Introduction

The global economic landscape is rife with speculation and anxiety regarding the potential for a recession in the United States. This debate has drawn keen attention not only from financial analysts but also from the broader public, as the implications of a downturn could reverberate around the world.

As we delve into this pressing issue, we confront critical questions: Will the American economy collapse? What are the underlying factors contributing to a potential recession?

To grasp the context of this economic crisis, we should first examine the latest data on non-farm employment and unemployment rates released by the U.S. Bureau of Labor Statistics in July. Market investors expressed concern as both metrics fell short of expectations, and the core inflation rate, measured by the Personal Consumption Expenditures Index (PCE), failed to drop to anticipated levels.

In July, non-farm employment was expected to show a growth of 4%. However, the actual results fell below this benchmark, while the unemployment rate stood at 4.3%, surpassing the anticipated 4.1%. Such discrepancies have triggered the "Sam Rule," signaling a likely economic contraction within the next twelve months in the United States.

In light of these developments, the U.S. dollar index has seen a significant drop, bond yields have surged, and major equity indices have experienced severe declines. Notably, the so-called "Magnificent Seven" tech stocks—NVIDIA, Microsoft, Apple, and Intel—have collectively lost trillions in market value. The fallout has also extended to Asian-Pacific markets, with Japan enacting circuit breakers as its market fell over 10%. Countries like South Korea, Thailand, Indonesia, and Vietnam have similarly faced substantial declines in their stock markets.

In response to these alarming signs of economic recession, the Federal Reserve may consider implementing early interest rate cuts.

Yet, it is important to note that rate cuts in the U.S. do not necessarily yield benefits for China. On the contrary, they could further exploit China's overseas capital investments. The exit of dollar liquidity from the U.S. can devalue domestic assets while simultaneously enhancing the value of overseas dollar holdings, enabling the acquisition of higher-quality investment targets.

At this juncture, it’s imperative to address the notion circulating online that the U.S. fears outside entities capitalizing on or acquiring its significant assets. This perspective overlooks the comprehensive risk management systems established by the U.S., developed within the context of a global economic order. This system is tailored to safeguard against risks associated with U.S. dollar-based capital and financial frameworks.

The risk management system can be bifurcated into three categories: The first comprises allies sharing similar political ideologies, such as the Eurozone, Japan, Switzerland, and Chile. The second encompasses long-term cooperative partners, including Saudi Arabia, Mexico, and Poland. The final category targets potential rivals or ideological adversaries, such as Iran, North Korea, and Russia.

Armed with this extensive risk management framework, the U.S. can open its arms to global investment, welcoming venture capital from around the world.

I would like to respond to a question posed by a netizen: “If China held the best sovereign credit globally, and thus met the criteria for internationalization of its currency, why has it not abolished its capital controls and foreign exchange regulations?”

The reason lies in the fact that China, too, has a risk management system designed to regulate capital inflow and outflow. This system aims to localize the financial system, effectively creating a dual-track system for capital market transactions.

This strategy has its advantages—it can deter external forces from capitalizing on Chinese assets. However, it also necessitates a continuous influx of foreign capital to counterbalance the negative effects of the "Lasky-Keynesian" syndrome.

Why is it said that a recession in the U.S. signals an opportunity for it to capitalize on global assets, including those in China?

First and foremost, the increase in U.S. interest rates is not a ploy for accumulation. It is primarily driven by previous excessive monetary expansion that necessitates stabilizing fund rates and bond yields. As domestic investment demand surges—prompted by new-wave technological paradigms or the repatriation of manufacturing—there is an urgent need to recapture dollar liquidity to support local financing.

Conversely, interest rate cuts are not an indication that domestic entities can no longer bear the servicing pressure of high rates. Rather, they often point to emerging asset bubbles—an indication that the economy requires a broader scope to avoid the pitfalls of deflation resulting from potential asset collapses in conjunction with an urgent push to realize economies of scale within emerging technologies. Thus, the Federal Reserve might consider implementing rate cuts, facilitating the movement of assets in line with the global market.

The prospect of a recession signals a fleeting opportunity to maximize policy effectiveness—a chance to strike hard and capitalize on circumstances.

Given the global hegemony of the dollar, it enjoys minimal information entropy within global financial markets, resulting in a small transaction information gap which informs strategic timing about when to retreat or to act decisively.

The phrase “building an army over a thousand days to be used in one hour,” aptly summarizes America's strategy, which has preemptively executed measures to suppress China in financial and technological domains. While some successes have been realized, the U.S. remains patient, navigating the tides of opportunity to achieve its end-goals.

In summary, as the U.S. confronts the necessity of interest rate cuts during a recession, it simultaneously prepares to execute strategies aimed at seizing global assets, including those from China.

Given these critical points, how will the U.S. capitalize on China's dual-track market system to further its own objectives?

Primarily, the U.S. leverages its position as a leader in global economic integration, a pivotal player within international trade and manufacturing supply chains, to expedite the migration of low-end manufacturing industries away from China. This tactic seeks to diminish China’s industrial manufacturing capabilities and its capacity for output.

Unless under wartime conditions, China's ability to normalize special circumstances relies on the effectiveness of contemporary governance. The standard for gauging governance is operational efficiency in daily social functioning.

Moreover, while U.S. manufacturing represents only 16% of the global market, its bouquet of control mechanisms enables it to influence reality on a far grander scale—over 50% of the effective market share—thanks to the integration and technological spillovers linked to high-end manufacturing segments that exist within broader service sector calculations.

Furthermore, with American investments previously accounting for up to 20% of manufacturing ventures in China, this transition of capacity to other regions could undeniably diminish China's proportion of global industrial output. Without these investments, amid varying retention ratios like 50% vs. 30%, the prospects of triumph appear dim.

Another reality is that due to the Mundell's Impossible Trinity, Chinese assets face exclusion from quality investments in the eyes of overseas capital. Consequently, even when some assets display superior quality, the international market characterized by significant consumer needs within the U.S. fails to authorize them, subsequently exerting downward pressure on their perceived value across capital trading platforms.

This is justified by the fact that the financial risk control mechanisms imposed effectively erode stability in investments, obstructing mutual trust principles essential for sovereign asset transactions, leading to legislative or administrative measures aimed at curtailing dollar liquidity from flowing into China in large volumes.

In simple terms, the U.S. neither swoops in to purchase at a low price nor permits an opportunity for asset value appreciation on China's part.

Moreover, leveraging its economic prowess within the framework of global markets, the U.S. endeavors to augment its position through the creative destruction inspired by innovations in entrepreneurship as postulated in Mises and Schumpeter’s theories. This perspective suggests that as China taps into long-term debt for extensive investment in high-tech sectors, it becomes constrained by aforementioned factors, preventing the realization of scalable economic effects while ultimately hampering the sustainable societal applications leading to gratifying returns.

At that juncture, U.S. funds could seize this window to acquire a plethora of high-tech production capabilities and equipment from Chinese sources.

Unfortunately, China, having over-leveraged its sovereign credit, finds itself undercapitalized. Its bureaucratic landscape is marred by ambiguities in responsibility, non-transparent administrative processes, and decision-making rooted in rigid planning, thereby restricting the attainment of multiple objectives. Consequently, resources may overly concentrate on resolving "neck-breaking" technology challenges while critical strategies surrounding unified production factors or fostering domestic demand remain relegated to planning discussions, stalling tangible implementation and limiting advancements.

However, these strategies are essential to nurturing internal economic circulation, and a failure to execute them reduces the likelihood of combatting external appropriation of Chinese assets.

As we analyze the United States' approach toward capturing Chinese sovereign assets amidst a looming financial crisis, we are faced with one overseeing reality: a formidable global financial storm is brewing.

Once positioned within a tightening cycle of interest rates, many asset classes across nations faced deflationary pressures, resulting in notable investment voids.

As the dollar is poised to transition to a reduced interest rate environment, the dire existing circumstances manifest through prolonged periods of high inflation, substantial national debt, expanded leverage, and stagnant growth—these developing trajectories present varying challenges when attempted to mitigate through reductions in interest rates.

Initial relief may follow while the pressures of budgetary deficits, private debt, and asset inflation inevitably resurface.

In recent years, governments globally have faced unsustainable funding challenges amidst persistent pandemic implications alongside adverse consequences from U.S. tightening measures, prompting them to escalate their fiscal expenditures. Some nations now face chronic budget deficits.

For instance, the U.S. significantly scaled up liquidity via an aggressive quantitative easing strategy, injecting $7.5 trillion into its economy. While beneficial for vulnerable populations, it ballooned government liabilities to over $35 trillion, eclipsing 130% of GDP—a perplexing predicament for future recovery and growth prospects.

In the European Union, nations collectively surpassed a 100% debt-to-GDP ratio amidst crises amplified by geopolitical conflicts, heightening difficulties within the region to recoup losses relative to other sectors.

Japan, a haven for asset preservation, struggles with debts surpassing 200% of GDP amidst an extraordinary level of macro leverage, attributable in part to its longstanding pursuit of yield curve control and unconventional monetary policy.

As the American economy transitions towards recession and rates decline, it appears inevitable that global budgetary deficits will not only persist but likely worsen as nations imitate U.S. fiscal habits, resulting in conditions of insolvency or impending defaults becoming more commonplace.

For instance, the UK recently announced its insolvency status, indicating a growing trend towards sovereign defaults across nations previously considered financially stable.

On a different note, the considerable extent of private debt and asset inflation impacts cannot be ignored either.

Despite temporary subsidies provided to cushion the immediate effects of the pandemic, many countries encountered difficulties establishing sustainable frameworks to support post-crisis recovery, resulting in escalating living costs without significant wage increases, thus compounding financial hardships across households.

Eventually, this loan reliance leads to systemic risk as laborers struggle with tightened financial conditions, triggering waves of layoffs and heightened default risks on loans as borrowing becomes untenable.

Across the global financial landscape, asset inflation has also emerged as a critical trend. Cities like London, Los Angeles, New York, Tokyo, Seoul, and Ho Chi Minh City have witnessed substantial increases in real estate prices, some surpassing 70% compared to previous years, even as real estate dynamics in China remain softened by regulatory actions akin to the "three red lines" policy impacting market confidence.

Nevertheless, paradigm shifts seem imminent as the U.S. economic landscape is on the verge of recession, exposing volatile asset bubbles, including real estate and stocks, poised to face reckoning as central banks worldwide recalibrate monetary strategies.

Moving forward, China's strategy for navigating this formidable global financial upheaval will be paramount. Beyond thwarting external attempts to capitalize on domestic assets, propelling initiatives against the “Lasky-Keynesian” syndrome is crucial through cogent regulations that empower market forces—transitioning state-driven controls towards a more decentralized economic order.

Conclusion

In light of the emerging recession indicators within the U.S. economy, we stand on the precipice of the most substantial financial storm to sweep the globe in recent memory. The repercussions of this economic reckoning extend deeply into China's asset landscape, positioning it at the forefront of the forthcoming crisis. The clarion call for asset appropriation echoing from across the Pacific has set in motion a race against time for China's leadership to mitigate consequences and devise resilient strategies.

The task ahead rests on our generation to navigate this intricate geopolitical landscape, seeking to fortify against external risks while harnessing the strengths embedded within the nation.The destiny of a great nation lies within this decisive moment!