Breaking Point

The week ended on August 28, 2026 interesting news items to look at for the past fortnight are:

Breaking Point: Last week, I sent out an alert, predicting that the financial market would break by October 2026. (Fig. 1).

The purpose of this week’s blog is to explain the timing and the plumbing involved. 

1. Supply of USD Debt Beyond Demand - On September 16 and 17, 2019, the US overnight funding rate suddenly spiked massively, which indicated insufficient liquidity within the dollar system. The Federal Reserve intervened by injecting reserves into the banking system, and the incident was later called the 2019 Repo Crisis. In the following month, the Fed begins large-scale, ongoing Treasury purchases to permanently increase reserves in the banking system. (Fig. 2)

Why I brought up this history was I expect there will be another Repo crisis in October 2026, to be followed by a permanent QE with hyperinflation as a consequence.

The precursor to the 2019 Repo Crisis was Quantitative Tightening (the sale of Treasuries reduced banking reserves) by Janet Yellen in October 2017 to reduce excessive banking reserves in the system. This was initiated after three rounds of Quantitative Easing (money printing) by Ben Bernanke to prevent a near collapse of the U.S. the monetary system, as a result of the subprime fiasco in 2008. (Fig. 3).

At hindsight, Janet Yellen’s QT was overdone, which drained too much cash and reserves from US banks and left insufficient liquidity, choking normal interbank funding. In fact, none of the Fed chairpersons were good at their job, and the US financial system alternated between undercooked or charred for healthy consumption. (Fig. 4).

My criticism of the Fed was not so much against their individual competence because no one could master a system of global reserve currency that has passed its used-by date. A system that was not designed to properly oil the functioning of trade settlement and wealth preservation, but instead was designed to be exploited by the sitting apex predator.  

As the patriarch asset allocator of my family members’ investment portfolio, I have to crawl deep into the plumbing and drainage of the reserve currency system because there is no single textbook or data set that would tell you what is truly happening. Readers of this blog will find that some of the diagrams and charts are original research, e.g. (Fig. 5)

is an aggregation of data from six different sources plus the author’s own algorithms. However, even with such effort, the information is not realtime and there is lag of one and a half months. Nonetheless, it is a useful set of data for modeling and prediction. With that said, I like readers to focus on (Fig. 5), the red line—M1 and the blue line—US Private Purchases of Treasuries, and the corresponding area in red and green.

The red line—M1 is all the cash, money in the checking account, and savings account that can be withdrawn on demand and are deposited with banks, savings institutions, and credit unions, plus the bank’s reserve account balances with the Federal Reserve. Notice before the massive increase in M1 in April 2020, the red line is below the blue line. That means there was insufficient M1 to buy the U.S. Treasuries that were to be issued but would not be absorbed by Social Security, the Fed, and foreign countries. So, under the cover of COVID, the Fed, in one go, printed enough cash to satisfy Treasury issuance for the next 44 months. The issuance was far in excess of actual fiscal demand, including the required stimulus for COVID. This excess liquidity in the system drove the U.S. stock market and crypto currency valuations to stratospheric levels. The next question is, why?  

My take on all these US money machinations was not that they tried to stabilize a COVID-infected economy, but that they were to build a war chest for the endless war that we have witnessed for the past five years since the first COVID bio-war. The genesis of these endless wars was the dying petrodollar hegemony.

Allow me to take you back in time to the year 2017. Professor John Mearsheimer of the University of Chicago identified the year as the time when the uni-polar world order ended. Mearsheimer reasoned that China and Russia had grown sufficiently strong not to bend the knee to U.S. dictates. In my observation, the more compelling reason was a fundamental change in oil economics. I know some readers of this blog have experience and skills in the energy market, and may I invite their comments here?

2. Shift in the Energy Market - 2017 was the year when China surpassed the US as the world’s largest oil importer and gained the power to influence pricing and settlement currency. From 2017 onward, the days are numbered for the petrol dollar. (Fig. 6).

The following is a chart of China’s oil imports by source in 2025. There are few export countries that would not accept CNY as a settlement currency. (Fig. 7).

Another underlying factor was the advancement of shale oil, and with it the US became a competitor to Saudi Arabia. (Fig. 8).

Having the Gulf Council members sell oil exclusively in USD only makes sense, so long as the US is the largest buyer; but once the US competes in the same market, using USD as the settlement currency becomes aiding and abetting an arch rival.

Now, take a look at the timeline of wars and conflicts since the Republicans took office in the White House: (a) Under a false peace, the Minsk II Agreement, the U.S. secretly armed Ukrainian Nazis as a battering ram against Russia in December 2017, (b) Cancel the JCPOA in May 2018 to eliminate competition from Iran. (d) Began a trade and tech war with China in July 2018, (e) Mobilized cells in Hong Kong for a color revolution in March 2019, Xinjiang Uighur as a narrative to destabilize China and install officials of Japanese lineage in Taiwan as an anti-China strategy, (f) Funded chimeric virus research and staged the COVID outbreak in Wuhan in December 2019. (g) Between February and June 2020, the Federal Reserve expanded the money supply by $12 trillion to build a war chest, (h) Forced Russia to start a SMO in February 2022. (a separate paragraph below will show a link to the underlying logic to the petrodollar.) (i) Major sweeping semiconductor restrictions against China began on October 7, 2022. (j) Launched ChatGPT and pumped up tech stocks to lay a new foundation to replace the petrodollar with semiconductors, AI, and a crypto dollar (under an aspiration that the US has a tech monopoly) in December 2022. (k) Attack Canada to be folded as the 51st US state, military coercion of Venezuela, and war with Iran to arrest control of major oil supplies and oil transit choke points.

3. The Foolhardy Europeans - I only need to present a table to show the effect of oil supplies on Europe to make a point that the US had everything to gain and Europe has all to lose. (Fig. 9) with a Russian/Ukraine conflict.

4. The War Chest Is Now Empty - The $12 trillion war chest raised in early 2020 was completely exhausted by Dec 2025; please read Fig. 5 again, as unenthusiastic foreign buyers left US banks and private investors holding the bag on Treasury issuance. The Federal Reserve has no other option but to start printing again at $60 billion per month. Behind the smoke screen, foreign interests were much lower than what was officially reported, because approximately $3 trillion of US Treasury, disguised as demand from the Cayman Islands, were actually US hedge funds and Wall Street banks using SOFR (Secured Overnight Funding) in collusion with the US Treasury Department, shuffling unwanted Treasury Notes across each other’s dealing desks. (Fig. 10).

I have reported this previously on February 14, 2026, in a blog titled “Painted into a Corner”. The fact behind the fudged numbers is diabolical, as most central banks are distancing themselves from US papers. (Fig. 11).

The displayed demand from the foreign private sector is mainly related-party dealings using swaps and derivatives for window dressing.  Scott Bessent is on a huge margin call and has no tools but cheap bucket-shop tricks to prop up the collateral value (like FIMA Repo with Japan and UAE and Riding the Yield Curve Buy Backs). As far as the new Fed Chair Warsh is concerned, he is a nothing burger, as with all previous Fed Chairs. the script has been written long before the actor comes on stage. (Fig. 12)

I foresee that between now and October 2026, the Scott Bessent band-aid will hold, provided there are no more black swans coming onto the stage.  

5. October 2026 Breaking Point -  Looking at the existing trajectory, projected Treasury Issuance wll overrun M1 decisively by October 2026. (Fig. 13)

Just like the 2019 Repo Crisis, the Federal Reserve will need to engage the printing machine on a unprecedented scale; USD and other fiat currencies will be junked with an onset of hyperinflation not dissimilar to the Wiemar Republic.

Book of Revelation 6:5  When He opened the third seal, I heard the third living creature say, "Come and see." So I looked, and behold, a black horse, and he who sat on it had a pair of scales in his hand. 6  And I heard a voice in the midst of the four living creatures saying, "A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not harm the oil and the wine." 

 

Preparation Precedes Blessings

The week ended on August 14, 2026. interesting news items to look at for the past fortnight are:

Preparation Precedes Blessings: One of the concerns I have is how our younger generation can cope with the rapid changes taking place in our society. Generational theorist Neil Howe describes the current period as the “Fourth Turning,” The Fourth Turning is a 20-year period of deep societal crisis that recurs roughly every 80 to 100 years. During this “winter” season of history, old institutional orders collapse and are violently rebuilt before a new cycle begins. So the big question is how does one move into the spring season, or does one get stuck forever in winter. (Fig. 1)

Based on Howe’s observation of (please note that the observation is restricted to 500 years of Anglo-American history), I like to set out certain markers that may be useful in our journey through this turbulent landscape.

1. Identification of the Seasons:  (a) Spring (1946–1963), post-WWII economic expansion, and massive infrastructure building. American hegemony began. (b) Summer (1964-1983), Vietnam war and cold war began to drain US economic vitality. Bretton Woods’ default and the beginning of the patrol dollar began, but they also signaled the decay of the financialized Anglo-American Empire. (c )  Autumn (1984–2007) Western societies began prioritizing the rise of a techno-elitist class over collective community. Trust in established international institutions decayed, culture wars intensified, and governance became more polarized. Winter (2008-2030). Triggered by accumulated institutional and financial decay (pegged to the 2008 financial crisis), this "winter" represents an era of systemic stress, deep political polarization, and institutional rebuilding designed to forge a brand-new civic order. (Fig. 2)

While Howe’s model above is useful for pigeonholing Western economies, China’s generational season is on a totally different time scale. China has gone through a particularly long winter of approximately 178 years, from the decay of the Qing Dynasty around 1800 to the final unification of CCP under Deng Xiaoping in 1978. For China, spring began in 1979 with accelerated rebuilding through 2012. China’s summer awakening began in 2013 and recognized that it needs to diversify away from reliance on exports to the West and to check its accumulation of surpluses in US Treasuries. The Spring season for China’s nation building will only be concluded by “China Standards 2035” after a successful implementation of “Made in China 2025”.  

As the Anglo-American Empire reached its inflection point in 2026 with the onset of exponential decay, China is neither ready nor prepared to assume the mantle of the sole superpower and global enforcer. My humble opinion is that we should expect a period of regional uprisings and power plays that will see new alliances and security structures formed, e.g. the Mecca Joint Defense Agreement signed on August 7, 2026, a tripartite security pact between Saudi Arabia, Turkey, and Pakistan. Often labeled the "Islamic NATO" or "Sunni NATO" in media commentary, the pact includes a collective-defense clause stating that an armed attack on one member will be treated as an attack on all.  (Fig. 3)  

Another recent incident to note is the mass crossing of Moroccan migrants into the Spanish North African enclave of Ceuta in late July 2026. Where a power vacuum develops, chaos is certain. (Fig. 4)

   

2. Identification of the Alpha in the Change Over: This is actually more tricky than a simple assumption that the Alpha will move from West to East.

Historically, the rise and fall of empires takes decades to unfold. So, by the yardstick of history, WWI and WWII were relatively short wars. WWI lasted only 1,574 days, and WWII lasted 2,193 days. The Ukraine war has already been going on for 1,634 days and is continuing. The U.S. Afghan war lasted 7,293 days, and the Vietnam War lasted 6,395 days. In my last blog, I commented that “the surprise was not that the U.S. achieved superpower status; the surprise was how the U.S. achieved it with so little cost and effort to itself.” Regional peers’ wars for dominance are measured in centuries. Until unification under the EU banner, various European powers had 5 centuries of conflict. (Fig. 5).

In China, it took two and a half centuries to bring the seven states under a unified Qin Dynasty. (Fig. 6).

In the 35 years since the disintegration of the USSR in 1991, there have been 10 major conflicts in former USSR states. (Fig. 7).

Since the 1990s, the U.S. has dismantled all of its military surge capacity based on a belief that no one could challenge her military supremacy and is now found wanting. As a superpower’s force projection wanes, allies’ previous dependence or an adversary’s apprehension will cause insecurity or boldness, as the case may be, for new security arrangements that will be destabilizing.  Europe, Japan, and the Middle East are on the move, and Russia, China, North Korea, and India have taken corresponding countermeasures. In the meantime, the show must go on in Wall Street, and the narrative is “everything is under control and there is nothing to see, folks.”  Few political or corporate leaders are actually aware and have prepared for an economic cardiac arrest and a prolonged winter. If the war with Iran goes the way of the Afghan war, the Strait of Hormuz would be blocked until Feb. 16, 2046. What if the endgame is twenty years of skirmishes and stagnation until the emergence of 10 nodes of regional power blocs?  How would one deploy one’s time, energy, and resources in such a scenario?

3. Identification of Bottle Necks, Choke Points, and Irrational Exuberance: Risks is not having prepared for the unexpected to happen. Foolishness is seeing the unexpected happen and not revising one’s actions accordingly.

(a) Military - The Ukraine War and the Iranian Wars have proven that mass-produced, commoditized communication devices on cheap drones and rockets are equalizers to sophisticated weapons of a superpower.

(b) Technological Advantage - What it took a first mover decades to achieve does not guarantee that a challenger will require an equal time lag to catch up.  

(c) Supply Chain Control — A sovereign nation does not have true sovereignty when critical resources are controlled by a competitor or an adversary. Commercial contracts will not be honored by “civilized” nations that trumpet governance by a “rule of law” when a nation is about to lose its competitive advantage. The world’s commerce is moving away from globalization toward high tariffs and trade barriers. But then, as traditional markets are closing, new opportunities also open up for those who are willing to take up the challenge.  

(d)  Artificial Intelligence — We are still very far from realizing AGI (“Artificial General Intelligence”) and are still at a stage of machine learning. Winner of the current AI race will be (i) open-source, open-weight models, (ii) local inferencing on desktop/laptops rather than data centers, and  (iii) consumer hardware using Unified Memory Architectures (UMA) that hosts AI models locally will outperform expensive VRAM in data centers. The threat and narrative of  inevitability and artificial superintelligence is pure financial hype to justify bubble valuation on Wall Street. For those who move on to embrace AI will find it is more helpful in jobs than an exterminator of jobs.

(e) Reserve Currency — Currencies will continue to be useful for trade settlement, but it has proven that it has lost its function as a store of value and therefore is no longer useful as a reserve,

(f) Transit Choke Points - Geo-logistical choke points are more powerful than nuclear weapons. (Fig. 8)

We are in the fourth turning, and therefore we are compelled by external circumstances to move out of our comfort zone or traditional orthodox thinking. A comfort zone may be a place, a lifestyle, or a familiar routine. I would like to close here with a story you are all familiar with: Two friends walk in the woods and see a huge bear. One friend quickly sits down to put on his running shoes. The other friend says, "You cannot outrun that bear!" The smart friend smiles and says, "I do not need to outrun the bear. I only need to outrun you." (Fig. 9)

Matthew 7:7  "Ask, and it will be given to you; seek, and you will find; knock, and it will be opened to you. 8  For everyone who asks receives, and he who seeks finds, and to him who knocks it will be opened. 9  Or what man is there among you who, if his son asks for bread, will give him a stone? 10  Or if he asks for a fish, will he give him a serpent? 11  If you then, being evil, know how to give good gifts to your children, how much more will your Father who is in heaven give good things to those who ask Him! 

Full Spectrum Competition

The week ended on July 31, 2026, interesting news items to look at for the past fortnight are:

Full Spectrum Competition: I borrow the title of the current Blog from “full spectrum dominance.” Full-spectrum dominance is a military strategic concept created in the United States during the 1990s (prominently featured in US military publications like Joint Vision 2010 and 2020). It is used to describe the achievement of absolute control over all dimensions of a battlespace—including land, air, sea, space, cyberspace, and the electromagnetic spectrum—so that an opposing force has total constraint and cannot effectively resist. (Fig. 1).

Now, if the US population, which constitutes 4.2% of the global population, wants to sit on top of the other 95.8% in perpetuity, they are either delusional or living in a man-made Matrix. The race for multipolarity has been on since 2010 and it looks like that after one and a half decades, we are at the finishing line in 2026.  

It has been said that there are 3 pillars that support the US Empire, viz: the US economy, the USD as the Global Reserve Currency, and the US military. It was not brilliance in design or execution that gave the US its superpower status; it all fell into her lap after Europe and Asia tore themselves to pieces as a result of WWII. The surprise was not the U.S. achieved superpower; the surprise was how the U.S. achieved it with so little cost and effort to itself. Contrary, if there was any single factor that caused U.S hegemony to lose its potency, I would ascribe that single factor to the fallacy of the doctrine of “Full Spectrum Dominance” and it was all self-inflicted. My thesis is based on three decades of observation of how, every time a particular aspect of US dominance faces competition, the entire US system is re-calibrated to eliminate a particular competitor, but in the process it weakens the empire as a whole.

Our thesis began with post-WWII competition between NATO and the Warsaw Pact. The US and the Soviet Union were shoulder to shoulder in terms of technology and military sophistication, and the Cold War lasted 45 years. To maintain the cohesion of the respective bloc, Russia directly subsidized the Warsaw Pact members, but the US had the advantage of the USD and indirectly subsidized Europe through trade deficits and shouldered NATO defenses single-handedly. In the end, the Soviet Union collapsed in 1990 but before that, the US defaulted on the Bretton Woods Agreement in 1971 and built USD hegemony on an unstable foundation in the Middle East in terms of the petrodollar.

The petrodollar, while it worked as an important anchor for dollar hegemony, comes with a huge cost in the sense that the US had to widely distribute dollars internationally through trade deficits (Fig. 2)

and pay record-high interests to stabilize the initial default volatility. (Fig. 3).

As a result, claims by foreigners against the US economy are a whopping $35 trillion, comprising $15 trillion in bank credits and $20 trillion in financial assets of treasuries, bonds, and equity. This compares with the US M2 of $22 trillion, and 40% of bank-created US dollars are outside the United States. Hence, dollar hegemony is both a strength and a deadly vulnerability. Sadly, successive US administrations only see the dollar as a weapon of threat and coercion, but were blinded by hubris to see the dollar as a double-edged sword that, when wielded, cuts both ways.

US is a country endowed with rich resources and naturally protected by the vast Atlantic and Pacific Oceans. In terms of oil and gas, US was the predominant supplier to both sides of the WWII conflict in the 1940s. (Fig. 4).

In fact, the primary cause of the Pearl Harbour attack was a U.S. oil embargo against Japan. However, by 1949, having exhausted its endowed good fortune of oil and gas and greatly profited from the vast WWII demand, the US became a net importer and eventually the biggest buyer of Middle East oil, and hence was able to seal the petrodollar deal in 1971. Few people knew that the petrodollar deal was not so simple as an exchange of oil pricing in USD against US security protection of the House of Saud.  Embedded in the deal was the Saudis would receive partial payment in gold and a scheme to maintain the international gold price at around US$400/oz for the Sauds to convert USD to gold as they received the dollar payments. To back up the scheme, the U.S. Treasury leased out its gold reserves to bullion banks and dumped them in open markets to depress the gold price (a mirror reflection to strengthen the dollar) for cash. The lease rates to bullion banks were around 25 to 50 basis points, and the bullion banks would lend to gold miners at preferential interest rates at 500 to 700 basis points. but repayable by gold miners in gold. This was the genesis of the gold carry trade. Naturally, Wall Street bullion banks would market the gold carry trade and borrow substantial quantities from the European Central Banks. (Fig. 5).  

You can see from the chart between the early 1980s and the mid 1990s, the gold price stayed depressed for 15 years, irrespective of volatility in inflation and interest rates. One also notes that, since 1974, the U.S. gold reserves have not been formally audited for over 50 years. This is despite US domestic political cries for a formal audit and a request by client central banks for inspection.

Whilst the exchange value of USD is being artificially propped up by the gold carry trade, Japanese exports to the US went on a tear. In 1985, US, the United Kingdom, France, and Germany united against Japan and,, in the Plaza Accord and forced Japan to revalue the yen FX rate from 240 to 150 within 12 months. In 1986 and 1987 US also took major trade and legislative action against Toshiba and robbed the crown of semiconductor manufacturing. It was at that time that South Korea, Taiwan, Hong Kong, and Singapore (the four Asian Tigers) were raised to weaken Japan for coming too close as a rivary to US.

1986 was also the year when Western financial markets threw away their prudential rule book. First began with the London financial market “Big Bang”, exotic trading practices like computerized algo trading, portfolio insurance, index and derivative trading have all significantly enhanced stock market liquidity but increased volatility. Back in Japan, your average Mr Watanabe is unaware of the undercurrents in the global financial markets and only saw a robust Japanese economy, new-found purchasing power in the Yen and low returns on cash savings. He could hardly resist the Nikkei 225 index, which rose from 10,824 in 1986 to a high of 38,915 towards the end of 1989 being window-dressed by a secret army of state-sponsored economic hitmen. After all, the Western caimans have honed their skills since Black Friday, October 19, 1987 and have sharpened their stealthy daggers in cloaks against the naive Japanese. MOF officials with inflated egos have also scant knowledge of this new financial weapon of mass destruction. So, for an exuberant party of three years, Japan woke up and found itself shackled as a financial serf of the US for the next 30 years. The Gold Carry Trade was officially replaced by the Yen Carry Trade. Here I need to digress and mention that today Samsung and SK hynix of South Korea, and possibly TSMC of Taiwan, will meet the same fate as Toshiba of Japan; history is repeating itself right before our eyes.

In 1991, the Soviet Union finally collapsed. The coffers of US hegemony were filled to the brim after shorting the ruble and harvesting $1 trillion in blood money. Japan also bent the knee and opened her vault and backed US with a platinum credit card of virtually unlimited credit. US, the last superpower, remained standing and self-crowned itself Master of the Universe. Yes, the financial weapon of mass destruction has outgunned even the Soviet’s huge arsenal of nuclear bombs. It is only fitting that the United States should be honored with full-spectrum dominance and a US rule-based international order.  With such victories, US turned its attention to the Middle East and Europe. How dare Saddam Hussein claim the promised reward for waging an eight-year war with Iran by actually invading Kuwait. What about the ambition of the Europeans in forming an economic bloc to rival the United States? And so the cycle of perpetual wars began with Operation Desert Shield, Operation Desert Storm (Iraq), Operation El Dorado Canyon (Libya), Operation Deliberate Force, Operation Noble Anvill (Yugoslavia), Operation Enduring Freedom (Afghanistan), Operation Iraqi Freedom, and Operation Inherent Resolve (ISIS).

So after two decades of war and $6 trillion of military expenditure, the Treasury coffers are drained; the Shiite majority in Iraq became close friends with Iran, and the US had to evacuate in haste from Afghanistan. Libya and Syria degenerated into failed states. In the meantime, without specific state-sponsored national targets such as the Soviet Union and Japan, the cohorts of economic hit men turned their weapons to Asia and Russia again. In Hong Kong 1998, Soros had his Waterloo moment. Soro’s Quantum Fund was forced to cover its naked short position because the Hong Kong Government bought every sell order thrown at it. (Fig. 6).

In Europe, LTCM blew up and needed a bailout coordinated by the Fed with successive Fed rate cuts. But the curse of wielding this financial weapon was brought ashore to the USA and caused havoc in the 2000 dot-com bubble and the 2008 sub-prime tsunami.

2008 was a pivotal moment and a wake-up call for foreign holders of USD and Treasuries. Fast forward to today, every attempt by the US Administration to dictate exclusive USD settlement, whether the end product is petroleum, minerals, semiconductors, or artificial intelligence tokens, is challenged by BRICS with viable alternatives. No longer is USD the currency of the United States, but another country’s problem. The spendthrift behavior of the US Administration will only be shouldered by US citizenry. The Federal Reserve printing press would guarantee domestic US inflation and the erosion of USD purchasing power. Full Spectrum Dominance is now Full Spectrum Competition. The table has turned, and the borrower now rightfully stands subservient to the lender. (Fig. 7)

Proverbs 22:7  The rich rules over the poor, And the borrower is servant to the lender. 8  He who sows iniquity will reap sorrow, And the rod of his anger will fail.