1.(BOAO FORUM) For starters, this year’s Boao Forum undoubtedly brings great opportunities for exchanges between Chinese and foreign business people who may not have been able to meet since the outbreak of the pandemic. So what can we expect from such a good opportunity? And how do you think the Boao Forum could help or guide us in global economic recovery after the COVID pandemic?
There are many perspectives on what are the most serious problems facing China and the rest of the world today.
Even if you don’t agree on the diagnosis of some people, you at least need to know how they think. That will show you how their errors are leading the problems to become even worse. And that certainly is what is happening in the United States today.
2, (U.S. BANKING SECTOR) Beyond China, global attention has been on the recent collapse of the Silicon Valley Bank and also Signature Bank in the U.S. What does this tell us about the problems in the U.S. banking sector? What caused these collapses? And with the FED expected to raise interest rates again, how worried should people be that this could only be the beginning of more bank failures?
The U.S. financial problem stems from the way in which President Obama responded to the junk-mortgage and bank-fraud crash of 2008. He bailed out the banks, because his presidential campaign was sponsored largely by bankers such as Robert Rubin (the Treasury Secretary under Bill Clinton, and a major head of Citibank, the largest and worst offender in the junk-mortgage crisis.
To save the banks – and behind them, their bondholders, mainly the wealthiest One Percent of the population – the Federal Reserve pursued Quantitative Easing. That lowered interest rates from 6 percent down to 0.1 percent.
When interest rates are lowered, bond prices rise. The result was the fastest and largest bond-market boom in American history. Real estate and stock-market prices also rose as a result of “cheap money.” The result was that wealthy bondholders, stockholders and banks got very, very rich – while the economy at large became more debt-burdened.
This posed a long-term problem: How could the Federal Reserve ever begin to raise rates back to “normal” without rolling back the asset-price bubble that it had inflated?
The Federal Reserve finally decided to raise interest rates in order to create an economic recession and unemployment. It did this because it said that wages were rising almost as fast as inflation, and the Fed’s job is to fight against labor’s wages and living standards, in order to increase corporate profits. Federal Reserve Chairman Powell estimated that about two million Americans had to be unemployed so as to make wage-earners fight against each other. This “reserve army of the unemployed” was intended to keep wages low and corporate profits high.
The problem was that this anti-labor fight also lowered the price of bonds and real estate mortgages that banks held as reserves against their depositors.
In America, banks don’t have to report such losses in the market valuation of their reserves. They carry them at “book value,” based on what they paid for them.
The problem is that when depositors begin to withdraw their money from banks, the banks – like Silicon Valley Bank – had to sell their long-term Treasury bonds to get the money to pay their depositors. That’s when it turned out that the bank’s assets (its reserves) didn’t cover its deposit liabilities.
Depositors were withdrawing their money because banks were greedy, and only paying depositors about 0.2% — while depositors could earn over 4 percent by buying risk-free U.S. Treasury two-year notes. So the banking system’s greed led to deposit outflows. This reminded the population that much of the banking system’s reported reserves were “fictitious capital.”
It was not “real wealth.” That is the problem with a financialized economy where banking is privatized instead of kept as a public utility as is the case in China.
3, (U.S. MONETARY POLICY) You once said that represented by the monetary policy of the Federal Reserve, America makes use of dollar hegemony to create instability in the financial market and bring other countries into economic difficulties, from which the U.S. benefits. Can you tell us more about the impact of U.S. monetary policy, especially on those vulnerable countries?
By raising interest rates, the Federal Reserve has raised the dollar’s exchange rate. Most Global South countries owe foreign debts in dollars. That means that they have to pay much more of their own currency to make the dollar payments for interest and amortization that is falling due.
U.S. military sanctions against Russian oil, gas and grain also have caused a worldwide inflation of energy and food prices. That also hurts many Global South countries.
This forces indebted, food-dependent and energy-dependent countries to make a choice: Either to pay their dollarized debts, or to impose austerity on themselves. It forces them further into debt, and their government cannot afford to build the infrastructure that is needed for them to develop prosperity. They are caught in a debt trap.
4，(DOMINANCE OF DOLLAR) To what extent do you think the dominance of the U.S. dollar will be affected by the ongoing Russia-Ukraine conflict as some countries are obviously try to distance themselves from the dollar? Will the conflict promote more countries to reduce their holdings of the dollar?
U.S. foreign policy is driving Russia and other countries away from the dollar. It has simply grabbed Russia’s foreign exchange holdings, and also those of Venezuela. President Biden has said that China is America’s number-one enemy, and is trying to grab China’s highly profitable Tic-Tok group, telling it to sell to U.S. investors.
So China’s investments in the United States are not safe. Countries are trying to reduce their dollar holdings in order to avoid the risk of aggressive U.S. foreign policy treating the financial like a pre-military battlefield.
5.(UKRAINE CRISIS) You also once said that in reading the newspapers, one gets the feeling this war is about Ukraine and NATO fighting Russia, when actually America is using the conflict between NATO and Russia as a means to control its allies and the West as a whole. So why would you say that?
President Biden says that the war in Ukraine is part of a conflict that will last twenty or thirty years. Obviously this goes far beyond Ukraine, whose economy and country will be destroyed by the end of this year.
Biden has said that the number one enemy is China, because it wants to be independent from the United States and keep its wealth to improve living standards for Chinese people, not pay U.S. investors and banks. U.S. defense contractors and spokesmen have said that the U.S. policy is first to break up Russia into five countries, and then to break up China into separate regions. This is the old English divide-and-conquer strategy. If you can break up Russia and China, U.S. officials can bribe local client oligarchies and politicians to serve U.S. purposes, just as they have bought control of German and other European politicians to make their countries economic and military colonies of the United States.
Germany has even accepted the U.S. destruction of the Nord Stream pipelines, and agreed to pay prices for U.S. gas and oil six times as high as it could get energy from Russia. The only way that the German steel and other heavy industry can survive is by moving to the United States to obtain low-priced energy.
The US is also pressing Europe to break with China, so that Europe’s economy will be a satellite of U.S. investment. But to make China as weak and divided as Europe will take many decades – and probably involve war. So U.S. military generals have said that they expect military confrontation with China in the next two years.
The U.S. dream is to get Taiwan to do what Ukraine did: to fight China to the last Taiwanese, exhausting China’s military so that then the U.S. can attack China directly.
China is strong enough to resist, but its fight will be long, given the U.S. attempt to control the entire world.
6.(DILEMMA FACING EUROPE) Europe is now faced with record-high inflation and also energy crises brought about by the Ukraine conflict. In your opinion, what is Europe’s best way out? How can it best get through these difficult times?
The line of least resistance is for Europe to do what the Baltic states have done: To lose 20 percent of their population through emigration and lower birth rates, until there is almost nobody left except land and raw materials to be bought by client oligarchs of the United States. The easiest way for Europeans is to consume less and less and just die out. That is their official government policy, and hence the choice of their voters. That is what America welcomes as “democracy,” which really is oligarchy. The wealthiest Europeans will move to the United States and elsewhere, while the Eurozone turns into an economic dead zone.
If the European population at large tries to resist, it will suffer the fate of Libya, Syria and Iraq. So it prefers poverty to mutually beneficial trade with Russia or China.
7，(CHINA-U.S. RELATIONS) China has said it welcomes foreign investment following the lifting of COVID restrictions, but some businesses remain cautious amid the recent U.S.-China tensions. What should we do to prevent economic activities from being interrupted by political and ideological divergencies?
There is nothing that China can do when the political antagonism is stemming from the United States, not China itself. The U.S. attack on Tic Tok and opposition to Huawei technology calls for retaliation by China taking over U.S. assets there, and selling as many dollars as it can and replacing them with gold. China’s investments in the United States have become unsafe.
8.(5% GROWTH TARGET) China has set this year’s GDP growth target at around 5%, giving priority to restoring and expanding domestic consumption, according to the report on government work at the annual two sessions in Beijing this March. Are you optimistic about the Chinese economy during the post-pandemic period?
Yes, China certainly needs to rebuild its economy from covid. I do worry about long-term covid and whether it will drain the population’s health.
9.(CHINESE MODERNIZATION) China is now on a march towards modernization as the country strives to realize its second centennial goal. So what’s your take on Chinese modernization? How is it different from that of the West? And what opportunities do you think it can bring to the rest of the world?
China has been modernizing for many decades, and has become the world’s most successful economy. A key to its modernization has been keeping money as a public utility – in the government’s hands, not privatizing money and banking. That is what has enabled the central bank to simply write down debts when they cannot be paid, instead of forcing companies into bankruptcy.
The major task of modernization under President Xi’s new team will involve relations with localities – helping them finance their spending without selling off their land to real estate developers.
A related task will be to bring housing prices down. That should be done by a land tax to absorb the rising rent-of-location, instead of letting this be paid to banks as interest on rising mortgage loans (as occurs in the United States, hurting its economy). A land tax will also prevent people from getting rich on insider dealing or corruption (such as occurred in the Russian privatizations of the 1990s).
10.(SHRINKING POPULATION & TALENT STRATEGY) Some fear that the shrinking population in China could have a ripple effect on the global economy. Is China’s population decline really a serious problem, for the country and for the world? Chinese Premier Li Qiang once said during a news conference that China’s demographic dividend has not disappeared and its talent dividend is in the making. Can a talent strategy counteract the challenges brought by a shrinking population?
For hundreds of years, in every country, rising incomes have led to slower population growth. As health gets better and as families are protected by pensions and secure retirement income, they don’t need to have so many children to support them. So what is happening in China demographically is quite natural.
China is educating its population and raising its living standards – and well-educated, well-fed and well-housed labor is more productive labor. So its economy will continue to grow, but its shape will change – and that is being well-managed in a progressive way.