In 1994, the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) was completed with 123 countries participating. As a result, globalization accelerated in a very significant way, particularly after the creation of the WTO in 1995. Please make sure you watch the Sir James Goldsmith video in the bibliography. Goldsmith came to the United States in 1994 to argue against the adoption of the Uruguay Round by Congress and the creation of the WTO. He did an interview with Charlie Rose, which I think—to this day—is one of the best overviews of the madness of our recent globalization.
October 1997 was the point in time when the first of $21 trillion started to go missing from the U.S. government. It was also during this period that the Clinton Foundation and Blair Foundation were capitalized and Carlyle started raising large amounts of money to be invested in China. (For more, see my review of the Worricker Trilogy.)
I remember that moment. I was dealing with subpoenas at the same time that Carlyle was raising massive amounts of money, and I thought, “Where are they getting all of this money?” It took several years for me to connect the dots between the money disappearing from HUD and the housing bubble and the money being invested in Asia.
I want to remind you of a story in my Dillon Read book. It tells the story of my work with a group of pension fund leaders on how to reengineer government money. I was showing them my plan for how to rejuvenate the economy in the United States:
The response from the pension fund investors was quite positive until the President of the CalPERS pension fund, the largest in the country, said, “You don’t understand. It’s too late. They’ve given up on the country. They’re moving all of the money out in the fall of 1997, and they are moving it to Asia.”
He did not say who “they” were, but he did indicate that it was urgent that I see Nick Brady, the former chairman of Dillon Read, and the former Secretary of the Treasury, as if our data had indicated that there was hope for the country and that things might be different.
I thought he meant the pension funds and other institutional investors would be shifting a much higher portion of their investment portfolios to the emerging markets. I was naïve. He was referring to something much more significant.
The U.S. federal fiscal year starts on October 1st. Basically, the fall that he referred to was the start of the federal 1998 fiscal year when the sum of $21 trillion started to go missing. What I believe now is that the missing money was part of this same decision to move to a more globalized economy.
Peter Navarro is advising the current President on trade policy. He is one of the academics encouraging President Trump to put tariffs on Chinese goods. One of his positions is that—
The defining moment in American economic history is when Bill Clinton lobbied to get China into the World Trade Organization. It was the worst political and economic mistake in American history in the last 100 years.
Navarro made a documentary called Death by China, which is in the video section of the bibliography. I think it’s useful to hear an American point of view. However, you will get a much more balanced view by reading Unbalanced by Steven Roach and listening to our interview with Roach on The Solari Report.
If we look at the Western vision of investing in Asia at that time, we see that the leadership had a very different expectation of how events would turn out. The Economist just published a new article also linked in the bibliography, called “How the West Got China Wrong.”
The idea—let’s call it Plan A—was that we would invest massive amounts of money into China. Chinese growth would help us continue to grow. Mutually we would help each other continue to grow, particularly by deflating the cost of labor. China would grow employment and deflate labor prices in the West. This deflation would help to reduce the political power of the unions. This labor deflation helped to offset massive expansionary monetary policy, avoid hyperinflation, and cut the cost of Western labor and culture, as Sir James Goldsmith very eloquently explains.
Somehow, as a result of these investments, China was supposed to come into the fold of democracies and acknowledge U.S. supremacy, and America and China would be friends. America would extend its unipolar empire.
Global adoption of GMOs and Anglo-American intellectual property and trademark systems were essential components of this vision—ensuring that the unipolar empire maintained supremacy in technology and food supply. However, plans to implement GMOs stalled badly when the WTO failed to complete the Doha Round—in no small part, thanks to Indian farmers who paid a terrible price in the process. Then the Russians responded to U.S. sanctions by banning GMOs after many years of European resistance.
Whether the block was resistance to the intellectual property and trademark system or GMOs as a part of the system, this critical element in the implementation of the unipolar empire bogged down. After 9/11, America planned to take over or engineer regime change in seven countries in five years—an effort at the heart of reengineering the global central banking and monetary system. Now, 16 years later, millions have died or become refugees, and America and its allies have spent trillions more dollars than projected. Significant time, lives, and expenses are still being spent to get Syria, Iran, and North Korea into the fold. These days it seems as if President Trump’s number one mission is to complete the original plan for the unipolar empire.
The failure and extreme costs of Plan A, including the financial crisis costs, payable by the general population in both East and West, triggered the 2016 Brexit vote, the Trump election, and numerous reversals of policy. In the meantime, Plan A has definitely stalled. Over the same time period, China has recommitted itself to a one-party communist system that is capable of tight organization and developing and executing strategic plans. This change is one of the reasons why China is so successful in maintaining growth well beyond what Western commentators thought possible.
This change reminds me of an evening in Washington in 1996. I was on the Executive Council of the National Multi-Housing Council. A developer from Shanghai came and gave the speech at a Council dinner.
He described why the Chinese are long-term planners and more hard-working than we are. Ultimately the Chinese, he said, are going to surpass Americans because we are dependent on government credit, spoiled, and incapable of managing strategic risk.
If you look today at China’s high-speed trains and infrastructure, or what they are trying to do in technology, in space, or on the Silk Road, his speech was prescient.
I remember being agitated that we were not responding to the challenge accordingly. The U.S. real estate industry would not change; it was operating under “central orders” to make sure its bread was buttered on the right side. The aggressive Chinese vision reflected a culture of meritocracy that did not fit Washington, DC. Washington, DC thrived on its subsidies. Americans were depending on military and reserve currency leadership to remain dominant—not depending on excellence—and to fund those subsidies.
So, the question remains: Has Plan A failed? I believe that a great deal of money was spent secretly by Plan A for black budget technology and on space. Of course, the question lingers: What is the extent of a secret space program, and what does it connote in terms of leadership in space and advanced weaponry and technology? This question is big. Does it make a difference in terms of our relationship with a rising Asia?
Remember—right now, China is building its military with the equivalent of financial equity. Because the United States manages the reserve currency, the United States can finance its military by printing money out of thin air and debasing currency globally. To the extent that China starts to build out global financial liquidity for its currency and bonds, its cost of capital to finance a military will fall. The U.S. cost of capital will rise.
There is another important question related to Plan A: Does the West have the upper hand in terms of economic warfare? China has taken on an enormous amount of debt, including U.S. dollar debt, since the financial crisis. To the extent that tariffs and other trade war actions can deny them the dollars they need to pay back the debt, they run the risk of a U.S. dollar bear trap. The results of the current trade wars may tell us more.
Chinese politicians work hard to make sure that the Chinese people have employment and food. They care about maintaining food sovereignty and security and cultural stability as a society. If you review China’s history, you will understand why they place such focus on stability. Look at what is happening with robotics and automation, and ask another question: How in the world are they ever going to be able to keep their population employed with this level of automation? To the extent that global trade, including trade with the United States, is necessary to maintain employment levels, this bargain will serve the West’s strategic advantage.
Another question that informs whether Plan A has failed relates to exactly who “owns” China. How much Asian equity did Western interests buy up when the process of globalization began in the 1990s? One event early on—before China came into the WTO—was the Asian currency crisis. The West intentionally pulled lines of credit and denied liquidity to the Asian financial and currency markets. The markets corrected, and insiders could not only pick up equity investments at discount prices but could force sales of equity where normally Westerners weren’t allowed to invest. The crisis combined with the “strong dollar policy” was a way to acquire equity in Asian assets before the West outsourced and made other capital investments in Asia.
The West never allows equity creation as a consequence of Western involvement in economic development without getting a significant piece of the equity. One question I’ve asked since that time is: Who really owns China and East Asia? The West has very big equity bets there, bets that are not necessarily obvious to all of us.
As to the status of Plan A: Where is the money invested and held that was stolen during the financial coup that was perpetrated beginning in 2007, and how are those “investments” being protected? If you don’t have a superpower protecting them, can you really trust China to respect your equity ownership? Many people would say No, which explains the emerging plan to pull back into Fortress America.
My final question about Plan A failure relates to the current state of planetary investments and capital pools. We’ve had a financial coup d’état. Whether it’s the $24-$27 trillion on the bailouts, or the $21 trillion missing from HUD and DOD, or other financial shenanigans, we sucked at least $50 trillion out of the United States and more out of the G7 nations. That money was shifted to a series of investments and assets. Now we can engage only in conjecture—or “high-octane speculation” as Dr. Farrell would say—about where that money went. How much went into space? How much went into black-budget technology? How much went into investments and endowments to privatize and run the world? How much went into globalization and reinvestment in Asia?
Our current pension fund holdings in the United States amount to approximately $25 trillion. When you shift $50 trillion out of a society, you are shifting a major portion of its capital. You are taking the entire net worth of a society and betting it on a plan. It’s bad enough to wreck homes and lives and families to do so, but it would be even more tragic if the plan had a negative return on investment for the human race.
For a historical example, note the contribution of the failure of the Darien scheme to the loss of Scottish sovereignty to the English. From Wikipedia:
As the Company of Scotland was backed by approximately 20% of all the money circulating in Scotland, its failure left the entire Lowlands in substantial financial ruin and was an important factor in weakening their resistance to the Act of Union (completed in 1707). The land where the Darien colony was built, in the modern province of Guna Yala, is virtually uninhabited today.
Whether Plan A worked or not, it’s important to understand that the relationship with Asia is changing. For decades, China, India, and Asia have essentially been exporting deflation to the United States because they were deflating the value of labor. Now China is reinvesting its savings not in financing our consumer market but in building infrastructure and investment around the world—including its own Silk Road with the One Belt, One Road initiative—and building its own consumer markets. China is now going to export inflation. The rise of the Asian consumer means that Asian consumers will compete with us for real estate, land, investments, and consumer goods—for commodities and resources.
If you didn’t like China and Asia exporting deflation, you will really dislike their exporting inflation. However, here it comes.