Will Chinese Pressure be the Savior to Fix Gov, VA Shutdown?

Henry Paulson with China

“The clock is ticking.” Today, UK’s The Independent cited China’s position on concerns about how the shutdown will impact China’s $1.3tn in US investments.

In the article, Chinese Foreign Minister Zhu Guangyao was cited as telling the US to break deadlock over government so China’s investment portfolio will not be harmed. The deadline for action is October 17, the date the fed is projected to run out of cash. This issue has many veterans concerned due to threats that VA benefits will cease.

In ironies of ironies, it looks like China may become the savior no veteran expected to see. In light of China’s recent attempts to hack Department of Veterans Affairs databases, this outcome would surely surprise most people.

China’s hard position may inspire politicians across the aisle to form a compromise. This would result in funding of VA’s budget. Without this compromise, most if not all veterans benefit payouts will cease by November 1, if not sooner.

But is it a good idea to take political cues from a Communist country?

The Independent’s headline and its implications got me thinking about the difference between what regular Joe’s perceive and what US politicians, policymakers, and investors are doing behind the scenes.

Across social media, you read veteran after veteran espousing a firm distrust and fear against Chinese involvement in our political system. Sadly, these lone voices seem to be out of touch with the policies our nation’s political and economic leaders are implementing.

Looking to the recent past, it seems like yesterday that the US was $600bn in debt to China. Thanks in part to the Wall Street debacle, Henry Paulson and TARP, China’s creditor position has blossomed into a bouquet of US “investments” now worth over $1.3tn.


Example: Censorship, China takes over Hollywood

This bouquet is currently in full bloom given their recent acquisitions and various moves by US corporations. One example is the Chinese purchase of the US based AMC Theaters for $2.6bn. According to USA Today, “[I]t was China’s biggest corporate takeover to date in the USA…”

The acquiring company is called Wanda, which is owned by Wang Jianlin, China’s richest man. Wang spent 17 years in the People’s Liberation Army and was a key adviser to the ruling Communist Party.

Wanda has recently unveiled an $8.2bn plan to Hollywood A-Listers for expansion across the world. Wanda’s goal is to become one of the world’s largest influencers in the “culture industries.” The announcement was received with open arms by Hollywood mogul Harvey Weinstein and friends.

According to The Hollywood Reporter, “The Communist Party has identified culture as a “pillar industry” and Wang expects annual revenues of 80 billion yuan ($13.1bn) from Wanda’s cultural business.

This purchase of AMC will likely give Chinese censors, through Wanda, greater control over Hollywood and any unfavorable portrayal of China on the big screen. Historically, this has been a major concern for China, and will to some degree pit US Free Speech ideals against increased censorship controls used by China.

Many movies in the recent past were altered to comply with stringent censorship guidelines China uses for all films. Here is a short list:

    • Red Dawn remake – Enemy changed from Chinese to North Koreans post shoot
    • Pirates of the Caribbean – Claimed one character demonized Chinese and Singaporeans
    • Skyfall – Footage of Chinese character dying were edited out for Chinese release
    • Casino Royale – Lines about Cold War were cut for Chinese audience

While China is not the only country to censor in this fashion, it certainly must raise an eyebrow in light of their purchase of AMC. It seems likely that instances of censorship will grow moving forward in light of the financial clout the acquisition will allow the China based company.

China itself is now home to many divisions of industry and defense giants like General Electric, Boeing, Honeywell. Over the past decade, China has come to resemble a consumer promised land, and American corporations have embarked on a graduate exodus from the US in response.


China now influencing US politics openly

Now, China is telling the US that US politics and its people must come second to the controls China has in place through its huge investments in US assets and US debt.

Despite Boehner’s House’s pursuit a delusional quest to piecemeal our budget, China is turning up the heat for US Lawmakers and the President to pull it together.

Chinese Vice Foreign Minister, Zhu Guangyao, warned that, “the clock is ticking,” on the national debt. He went on,

“We ask that the United States earnestly takes steps to resolve in a timely way the political issues around the debt ceiling and prevent a US debt default to ensure the safety of Chinese investments in the United States.”

When in history did our great country have a Communist foreign government tell it what to do? By paying off the debt of our “too big to fail” banks, which allowed it to purchase massive US assets, we have enslaved ourselves to Chinese financial rule.

Since then, these same international banks have experience record profits, year after year. They used the money we gave them through TARP to purchase assets in the US and around the globe to pad their portfolios.

How exactly did this happen?


Short Version: Why we let China control us – in 5 sentences

In short, since 2009 the US has not had a normal budget pass the normal way from the House to the Senate and then to the President. To finance TARP to fund the banker bailout, our Congress instead increased the debt ceiling. A major financier  was China and its corporations, many if not all of which are members and advisors to its Communist Party. Now, we are trying to pass a budget but our Congress cannot agree, so the President has shut down parts of it. China has not told our US Government to disregard any democratic process in favor of supporting China’s $1.3tn in US investments.


Long Version: Why we let China control us

For those who missed what the whole Wall Street / Real Estate bubble of 2008, here is a streamlined recap – it is an oversimplification, but you’ll get the gist of what is going on in Wall Street and why China gets to order us around now.

Wall Street created a bubble. The bubble consisted of securities that were created by trading things like mortgages, credit card debt, etc. These new bundles allowed US interest rates to drop, because bundling reduced the risk from default by spreading the risk around the different securities.

The bundles also allowed banks to make a lot of money by trading the bundles and owning the bundles. Banks also made money with derivatives by trading on the change in the face value of the securities. For the purpose of this article, just know that these arrangements allowed banks and investors to make lots of money.

When mortgage interest rates dropped, housing prices skyrocketed. This created a bubble in the real estate market, too. Both bubbles fed on each other, but the increases in values became a ponzi scheme. The ponzi scheme relied on public perception of increased value rather than on real increased value. There was an artificial demand that drove the housing boom and then bust.

Real value is created in physical assets, like 40 acres of land. Regardless of what people say the value is to them or the market, you still own the land. Meanwhile, those who trade based on the perceived value of the mortgage on the land in these bundled securities are trading paper. They only trade it because they perceive the value to be increasing at some point. But, at the end of the day, all they own is basically air.

Wall Street banks like Goldman Sachs told their investors that the bundles were valuable. This boosted demand and perception of value since Goldman was well respected.

Goldman failed to tell its investors that Goldman was also betting that the values would go down, because they knew the ponzi scheme of climbing values based on perception was over. So, banks like Goldman were playing both sides of the coin.

(Goldman did something similar with the Aluminum Scandal of 2013, which cost US consumers billions in artificially inflated aluminum prices.)

Both bubbles burst when investors in these bundled securities and related homes realized the values of the assets were not real. Instead, they had a whole lot of hot air from Wall Street. Real estate prices drop. Banks collapsed because they are over leveraged through the securities and derivatives.

In response, the big Wall Street banks spun up a dust storm and told us it was a tornado. “We’re too big to fail!” And, America bought it.

The then head of Goldman Sachs orchestrated the most genius financial coup that I have ever read about. America wrote the check and much of our remaining financial capacity was siphoned out of the country.


Maybe Wall Street and Henry M. Paulson did it

Hank Paulson, then head of Goldman, was brought in to run the Treasury Department. They created TARP to inject capital back into the securities to artificially inflate prices.

Paulson then jumped on a jet for China, five times in two months, to convince China to back the coup. One Times article, Paulson’s China Trip Leaves Big Issues Unresolved, covers the fifth trip to China. Its quotes are rather illuminating about China’s desire for US policy.

Here are some excerpts from 2008:

“Largely unspoken is the fact that the Chinese government has become the largest holder of United States Treasury securities, with about $600 billion of China’s savings invested in American debt.

“For the Chinese, there were oblique criticisms that America’s profligate ways had sent the global economy into a tailspin and threatened China’s stability. Largely unspoken is the fact that the Chinese government has become the largest holder of United States Treasury securities, with about $600 billion of China’s savings invested in American debt.

“’The important reasons for the U.S. financial crisis include excessive consumption and high leverage,’ Zhou Xiaochuan, governor of China’s central bank, said in a statement. ‘The United States should speed up domestic adjustment, raise its savings rate and reduce its trade and fiscal deficits.’

“Wang Qishan, China’s deputy prime minister, was more blunt: The United States, he said, should stabilize its economy as soon as possible to ‘ensure the safety of China’s assets and investments in the U.S.’”

In a recent interview with NPR’s Robert Siegel, Paulson had this to say about his decisions and some regrets from the 2008 strategy:

SIEGEL: But you have expressed regrets about bankers rescued with taxpayer dollars paying out huge bonuses. Did you and those bankers overestimate the public’s fondness for bankers?

JR.: I think we all underestimated the public uproar. One of the real regrets that I have, Robert, is that I was never ever able to help the public understand that what we did wasn’t for the bankers. What we did was to protect the lives and the livelihood of the American people.

SIEGEL: But the bankers did pretty well at the same time, given their situation.


Now, Paulson is chair of his think tank, The Paulson Institute. One of its focuses is to publish scholarship, but look at the wording:

“[O]ur think tank publishes scholarship from renowned global thinkers on economic and environmental issues of relevance to China and the world. Through our partnership with the University of Chicago, we offer educational and research opportunities that allow faculty to explore contemporary economic and environmental issues, and expose a new generation of students to China.”

The think tank focuses a lot on how best to build up China through integrating what appears to be Western and US style leadership into China. This seems ironic in light of all the debacles our leaders have led us into.

Why would China want such a group of misfits and sellouts to integrate with its own culture?

When you aggregate the news, one sees an image of a nation bleeding its resources and wealth to a country that is supposedly an enemy. Underneath the layers of public sentiment, we see an exodus of American wealth to China like rats fleeing a sinking ship.

My guess is China is playing out a Confucius long game. Once they own all of our stuff, they will probably turn to those who hastened our collapse and hang them from the least expensive rope they can make. It’s all about efficiency really, so long as the rope doesn’t snap.

After writing this, I glanced back at the bottom of the Paulson Institute About page. It goes on to boast, “Our team has a track record of getting things done.”

Yes, yes it does, Paulson. But do you do them well and for the right reasons?


Can Veterans do something?

I wanted to write this for veterans who have yet to view the reality that is the Chinese acquisition of America in light of how it affects politics. It’s not a violent takeover, at least not yet. They are instead gradually usurping our resources.

For veterans, we need to realize the reality of our situation beyond what Fox News and CNN tell us it is. The supposed enemy is now our controller, through our politicians. Our politicians are its puppets.

The only move left for the American Veteran is to run for local office. So long as we have a Constitution, we have a chance.

However, the national politics game is bought and paid for.



The Independent: Get your fiscal house in order: China warns US as Asia’s expresses concern for $1.3tn of investments. 

The Hollywood Reporter: China’s Wanda Unveils $8.2 Billion Movie Fund as Hollywood A-Listers Lend Support



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