>> Welcome to PGIM's 'The Outthinking Investor', exploring the forces shaping global markets, past, present, and future. Join Daleep Singh as he talks to economists, policymakers, technologists, and veterans of global financial markets to explore what could happen next and why it matters. Now, over to Daleep.

 

>> In our last episode, Jake Sullivan and I discussed the return of the old normal, the return of a more contested geopolitical map with fragmented alliances, regional spheres of influence, and greater friction, in which the main theater of competition is now in economics. But the contest isn't just being fought with tariffs and industrial policy. It's also happening with capital flows. We're moving back to an era of entrenched imbalances that translate directly into strategic leverage. The way I put it, real power isn't just in the trade flows we see, it's also in the shadow reserves we don't. And to understand what's going on, you've got to get inside the world's financial plumbing. You have to follow the money, especially where it doesn't want to be found. Joining me today is the world's most beloved financial plumber, my longtime friend, Brad Setser. He's the Whitney Shepardson senior fellow at the Council on Foreign Relations. Brad also served as a senior advisor to the U.S. Trade Representative in the Biden era. And in the Obama years, he ran international economic analysis at the White House and the Treasury Department, where we became basketball buddies. Brad, good to see you again.

 

>> Indeed. And my basketball skills have done nothing but deteriorate since we played together, sadly.

 

>> You and me both. I want to recapture some of the conversation that we had in Florida for our listeners. But before we do that, I just want to -- I want to humanize you because I'd say you have a rare following for an economist. I'm told well over 120,000 people follow you on Twitter. So explain this for me, please. You grew up in Kansas, as far as a person can get from global financial markets. No offense to Kansas.

 

>> Mm-hmm.

 

>> And yet you've spent your career decoding the most complex capital flows on the planet. So how'd that happen?

 

>> I think people who grow up in what is sometimes, and I don't like the term, called flyover country, do develop a curiosity for what's going on in the rest of the world. And I think that was certainly the case for me. You know, like one of the things I actually liked growing up about Kansas was there was always an agricultural markets report on at noon on the local radio station. So maybe that triggered a bit of interest in financial markets and flows. My dad grew up on a farm, but he himself was a physical chemist. And so I always liked math. And decoding financial flows is just applied math. So to me, it doesn't feel like a huge jump. It feels like a steady evolution. You look for something you like doing, and I found it.

 

>> Well, I mean, the world is definitely reaping the benefits of your choice. And by the way, I -- there's a reason we get along so well. I grew up in North Carolina. I come from a long line of farmers in northern India. So I understand your path. Okay. Let me --

 

>> Wheat farmers or cattle farmers or.

 

>> I think mostly wheat.

 

>> Okay, good.

 

>> Not so much the meat. Yeah. But probably some of both. Before we lose all of our listeners, let me come back to the big picture. So, Brad, your thesis is the world isn't actually decoupling in the way that people say. You've said that we're seeing an unhealthy re-globalization. Trade flows are actually up, but they're distorted and dangerous. I agree with you, but can you unpack what you mean?

 

>> Sure. In the simplest way, global trade hasn't actually slowed that much. It didn't slow at all, actually, even with all the tariffs last year. And what's perhaps more striking is that China's export growth continues to be substantially stronger than global trade, even with all the trade frictions. So last year, China's exports in volume terms are going to grow by about 9, 10%. Global trade was growing at 4 or 5%. The previous year, China's exports grew by over 12% when global trade was growing at 3%. China's overall surplus in trade in goods now reach $1.2 trillion. That's a huge sum. It's a big increase relative to where it was when the Trump one tariffs were started, let alone relative to where it was even a couple of years ago. So, to me, it is hard to describe the world as decoupling, or fragmenting, or that globalization is going in reverse when the world's biggest manufacturing exporter is exporting more than ever before. Now, it is true that less of that comes to the U.S. directly. More is going to Europe, and more takes a one-stop flight rather than a non-stop flight. So there's a lot of intermediary hubs in Southeast Asia that import parts from China, assemble them, and send them to the U.S. But in aggregate, global trade is still growing. And in aggregate, trade across geopolitical blocs is still growing, even if in a sort of disguised way. Now, I do view this as unhealthy, because to me it reflects an unhealthy reliance on China's part on exports for growth. Ever since the property market bubble burst in 2021, China's domestic drivers of growth have been very weak, particularly investment, particularly property investment. Consumption growth has also decelerated. So China, in a sense, has had to rely on demand from the rest of the world to make up for its lack of internal demand generating capacity. And, to me, that's unhealthy. And then the other component that is unhealthy, and this is one of those little but important facts about the contemporary global economy, is that our biggest bilateral trade imbalance with Europe is now no longer Germany. It's Ireland. And that's clearly because American companies avoid paying American tax by producing in Ireland. And, to me, that's another form of unhealthy globalization. But it's hard to say that the world has stopped globalizing when companies are still locating production in a way to minimize their tax and when China is becoming more not less important to most production.

 

>> Let's focus on China's balance of payments. As you point out, Brad, since the tariff war began, China's manufactured goods surplus has boomed to levels the world has never seen before. It's now redirecting its exports from the U.S., where it faces very high tariff rates, to the rest of the world. So the question is, why haven't more countries outside the U.S. also raised tariffs on China to salvage what's left of their own manufacturing sectors? Especially in Europe where the political stakes are so high.

 

>> No, I mean, I think you do see some targeted barriers. Brazil, for example, put up a barrier on Chinese steel because they said why are we shipping iron all the way to China just to bring it back in the form of steel? Indonesia has started to put in place some tariffs on clothing imports from China. Again, like, why are we, a relatively poor country, importing cheap clothing from China when this is a traditional Indonesian export sector? India has maybe not added to its barriers on -- to China, but it always has maintained relatively high barriers. But for many countries in Southeast Asia, it's complicated because they have to import from China in order to export to the U.S. And while it is possible to differentiate the two if you work real hard, for most of them the business of taking Chinese parts and assembling them for sale to the U.S. has been a growth driver. Clearly for Vietnam, it's been a positive not a negative. For some of the other countries, it's a little bit more balanced. I think Thailand is going to be an interesting case to watch because the traditional Thai automotive sector has been hurt a lot by imports of Chinese electric vehicles without generating that offsetting export edge. Europe is the hard case. And Europe has really been hit pretty hard, arguably harder than the United States by what I call and what others call the Second China Shock. This re-acceleration of Chinese export growth. The rise in China's manufacturing surplus from a trillion dollars to $2 trillion, 2% of world GDP. And China's emergence as the world's biggest auto exporter, which is remarkable. Five years ago, China exported a million cars, imported a million cars. Annualize the December exports from China. Vehicles, it's 11 million. Passenger cars, just straight up cars, 10 million. So huge swing. And imports have gone from a million to half a million. That has had a big impact on Europe, a big impact on Germany in particular. German exports to China are down by about a percentage point of German GDP. And, overall, European exports to China have fallen by about a half point of European GDP. So there's sort of just an unambiguous negative shock coming from China on the export side, and imports are pouring into Europe. Now, Europe has taken a few steps to try to limit this. some rather ineffective tariffs on electric vehicles. But Europe's unambiguously been slow. And I think part of that is that Europe remains wed to the traditional global trade rules. It's reluctant to tear those up and say, look, we just have to do across the board sectoral tariffs. They want to fit everything into a WTO investigation, which takes time. I think part of it is that Germany, and particularly the German auto companies, have been a bit conflicted. VW and BMW at times seem as interested in using China as an export base, as concern that Chinese automotive companies using China as an export base are cutting into their market share. And they're very focused on the risk of being squeezed out of the Chinese market. Not just their export business, the Germany to China business, but the made in China for China.

 

>> No confusion between what is good for a corporation isn't always good for the country.

 

>> Exactly. But that's been very pronounced. But then the other thing, let's -- just to be honest, the U.S. hasn't made it easy. And by that, I mean, when the U.S. puts up tariffs on Europe and more or less says we want to cut off our trade with you, I think that has made Europe a little bit more reluctant in the short run to just say, look, we've got to focus on China. So I do think there's been a bit of -- that a potential alliance or area of agreement between the U.S. and Europe has been short-circuited by a U.S. president who's frankly focused, in the last six months, more on Europe than on China.

 

>> Before we come back to the U.S. president, let's turn to the capital side of the ledger. You mentioned the kind of unimaginable surpluses that China's now running. I think 2 trillion plus in terms of manufactured goods and over 1.2 trillion for the trade surplus overall for the past 12 months. But, yet, we've not really seen an explosion of China's reported reserves. We haven't seen a real trade-weighted appreciation of the currency. What's going on with China's balance sheet?

 

>> Yeah. I mean, it's fascinating, to be honest. Two important points there. One is that China clearly made a policy decision, probably made the policy decision 15 years ago and effectively executed and implemented 10 years ago, that 3 trillion and change was enough reserves. So since there was a volatile period, we -- I'm sure you'll remember, we were both at Treasury when China did a botched exit --

 

>> Oh yeah.

 

>> -- from crawling appreciation, basically. And it caused a lot of chaos. It was a shock. And then there was that China had to draw on its reserves and -- to stabilize flows. And then it stayed stuck at the same level of reserves for the past 10 years. So, in some sense, China has decided it doesn't want more formal reserves. And that has meant that money that otherwise would have gone into reserves gets channeled into the policy banks, China Development Bank, Belt and Road lending. The equity vehicles run by the State Administration of Foreign Exchange, the Silk Road Fund, the China-Latin America Industrial Development Corporation, or something like that. Various vehicles that support China going out. And then you see much more activity in the state banks. That is a general factor over the entire decade. And as a result, just as the way we collect capital flow data and holdings data in the U.S., we are much better at collecting data on the formal holdings of China in its formal reserves than at capturing everything the state banks are doing.

 

>> Mmm.

 

>> So, in some sense, it's not a mystery or a surprise that the big increase in the surplus hasn't registered in formal reserves. That's been pretty constant, consistent. But the other really important thing is that you can track pressure on the currency by what's happening to the state bank's balance sheet. And in '23, first part of '24, there was actually pressure on the -- China's currency, the yuan, to depreciate. There was some fall in the foreign assets of the state banking system. The fact that we, in the U.S., had higher than desired inflation, the Fed had quite high rates, China was in deflation, Chinese rates had come down a lot. And so there was a period of time when the overall pressure was for further depreciation. That pressure -- The direction of pressure, in my view, clearly changed after China survived the first salvo of the tariffs, after the reciprocal tariffs were introduced. And then there was this massive wave of retaliation, tariffs went up to above a hundred, and then they came down, I think, in May or June with negotiations in Switzerland. During that period, China did not allow the yuan to fall further, which sent a important signal, in my view, that they were confident that they could weather this shock, and they did. And then as their trade surplus continued to grow, you clearly see the state banks start to accumulate foreign assets in a pretty big way. And that picks up even more in the fourth quarter. And then in December, the state banks report $100 billion increase in their foreign assets.

 

>> Let's pause for a moment on what this strategy does for China. There seem to be at least two benefits. First, the accumulation of dollars by state banks suppresses the appreciation of the renminbi and keeps China's export machine humming. And second, it creates a piggy bank of dollars that can be spent and lent for soft power, to finance infrastructure across the world, to buy strategic assets like mines for critical minerals, and to make investments in critical supply chains. Is that fair?

 

>> Look, unambiguously, the accumulation of foreign assets, foreign currency has, for the past six months, limited appreciation of the Chinese yuan against the dollar. And, in a sense, prevented a correction in the depreciation in the yuan that happened in the first part of 2025 when the yuan was tightly pegged to the dollar and the dollar sold off on Liberation Day. So yes, it clearly had the impact of keeping the yuan weaker than it otherwise would be. And the yuan is down in real terms, inflation-adjusted terms, roughly 15% over the past three or four years. And I think that explains to some degree why Chinese exports have outperformed. Now, the Chinese will probably say that all these dollars are a bit of a burden, as well as a bit of a strategic asset. The strategic asset is clear. Chinese policy banks are not constrained if they want to fund any project anywhere in the world. Chinese state banks can lend money to any Chinese state enterprise that wants to expand or do a strategic acquisition anywhere in the world. I think it was interesting that Nexperia, the Dutch semiconductor firm, that the --

 

>> Mm-hmm.

 

>> -- Dutch wanted to kind of force China out of last fall. That had been bought by another Chinese firm, by Wingtech, with money from a Chinese state bank. And I --

 

>> Mmm.

 

>> -- think we need to think a little bit about China as --

 

>> Mmm.

 

>> -- not just buying bonds, but providing a lot of loans for various strategic goals. The one place where China has had difficulty, I think, translating their financial strength into political leverage is that they've never really found a way of turning their holdings of U.S. Treasury bonds into leverage over the U.S. Treasury.

 

>> Right.

 

>> We can discuss why. But I think from the Chinese point of view, they came to the conclusion that they could get more strategic bang for their buck by putting the money through the state banks and doing a range of other things. Then they got just holding treasury bonds in a predictable way. And then they also took less political heat for finance in the U.S.

 

>> And one symptom of that is the Belt and Road Initiative, the scale and the scope of it, over the past 12 years.

 

>> Indeed. And I think it's underappreciated, in part because the Chinese have done a pretty good job of hiding it, how much of the Belt and Road was financed out of money that otherwise would be classic foreign exchange reserves. I'm sure you remember this, but there was an underappreciated, forgotten term, entrusted loans.

 

>> Oh yes. Yes.

 

>> Where the State Administration of Foreign Exchange, China's reserve manager, entrusts its foreign exchange with the state banks to just fund whatever they want. That doesn't get as much press, but it hasn't gone away. And then in 2015, when China really wanted to gear up to finance the Belt and Road, 95 billion, close to 100 billion, of entrusted loans from SAFE were converted into equity to allow CDB, China Development Bank, and China XM to finance this outward push. So, like, right there you have the classic transaction where money that would otherwise be reserves is directly financing the Belt and Road. Now, I think China has let things evolve a bit. There's less money going into building dams or building roads, particularly in Africa. More money is going to -- In part because China's had trouble getting its money back, not because of a lack of financial wherewithal on the Chinese side. And more money is going directly to state firms who then make investments. So there's been some evolution. But, yeah, China's state is in no way financially constrained in pursuing its global ambitions. And China now has the added complication of figuring out what to do with this surge in foreign asset accumulation, which probably exceeds its ability to lend it out.

 

>> Yeah, I'd say that's a good problem for a policymaker to have. So let's connect the dots from China to Mexico. USMCA is up for review this year. The problem of transshipment looms large. You referenced it earlier. Countries that are highly tariffed by the U.S., like China, are routing their exports to the U.S. through lower tariff countries like Mexico. So from the U.S. perspective, Brad, do you think the objective of the USMCA review is to solve that problem? Or is it to reduce U.S. imports from Mexico period, wherever the goods are made? Or is it both?

 

>> The U.S. faces two fundamental choices in the renegotiation of USMCA. One is, does it want to have a free trade agreement with both Mexico and Canada? Or does it want separate agreements with Mexico and a separate agreement with Canada? And I think the Trump administration hasn't been clear on that. And then particularly with respect to Mexico, is the U.S. goal to restrict trade between the U.S. and Mexico? Which would imply transforming the USMCA so it's much less of a free trade agreement, making it a much more managed trade, restricted trade arrangement, which we could argue would be a way of reducing U.S. automotive imports from Mexico. You can make that argument. It wouldn't be the argument I would make, but you can make that argument. The alternative is to focus on strengthening, in a sense, the bilateral component of trade and making sure that trade between the U.S. and Mexico is really Mexican goods for U.S. goods, not Chinese parts assembled in Mexico that go to the U.S. And if that's your goal, the emphasis would be on harmonizing the external tariff so that goods going into Mexico from China face roughly the same tariff as goods coming from China to the U.S.

 

>> Harmonize the subsidy regime within --

 

>> Mmm.

 

>> -- North America?

 

>> I wouldn't start with harmonizing the tariffs. But yes, you could think of harmonizing the subsidy regime or opening up various subsidies to content that comes anywhere in North America. In a --

 

>> Mm-hmm.

 

>> If you really have a fortress North America vision, you would rather have goods be made in North America with a mix of U.S., Mexican, Canadian content than subsidized goods coming in from the rest of the world. There's always a little bit of tension between doing that, Fortress North America, and Fortress America. So I do think that is one component.

 

>> But Fortress North America could involve -- I mean, in the limit, you could think of common external tariffs, common subsidy regime. Let's just say more generally a common industrial set of industrial policies, maybe a common set of investment screening and export control provisions. That's a -- It's a -- It could be a really ambitious undertaking, but it seems unlikely that's where this is headed now.

 

>> It seems unlikely. Personally, I think that would be a healthy evolution. And I think some harmonization of the tariff regime is absolutely essential. It just no longer makes sense for the U.S. to have, for the legacy 301, so the Trump one tariffs with the Trump two tariffs layered on, that'll generally be a 45% tariff right now. But if the same set of components to make that good go to Mexico until some of the recent adjustments, that might have been tariffed at zero. Even if it was --

 

>> Right.

 

>> -- 75% Chinese content. That is an incoherent tariff regime. For the Trump two tariffs, the tariff on China is only 20. Maybe you would still buy -- keep on buying it from China given the weakness in the exchange rate. But to some degree, if you're going to have really high tariffs on China, you cannot ignore the amount of Chinese content in goods coming through Mexico. Whereas a traditional free trade agreement, you have rules of origin only for certain goods that matter, like autos. But for most goods, U.S. tariffs were zero. So for most goods, the free trade agreement was reducing tariffs from zero to zero, and you didn't care that Mexico was importing goods from China back then as zero. So you could manage a low tariff world without extensive rules of origin. We're no longer in a low tariff world.

 

>> Yeah.

 

>> So I think we have to do that. And then I think the next question is, do you --

 

>> How do you enforce it?

 

>> Yeah.

 

>> How do you actually --

 

>> No. The easiest way to enforce it is you have the same tariff, and then you don't have to worry about the rules --

 

>> Yes.

 

>> -- of origin. If your tariff on computer components is 15, and Mexico's is 15, you don't worry if it's 80% Chinese content, they're paying the same tariff. You could do an embedded Chinese content test, which would be much more paperwork, much more work. I think we have to think about these things, though, because this is not just an issue with respect to Mexico. It's an issue with respect to Southeast Asia. With Mexico, in a sense, it's probably easier because you could imagine a common tariff. You could imagine a common system of investment screening. You could imagine common subsidies. A real commitment to common rules for a common market.

 

>> Brad, let me go back to Asia and raise a country for which we can draw a sharp contrast with China, which is Japan. It's submitted to market forces and it's feeling the volatility of those market forces. You've made a compelling case that if we look strictly at Japan's external accounts, you know, it's massive current accounts surplus and net foreign asset position, the yen appears grossly undervalued. Yet the market is obsessed with the spot interest rate differential. The BOJ base rate is lower than that of almost all of its trading partners. How do you explain why the market is ignoring Japan's balance of payments? And even as you point out, even with a relatively healthier fiscal backdrop than what we see in the U.S. Any theories?

 

>> I certainly have some theories. I don't know if they're a very good theory. If you want to push the argument even further, the market now is also, to a degree, ignoring interest rate differentials. So the interest rate differential has -- it's still big, but it's come down.

 

>> Mm-hmm.

 

>> And the yen used to track, say, the two-year or five-year interest rate differential pretty closely. And that correlation has actually gotten weaker too. What I think has been happening is that Japanese institutions have made a lot of money by betting against their own currency. And the profits that Japanese institutions have made by betting against their own currency. If you're a Japanese institution, you hold dollars, the dollar goes up, the yen goes down, you book a big profit. And that profit has helped offset losses on the bond book of Japanese institutions. When U.S. rates went up with inflation shock, there was a big mark to market loss across Asia on legacy bonds, 10, 15% on most bonds held in the insurers and other Japanese institutional investor's books. And then when Japan raised rates and exited from yield curve control, there were further mark to market losses on the insurers and others' legacy holdings of Japanese government bonds. And so I think one byproduct of that is that institutions have been structurally a bit slow to adjust their hedge ratio, and to pay the reduced but still significant cost of hedging in the expectation that the yen would continue to depreciate. So I think that's one factor.

 

>> Yeah.

 

>> I think, actually, some Japanese institutions misunderstand the likely long-run impact of a slight fiscal easing. They think it's going to erode credibility and lead to out of control yen weakness to go from a fiscal deficit of maybe two and a half this year to three, three and a half. Even though that's way smaller than the fiscal deficits of France, the UK, and the U.S. So if you're worried about fiscal deficits, you wouldn't go from Japan at three to the U.S. at five and a half going to six. But a lot of institutional investors seem to be convinced that the fiscal shift will have negative impacts on Japan's long-run capacity to maintain a stable debt to GDP ratio at a very high debt level. Now, traditionally, a fiscal expansion leads to higher interest rates and it supports the currency. That was what happened in the U.S. when the Fed raised rates in '22. That was --

 

>> Right.

 

>> -- the Volcker Shock. So I'm not sure that the economics completely fit there, but that's sort of part of the argument.

 

>> Well, just taking that point, isn't this a problem that could easily be fixed? Let's just say that BOJ decides, because of a looser fiscal stance in Japan, they're going to surprise market expectations slightly to the upside and hike two or three times in the first half of this year. And if they're lucky, the Fed might take a dovish shift in its reaction function after May. And suddenly the interest rate differential picture looks very different, and you still have the favorable external account backdrop.

 

>> That's why I've been a bit surprised by the persistence of this belief that Japan will run a looser fiscal policy, that inflation will be a bit higher, and that the Bank of Japan won't raise rates so that real rates will stay negative. And to be fair, the negative real rate in Japan has been a factor in the yen's weakness. But it -- that -- I think that gets to the point we were discussing at the beginning. The interest rate differential, nominal rate differential, has already shrunk. The Fed has cut. You -- Bank of Japan has hiked. It hasn't supported the yen. We're still close to one-sixty. If you look forward, clearly the market is pricing in at least one BOJ hike, and it would be unlikely that Kevin Warsh takes over the Fed and doesn't do at least one, if not two cuts. So the rate differential should go down, even if there's not a bigger adjustment in policy in the Bank of Japan. And so the final factor, and this sort of gets very technical, is that the biggest winner in the Japanese economy from yen weakness has been the government of Japan. Literally the government of Japan. The two biggest holdings of foreign bonds unhedged, so benefit from yen weakness, are the foreign bonds held by the Ministry of Finance, not the Bank of Japan, on the balance sheet of the Ministry of Finance as part of Japan's reserves. Which were bought at 80 or 100 and could be sold at 158, whatever. And then the second biggest is the 400 billion plus in bonds, 950 billion or so in foreign assets, held by the government pension fund.

 

>> Mm-hmm.

 

>> Now, there are enormous profits there. And the irony is that as the value has gone up, public investors don't tend to take profits. They don't tend to sell. Now, the GPIF does rebalance its portfolio, so there's some adjustments at the margin. But the Ministry of Finance doesn't. And so the natural seller, in a sense, are -- will be the institutions that have taken profits and want to lock in those profits.

 

>> Your advice is take the win.

 

>> My advice is at least take the win on the interest income of the Ministry of Finance's reserves. So --

 

>> Yes.

 

>> -- if you plumb up the bonds held by the Ministry of Finance, the total foreign assets of the GPIF, the hedge portfolio of a public bank, effectively. Although maybe they want to privatize it post-bank. You've got a foreign portfolio of well over $2.5 trillion, 50% of GDP. That gives you more than enough firepower to materially reduce this high level of gross debt that is causing so much concern. And what you specifically could do if you're creative -- And I think one thing we both agree on is that a lot of public sectors should be a little bit more creative in managing the financial --

 

>> Absolutely.

 

>> -- side of their balance sheet. Take the interest income. You know, it's 30 billion-ish, probably closer to 40 billion a year now from the Ministry of Finance. Don't just reinvest it. Take it and buy back the long end of the JGB curve, retire bonds that are trading way below par, and you reduce your gross debt at essentially no cost. You've still got that interest income --

 

>> It's a massive return on investment. And, you know, then you can stabilize it again. You stabilize your import inflation. And then you stabilize household purchasing power. And you give businesses a reason to engage in CapEx. And suddenly, you've got a domestic demand story. I like it.

 

>> And it takes away this sort of -- There has been a -- In my view, you will probably -- I don't actually know your view on the technicals around the long end of the JGB curve. But I think there has been a technical issue there because the legacy bonds have such a low Q-bond, they're incredibly volatile. And the natural buyers, the lifers, were forced to stock up by regulatory shifts a couple of years ago, and they aren't continuing to buy. And they seem to be a little shell-struck by the mark to market losses they've taken on this and by the volatility. So bringing in a new buyer or taking some of the legacy bonds that have lost their natural market out of the system feels like a technical debt management win to me.

 

>> Let's close on that note of relative optimism for Japan's prospects. I want to ask you one last question, which I ask everyone. What is the most commonly held belief in your world, however you define your world, that you think is just flat wrong? You've got a lot of --

 

>> Yeah.

 

>> -- them so.

 

>> Yeah, a lot of them. One of the --

 

>> The challenge is what to choose.

 

>> Okay. Well, I mean, in a sense, it's everything we've discussed. One is that the world is de-globalizing and that --

 

>> Yeah.

 

>> -- you can de-globalize when China is relying more on exports than ever before, has a bigger trade surplus than ever before. The second one is that China is not buying U.S. bonds. China's reserve managers aren't buying U.S. bonds. Chinese state banks are quite clearly buying U.S. bonds, it just doesn't show up in the data. And China's increasingly a source of dollar funding for a range of other bond purchases. I don't think you can understand the basis trade now without the repo funding that is coming from somewhere globally that is supporting one of the biggest and fastest growing pools of foreign-held U.S. government debt. And then I guess the third myth that I think is prevalent is the notion that Japan is insolvent. Japan is the world's largest external creditor now, as a share of GDP. Way bigger than China. And Japan's government is actually a bigger external creditor as a share of Japan's GDP than China is. So I find those are like --

 

>> If Japan -- Brad, if Japan is insolvent, as a U.S. citizen I wouldn't want to be looking in the mirror. Put it that way.

 

>> I could probably throw in a few other things, like, that we can actually address our government debt issue entirely with tariffs.

 

>> I agree with that too. The asset side of our balance sheet is pretty rich. Brad, this has been a masterclass. Let's get on the basketball court again soon while we can still walk. But thanks for coming on. I appreciate it.

 

>> No, my pleasure. Thanks for doing this.

 

>> See you soon.

 

>> See you. Bye.

 

[ Music ]

 

>> Okay, so that'll do it for this episode. Remember, the world is being reshaped before our eyes, and our greatest asset is the ability to outthink it. I'm Daleep Singh. We'll see you next time.