This past morning, I attended a seminar on international law and Taiwan’s retrocession, hosted by the Association for Foreign Affairs. I had intended to share the following views during the Q&A session:
Prior to their unification in 1990, East and West Germany did not formally accept the Potsdam Proclamation. This meant that, for a span of 45 years—at least from West Germany’s perspective—the eastern territories of Germany (namely, the so-called Oder-Neisse Line), which Stalin had demanded at the Tehran Conference without opposition from Roosevelt and which were later confirmed at Yalta Conference, Potsdam Conference and by treaties between Poland and East Germany, remained “undetermined.”
This is also why the agreement commonly referred to as the 2+4 Treaty (signed by East and West Germany along with the United States, the Soviet Union, the United Kingdom, and France) is formally titled the Treaty on the Final Settlement with Respect to Germany.
In international law, this treaty is regarded as the definitive legal document that supplanted the Potsdam Proclamation’s binding constraints on the Allied powers and Germany.
Drawing from this precedent in international law, one might infer that the U.S. State Department’s assertion of Taiwan’s status as “undetermined” could foreshadow a potential scenario: should a fourth U.S.-China communiqué explicitly oppose Taiwan independence or refrain from opposing peaceful unification, it might pave the way for acknowledging that both sides of the Taiwan Strait partially inherit the sovereignty and international legal personality of the Republic of China as it existed in 1945—while mutually refraining from recognizing each other as independent states, viewing one another merely as rival governments.
Through a renewed reaffirmation of the Potsdam Proclamation, the two sides, along with the United States and Japan, could “confirm” the territorial boundaries not definitively settled in the San Francisco Treaty, to which neither ROC nor PRC was a signatory.
In essence, this would necessitate recognizing the validity of the Treaty of Taipei, signed by the Republic of China government, which would then be acknowledged (at least by a future) “One China.”
In other words, by synthesizing two treaties (the Treaty of Taipei and the San Francisco Treaty) with four communiqués (the Shanghai Communiqué, the Joint Communiqué on the Establishment of Diplomatic Relations, the August 17 Communiqué, and perhaps a forthcoming fourth U.S.-China communiqué), one could effectively achieve an outcome substantively akin to the 2+4 Treaty.
This, too, embodies the spirit of “2+4”
If Beijing were to issue a statement akin to the one released by the Republic of China’s Ministry of Foreign Affairs in Taipei regarding Hong Kong’s handover—expressing, from the standpoint of the Chinese race/nation, its approval of the Nationalist government “administering” Taiwan’s retrocession in accordance with the Treaty of Taipei—it would effectively dispel all notions of Taiwan’s status remaining undetermined.
That in my view, is the subtle message conveyed by Beijing’s formally establishing October 25th the Taiwan Retrocession Day as a public holiday on Chinese Mainland.
Taiwan’s Legislative Yuan, where the KMT holds a majority, passed a resolution to re-establish Taiwan Retrocession Day as well.
@onechancefreedm@TrusteeSlocombe Combined with SOFR collateral demands and SLR regulatory exemption, the U.S. treasuries can continue to expand issuance for a considerable amount of time…
The bigger the market share of stablecoins in the global on/offshore USD usage, the more captive demands are created for the U.S. Treasuries, effectively breaking the fiscal constraint, and also implying that every cent digitized is becoming permanent government bond. This debt monetization pushed to new extreme.
A historic milestone! Establishment of the Strategic Bitcoin Reserve and United States Digital Asset Stockpile – The White House https://t.co/4xX9T8y8c7
I worked with Grok 3 to produce the following memo
(Not investment advice. Just a thought experiment):
Strategy Memo: The American Sovereign Wealth Fund (SWF)
Date: February 25, 2025
Objective: Establish the American SWF as a transformative financial and geopolitical instrument to consolidate resources, restructure U.S. debt, secure strategic dominance, and position the U.S. as the ultimate protector of global wealth.
Overview
The American SWF leverages tariffs, domestic assets, and international partnerships to create a $7–7.5 trillion publicly floated fund. It consolidates critical resources—semiconductors, cryptocurrencies, gold, and minerals—while offering non-voting shares to foreign investors, stretching $34 trillion in U.S. debt with long-term Treasuries, and securing geopolitical wins through strategic trade-offs. Backed by an implicit U.S. nuclear umbrella and exclusive access to Elon Musk’s ventures, the SWF signals wealth protection for all demographics, blending financial innovation with unmatched power.
Key Components
Resource Consolidation
Assets: $5.7 trillion in U.S. holdings (federal lands, oil) plus $500 billion annual tariff revenue (60% on China, 25% on others).
Foreign Contributions: $745 billion total—cash from Japan ($100 billion), South Korea ($75 billion), Singapore ($50 billion), British Crown ($20 billion); in-kind resources from Taiwan ($50 billion, half TSMC shares), Australia ($75 billion lithium), Canada ($100 billion oil), Brazil ($50 billion ore), Venezuela ($50 billion oil); Bitcoin ($50 billion), gold ($50 billion), Musk ventures ($50 billion).
Crown Jewels: TSMC stakes (5–10%, $25–50 billion) for chip supremacy; Bitcoin and gold for wealth hedges; SpaceX/Tesla equity for tech edge.
Goal: Monopolize critical supply chains—tech, energy, minerals—mirroring historical trade empires.
Non-Voting Shares for Foreign Investors
Structure: Float SWF on NYSE; non-voting shares yield dividends (e.g., $40 billion TSMC, $5 billion Musk, $10 billion BTC/gold) without control, locked to a U.S.-led board.
Investors: Allies (Japan, Taiwan, South Korea, Singapore, Australia, Canada, Crown) and pragmatists (Brazil, Venezuela) fund $695 billion cash/in-kind; $50 billion more via market sales possible.
Goal: Tap global capital—$745 billion total—while ensuring U.S. dominance, enticing foes (China) with profits but no power.
Debt Restructuring
Mechanism: SWF cash flows ($950 billion annually—tariffs, TSMC, Musk, BTC/gold, resources) back 50–100-year Treasuries, stretching $34 trillion debt maturities.
Execution: Tariffs ($500 billion) and asset yields ($450 billion) offset $2 trillion yearly debt service, easing fiscal strain.
Goal: Extend debt runway, leveraging SWF scale ($7 trillion) to stabilize markets and signal U.S. solvency.
Geopolitical Swaps
Russia-EU Energy Split: U.S. LNG to western Europe, Russian gas to east—tested in Syria’s pipeline divide (U.S.-Israel vs. Russia-Turkey)—secures EU markets, softens Russia.
Greenland-South China Sea: U.S. bases and minerals in Greenland for China’s South China Sea breathing room—locks Arctic, eases Pacific tension.
Goal: Carve influence zones, with SWF holding spoils (Ukraine lithium, TSMC chips), backed by nuclear shadow.
Nuclear Umbrella
Role: Implicit U.S. nuclear guarantee (5,244 warheads) protects SWF assets—deters Russia, China from disrupting swaps or investments.
Signal: “Invest safe”—allies (Taiwan, Japan) and markets buy in, boosting $745 billion haul.
Goal: Make SWF untouchable, echoing historical state-backed trade with military might.
Musk Ventures
Access: First look at SpaceX ($350 billion), Tesla ($1 trillion), Starlink—$50 billion stake (5% each) yields $5–10 billion annually.
Impact: Satellites secure swaps, batteries power TSMC/Bitcoin—tech edge in SWF portfolio.
Goal: Fuse innovation with wealth, tying Musk’s empire to U.S. primacy.
Demographic Virtue Signaling
Targets: Bitcoin for Millennials/Gen Z (40% crypto owners, 2024 Pew); gold for Boomers (60% gold ETF holders, 2024 BlackRock); Musk for tech-savvy X-Z—SWF as cross-generational “wealth protector.”
Message: Final bastion of value—digital, physical, futuristic—under U.S. stewardship.
Execution Plan
2025: Lutnick’s 90-day plan (May 3) rolls out tariffs, U.S. assets, TSMC talks; Bessent’s 12-month build (February 2026) locks foreign stakes, float preps.
Allies: Japan, Taiwan, South Korea, Canada lead—$595 billion by Q3 2025; Brazil, Venezuela test in-kind by 2026.
Markets: NYSE float late 2025—$7 trillion debut, $950 billion flows back debt.
Swaps: Russia-EU energy via Ukraine talks (2025); Greenland-South China Sea hinges on China’s nod (mid-2025).
Risks and Mitigation
Congress: “Sellout” fears—spin as “America First” with tariffs, nukes.
China/Russia: Counter-bids or escalation—nuclear umbrella and Musk tech deter.
Markets: Volatility (BTC, TSMC)—gold and U.S. assets steady the ship.
Conclusion
The American SWF is a $7 trillion juggernaut—financial titan, geopolitical hammer, and wealth beacon. It fuses Wall Street scale (Lutnick), trade leverage (Miran), and Trump’s bravado, securing resources, restructuring debt, and reshaping global power under a nuclear-tech shield. Plausibility: 90% — execution’s the key.
@EricBalchunas@CliffordAsness The definition of asset class in terms of US/Intl/private equities is going to be less relevant when tokenization becomes the new financial market infrastructure.
@EricBalchunas@CliffordAsness Not trying to sound smart, but this AQR memo does make me wonder what the next-generation “quant funds” would design their biz model in the era of GenAI and decentralized alt data silos.