductors work.

[00:21:00]Semiconductors are so sophisticated that it's an entire global supply chain.

[00:21:06]Okay. These semiconductors are designed in California. Then they are sent to Taiwan to be manufactured.

[00:21:16]Then they're sent onto the Philippines to be value added. Then sent 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 these semiconductors. Do 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 trade network, America will always have the advantage in semiconductors.

[00:21:50]Okay? There's actually no way China can reverse the production of the semiconductors because it's too sophisticated. It's too expensive.

[00:22:00]Only only one country can specialize only one field.

[00:22:05]Okay? Doesn't make sense. Okay? So that's why this guy is important. Okay.

[00:22:13]Jensen Huang or Nvidia before he was not supposed to come to China.

[00:22:21]Okay. It was announced he was not coming to China.

[00:22:24]Then as Trump was flying through Alaska to refuel, he got on board in Alaska. It was a last minute addition. But not only that, but there were two business people that were with Trump on his plane. Alan Musk and Jen Huang. Okay. So what happened? So I work in business negotiation. I'll tell you exactly what happened. What happened was that Scott Bessant and Hulong they were negotiating this grand bargain just the contours of this grand bargain in South Korea. China wants first and foremost Nvidia chips.

[00:22:58]Scott Besson wants first and foremost access to the Chinese financial market.

[00:23:03]Okay, there was there was impass. So Trump just basically said I'm not 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 this 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 negotions work.

[00:23:35]All right. So this is just the uh basic framework for how the US grand bargain will turn out in my opinion. Okay. So to summarize what China wants is access to cheap energy of the western hemisphere.

[00:23:50]It wants Nvidia chips to fuel its AI. Um um and it wants access to the US market.

[00:24:03]Okay. Those 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.

[00:24:17]It wants to better control China's AI development. Why? Because with AI, China and America are not competitors. They're partners. Because as I told you last class, the entire entire part of AI is to create a surveillance state. Okay?

[00:24:32]Now, America has technology, but China has a lot of people and there's no privacy here. So, in other words, what what America can do is use China as a lab in order to test out surveillance technology that you could not test out in America.

[00:24:49]Okay. So, America wants access to China's uh AI market. And the third thing that um America wants is Chinese manufacturing.

[00:25:02]Why? Because Chinese man 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 into manufactured goods. The Americans don'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.

[00:25:33]Any questions?

[00:25:36]Okay. So these are predictions. This is the way I see I see the situation and we'll know in a couple couple days if I'm right or wrong. Okay. So we'll talk next week.