Eric Zuesse
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.
9 September 2026, posted by Eric Zuesse. (All of my recent articles can be seen here.)
In 2013, Ryan Perkins warned that ever since 2009, China was building a pyramid of debt that was based upon impossible-to-fulfill promises. By now, it’s clear that he was right. He subsequently described the same thing happening throughout the U.S. empire (though not in the same way). Apparently, the world’s two leading countries — and whatever countries are dependent upon them — are now inexorably heading to crash. One thing that describes both cases — China and America — is that these impossible-to-fulfill promises were marketed and encouraged by (and employees of) the super-rich, and they were ‘investments’ that never should have been made and that the Government itself should have forced the marketers of them to put into escrow in gold up front enough money to bail themselves out even if all of these ‘investments’ lost all of their value, so that they would self-insure and never be bailed out. (Instead, the losses became socialized — bailed out by the Government. For example, after the 2008 crash in the U.S., the top 25 originators of high-interest loans, accounted for nearly $1 trillion, or about 72 percent, of such loans made during that period, and at least 21 of those 25 originators were financed by banks that received Government bailout money. The huge financial intermediaries that originated, financed, bought, and securitized these loans were treated as “too big to fail,” and so were bailed out instead of being taken over and the responsible executives being prosecuted and, where found to have encouraged employees to perpetrate fraud, severely imprisoned. This utter absence of personal accountability at the top is why such occurrences become repeated. The mega-investors — those huge financial intermediaries — are ‘too big to fail’.) Here are Perkins’s three articles on this, with the little excess that was in them removed by me.
——
28 June 2013, Ryan Perkins
…
According to Fitch, China’s shadow banking sector may be hiding as much as $2 trillion worth of risky assets in off-balance sheet lending. But what does that really mean? And, more importantly, how did China find itself in this situation? … Generally, shadow banking simply refers to the lending and borrowing — basic financial activities — that occur outside the traditional deposit and loan model; that is, anything other than putting money in the bank and occasionally borrowing for things like buying a house. In Western nations such as the U.S, hedge funds, venture capital firms and private equity — all forms of shadow banking — form a major part of economic life. In China, however, the structure of shadow banking is very different.
Until around 2007-8, conventional banks, in the form of loans, undertook the vast bulk of all lending in China, and because the Communist Party controls the vast majority of banks, this structure allowed the government to retain a handle over the economy at large. However, in the aftermath of the financial crisis, as export-oriented businesses — the companies that form a major pillar of the Chinese economy — saw markets shrink, two important things happened.
The Shibor rate hike and the government’s refusal to step in with additional funds, then, is a not-so-subtle statement that the party’s over and that it’s time to solve debt addiction the old fashioned way — cold turkey.
First, in response to the global financial crisis in 2008, the Chinese government enacted a stimulus package worth $586 billion, more than half of which was financed through new bank lending. This package won praise around the world for its speed and decisiveness and kept the country on track in the short term, in noted contrast to a similar plan implemented by the United States. But the stimulus also flooded the economy with cheap credit, thereby fuelling a speculative housing bubble, propping up inefficient state-owned enterprises (SOEs), and undoing years of work spent trying to instill China’s banks with financial discipline.
In the two decades leading up to the financial crisis, a lot of hard and sincere work was done to try to teach profligate SOEs, local governments, and banks to live and work within their means, but that doesn’t mean these institutions suddenly forgot how to take advantage of a free lunch. In fact, it probably heightened their appetite for it. As a result, much of the money was sunk — almost literally — into local government financing vehicles (LGFVs), which are municipal government-owned companies often responsible for infrastructure investment. These companies, for the most part, exist to keep local government debt off the books — since local governments have a very limited capacity to borrow money directly — by allowing them to borrow indirectly and finance construction projects through companies they own, built on land often acquired and sold below market price by them.
Surprisingly, this system constituted a huge source of revenue for cash-strapped local governments, which have few real sources of tax revenue. Less surprisingly, it is also an endemic, institutionalized form of corruption. A recent OECD report estimated that total public debt reached 57 percent of GDP by the end of 2010, with LGFVs accounting for about three quarters of this figure. Given that some people familiar with LGFVs see them as little more than holes in the ground into which seemingly endless amounts of perfectly good money are poured, it is likely this borrowing generated a wave of future defaults.
How, and why, was the money spent this way? To answer this question, it’s important to understand the love affair between the Chinese government and infrastructure projects. Over the past two decades, Beijing has relied on building roads, power grids, and other fixed assets in order to facilitate the rapid expansion of the economy, but this method of growth inevitably leads to declining returns over time. As a result, Chinese policy makers understand that to decrease the economy’s dependence on investment and export markets (which depend too much on the whims of the global economy) domestic consumption needs to pick up the slack. Unfortunately, however, this “rebalancing” is tricky.
One problem is this: Contrary to popular belief, China’s manipulation of the yuan isn’t the golden goose Western critics make it out to be. Even if the currency were allowed to float freely, Chinese labor would still cost a fraction of what it does in the U.S. This discrepancy is mainly achieved through the hukou, a household registration system that prevents workers from becoming fully entitled residents in the regions to which they have migrated to work, as well as restricting the rights of children born in these regions to services like education and health care.
In short, the hukou ensures that workers remain in the shadows — and wages remain low — by constantly recycling labor out of factories and back to the place of registration. Factors like this have made it increasingly difficult to rebalance the economy and have contributed to the yawning wealth gap in Chinese society. Though Chinese leaders have hinted at reforming the hukou, they nonetheless face a vexing dilemma: How do they increase domestic demand without significantly upsetting a social order upon which the economy depends for its competitive advantage?
Historically, the answer to this question was infrastructure development, and for good reason: Infrastructure is politically neutral, theoretically benefits the whole of society, is generally dominated by massive State and quasi-State owned enterprises, and in the past generated massive returns. However, over the last four years, the GDP growth generated by each yuan of additional loan has fallen from 0.85 to 0.15, an indicator that the limits of debt-fuelled growth are being reached. In effect, the very engine that caused China’s growth — fixed asset investment fuelled by local debt — wasn’t sustainable, and the government began to worry about the negative consequences of an overheating economy: inflation, real estate bubbles, and overcapacity.
So in 2009 they slammed on the breaks. An economy that was addicted to credit needed to go somewhere else to get its fix. This was where shadow banking came in.
Desperate for credit, banks began working closely with trust companies and other entities to refinance bad loans by bundling them up and repackaging them as “wealth management vehicles”, or WMVs. …
As more and more of these loans turned bad they were simply recycled into high yield WMVs, a fact that China’s policy makers have acknowledged. In an uncharacteristically stark warning aired in a China Daily op-ed, Xiao Gang, the former head of the Bank of China, said that there are more than 20,000 WMVs in circulation — compared with “a few hundred” five years ago. Worse, many of these WMVs lack transparency or are linked to empty real estate, long term infrastructure projects or collections of assets which have no sure fire way of generating the revenue needed to repay them at the given time, creating the real possibility of a liquidity crisis.
Has this crisis already begun? There’s evidence that banks and trusts have colluded to circumvent a shortage of liquidity by issuing ever greater numbers of WMVs — with still higher rates of return to attract the cash necessary to finance the short fall. But if the music stops and investors pull their money or stop purchasing new issuances, then the rollover for the bank to pick up could potentially be huge. The consulting firm KPMG estimates that shadow banking and WMVs overtook insurance to become China’s second largest financial sector in 2012 and represent assets roughly equivalent to 15 percent of total commercial bank deposits. …
The question, then, is this: how bad was the addiction, and how big will the comedown be?
——
https://ceinewsletter.substack.com/p/the-vassalization-of-europe-the-twighlight
20 November 2025, Ryan Perkins
The Design Laid Bare
Europe’s recent unilateral capitulation to U.S. financial interests, euphemistically referred to as a ‘trade rebalancing agreement’ is the latest iteration of a consistent U.S. policy. A policy that nurtures allies and then consumes them once they encroach upon U.S. core interests or outlive their geopolitical utility. The difference this time is the looting is global; and driven by desperation, not geostrategic calculation.
U.S. Treasury Secretary Scott Bessent, commenting on President Donald Trump’s tariff regime, offered a rare moment of honesty: “Other countries, in essence, are providing us with a sovereign wealth fund.” And with that, the benevolent façade was gone, replaced by brute financial subordination.
The Cold War Bargain
After the Second World War, the U.S. allowed Europe and Japan to rebuild, not out of a newly discovered sense of altruism, but out of geopolitical calculus. With WWII over, U.S. priorities shifted to containment of socialism which presented the clearest threat to its ‘global leadership.’
In Europe, Marshall Aid rebuilt factories, but came tied to a subservient position in the global order. NATO’s security umbrella freed Western Europe to divert resources into welfare states and industrial subsidies. Social democracy was tolerated, even encouraged, because prosperity immunized against communism.
Similarly, in Japan, Washington permitted what elsewhere it proscribed. Tokyo reconstructed its industries behind tariffs, nurtured keiretsu conglomerates, and guided cheap loans toward strategic sectors. Export-led growth turned Japan into a capitalist, industrial showcase. A counterpoint to communist China.
Likewise, the Asian Tigers — South Korea, Taiwan, Hong Kong, and Singapore later joined by Thailand, Malaysia, and Indonesia — received access to US markets and protectionism was again tolerated. Their state-led, export-oriented models were permitted to flourish because they advertised the virtues of capitalism in a region the U.S. was waging war against communist insurgency.
The implicit bargain was clear: Washington would tolerate mercantilist policies, subsidies, and industrial planning, so long as it served U.S. global, geopolitical objectives.
When Success Breeds Rivalry
The system began to fray as allies began to rival core U.S. interests. In 1980, Japan’s GDP surpassed the Soviet Union and its firms dominated global semiconductors, automobiles, and consumer electronics markets. Alarm bells rang in Washington.
The 1985 Plaza Accords forced a massive yen revaluation, crippling Japanese exporters. Cheap credit policies unleashed by the Bank of Japan to counter the blow inflated a spectacular real estate and stock bubble, which later collapsed into decades of stagnation. Trade “agreements” imposed quotas, price floors, and structural reforms that dismantled Japan’s supply chains. GDP growth slowed from 6% to 1%. Japan’s challenge was neutered.
The Asian Tigers were next. In the 1997 financial crisis, US hedge funds shorted their currencies; IMF “rescue packages” imposed austerity, forced privatizations, and compelled governments to dismantle protective industrial policies. Capital flight to Wall Street funded America’s dot-com boom even as Asian economies sank. A generation of prosperity was sacrificed on the altar of dollar hegemony.
The pattern was clear: allies could rise — but never become rivals. Once they reached the frontier of American strength — or outlived their geopolitical utility — they they were cut down.
Europe’s New Subordination
This pattern of financial predation has resurfaced in 2025. Trump’s “trade rebalancing agreements” with the EU and Japan formalize economic subordination with a contractual precision that recalls colonial tribute.
For Europe, the July 2025 deal was capitulation disguised as compromise. Baseline tariffs of 15% were slapped on most EU exports, with steel and aluminium stuck at punitive 50% rates. German automakers, French aerospace firms, and Italian machinery exporters saw profit margins vanish overnight.
The industrial logic is transparent. To avoid ruin, Europe’s crown jewels — BMW, Audi, Mercedes — are relocating advanced battery and EV production to US soil, drawn by Biden-era subsidies under the Inflation Reduction Act and bludgeoned by Trump-era tariffs. Production, jobs, and technology flow westward; what remains in Europe are hollowed-out assembly lines with high-end components imported.
Energy adds a second chain of dependence. The EU is compelled to purchase $750bn of American LNG — nearly twice the cost of pre-sanctions Russian pipeline gas. Additionally, infrastructure must be rebuilt at Europe’s own expense, as US LNG requires different regasification terminals. At the same time, Washington carved exemptions from EU carbon tariffs for its own exports, turning climate policy into a weapon of asymmetric advantage.
Military dependency forms the third chain. A mandated $600bn in US arms imports, sold as “burden-sharing,” entrenches reliance on American hardware. Europe may fly its own flag, but it cannot field an army without Washington’s supply chain. In effect, making Europe’s arms industries subsidairies of Ratheon and Lockheed Martin
Japan’s Tribute
Japan’s 2025 trade deal mirrors Europe’s fate. Tariffs of 15% — quadruple pre-deal levels — target autos and electronics, while steel faces 50% barriers. Even agriculture is is on the chopping block: decades of protection for Japanese rice farmers have been swept aside, opening the market to cheap, subsidized American GM rice.
More telling is the $550bn sovereign investment fund Tokyo was compelled to establish — managed overwhelmingly by US financial institutions, with a profit split heavily favouring Wall Street. What should be domestic capital for revitalizing Japan’s economy now finances American industry.
The echoes of the 1980s are unmistakable: Japan rises, Washington clips its wings. The difference today is that the leash is financial, contractual, and total.
The 2008 Crisis: The “Accidental” Extraction
Long before the deliberate coercion of the IRA and Trumpian tariffs, the 2008 Global Financial Crisis orchestrated an even more spectacular transfer of global wealth to the United States — albeit ostensibly inadvertently, revealing the structural supremacy of the American financial system. While the crisis was “Made in America,” born of its subprime mortgage bubble, its resolution forcefully demonstrated that when the U.S. financial core catches a cold, the world not only gets pneumonia but also pays for America’s medical bills.
The mechanism was twofold: a flight to safety and the Fed’s dollar supremacy. As the global system seized up, panicked capital from European banks, Asian sovereign funds, and emerging markets worldwide fled into the perceived safety of U.S. Treasury bonds and the dollar. This massive capital inflow artificially depressed U.S. borrowing costs at the very moment its government was launching massive bailouts, effectively allowing America to finance its recovery at a discount subsidized by foreign capital.
Simultaneously, European banks, far more leveraged and exposed to toxic U.S. assets, were crippled, requiring state bailouts that plunged the continent into a sovereign debt crisis and a lost decade of austerity. The U.S. emerged with recapitalized banks and a booming stock market; Europe was left with shattered public finances and grinding deflation. The crisis proved to be the ultimate stress test of financial hegemony: even when the U.S. was the epicentre of the disaster, the global architecture it built ensured that the bill was ultimately footed abroad.
Carrot and Stick: The New Imperial Toolkit
At first glance, Trump’s tariff Liberation Day and Biden’s Inflation Reduction Act look like ideological opposites — nationalist protectionism versus green-industrial subsidies. Yet they form a seamless whole — two sides of the same financial extraction coin.
The IRA (2022) offered: $369bn in subsidies luring foreign firms to relocate production to US soil. BMW shifted EV assembly to South Carolina to qualify.
Trump’s 2025 tariffs impose punitive costs that target those who resist relocation. Mercedes faces ruinous tariffs if it continues producing batteries in Germany.
Together they form a two-stage system: lure capital with subsidies, then trap it with tariffs. Whether carrot or stick, the outcome is identical: technology, capital, and sovereignty flow toward the United States.
What distinguishes this order is its subtlety. The tools are financial, contractual, and regulatory. Punitive tariff sticks and subsidy carrots shift production across borders; overpriced LNG and infrastructure lock-ins channel rents to US fossil fuel firms; and arms imports ensure allies’ defence sectors remain subsidiaries of Lockheed and Raytheon.
This model mirrors colonial mercantilism — only dressed in the language of “free trade” and “rebalancing.”
Wall Street’s Take?
What Washington frames as “economic patriotism” is, in practice, a financial enclosure movement. Behind the industrial reshoring lies a deeper engine: financial extraction. The sovereign investment funds extracted from Japan and Europe are managed through American institutions. Tariff penalties are paid in dollars. Subsidy schemes are structured as tax credits and loan guarantees, with Wall Street intermediating every stage.
The result is a cycle of dollar dominance. Capital flees allies under pressure, inflates American asset markets, and funds federal deficits. Allies finance America’s reindustrialization not through goodwill, but through coercion.
Historical Parallels
The echoes of past episodes are hard to ignore.
Japan, 1980s: Allowed to rise under protection, then bludgeoned once it rivaled US tech.
Asian Tigers, 1997: Tolerated as Cold War showcases, then dismantled through speculative attack and IMF austerity.
Europe, 2025: Shielded under NATO and access to US markets for decades, only to be forced into energy bondage and industrial relocation once China emerged as the true strategic rival.
The cycle is consistent: nurture, tolerate, then consume.
Twilight of the Bargain
The Cold War bargain — sovereignty exchanged for prosperity — is over. What remains is a pure extraction model: allies as tributaries, wealth redirected by tariff, subsidy, and sovereign fund.
…
Rome drained its provinces, Britain its colonies. The United States is draining its allies — financially, industrially, and psychologically. But empires that devour their vassals ultimately consume themselves.
….
——
https://web.archive.org/web/20260909192911/https://ceinewsletter.substack.com/p/the-blowback-machine
“The Gates are Closing: Private Credit’s Liquidity Crisis Deepens”
What happens when the gates spread and the banks pull back? A worst-case scenario handbook for the unfolding liquidity seizure.
30 March 2026, RYAN PERKINS
…
The external shock from the Strait of Hormuz has collided with every internal fault line the American financial system possesses. And the result, as we are now witnessing, is not a single crisis but a distributed liquidity contraction—a slow, cumulative tightening cycle that is spreading across opaque, illiquid segments of the financial system.
The risk is not a single, spectacular failure. The risk is that everything loses liquidity at the same time. …
The banking system, which has served as the hidden leverage layer behind private markets, is starting to quietly reduce its exposure. We are seeing loan markdowns to private credit vehicles and a reduced willingness from banks to extend the financing lines that these funds rely on. Banks are pulling back because they see the same risks everyone does—rising energy costs, geopolitical uncertainty, and deteriorating credit quality.
But there is a deeper reason, one rooted in those internal fault lines I identified in November. The banking system is still sitting on roughly $400 billion in unrealised losses on bond portfolios—losses that existed comfortably on paper so long as nobody was forced to sell. As asset prices begin to decline under the weight of margin calls and forced selling, those unrealised losses become very realised. Solvency questions return. And with them, the spectre of deposit runs. Banks are pulling back from private credit not because they want to, but because they are hoarding capital to protect their own balance sheets.
This bank pullback is the transmission layer. Less financing for private credit funds means harder refinancing conditions for the companies they’ve lent to. Harder refinancing leads to rising defaults. And rising defaults put more pressure on funds already facing a surge in redemption requests. The stress is no longer contained within the funds themselves. It is beginning to migrate into the institutions that finance them, creating a feedback loop that will only accelerate.
Valuation Cracks in the AI Miracle
The same technologies driving M7 equity valuations to historic highs are quietly eroding the credit quality beneath them. Companies that were supposed to be the beneficiaries of the AI revolution are finding themselves disrupted by it. Margins in the tech and software sectors are under pressure, cash flows are weakening, and we are seeing the first credit downgrades tied to the tech sector. AI is becoming a destabilizing force in the credit markets that have helped fuel its stratospheric growth.
And beneath it all lies the energy constraint. Semiconductor fabrication is an energy-guzzling, just-in-time process. Fabs require massive amounts of uninterrupted electricity. When energy prices spike, the cost structure of the entire AI supply chain is restructured. The AI boom runs on electricity before it runs on silicon, and that electricity has a new geopolitical price.
Commercial Real Estate: The Slow-Burning Core
Beneath all of this lies another fault line: commercial real estate. CRE remains the largest embedded risk pool in the financial system. With office vacancy structurally elevated and valuations under pressure, the industry faces a massive refinancing wall. And CRE, like so much of the modern financial system, is heavily financed through private debt funds and structured credit vehicles.
CRE stress leads to redemption pressure. Redemption pressure leads to gating. And gating leads to capital being trapped precisely when it is needed most. Commercial real estate is not collapsing — at least, not yet. But it is slowly repricing into a system that cannot easily absorb it. As the value of these assets adjusts to a new, post-pandemic reality, the losses will flow directly into the private credit funds and the bank balance sheets that hold them.
Defaults and the Hidden Deterioration
The early signs of the credit cycle turning are now visible. Non-performing loans are rising. The use of payment-in-kind structures, which allow borrowers to pay interest with more debt, is masking the true extent of the stress. We are beginning to see isolated bankruptcies tied to private credit — small fires that, in a more liquid environment, would be contained, but now threaten to spread.
What passed for stability was in reality just a delayed recognition of the stress moving through the system. The system was kicking the can down the road, but the road is running out.
Fundraising Slows: A Critical Inflection Point
Perhaps the most critical development is this: fundraising, the oxygen of the private credit system, is slowing. The system depends on a constant flow of new capital to offset the inherent illiquidity of its assets. If redemptions rise and fundraising slows simultaneously, the structural liquidity of the entire market tightens.
The real risk is not redemptions alone. The real risk is the moment when they are no longer offset by new money. That moment appears to be arriving.
Share
A System Losing Liquidity
Let me be clear about what is happening. We are not witnessing a single break. There is no one trigger, no one hedge fund collapse, no one bank failure—at least, not yet.
What we are witnessing is a system losing liquidity across every layer. It is happening in layers:
Layer 1 — The External Shock: Energy prices spiking from the Strait of Hormuz. The yen carry trade reversing, draining global liquidity.
Layer 2 — The Internal Fault Lines: A trillion dollars in margin debt ready to trigger forced selling. $400 billion in unrealised bank losses ready to become real. A consumer already buckling under layoffs and collapsing confidence.
Layer 3 — Assets: CRE stress, weakening borrower fundamentals, and the AI supply chain exposed by its own energy vulnerability.
Layer 4 — Funds: Redemptions rising, gating spreading across private credit and real estate vehicles.
Layer 5 — Markets: Credit spreads widening early, signaling distress.
Layer 6 — Funding: Banks pulling back their financing lines, hoarding capital against their own unrealised losses.
No single break. No single trigger. Just a system where liquidity is gradually draining away from every layer that sustained the cycle. The convergence I warned of on March 6th—the moment the external shock hits every internal fault line simultaneously—is no longer a problem on the horizon. It is the current reality.
But this is not 2008. For now. We are not facing an immediate collapse of the banking system. The danger is different.
In 2008, the system snapped. In 2026, it’s slowly freezing.
The Worst-Case Scenario Handbook. What Happens Next?
The answer to that question depends on whether the liquidity gates do what they are supposed to do: hold the structure stable while the underlying assets stabilize. If they don’t, this becomes a holding pattern without a landing zone. This is Phase 1.
Phase 2: The Secondary Market Breaks
A major fund marks assets down sharply. Every other fund in the same class faces an immediate mark-to-market crisis. Secondary buyers vanish. Gates, once temporary, become permanent. Capital is now trapped.
Phase 3: Banks Hoard
The $400 billion in unrealized bank losses grow as asset prices fall. Regulators demand capital. Banks stop lending—not just to private credit, but to everyone. Credit lines die. The real economy seizes. Layoffs surge. Defaults become a flood.
Phase 4: The Derivatives Event
A major counterparty fails. The quadrillion-dollar web of derivatives contracts is tested. Trust evaporates. Credit freezes. If a critical node in this vast web of counterparty obligations fails, the derivatives market will transform localized pain into systemic stress. The 2008 mechanism, but with seventeen years of additional leverage layered on top.
Phase 5: Sovereign Contagion
The government faces a choice: bail out a system too large to save, or let it burn. Either path triggers a sovereign debt crisis. Global investors begin to question whether the United States can manage its own obligations while simultaneously rescuing a private financial system that has grown too large, too opaque, and too illiquid to rescue.
The worst case does not require a single catastrophic event. It requires only that liquidity continues to drain, layer by layer, until there is nothing left to absorb the next shock.
The fuse was lit in the Strait of Hormuz. The powder keg was made in America, one layer of opaque leverage at a time. Now we wait to see whether the spark finds the powder — or whether the system manages to contain it.
…
—————
Investigative historian Eric Zuesse’s latest book, AMERICA’S EMPIRE OF EVIL: Hitler’s Posthumous Victory, and Why the Social Sciences Need to Change, is about how America took over the world after World War II in order to enslave it to U.S.-and-allied billionaires. Their cartels extract the world’s wealth by control of not only their ‘news’ media but the social ‘sciences’ — duping the public.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.
