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Stella Morabito, The FederalistDalec Rielage reviewed "A New Conception of War..." by Ian Brown. Brown reviews the influence of John Boyd on changing The Marine Corp' s combat doctrine. I mention this because in a recent WSJ article it discussed changes that are taking place in the way the Marine Corps will change it's engagement structure. Smaller units, lower equipment profile, easier to move and hide. The Corps is still amphibious focused and the enemy is assumed to be China
Beijing’s Bid for Financial Supremacy
China plans to displace the U.S. as investors’ top target, and global crises have sped up its effort.
China is no longer biding its time and hiding its strength.
Those days are over.
China’s economic growth in 2020 significantly outpaced the U.S.
and all other major economies, which suffered severe recessions. China’s recent
adventurism at home and abroad can be explained largely in economic terms. Its
leaders draw confidence to challenge the world from their country’s
macroeconomic outperformance, and from their growing belief in the superiority
of China’s economic governance model.
A new front in the great power competition between the U.S. and
China has opened. Beijing isn’t yet ready to challenge the U.S. dollar
directly. But it has set its sights on the U.S. bond market, which showed new
vulnerability last year. China is taking steps to displace U.S. Treasurys as
the world’s most important and reliable asset. American policy makers should
take notice.
There are signs that China is starting to reduce its direct
purchases of Treasurys. This is difficult to know precisely: China’s official
foreign exchange reserves total more than $3 trillion, and it controls other
massive pools of capital. The composition of China’s foreign reserves and the
amount of its dollar-denominated assets are a state secret.
But, according to statistics compiled by the U.S. Treasury Department, Chinese direct holdings of U.S. government debt fell in each of the past five months, and are now at the lowest level in nearly five years. The share of new U.S. debt bought by China is smaller than it’s been in decades.
China is also trying to replace the U.S. as the preferred
destination for foreign capital. Its leaders are actively seeking to persuade
global investors to reconfigure their portfolios to give Chinese securities,
especially risk-free debt, a much greater role. And some finance ministries,
sovereign-wealth funds and large global asset managers are considering shifting
capital in the coming year to China’s higher-yielding sovereign debt.
ILLUSTRATION: DAVID
GOTHARD
Currently, 10-year U.S. Treasurys yield less than 1% nominally,
implying a significant negative real return over the decade. The Federal
Reserve’s newfangled policy regime of lower interest rates and higher inflation
for longer periods portends continued losses. Investors will increasingly
struggle to build portfolios if they are unable to use Treasury bonds to
mitigate risk effectively.
China’s comparable 10-year bonds yield about 3.25%, allowing for
the prospect of positive real returns. Historically, the renminbi was an
inadequate store of value, which kept international investors wary. In the five
years before the Covid crisis, the dollar-renminbi exchange rate weakened as
much as 15% peak-to-trough amid heightened volatility. Global investors were
reluctant to buy Chinese sovereign debt over comparable U.S. Treasurys.
In a purposeful and marked change in recent quarters, China has
consistently fixed its overnight exchange rate in one direction, allowing its
currency to strengthen more than 8% against the dollar. China’s fiscal and
monetary support for its economy has become less expansionary. The clear and
concerted message to global investors: Invest in China and get better, safer
returns. China’s ability to sustain investor interest depends on the long-term
strength of its economy, of which there should be some skepticism. But the
current narrative of strong, stable, sustainable Chinese growth is gaining big
traction in the investor community.
The vulnerability of the U.S. bond market became clearer when
Covid fears struck last year. Foreign investors, including China, pulled back
from the Treasury market. Prices fell unexpectedly, even as equity prices
plummeted. Yields spiked 0.75% in mid-March, one of the largest, fastest shifts
in years. U.S. bond liquidity evaporated, and Treasurys failed to serve as an
effective market hedge. Market panic ensued. The Fed entered the market in
unprecedented scale and scope, purchasing about $1 trillion in government debt
in about three weeks.
This Covid-induced episode stands in contrast with the global
financial crisis a decade ago: U.S. bonds then served as the ultimate safe
haven.
China never sought to replicate the U.S. economic system. But
for decades Beijing considered America’s economic model worthy of great respect,
even admiration. Since their 1980s reforms under Deng Xiaoping, Chinese leaders
believed the U.S. knew how to run a successful modern economy.
Times have changed. Many of China’s leaders no longer hold the
U.S. economy in the same regard. They believe America’s growing addiction to
negative real interest rates, its unsustainable fiscal path, and the Fed’s debt
monetization indicate a country—and a system—in decline.
Two major economic shocks, the Great Recession and the Great
Lockdown, influenced the thinking of China’s leaders. The twin shocks,
separated by a decade of deliberation among China’s academics, policy makers
and other party members, changed China’s view of its relative economic strength
and accelerated the timeline to bolster its global presence.
America’s economic future, however, depends less on the
top-down, macroeconomic decisions of mandarins in Washington than China might
appreciate. U.S. prospects rest more on the resilience and dynamism of the
micro-foundations of our economy—the culture of hard work, risk-taking, free
allocation of capital and labor, and respect for the rule of law in a market
system.
China is moving with dispatch to establish itself as the
preferred destination for low-risk capital returns. If successful, this would
be a critical step in its effort to establish an alternative financial and
economic global ecosystem. China could then emerge as a more viable and serious
rival for hegemony.
In good times, U.S. policy makers feel no compulsion to
normalize, and in bad times no reason or ability to do so. Better, more
forward-looking U.S. economic policy is required to retain the privilege of
U.S. Treasurys as the world’s safe-haven asset, not least to strengthen
America’s position in its growing rivalry with China.
Mr. Warsh, a former member of the
Federal Reserve Board, is a distinguished visiting fellow in economics at
Stanford University’s Hoover Institution.
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Obama has to be licking his chops:
Democrat Raphael Warnock defeats Sen. Kelly Loeffler in Georgia runoff
Democrat Raphael Warnock was declared the victor in one of Georgia’s two Senate runoff elections, defeating incumbent Sen. Kelly Loeffler.
Warnock, a pastor at the historic Ebenezer Baptist Church where Rev. Martin Luther King Jr. once preached, became the first black man elected to represent Georgia in the Senate.
With his narrow win, Democrats have inched closer to seizing back control of the Senate.
Warnock led Loeffler by over 40,000 votes with 97 percent reporting, according to The Associated Press.
Hours before it was officially called, Warnock declared victory in a virtual address to supporters.
“Georgia, I am honored by the faith that you have shown in me,” Warnock said.
“And I promise you this tonight: I am going to the Senate to work for all of Georgia, no matter who you cast your vote for in this election.”
Loefller, meanwhile, did not concede in her own speech late Tuesday night.
“We got some work to do here. This is a game of inches. We’re going to win this election. We’re going to save this country,” Loefller said.
Democratic candidate Jon Ossoff, who was leading GOP Sen Perdue by a razor thin margin in Georgia’s other Senate runoff race was optimistic about his chances early on Wednesday.
“When all the votes are counted we fully expect that Jon Ossoff will have won this election,” his campaign said in a statement.
“The outstanding vote is squarely in parts of the state where Jon’s performance has been dominant.”
With Post wires
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Many months ago I told the joke my father used to tell about the horse farm and analogized it to the Democrats desire to crush Republicans in Georgia because my state is the black gelding.
JOKE:
Man wants to buy a horse, goes to horse farm and see a beautiful black gelding who is surrounded by other horses. Man tell's owner he wants black gelding and the owner replies not for sale. Why the buyer asks? Reply: Cause he is holding up all the rest.
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