U.S. declares war against China

On January 18th, 2013, Federal Open Market Committee (FOMC) which determines monetary policies of Federal Reserve Board (FRB) led by Benjamin Bernanke – Federal Reserve Chair at that time, decided to taper Quantitative Easing.

From last September, FRB started Quantitative Easing program 3 (QE3) and bought up 85 billion U.S. dollars of financial assets a month – 45 billion dollars (4.7 trillion yen) of Treasury bonds and 40 billion dollars (4.2 trillion yen) of Mortgage-backed securities (MBS) – from the market. As buying up refers to “a lot of money is flowed into the market”, this was called “Quantitative Easing”.

However, at the committee meeting on January 18th, 2013, FRB decided to reduce monthly Treasury bond purchase to $40 billion ($5 billion less), and MBS to $35 billion ($5 billion less), starting from January 2014. Therefore, the amount of monthly purchase is reduced to $75 billion ($10 billion less). Janet Yellen; vice-chairman at that time, was inaugurated after Bernanke in February 1st, 2014, and pledged the continuity of “tapering quantitative easing policy” at U.S. Congress.

I think that this event became more than a matter of the internal U.S. economic policy, the U.S. declared war against China by the Obama administration’s will. Same as the Reagan administration led to the collapse of the USSR by starting the Cold War, the U.S. declared another Cold War against China.

The military gain came out immediately. Though February 6th, 2014 was the last day of the Spring Holiday, the wealth management product of shadow banking charged before the Chinese New Year was bought out by third parties through intermediation of the People’s Bank(central bank), in order to guarantee the principal to investors. Thereby, the Chinese government barely avoid the collapse of the Chinese Communist Party’s authority.

U.S. dollar is global key currency. The effect of U.S. monetary tightening spreads around the world. The foreign exchange reserves of China will run out eventually as $10 billion is “ebbing away” each month. In fact, the outstanding balance of the wealth management products by shadow banking is assumed as 20 trillion Chinese Yuan. This amount is equivalent to the GDP of China – this is absolutely a bubble.

If interests and principals no longer came back, no one would invest in the wealth management products. If that happens, the Deng Xiaoping line since the Southern Tour Lectures will soon get stuck because money doesn’t flow into the markets. The Chinese Communist Party has turned the 3,000 of shadow banks into “Official banks” but instead, “Official banks” must obey what the central party says.

However, that is not so easy because banks are based on collecting funds and lending money. Currently, Chinese private companies cannot borrow money from the national banks. Therefore, those companies borrow money from the shadow banks – the side jobs of People’s Liberation Army officers, but as I mentioned before, President Xi Jinping imposes a tight restriction on the shadow banks and carries out policies to control the People’s Liberation Army.

This apparently derives from the fact that Obama and Xi made a secret agreement when Xi visited the U.S. just after he took his office. The U.S. has deployed a half of commissioned nuclear-powered aircraft carriers to the Seventh Fleet and has been watching Chinese movement if the promise is being kept or not. If confusion occurs, V-22 Osprey capable of reaching the inland of China will fly from the deck to save U.S. citizens and prevent the launch of their nuclear missiles.

As the U.S. has changed a monetary policy, the bubble in China surely bursts. The private companies will be on the verge of bankruptcy because money does not flow through cities. Estimated 200 million people to be unemployed from 3 million companies, over 40 million people would turn into mobs in each place for saving their own lives. The collapse of the People’s Republic of China begins. In the next article, I would like to think about what happens next as a result of this.

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