Out of Credit and at Wits End

 

The week ended on April 25, 2025, interesting news items to look at this week are:

1. Out of Credit and at Wits End: For the past 24 days, most of the chat groups on social media I am involved in have concentrated singularly on the US Tariff War. Media attention on the Ukraine war where a “once united Western front” gangs up on a nuclear superpower, the war on Palestein where tens of thousands unarmed defenseless civilians were mowed down in cold blood were all put on the back burner. Yet, as some of us fixed our eyes on the tragicomedy reality US circus and pondered what Trump may pull next. (Fig. 1)

Let’s not forget, however, all three wars are symptoms of the same deep seated problem. All reflected desperate men without solutions tried to turn the tide on a declining empire by laying blames on anyone and anything but themselves. Destitute men out of credit and at wits end. Allow me to restate below the known facts and the less obvious ones:

(i) US GDP on a Downward Spiral and sustained only by borrowings: US GDP growth in 2025 was 1.4% with a Federal Budget Deficit of 6.4% to GDP. In other words, the non government civilian economy contracted 5% in that period. Over the past 15 years (Fig. 2)

, from 2001 onward, all US GDP growth was sustained by Federal Budget Deficits and after 2008, the US economy would have shown a contraction without fiscal deficits. Thanks to DeepSeek, the data for this graph only takes one minute to gather instead of hours had I need to scan original published data. We need to prepare for an economic depression either because of the Tariff War or even if the Tariff War were cancelled by a failure to obtain fresh credit by US consumers and government alike.

(ii) $9 trillion Federal Debt due in 2025 with $6.5 trillion due in June 2025: (Fig. 3)

In 2020, Trump increased Federal Debt by $4.5 T to counter the pandemic locked down contraction. There were no storehouse within the US Treasury and every penny to counter the pandemic was borrowed. (Fig. 4).

This will now come home to haunt Trump’s second term.  Take a look at the UST Yield Curve in 2020 as compared with the Yield Curve as at April 25 2025 (Fig. 5).

The average interest rate in 2020 was 43.9 basis points and as at April 25 2025, the average interest rate is 422.1 basis points, an increase of 9.6 times. The Peter G. Peterson Foundation (funded by Peterson, a former US Secretary of Commerce in the Nixon Administration and co-founder of the Blackstone Group) projected in May 2022 US Government interest expenses will continue to climb very rapidly and will eclapse everything the US Govt wants to do. (Fig. 6).

This of course was not in anticipation of the Tariff mayhem besetting the whole world within the current period. One projection puts the US Federal Debt will be increasing at a compound rate of 8% annually ($32.6T as at April 24 2025) as against GDP Growth of below 2% ($27.7T). The Titanic will knowingly hit the iceberg and sink. The question is will you jump ship before it happens. Most Central Banks and the Global South have.

(iii) Happy Talk about Federal Reserve lowering interest rate: It is really a Hobson’s Choice (Fig. 7).

Drop Fed Funds Rate and see an acceleration of capital flight out of US and the exchange value of USD sinks or face a liquidity dry up of US Financial Market and a sever economic contracions. Either course of action would result in a USD default, the former defaults through hyperinflation and the latter via a liquidity crunch and failure to pay. Can the Fed embark on another QE like before ? Well, as at April 2 2025, the Federal Reserve already has a negative net-worth of $177.5 billion with a liability of $6,894.9 billion. (Fig. 8)

This came about because of QE as the Fed had to incur liabilities to pay above market prices to suppress Treasury yield. What is the point of repeating the same operation because a promissory note from the Fed as at today is already not worth the paper it is written on. Besides of the $6,723.4 billion of assets carried on the Balance Sheet of the Fed, $3,592.5 billion (53%) are duration Treasuries with a market value of 30% below book and any liquidation to repay withdrawals would mean another $1,500 billion loss. (Fig. 9)

The Fed’s assets falls way short of covering its liabilities and if really forced to liquidate, there would be any buyers around. On balance, political expediency calls for the old routine of kicking the can further down the road and hyperinflation through money printing is guaranteed.

(iv) How About the Full Faith and Credit of the US Government: As at end of fiscal year 2024, the US Federal Government has assets of $5.6 trillion and liabilities of $45.5 trillion (Fig. 10).

Even if US Government’s gold holdings of 8,133.5 tons is fully revalued to current market value, it would add less than $1T to total asset value, a drop in the ocean against $45.5 trillion in liabilities.

(v) US Gold Reserve: Scott Bessent in a speech at the IMF this week critized the World Bank and IMF of  “falling short,” and the USD centric global monetary system should be reinforced just like Bretton Woods. (Fig. 11).

Well, after WWII, US had 75% of the Global Gold Reserve and over 20,000 tons of the precious metal. But by 1965, some 20 years later, US had squandered its fortune down to just 8,000 tons by waging endless wars and that was the time when Charles de Gaulle thrown back every US$ in France’s possession and took back France’s gold. So in 1971, US defaulted with the Bretton’s Wood Agreement. I doubt if anyone in the world like a fresh game in which “Heads - US wins and tails - everyone lose”. As explained in previous Blogs, I never believe US still has the 8,133.4 tons of physical gold she claims because of the gold leasing and gold carry trade to prop the USD. (Fig. 12).

Hence, no audit of US gold reserves for more than 50 years.

So my friends, tighten your seat belt, put on your crash helmet and prepare for a hard landing in a brace position. I am sure for the pest few years, we witnessed civil unrest, Covid pandemic, market correction and inflation has already heightened your senses.

Joh 14:27  Peace I leave with you, My peace I give to you; not as the world gives do I give to you. Let not your heart be troubled, neither let it be afraid. 28  You have heard Me say to you, 'I am going away and coming back to you.' If you loved Me, you would rejoice because I said, 'I am going to the Father,' for My Father is greater than I. 29  "And now I have told you before it comes, that when it does come to pass, you may believe. 30  I will no longer talk much with you, for the ruler of this world is coming, and he has nothing in Me. 31  But that the world may know that I love the Father, and as the Father gave Me commandment, so I do. Arise, let us go from here. 

 

 

 

 

 

 

An American Saw Cut Double Barrel Shotgun and a Chinese Sniper Rifle with Silencer

The week ended on April 18, 2025, it is Easter Week, may all of us remember the sacrifice of one for the salvation of all. How ironic the world is at the brink of war  because all is  being asked to sacrifice for the supremacy of one.

1. An American Saw Cut Double Barrel Shotgun and a Chinese Sniper Rifle with Silencer: If you ask 100 people on their opinion of the likely outcome of the Trump trade war, you will likely get 150 different opinions because half will have a definitive view based upon their political filters and another half are tossed between mood swings of pessimism and confusion. Trump’s trade war is a composite war and its aim and objectives, despite the loud theatrics, are quite clearly explained by two of Trump’s lieutenants, Stephen Miran, Chairman of the Council of Economic Advisers and Scot Bessent, Secretary of US Treasury. Surprisingly in Miran’s and Bessent’s expositions, even the methods and tactics are spelled out publicly in advance versus a silent and unanticipated roll out of Chinese counter measures that are deadly in accuracy. My mental picture of the weaponry used by the opposing sides are the American Saw Cut Double Barrel Shotgun and a Chinese Sniper Rifle with Silencer. (Fig. 1)

The outcome of the conflict is quite predictable as soon as one grasp the characteristics of the weapons employed.

(i) Miran’s Demand on the World: One day after the  “Liberation Day” announcement that shocked the world, Miran made 5 demands on the world at large (Fig. 2),

(a) Pay the tariff to share US burden and don’t retaliate, (b) Stop unfair practices against US, (c) Buy US weapons systems, (d) Move their manufacturing to US and (e) simply give money to US Treasury. For all these US would continue to shoulder the burden of providing the universal good of USD as the only global Reserve Currency (already an exorbitant privilege) and maintaining Global Peace (actually endless wars).

(ii) Bessent’s Grand Strategy (Fig. 3

): 5 days after Liberation Day, two back flips and 3 escalations of tariffs against China later, Scott Bessent explained US Grand Encirclement Plan against China. The idea is to apply pressure on China’s trade partners and neighbors,  namely  Japan, South Korea, Vietnam and India to encircle and isolate China. Of the four targets, US might think Japan should be the easiest to deal with, as a defeated and occupied state of US since WWII, Japan has always executed US bidding. Yet any Japanese who read Miran’s demand and have some appreciation of the 1985 Plaza Accord, the creation and burst of the Japan Bubble Economy, the pain of the last decade and the despair of the lost generation would reject a perpetual subjugation of Japan to US Treasury. Reading between the lines, it is obvious that Japan is fighting back in her own ways. The subtle approach of sending lone Akzawa Ryosei, Minister of Economic Revitalization as envoy to US on Tariff Negotiations. Akazawa all be himself sat across the US Administration in full force with Trump, Bessent, Lutnick (US Commerce Secretary) and Greer (US Trade Representative). (Fig. 4).

Now anyone who have dealt commercially with Japanese knows, if the Japanese wants to deal, their consensus management style requires a big Japanese peers team and usually outnumber an opposing contingent of repetitiveness across a negotiation table. An absence of MITI, MOFA, MOF, MOD and JCB only means Prime Minister Ishiba is in defiance by dragging his feet, so to speak, trading time for space. Time which Trump does not have and it looks like Japan is waiting for the table to turn. Across the Pacific, Xi personally visited Vietnam amidst the tariff tensions and sequestered Vietnam to US. (Fig. 5).

Vietnam is famous for her Bamboo Diplomacy, was the first to visit Washington, offered an olive branch but of course cannot afford to give in to Miran’s bucket list. Vietnam then closed ranks with China before Bessent could penciled in a visit to Vietnam for further negotiations.

(iii) Why my Saw Cut Double Barrel Shotgun Analogy for America: Allow me here to state the obvious - a Saw Cut Double Barrel Shotgun is loud, empty two buck-shots simultaneously and then need to reload, useful only  at short range and indiscriminately hurt everyone in its vicinity (one at US Consumers and the other -  US Businesses in manufacturing, wholesale, distribution and retail.) Hopefully when all foreign countries see the blood and gore inflicted upon all US citizens without mercies, they will be scared and kowtow to King Trump.

(iv) China’s Sniper Rifle with Silencer - Whilst the Western MSM are obsessed with the ferocity of tariff increases lobbed by Trump onto China, China has quietly fired multiple rounds of lethal precision sniper bullets against the US without the US Administration and Congress even be alerted as to being hit.

(a) Bi-lateral Trade Deals with EU, Canada, Australia and Spain - Within a fortnight since Liberation Day, China has displaced oil imports from US to Canada (a 700% increase), displaced LPG imports from US to Australia (a $1.5 billion deal), displaced Pork imports from US to Spain and shook hands with EU on zero tariff EV exports into EU.

(b) Circumvent USPS sanctions on small parcels from China and Hong Kong by making Dubai her bulkbreak drop shipment hub. Even before any US Administration began to erect barriers against China e-merchants, a Mongolean horde of Yiwu merchants (Yiwu is the supply hub of all Chinese small product value merchandise for domestic and international trade) has already been established in the Dubai Traders Market with 1,600 showrooms and 324 warehouses. (Fig. 6).

Since UAE is indispensable to US in terms of Military, Energy and Financial, US has to carefully weigh sanctioning UAE on all small parcels below $800 or to be cutoff from the three pillars which US relies on for her global hegemony. The amazing thing about this magician trapdoor in Dubai is the platform is most useful to Alibaba, Ali Express, Shein and Temu (China’s e-commerce platforms) but inappropriate for Amazon and Walmart which operate their own consolidation and logistics channels for direct imports from China. The coming season’s shipment of Christmas decorations and artificial Christmas trees to US would all be through Muslim countries in the Middle East.  

(c) Kill Shot on Boeing: China has 67 different airlines and at the Peak China constitutes 20 to 25% of Boeing’s civil aviation sales. When China cuts off deliveries of 130 jets from Boeing, each Chinese airline on average would only need to adjust one or two aircraft but for Boeing a freeze on delivery is a kill shot. (Fig. 7)

(d) Rare Earth Embargo: China has a near monopoly on rare earth and by an embargo against US, China is hitting 5 strategically important manufacture segments, motor vehicles, aerospace and aviation, semiconductors, defense and new energy. China has withheld playing this card until the fullness of time. This checkmate move is designed to trump Trump. (Fig. 8)

(e) Gordian Knot - Re-designation of Country of Origin of Semi-conductors: The manufacture process of electronic chips can be broken up into design in one country, wafer foundry in another, advanced semiconductor packaging in a third (Advanced semiconductor packaging involves integrating multiple chips using high-density interconnects to improve power efficiency, speed, and miniaturization. It goes beyond basic 2D packaging to include 2.5D and 3D packaging techniques) and testing in a fourth. As part of the Trade War with US, China stipulate the Country of Origin means where the original wafer is formed. This move effectively captures American foundries like Intel and Global that they must pay Chinese tariffs if they are embedded in US products and components on their eventual exports back to US. Just try to disentangle that within Trump’s remaining term.

(f) Open Source Code - DeepSeek and Unitree Robotics: We have shared this before so no further comments required.

The essence of war is not just to inflict pain but pain beyond a threshold which your opponent could bear.  I am saddened that the quest for a continued World domination would result in hurting so many people in so wide a geographical area and over a very long period of time. My prayers is may the Spirit of Resurrection lift all of us out of this tragedy as Christ’s crucifixion is salvation for all those who look up to Him.

Matthew 5:3  "Blessed are the poor in spirit, For theirs is the kingdom of heaven. 4  Blessed are those who mourn, For they shall be comforted. 5  Blessed are the meek, For they shall inherit the earth. 6  Blessed are those who hunger and thirst for righteousness, For they shall be filled. 7  Blessed are the merciful, For they shall obtain mercy. 8  Blessed are the pure in heart, For they shall see God. 9  Blessed are the peacemakers, For they shall be called sons of God. 10  Blessed are those who are persecuted for righteousness' sake, For theirs is the kingdom of heaven. 11  "Blessed are you when they revile and persecute you, and say all kinds of evil against you falsely for My sake.12  Rejoice and be exceedingly glad, for great is your reward in heaven, for so they persecuted the prophets who were before you.

American High Wire Act Going Global

The week ended on April 11, 2025, interesting news items to look at this week are:

1. American High Wire Act Going Global: Few people would risk to walk on the high wire because it requires years of physical training (building strength, balance, and agility), mental fortitude, and a strong understanding of one’s body and the equipment employed. What do you think the result would be when one national leader having faith in his self professed negotiation skills brings 347.2 million people onto the High Wire just before a Category 3 Typhoon. (Fig. 1).

To people who still thinks the Trump Administration has more cards to play and “Liberation Day” was just an open salvo, allow me to offer some new data pixels and remind readers of this Blog some familiar ones that Trump’s engine do not even have patrol fumes to run on.

(i) Full Saturation: Last week we shared a “happy talk” interview between US Treasury Secretary Scott Bessent and Tucker Carlson in which Bessent explained the stock market crash began with DeepSeek and not with Liberation Day. Bessent was only partially right, because all stock market crashed for the same reason, there were no bids for the stocks which investors wanted to sell. Why? Everyone and his dog already have the stocks if not overflowing through margin purchases. Sadly Bessent did not anticipate the same is true for the much bigger US Credit Market. For a few years I have cautioned there was a consistent demand shortfall for US Treasuries and the books were cooked. How? through synthetic demand using currency and interest rate swaps via the UK, BLICS (Belgium, Luxembourg, Ireland, Cayman Island and Switzerland) and Japan in the Yen Carry Trade as regards foreign purchases. In the domestic US market, synthetic bond demand was generated in what is called “The Basis Trade”. (The basis trade involves betting on the difference between prices of cash Treasuries and Treasury futures. To do this, Hedge Funds effectively go long the cash bond and short the synthetic futures contract and because of the thin spread, Hedge Funds typically leveraged over 20 to 1 as an absolute yield enhancement mechanism.) It is estimated the Basis Trade is $1 trillion in total portfolio size (10% of US Domestic Duration Purchases). Even before Liberation Day, cracks already appeared in the Basis Trade because of the volatility in credit market  arising from the dog fight between the Trump Administration and the Federal Reserve. At a 20 to 1 leverage, a 5% swing in the underlying Bond price would wipe out all the Hedge Fund’s Equity and since Trump’s election, the volatility in USGG30YR bond prices was at one time as high as 10%. (Fig. 2)

Why didn’t the Hedge Funds stopped, well, because the optics was necessary for “National Security” plus the stick and carrots offered by the US Treasury. On Liberation Day and the following day , volatility shot to the stratosphere (+70%) and Banks made the big margin call. (Fig. 3).

The crash contagion was not confined to the Stock and Bond Markets because the US credit market is the foundation of the post Bretton Woods Dollar-centric international monetary order. As I repeatedly said once credibility is lost currencies and bonds die because all these instruments are just promises written on pieces of paper and totally unsecured. So following the stocks and bonds melt down USD also came under pressure. Dxy’s Friday’s close of 99.78 is the worst since 2022 as the Yen Carry Trade and other speculative two way bets in favour of the USD is unwind in a risk off deleveraging flee to safety. (Fig. 4).

 Now, let’s take stock, there is $1 trillion in US Stock margin financing, $1 trillion in Basis Trade, $1 trillion for the Yen Carry Trade plus UK, BLICS swaps , another $1.8 trillion in current US Federal Government deficit and on top $6 trillion for Treasuries to mature in June 2025 and up for refinancing. Enough? Did Trump have a plan, yes of course. Did Trump and his team rehearsed before hand with muscle memory to correctly response without thinking? What do you think? Understanding the environment and Trump’s timing,  Liberation Day was an act of desperation. Trump’s bunch of Yes men cabinet all just repeat the President’s narrative like an echo chamber.     

(ii) What will be the Impact of the Tariff escalation be on US and China respectively: I do not blame anyone who just look at the raw numbers of China’s trade surplus with US would think US should have the upper hand thus says Trump. However the devil is always in the details. Of the US$440 billion exports to US, roughly (a) 20% is Apple. From the 88 billion shipment value, profit to Apple is $26 billion and Chin’s labor input is $1.8 billion .( Fig. 5)

 On top 17% of Apple’s total sales is in China and Tim Cook is not going anywhere fast. (b) Another 20% of US imports from China is sophisticated electronics and semiconductors with few substitutes to the extent even Pentagon cannot waned its dependant upon Chinese chips as to 40% of its weapons system. (c)  a third 20% of US imports are machines and machine parts from high end to Black and Decker power tools. These can be replaced overtime but as Tim Cook said, it was not a matter of cost to have a supply base in China but skills. Panasonic of Japan certainly second that statement in various interviews. Finally, (d) 40% of US imports are low end products like furniture, toys, plastics, shirts and socks. Here the issue is not seamstress at the sewing machine but the whole supply chain of fabrics, printing, dying, buttons, zippers, needles, threads, packaging and whatever it is necessary including all modes of transport to get the products finally to US shores. Besides alternate availability and as important is the question of scale. On the other hand what Trump never mentioned about is US’s annual receipts of $170 billion from Intellectual Property licenses which is pure cash flow into US. China’s share of global US IP receipts would be around 12% and therefore very roughly $20 billion. This $20 billion would come from Hollywood films, NBA and other Sports television rights, license payments for pharmaceutical, semiconductor design and software. If China could earn a net 5% profit on the $295.4 billion goods trade surplus to US, the overall profit component of both goods and services in the US China two way trade, the combined net profit component would actually be in US favour of $5 billion annually. ($20 billion positive on services and $15 billion negative on goods trade). Consider the US Federal Government interests payment is $3 billion per day, all the animosity surrounding the Trade and Tariff Warfare targeting China is but a red herring camouflaging a darker sinister plot and a much bigger .

Trophy. For China to negotiate further with US has totally lost its meaning and keeping an arms length distance seemed a more sensible approach. For the 7 year Trade War attack by US against China, China has not even mentioned retaliatory measures against US Services Surpluses, only as US escalate tariff on China to 145% did China began to restrict the 30+ movies shown annually in China to 10. (Fig. 6)

2. Financial market performance for the Liberation Week  (Fig. 7):

VIX “Volatility Index” (+45.16%), Swiss France (+8.21%), Eur(+4.57%), JPY (+4.51%), Gold (+3.51%), Russian Ruble (+1.21%),  Nvidia (+0.98%),  GBP(+0.74%), Rmb (-0.15%), Bitcoin (-3.02%), USD Index (-3.82%),  Nasdaq (-4.24%), Silver (-4.70%), S&P 500 (-5.13%), Copper (-9.74%), TSLA(-10.20%%) and Oil (-13.99%). Liberation Day liberated fear, fear of a US recession, fear of  US alienating all countries by hostile trade sentiment and fear of a reset and depreciating USD assets value.

The most important indicator for this week from the financial market is the crash of stocks, bonds (Fig. 8 and 9)

and exchange value of USD all at the same time. This is a clear sign that there is a global sell down of USD assets and leading the charge surprisingly is not China but Japan then Europe. Which American will listen to PONTUS to hang tough and stay the course when it was widely reported that Trump’s family fund  has bought $38 billion of Put Options against Nasdaq Index just days ahead of Liberation Day.

Proverbs 6:16  These six things the LORD hates, Yes, seven are an abomination to Him: 17  A proud look, A lying tongue, Hands that shed innocent blood, 18  A heart that devises wicked plans, Feet that are swift in running to evil, 19  A false witness who speaks lies, And one who sows discord among brethren.