---
title: "Game Theory #25:  Trump Visits China transcript"
description: "Source-synced transcript archive for Game Theory #25: Trump Visits China."
source_title: "Game Theory #25:  Trump Visits China"
published_at: "2026-05-14"
source_class: "episode"
public_url: "https://jianglens.com/episodes/predictive-history-bil5vjn6ohi/transcript/"
markdown_url: "https://jianglens.com/episodes/predictive-history-bil5vjn6ohi/transcript.md"
text_url: "https://jianglens.com/episodes/predictive-history-bil5vjn6ohi/transcript.txt"
source_url: "https://www.youtube.com/watch?v=BIl5vJn6ohI"
data_url: "https://jianglens.com/data/lens/episodes/predictive-history-bil5vjn6ohi.json"
---

# Game Theory #25:  Trump Visits China transcript

- Source: [Game Theory #25:  Trump Visits China](https://www.youtube.com/watch?v=BIl5vJn6ohI)
- Published: 2026-05-14, day precision
- Human transcript page: [/episodes/predictive-history-bil5vjn6ohi/transcript/](https://jianglens.com/episodes/predictive-history-bil5vjn6ohi/transcript/)
- Episode page: [/episodes/predictive-history-bil5vjn6ohi/](https://jianglens.com/episodes/predictive-history-bil5vjn6ohi/)
- Transcript Markdown: [/episodes/predictive-history-bil5vjn6ohi/transcript.md](https://jianglens.com/episodes/predictive-history-bil5vjn6ohi/transcript.md)
- Transcript text: [/episodes/predictive-history-bil5vjn6ohi/transcript.txt](https://jianglens.com/episodes/predictive-history-bil5vjn6ohi/transcript.txt)
- Episode JSON: [/data/lens/episodes/predictive-history-bil5vjn6ohi.json](https://jianglens.com/data/lens/episodes/predictive-history-bil5vjn6ohi.json)

## Transcript

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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, the Secretary of State, as well as Peter Hegsev, who is the Secretary of War. 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, Beijing, they started the trade war. And we've been in a trade war ever since. I think that this meeting is very optimistic for U.S.-China relations. A lot has to do with who came with Trump. So this is from Weibo, the Chinese Twitter.

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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 daughter -in -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 Elon 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. Boeing 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, Stephen Schwarzman of Blackstone, David Solomon of Goldman Sachs. You have Citigroup. You have MasterCard and Visa. And these are the leading financial companies in America. And altogether, these business executives, if you put all the company's net worth together, their companies are worth over $12 trillion.

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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 together. You don't bring them together in 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 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 Xi and Trump. This is David Lee from Twitter, okay? And he's talking about like the past month, what happened.

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So the first thing that happened is that China blocked Manus. Manus is an AI company that Mark Zuckerberg tried to buy. And Manus was incubated in China. And if you're an AI company, and you 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 incubated in China, China decided, no, you can't go to the United States because this will set a bad precedent. China is trying to grow its own talent. So this shows, the AI war being fought between China and the United States, okay? 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 Iranian oil and then convert it into energy that China can use, okay?

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And in response, China said, no, you cannot impose sanctions on us. If you impose sanctions on us, and if people comply with these sanctions, then we, the Chinese government, will sanction these people as well. And 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 US sanctions. And this is the first time the Chinese government said to Chinese people, if you're a Chinese citizen and you comply with US 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 Foreign Minister Arachi to Beijing because China is very interested in the outcome of this war between the United States and Iran.

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Right now, Iran is blocking the ship of Hormuz, and China depends on 50 % to 60 % of its energy needs from the Middle East, okay? Jie Junhuang was not on the China list, okay? So before Trump took off, it was announced that Jie Junhuang, who is the head of NVIDIA, 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, okay? Um... The United States and six other 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 of visit. Um...

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And then, uh... Yesterday, and the day before, He Lifeng, who is the, uh... who is the vice premier in China, and Scott Besant, who is the church secretary, met in South Korea to try to negotiate, um... 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 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, okay? So all this, I think, is just theater. All right? China and the United States are not actually fighting an AI war. It's all theater. They're actually working together to promote AI.

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Um... 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. Okay? China cares first and foremost about, um... the relationship with the United 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 Iranian 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 Besant is the one who is leading the U.S. team in China. Scott Besant is the Treasury Secretary. This goes against my belief that this is protocol because, um, it's usually the Secretary of State, Marco Rubio, and the National Security Advisor, who also happens to be Marco Rubio.

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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 an economic negotiation. And the focus is on, will be on finance. Basically, what America wants is for China to open up its financial sector for companies like BlackRock and Blackstar to come in to sell financial instruments to Chinese people. Okay? That's what America wants. And we'll talk 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's trying to do. China's trying to build a high -speed rail network from Beijing all the way across Central Asia and into Europe. Okay? 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.

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Okay? Without Tehran, Beijing could not access Europe. And then Moscow also sees Tehran as very important as well for its north -south trade access. 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. All right? 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 sphere of influence. Okay? And that's why Iran is very, very important. So a lot of geopolitical analysts believe that Beijing is forced to support Iran in this war. And what I want to show you is that's not actually the case. All right? China may want to become independent of the United States and Russia, but it cannot, actually.

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All right. Now, there's a rumor a couple of days ago that one deal that Trump and Xi will sign in Beijing is Xi Jinping will commit $1 trillion, $1 trillion investment into America, primarily factories that manufacture EV cars. This is a huge deal. Okay? And Laura Ingraham, 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 really powerful way to understand the present.

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So, the Trump visit today is analogous to Nixon's visit in 1972. Okay? So, you don't know this, but before 1972, America was hostile towards China, primarily because of Taiwan, where during the Chinese Civil War, the Americans were very supportive of Chiang Kai -shek 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. 1972, when Nixon visited, this marked a radical departure from 20 years of American foreign policy. Okay? 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

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main reason, from their perspective, is that Henry Kissinger, who was 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 is 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 for gold. Now, it's worth nothing. If it's worth nothing, what you 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 Petrodollar. Okay? The Petrodollar is where Saudi Arabia and other Middle East countries, like Qatar, UAE, they only sell their oil in US dollars.

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So now, before the value of US dollars was tied to gold, the gold standard, now the value of US dollars is tied to oil. Okay? If you want to buy oil and everyone wants to buy oil, you need US dollars. And there's something called the Petrodollar. Okay, that's the first thing. The 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 something called the Shanghai communique. This is published in 1972.

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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 the Taiwan question, America practices something called 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. Okay? That's 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. Okay? 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.

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Okay? This would be a radical sea 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 re -invocation. Okay? All right. So, let me explain now what the China -US 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 a grain of salt. Please question me. Please debate me. Okay? But this is my theory of how the US and China work together. And once you understand this theory, you can then go on and 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.

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Okay? All right. So, the first thing you need to 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 of the Cave where you imagine about a million people chained together and they're all looking at a wall. Okay? This wall is empty. Behind the wall, behind the people, is this great fire. This is a 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.

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Okay? An entire framework around these shadows. Okay? And this is what we call reality. Alright? 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 real. Everything else is just an illusion. Everything else is just 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 consciousness 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. This idea, once you understand it, explains the reality that we live in.

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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 casting the shadows are the game masters and these are the financial elite. Okay? Including the Bank of America settlements, the Federal Reserve, Wall Street, City of London, basically private capital.

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Okay?

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They together create the conditions for this game. They're able to direct our attention. Okay? And the mechanism they do this with is of course with capital. Okay? Or US dollars. And then from and then the game creates something called the global economy of course, right? The global economy. But in order for this game to work it has to the game masters have to discuss the fact that they're really in charge. So they create institutions that pretend to be objective international and impartial and fair but are in fact controlled by 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 they media education and culture brainwash you indoctrinate you into being this system is real when it's all just a hallucination. Okay?

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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 this system is real. Okay? Media education and culture brainwashes you to believe this system is real and then you yourself want to enforce this system on others through customs and Okay? Now this is a very fragile system because it's all just a hallucination. So there are enforcement mechanisms okay that make sure this system is stable and these enforcement mechanisms are crime intelligence spies basically spy networks um and science. Okay? And they 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 call the occult. Okay? And we'll study more about the occult later on.

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Alright. Okay so this is how the world is designed. Again, this is all a hallucination. One thing that you don't want to appreciate about this 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 they are the GCC okay GCC and China alright so what underpinned this system before was gold the fact that US dollar could always be exchanged for gold once that's gone then you need to create new 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 then impose itself on the GCC and China okay this system here will impose itself into

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the GCC as well as China in other words and this is really 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 alright so once this hallucination is imposed onto the GCC and China this creates demand for the US dollar okay and this creates certain stability for the US dollar and it made China very very wealthy okay but it's all just an illusion it's all just a mirage there's certain problems with this 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 okay you're shadow of a shadow that's the first problem second problem is um 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 renminbi its

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entire value is based on the US dollar so you're that renminbi or US dollar of course you want the US dollar okay and the third problem is the fragility of this system okay 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 do you understand this then we begin to reassess what happened these past 10 years why 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 guys no no no you're gonna be dependent on us so then they start 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

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okay and now what China has recognized is okay first of all we can actually leave this hallucination because if this hallucination were to collapse we collapse as well so one thing we can do is actually to recouple okay to bind ourselves even greater to the system another thing this is that the US the global economy is under a lot of strain there are two main beneficiaries 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 the UAE seemed as though it was a very prosperous place right it had universities from America like Georgetown Cornell it had people the wealthiest people flocking to Dubai it seemed invincible but the moment you attack the UAE like Iraq just flops a missile at UAE the

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illusion shatters and now the UAE you understand that's how precarious these hallucinations 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 and the United 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 this dream because people wake up from this dream 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 we have 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 and the United States is in the blue right and

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then it 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 okay so now China is the world's most powerful manufacturing country okay and this is a map that shows it better China is now number one United States has moved on to 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 okay one major consequence of this um of of China's rise is the trade deficit between America and China okay unfortunately this trade deficit is a natural consequence of um China's manufacturing uh ascent okay why because the purpose is to force China to buy more US dollars okay in order to support the Ponzi scheme so this is a system that

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benefits the Americans when Trump came into power in 2016 he said no no no it shows that China is taking advantage of us and Trump doesn't really 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 right China's trading real assets the energy of its people for fake assets which is just US dollars okay so it's a great deal for America but Trump said no this is a bad deal and this 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 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

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of conditions the two most important conditions were one was protect IP okay you have to protect other nations intellectual property and you have to enforce it and the other thing was open the financial sector the goal is USD 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 can appreciate these two demands are actually bad for China okay so China was not very stringent about protecting 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 were actually better than Apple computers because Huawei was constantly innovating and they were trying to make their computers as cheap as

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possible whereas Apple was essentially a monopoly okay and this led to United States imposing trade sanctions on Huawei because it was too competitive against Apple the second problem is even worse because if 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 of a hallucination US dollars is more valuable the RMB is based on US dollars so wouldn't it make more sense to just convert RMB into US dollars but then this would of course cause the collapse of the Chinese economy right so the Chinese government would refuse to open the financial sector and that's what started the trade war in 2016 oh sorry not in 2016 in 2018 okay 2018 is when the war actually started up to today so for the last 8 years this war has been going on because America

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is trying to protect its IP and because America wants to open up its financial sector the reason why Trump has come to China the reason why he has brought so many executives is because China has essentially agreed to open up the financial leading I'll discuss this later on but you have to appreciate how this war started and why it's going to end alright now the thing about this war is that for the past 8 years China and United States have been attacking each other there are two there are two main mechanisms in which china attacked 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

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is very inventively costly china is going to pay these costs the rest of the world isn't that's why china has essentially a monopoly over lithium cobalt graphite 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 the 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 u.s 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 of a hallucination the first thing to appreciate is that china's energy dependence

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is huge china's spent waste 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 in the middle east by um kidnapping maduro and venezuela it's basically choking china off from its energy energy supply okay that's one problem but the second problem is that China is very export orientated, 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 ports are actually based in China, okay? The business is Shanghai, followed by Singapore, Ningbo, Shenzhen, Qingdao, 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 the

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choke points, like the Strait of Malacca, and the Strait of Hormuz, and the Strait of Gibraltar, the Strait of Canal, this creates a huge problem for China, okay? And the third thing is is how much resources China uses. China, in only three years' time, okay, from 2011 to 2013, used more cement than America did in 100 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 U.S. economy. And you can find this on the garnet of the USD. It's only because the renminbi can be exchanged for the USD that allows China to purchase so many resources from abroad.

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All right.

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The reality is that China is too dependent on America. If it's something that Chinese policy makers have been trying to change for the past ten years, it doesn't work because what Chinese policy makers don't understand is that you're a hallucination of a hallucination, okay? 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 it never really recovered, 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, all right? The economy is not doing well. At the same time, this is really interesting, more and more Chinese students are choosing to

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study abroad, even as the economy is failing, even as though there are less and less opportunities to do well in China, all right? More and more Chinese are going to America to study, and guess what? The very best are not coming 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 have hallucination, you're anxious. You want to go back to the source, right? So you know the renminbi is based on US dollars. If you can change the renminbi for US dollars, you will do so. If you can flee the country, immigrate 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, okay?

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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, until about, you know, 2022, it tracks pretty closely. But starting in 2022, there's this divergence, a huge divergence. 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, you know, it should be, I buy, it should be $5,000, we agree $500 but you charge me $1,000. Why? Basically you take that $500 and you put that money on my behalf into a U.S. real estate. You buy property or buy stocks from me, okay? Does it make sense? There's always money laundering.

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So in other words, what's really driving China's export mania, a lot of this is money laundering. as people try to flee the country. 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. The highest in the world. Why are Chinese savers, why are they saving 40 % of their income? Well, a lot of reason is because Chinese aren't that wealthy. So even though the Chinese economy has boomed these past 30, 40 years, the Chinese individual has not seen a huge improvement in his standard of living. And so there is not a great confidence in the future, and that's why Chinese save a lot of their money. And there aren't that many actual investment vehicles as well. So from a US perspective, this is a great opportunity. If Chinese are saving all this money, if you're a financier, if you're

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like Blackstone or BlackRock, you're like, why don't you give it to me and I'll invest the money for you and give you bigger returns? This is why they're here in China, because they want this. They want all that capital stored in Chinese banks, not doing anything. Give it to us and we'll make you more money. So this shows you the capital account. All this is saying is that you can't actually convert your renminbi into other currencies. So most countries have full open capital accounts. The Blacks is most countries. countries. The bottom quarter of nations have closed accounts and China is part of the quarter that have closed accounts. So Chinese can actually take their money and leave the country. 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.

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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 assets and liabilities, don't have much invested abroad. You can compare that with other countries like Japan, United States, Germany, United Kingdom. They've got a lot invested abroad. Okay. Okay, so. China doesn't have that much invested 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 than like Indonesia, Turkey, Mexico actually invest more abroad than China does. Brazil, Russia, Saudi Arabia invest a lot, South Africa invests a lot more than China.

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okay so again from my U.S. weeks 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. deal where they can financialize the china the chinese economy basically use uh the chinese account as collateral to engage in financial speculation 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 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 thin air okay money is

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- Video timestamp: [https://www.youtube.com/watch?v=BIl5vJn6ohI&t=3018s](https://www.youtube.com/watch?v=BIl5vJn6ohI&t=3018s)

an illusion so the example is let's just say your 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 alone to not 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 rep to the restaurant entrepreneur then in theory the bank should have zero in the bank right no the bank now has two million dollars 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

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- Video timestamp: [https://www.youtube.com/watch?v=BIl5vJn6ohI&t=3086s](https://www.youtube.com/watch?v=BIl5vJn6ohI&t=3086s)

do you guys know what you don't want to know why the bank has two million dollars this is the case okay i'll tell you anyway okay all right okay so before what were banks banks were just merchants okay a merchant alliance why because merchants needed capital in order to trade so they came together and quit 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 it's hard to transport it's also dangerous because you're pirates okay so the way that they use the way that they use gold in order to create exchanges 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

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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 equation 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 i need to borrow a million dollars of gold i'm like fine i'll give you a 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 so this system system we still use today 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 yeah

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is it because that the

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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 like into the liability okay all right all right you don't you don't understand

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what's going on 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 it's money okay but it's not that hard okay but let's say i can use this money to create money okay is this money a debt or a liability it doesn't make sense it 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 okay 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 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 the U.S.

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- Video timestamp: [https://www.youtube.com/watch?v=BIl5vJn6ohI&t=3304s](https://www.youtube.com/watch?v=BIl5vJn6ohI&t=3304s)

government. You have the government, okay? The U.S. government does not have any money. The U.S. 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? The Federal Reserve, it's at the heart. It's just a cartel of private banks in America, okay? Do you understand? Now the U.S. 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 U.S. government borrow money from the Federal Reserve? It issues bonds that's called U.S. Treasuries, okay? So the Federal Reserve can print money to buy U.S. Treasuries, and then this money goes to the U.S.

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government, and the U.S. government can then pay for expenses, okay? Does that make sense? All right. Now this system is fine. The problem is that the U.S. 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 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 lend you the money, right? Okay. So in other words, 5 % means that the U.S. government has to pay the Federal Reserve about $2 trillion, a year. Where's in that $2 trillion a year? It has to borrow more money from the Federal Reserve, all right?

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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 U.S. Treasuries, okay? Does that make sense? All right. So you can get governments to buy U.S. Treasuries, including the Chinese government, the Chinese government, the U.K. government, okay? And that'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 U.S. Treasuries. And who are these people? Everyone in the world. You, me, everyone in the world, okay? This is what we call retail. Retail. Retail. Retail. But basically, it was only institutions that want to buy U.S. Treasuries. And what the strategy now is you get everyone to buy U.S. Treasuries.

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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 titan circle have to buy u.s treasuries in order to sell stable coins and then you can sell stable coins to anyone and everyone okay including in china which has 40 percent savings rate how through institutions like um apple blackrock visa okay does this make sense now you get around the problem of the closed capital account close up close capital account means you cannot use room b to buy u.s dollars with stable coins you can use now you're doing b to buy teether or circle do you understand okay so now what the u.s government is going to do is they're going to transfer that debt onto the chinese

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people okay okay and so you're like okay wait wait a minute here 39 20 is a lot of money man chinese people don't have 39 20. america will never ever get rid of this debt okay but there's a mechanism american can use to control this debt and this debt and this is called financial repression how does this work very simple okay so um u.s treasuries are at five percent right really simple i don't make this zero percent guys and you're like wait a minute here uh no no no i don't understand this if it's a zero percent i'm not gonna buy u.s 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 i'm gonna make you buy it guys okay i force you to buy it how do i

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force you to buy it by passing laws called the genius act and the clarity act which compels stable coins to use u.s treasuries as the basis of their digital currency and again remember if you're chinese if you can keep them be at five percent a year or u.s dollar at zero percent a year what do you choose you choose the u.s dollar at zero percent a year does that make sense guys okay so that's the solution financial repression where i drop the interest rate of u.s 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 u.s treasuries forcing them by u.s treasuries doesn't make sense guys okay and why and why do they want to do this because now they can access a chinese consumer you can

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sell digital currency to 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 your 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 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 motherland okay what happens now well now you create a problem because because taiwan now can block this area okay it

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can separate southeast asia into two parts south korea 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 because guess what japan south korea gets most of their energy through the shirt of malacca you basically block off South Korea and Japan from a lot of the global economy. In which case there's absolutely no way in hell South Korea and Japan agree to let Taiwan return to China. Does that make sense? So by saying by the United States saying hey I want China and Taiwan to marry 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 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.

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Okay so you can see this is South America and you can see all these problems are going on. You can see this is South America and you can see all these problems are projects in the yellow that China is building okay so the pink is something that's already built or under construction the yellow are planned it's these are huge projects okay so what America has done is basically taken over Venezuela okay and Trump announced this like I think two days ago we're gonna make Venezuela the 51st state well what 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 an 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

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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 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 wanted 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 just have to support the entire airplanes right now as opposed to like all these other governments many of whom are corrupt does it make sense guys so we're trying to agree to this absolutely China's actually no problem with American

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control in the Western Hemisphere if it means stability and cost are controlled okay doesn't make sense to you guys okay um yeah but does China holds attitude

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like about America controlling Venezuela because like using morals like this that they come no no no no no no but will they

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do this China doesn't care I 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 gonna behave in their best interest it's that simple okay no morality no human rights no sovereignty all right okay so try doesn't care who controls Venezuela as long 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 so as you can see the United States is the world's leader in that and I simply because as the most data centers in fact America plans build more and more data centers try to try to compete but it's in a center development is constrained by the fact that it has limited access to semiconductors you to chips and so China wants more chips from the United States and the United States can say

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yes but you're like no no no no no no doesn't that mean that China could one day overtake the United States could China just reverse engineer and steal the IP for these semiconductors no that's not how semiconductors work semiconductors are so sophisticated that its entire global supply chain okay these semiconductors are designed in California then they are sent to Taiwan to be manufactured then they're sent onto the Philippines to be valued at it there's a China to be active components and it's sold to Europe and all the while you have to extract resources from Africa from South America in order to start trade on the 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 trade network america will always have advantage in semiconductors okay there's actually no way china can

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reverse the production of the semiconductors because it's too sophisticated it's too expensive only only one country can specialize only one field okay doesn't make sense okay so that's why this guy is important okay jensen huang or 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 through 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 Elon Musk and Jiang Shih -hung okay so what happened so I work in business negotiation I'll tell you exactly what happened what happened was that Scott Besant and He Li -fang they were negotiating this grand bargain just the contours of this grand bargain in South Korea China wants first and foremost Nvidia chips Scott Besant wants first and foremost access to the

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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 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 it wants Nvidia chips to fuel its AI and it wants access to the US market okay those are three things that China wants America wants access to Chinese financial markets basically wants Chinese consumers to buy stable

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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 point 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 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

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that can be extracted and turned into manufactured goods 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 any questions okay so these are predictions this is the way I see I see the situation and we'll know in a couple days if I'm right or wrong okay so we'll talk next week