Fed Bankrupt? China Ditches US Debt, Buys Russian Gold, Ships Home

The Federal Reserve has been incurring consecutive losses, with a record deficit of $114.3 billion in 2023, while the U.S. Treasury's balance is left with only over $700 billion.

It's important to note that the United States has borrowed $3 trillion from last June to the present.

Against this backdrop, China has been significantly selling off U.S. Treasury bonds, reaching a new low since 2009.

Putin suggested using the funds from selling U.S. Treasury bonds to purchase Russian gold, a proposal that China has put into practice.

China has been selling U.S. Treasury bonds while buying gold, transporting it back to China in batches, with a return rate far exceeding that of holding U.S. Treasury bonds.

If we look at the balance sheet, the Federal Reserve has long been insolvent.

Now, some U.S. lawmakers have proposed the "Federal Reserve Abolition Act," intending to abolish the Federal Reserve and transfer its assets to the U.S. Treasury.

What is the real intention behind this?

A considerable number of U.S. economists believe that without the Federal Reserve, Americans would fare better.

They argue that the Federal Reserve monetizes government debt and then dilutes their wealth through devaluation, using inflation as their means.

Opponents, however, argue that the core of modern monetary theory is actually to control the government's creation of money out of thin air, issuing bonds and selling them to the government.

A country's government should also operate independently, bearing its own profits and losses, and a plan that fits this theory is the correct direction for monetary development.

But now, both the U.S. government and the Federal Reserve are heavily in debt, with U.S. state banks' deposits at the Federal Reserve amounting to about $3.4 trillion, and the U.S. Treasury's deposits at the Federal Reserve are also left with only over $700 billion.

Coupled with the Federal Reserve's debts to the world, in reality, the Federal Reserve has long been insolvent, with a staggering deficit of $114.3 billion in 2023 alone, which is close to 800 billion yuan, exceeding the GDP of many small countries.

It is not an exaggeration to say that the Federal Reserve has lost the output value of many countries in a single year.

So, since there is a deficit and insolvency, why not go bankrupt?

This belongs to the privilege of the Federal Reserve, which can spread profits or freely adjust profits and losses.

If a company without this privilege does this, it is financial fraud.

In fact, from a corporate perspective, the Federal Reserve itself is also a company.

The famous Madoff Ponzi scheme in the United States was initially a deferral of losses, waiting for accounts receivable to be recovered and then making up for them, which ultimately led to this shocking case.

In other words, according to U.S. bankruptcy law, the Federal Reserve has already gone bankrupt, but it is backed by the U.S. dollar, and everyone believes that after the United States lowers interest rates, the Federal Reserve will make a profit and then cover the losses.

However, whether this cycle is three years or five years, no one can say for sure.

Once the U.S. dollar's credit is affected during this period, and U.S. Treasury bonds cannot be repaid, the Federal Reserve will naturally go bankrupt.

In reality, the credit of the U.S. dollar is facing an unprecedented challenge.

For example, there has been recent news that the ten ASEAN countries have decided to abandon the U.S. dollar and implement currency swaps with trading partners to cope with the impact of the U.S. dollar cycle on their own economies.

Of course, in addition to ASEAN, many BRICS countries, Middle Eastern countries, and others have already achieved or are implementing the de-dollarization process.

Of course, it's not just abroad; even the United States' own rating agencies have rated U.S. Treasury bonds as unsustainable, which further amplifies everyone's concerns.

Therefore, including China, many countries are selling off U.S. Treasury bonds and reducing their dependence on the U.S. dollar to achieve diversification of foreign exchange reserves.

China, while selling off U.S. Treasury bonds, is also transporting hard currency gold back in batches.

As of May 1st, China has been increasing its gold holdings for 18 consecutive months.

Of course, China is not the only country increasing its gold holdings; in the past two years, central banks have purchased more than 1,200 tons of gold, and almost a quarter of the world's gold has been directly bought by central banks.

It is worth mentioning that the large amount of gold that our country has increased is actually a lot of gold produced by Russia.

According to data, between February 2022 and February 2023, the amount of gold Russia sold to our country increased by an astonishing 67% compared to the same period last year.

As the world's second-largest gold producer, Russia's gold reserves account for about 10% of the world's total, second only to their oil.

Due to the increasing sanctions imposed by the United States and Western countries on Russia, Russian gold has also been blacklisted for import prohibition, and Western countries have collectively stated that they will no longer buy gold from Russia.

Under these circumstances, our country's purchase of Russian gold can not only help Russia alleviate some economic pressure but also bring many benefits.

The fact that various countries are frantically buying gold is also closely linked to the trend of "de-dollarization," and "de-dollarization" can also be seen as an important part of the cooperation between China and Russia.

The proportion of bilateral trade between China and Russia settled in their own currencies is undoubtedly a challenge to the hegemonic status of the U.S. dollar.

To some extent, Russia is also using gold to purchase Chinese goods.

Russia's purchase of our cars and daily necessities may be paid for in rubles or yuan, and the rubles recovered by China can then be used to buy Russian oil or gold.

Therefore, our country's increased purchase of Russian gold is likely the result of mutual consultation between the two sides.

In order to attract China to buy gold, Russia has even offered a 30% discount.

Although the United States has always been the world's leader and has established a currency system dominated by the U.S. dollar, it is not so easy to change the current situation.

After all, even a dying camel is bigger than a horse, and the United States has not yet reached the stage of a "dying camel."

So why does China sell U.S. Treasury bonds and buy gold?

Why do Japan and the United Kingdom continue to increase their holdings?

Is it not worth it for us to do this, and is our foreign exchange reserve not achieving better appreciation?

Of course not.

Don't talk about the 4-5% return on U.S. Treasury bonds; just look at the rise in gold, and China is the biggest beneficiary.

In fact, China's reduction of U.S. Treasury bonds is no longer a purely commercial act; it has become a national strategy, and the key fulcrum to leverage the dollar hegemony is U.S. Treasury bonds.

Reducing holdings of U.S. Treasury bonds and increasing gold reserves is a strategy that fits China's overall plan for the global investment diversification of its foreign exchange reserves.

Moreover, given the decline in the reputation of the U.S. dollar, this move can be seen as a means to counter the dollar hegemony.

Especially in the current context of the Russia-Ukraine conflict, the United States' sanctions on Russia have become increasingly apparent.

The United States tries to seize the assets frozen due to sanctions on Russia, claiming on the surface that they are used to support Ukraine, but the real situation is unknown.

What is even more worrying is that the United States even threatens China, trying to hinder Sino-Russian cooperation, and threatens to freeze the funds and assets of Chinese companies in the United States if they find that Chinese companies bypass the Western-dominated financial system to trade with Russia.

In the face of the United States' domineering behavior, we must remain highly vigilant.

Imagine, if the United States continues to abuse the dollar hegemony, how many countries are willing to maintain economic and trade relations with it?

Therefore, it is not surprising that the credibility of the dollar is questioned.

Although the United States is not afraid of the Federal Reserve going bankrupt, the unsustainability of U.S. Treasury bonds is an undeniable fact.

Recently, the former Federal Reserve Chairman and current U.S. Treasury Secretary Yellen has changed her tone again.

Yellen was once considered by some experts to be a pro-China negotiator or a friendly faction.

When asked about the financial difficulties of the United States, whether to pay the wages of Americans or repay the U.S. Treasury bonds held by China first.

Yellen unhesitatingly said to repay China's debt first, but now her tone has changed.

She constantly speculates about China's overcapacity, instigates Europe to impose new tariffs on China, and claims that China's industry threatens the survival of the U.S. bond industry.

From the previous "kind grandmother," she suddenly became fierce.

The direct reason is China's continuous reduction of U.S. Treasury bonds, which can also be seen from Yellen's threat to Japan not to reduce U.S. Treasury bonds to intervene in the yen exchange rate.

Yellen visited China twice, seeking to ease relations with China, hoping that China would increase its holdings of U.S. Treasury bonds to alleviate the current financial pressure in the United States.

However, the United States has been suppressing China's technology sector, trying to curb China's rise, and forcing China to submit to the positioning of the United States.

However, this is naturally wishful thinking, because the great rejuvenation of the Chinese nation is the wish of every Chinese person.

Another deep-seated reason is the cooperation between China and Russia, which is also the reason why Yellen shows her true colors.

But as I said above, cooperation with Russia itself is a process of de-dollarization.

Of course, completing global de-dollarization is an extremely long process, but I dare to assert that even if the Federal Reserve lowers interest rates in the second half of the year, countries will not accept the U.S. dollar as they did before.

The U.S. dollar is likely to become a regional currency used in the Five Eyes countries, and its status will gradually converge with the euro and the yuan, and the yuan will become an important reserve currency within the BRICS countries and even emerging economies.

This is currency diversification, which is an external manifestation of the world's multipolarization.

The once-dominant situation has long been gone, and mutual respect for diversified coexistence is what the world should look like in the future.