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Geopolitical Chess Board Reshuffling

Geopolitical Chess Board Reshuffling

Nov 20, 2023
Marty's Ƀent

Geopolitical Chess Board Reshuffling

While everyone and their mother is caught up in the drama that unfolded over the weekend in the wake of OpenAI's board ousting Sam Altman from the company, there are some newsworthy events happening on the geopolitical stage that should be brought to your attention. Mainly revolving around China and their current ascent on the world stage.

First up, there are rumors spreading that China is making a push to strengthen the yuan's position in international markets in a roundabout way by issuing countries in the "Global South" US Dollar loans that are demanding to be paid back in yuan/renminbi.

If what Eric Yeung claims is true, this is a very interesting development that somewhat mirrors the playbook that the US ran to make the dollar the reserve currency of the world. After Nixon ripped the US clean off the gold standard in 1971, the US flooded international markets with dollars by purchasing goods with dollars from foreign countries. It seems that China is leveraging this loan structure as a way to help foreign countries attain desperately needed dollars on the front-end while ensuring that there is demand for yuan on the back-end by forcing their counterparties to repay these loans in yuan. A clever hack. These loans, if they are real, are backing essential raw materials extraction and transport businesses, which is where one would start if they were attempting to strengthen the position of their currency. Get exposure via loans to the most critical parts of the global economy and ensure that you are high on the preference stack of customers who will receive those goods first if and when turbulent economic conditions arise. This is something to keep a close eye on in the years ahead. Confirmation one way or the other in the short-term would be ideal so that we don't have to speculate.

This rumor was coupled with actual news from the Ministry of Foreign Affairs in Saudi Arabia that they plan to embark on a global tour to meet with leaders from around the world asking for them to call for an immediate ceasefire in Gaza.

This is significant because Saudi Arabia's foreign minister explicitly mentions that China will be the very first country they travel to on this tour. While it may seem benign to the layman, it is important to understand that everything done at this level of the geopolitical chess match is very calculated. Coming out and saying that China will be the first stop is a signal that the Chinese government is the top priority for Saudi Arabia and may be seen as the global power that can broker peace in this war. Not the United States.

This announcement from Saturday was quickly followed up by a press release earlier this morning in which Saudi Arabia and China announced that their central banks have signed a three-year local-currency swap agreement worth $7 billion. On top of this, the countries have agreed to begin shifting the non-oil trade between the two countries away from dollar settlement.

One may look at this deal and chuckle at the fact that it is only worth $7 billion. However, even though it is a relatively small amount, it is a step in the direction away from the US dollar and the influence of the US government.

This was made even more chaotic after the election of President Javier Milei in Argentina yesterday, who made it a point to signal that he plans to lean away from economic dependency on China and toward the United States when he officially takes office.

Things are moving rather quickly on the geopolitical stage and the large nations of the world are in position mode right now. Whether or not China and their increasingly close relationship with Saudi Arabia and others throughout the world proves to thrust the yuan to reserve currency of the world is yet to be seen. I am extremely skeptical that this will happen, but I do think it is important to highlight these moves. If only to highlight the fact that there is a concerted effort by some of the greatest economic powers on the planet to shift away from the United States.

And when you look at the current state of the United States, it isn't hard to see why others on the geopolitical stage would begin to diversify their concentration risk. Due to the Fed's manipulation of interest rates over the course of decades, the US commercial banking system has been made systemically fragile. Sitting on hundreds of billions of dollars of unrealized losses via their treasuries exposure.

The federal government is on a debt binge the likes of which the world has never seen before with a credit card tab of more than $33.7 TRILLION, an interest expense on that debt that has ballooned above $1 TRILLION per year, and more than $10 TRILLION in treasuries that need to be rolled over over the course of the next two years. During which the Federal Funds rate will likely remain materially above the zero-bound it was stuck to for more than a decade after the Great Financial Crisis.

These problems are only being exacerbated by the fact that the US consumer has been stretched as thin as possible with credit card debt staying above $1 TRILLION and delinquency rates rising at a pace not seen since 1991.

Who knows how all of this plays out. One thing we do know for sure though is that the geopolitical landscape is as chaotic as it has been in some time. Arguably since World War II. No one knows exactly where all of the pieces on the chess board will land when all is said and done and who will come out victorious, but it is very apparent that major moves are being made.

Things are heating up and the most bullish scenario I can envision for bitcoin is playing out. The major nation states of the world are engaged in a pissing match. Attempting to ensure that their fiat currency is the one that wins out in the long-run. This is a massive distraction. Bitcoin is the apolitical monetary system that the world needs. Anyone who wishes bitcoin to succeed should be very happy that the large nation states of the world are infighting. The pissing match gives us more time to ensure that the network is as distributed and robust as possible while onboarding as many individuals as possible to the network.

Final thought...

Time feels like it is speeding up.


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