The Library of Mistakes Ep 2: The Financial Cold War (with James Fok)
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Mar 18, 2022 In this engaging discussion, James Fok, author of Financial Cold War and former executive at Hong Kong Exchanges and Clearing, shares his insights on the escalating financial conflict between China and the US. He defines the concept of a financial Cold War and examines how sanctions and tariffs can evolve into a hot conflict. Fok also explores the complexities of moving Chinese savings into capital markets, the risks of stablecoins, and the implications of dollar dominance in international relations. This conversation offers a fascinating look at the intersection of geopolitics and finance.
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Dollar System Fueled Global Imbalances
- The dollar-based system created global imbalances and financialization that increased inequality and social tensions in both China and the US.
- These structural frailties are likely to provoke more tariffs, sanctions, and curtailed capital flows over time.
Reserves, Dollar Demand, And The Subprime Domino
- After the Asian financial crisis, emerging markets built dollar reserves to self-insure against volatility, fueling demand for US securities.
- Banks then manufactured AAA credits from US subprime mortgages, sowing the seeds of the 2007–08 crisis.
Demographics Undermine China's Investment Model
- China's growth owed much to a demographic dividend and state-directed financial repression that channeled savings into investment-led development.
- That model now falters as working-age population declines and asset-price deflation risks rise.
