A Trojan Horse with Chinese Communist Characteristics


A U.S. Senate investigative report found sustained efforts by the CCP to gain influence over the Federal Reserve System (the Fed) since at least 2013, and worst of all, the Fed failed to fight effectively this threat.

For the Middle Kingdom, diplomacy is all about taming peripheral states by coercing kleptocrats via the 2000-year-old Jimi strategy (literal translation: leave the horses/cows) and infiltrating enemies from within.
True to the teachings of Mao Zedong, war is an extension of CCP politics, and therefore war should be unlimited, especially by the traditional kinetic framework used by the West.
Over the past week, the United States has again had the bitter taste of being unknowingly held in check by the CCP. This angle of attack poses first-order economic risks to the free world, yet the United States has found itself unable to respond effectively or in a timely manner because the battlefield is not kinetic.
A U.S. Senate investigative report found sustained efforts by the CCP to gain influence over the Federal Reserve System (the Fed) since at least 2013, and worst of all, the Fed failed to fight effectively this threat.
The Federal Reserve, arguably the most powerful economic institution in the world, can with the flick of a finger destroy or bring countries to life and change the livelihoods of billions of people around the world. Global bonds, stocks, real estate and assets of all kinds worth trillions of dollars dance in sync to the beat of the 8 FOMC meetings each year. No wonder some say that the words of the Chairman of the Fed carry more weight than those of the President of the United States.
The Fed’s track record of spotty economic projections is the least of its worries, despite the inflation-beaten world now rightly hyper-focused on every Fed move and comment. The fact that this unelected semi-government agency with minimal oversight, growing power as unassuming legislators continue to expand the Fed’s scope of work (like ESG), where decisions are made arbitrarily by 12 members, makes him a perfect candidate for Jimi-style infiltration.
Denarius was degraded before the fall of the mighty Roman army. The walls of Constantinople were longer than the state coffer of the Byzantine Empire. The CCP’s corruption of the Fed is part of the multi-phase currency war where democracies have the least defense or strategic awareness in a larger unrestricted war. If this battleground is lost, all the others won’t matter much.
Admittedly, the US dollar could lose its status as a reserve currency solely because of the Fed where monetary policies have been pushed to the extreme. On the other hand, the fact is that there has been a coordinated and diligent effort by the CCP and its allies over the past decade to start a currency war. More recently, the United States stepped directly into the trap set by Russia via the war in Ukraine (extended read) and made the world realize that hard resources could be more valuable than soft currencies (like the USD ).
However, all hope is not lost.
This key battle can be won if the United States begins to implement whole-of-government processes focused on national security in areas outside of the traditional military apparatus. The Fed is a good place to start because the USD is still dominant, the reach of western financial might is far, and we can actually fight back and not just sit in the dry dock.
Indeed, some democracies have fought back, notably India under Prime Minister Narendra Modi. If the US had joined India in banning Chinese apps in 2020 (extended read), the CCP would have lost access to desperately needed dollar funding during what turned out to be one of the most significant years of raising capital for Chinese companies. It would also have spared countless US retail investors from devastating financial loss to Didi or other CCP-controlled Chinese companies.
If the United States had totally restricted retirement savings in China’s carrier-building conglomerates a decade ago, perhaps freedom of navigation in the South China Sea would have been smoother today.
Above all, it is important to recognize the Fed as an extremely important national security asset to the liberal order, despite its poor performance so far in this area, as the Congress report revealed. We got a glimpse of its potential in early summer 2020. Back then, many Covid-stricken countries quickly ran into dollar shortages, and a financial crisis was all but guaranteed if it wasn’t. for Fed FIMA’s arrangements to extend the lifeline to key allied countries. China was not on the list and critical funding briefly tightened.
Frankly, the USD is already weaponized by sanctions with many negative side effects; why not instead weaponize the Fed in the examples above where the cost-benefit balance could be much higher for the United States?
The question is whether the United States and its allies have the strategic awareness and the will to transform the Fed from a current liability into a future asset?
James Lee is a financial ant based in the United States and Taiwan.


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