I'm constantly reminded how astute the readership of this site is, for the articles that people find and pass along, oftentimes with their own observations, are endlessly deep rabbit holes, each and every one. But that's especially the case with today's article shared by J.C., who wonders what I think the relationship between the story and the current tarrif-trade war going on between Mr. Xi and Mr. Trump might be. The story, in brief, is that there are lots - lots - of bonds from the Chinese government out there, not only from the old Imperial government, but from the Republic of China, i.e., the Nationalist/Khoumintang government, which, let us recall, is still in existence on Taiwan. Hold on to that little bit of data, because it will become important in today's high octane speculation.

But first, the article:

Trump’s New Trade War Tool Might Just Be Antique China Debt

The thesis of this story is simple, and laid out in the first three paragraphs of the article:

President Donald Trump’s next move in an increasingly fraught trade war with China could be one for the history books, literally. The Trump administration has been studying the unlikely prospect of reviving century-old claims on Chinese bonds sold before the founding of the communist People’s Republic.

The defaulted China bonds can be found in the attics and basements of thousands of Americans, or on EBay, where the certificates sell as collectibles for as little as a few hundred dollars each. The PRC, which succeeded the Republic of China after it replaced the imperial dynasty, has never recognized the debt, though that hasn’t stopped decades of attempts to collect payment on it.

Now, with Trump ratcheting up the trade rhetoric with China, holders of the antiquarian bonds are hoping he’ll press their case, even as other parts of the U.S. government are accusing people of fraudulently selling the same paper.

Nor is this some fanciful hope; serious people, the article continues, are involved in the effort:

Perhaps the only thing more peculiar than the story of the Chinese debt and the bid to seek payment on it, is the cast of characters drawn into its orbit. President Trump, U.S. Treasury Secretary Steven Mnuchin, and U.S. Commerce Secretary Wilbur Ross have met with bondholders and their representatives. Kirbyjon Caldwell, pastor of a Texas megachurch and spiritual adviser to George W. Bush, has been charged by the U.S securities regulator for selling the debt to elderly retirees. (Caldwell has pleaded innocent and maintains that the bonds are legitimate.)

“With President Trump, it’s a whole new ballgame,” says Jonna Bianco, a Tennessee cattle rancher who leads a group representing pre-revolutionary China bondholders and who has met with the president.(Emphasis added)

All of this, of course, sounds fanciful, but it revolves around a point of law. As the article, citing Jonna Bianco, explains:

The People’s Republic of China dismisses its defaulted sovereign obligations as pre-1949 Republic of China debt, but doing so contradicts the PRC’s claim that it is sole successor to the ROC’s sovereign rights,” Bianco said in an emailed statement in response to this story.

Bianco says she’s spent years researching the issue and recruiting high-profile proponents to the ABF team, including Bill Bennett, who was U.S. Secretary of Education under Ronald Reagan; Brian Kennedy, senior fellow at the Claremont Institute; and Michael Socarras, Bush’s nominee for Air Force general counsel.

She argues that China is in selective default, having paid out on bonds held by British investors in 1987 as part of the Hong Kong handover deal negotiated by former Prime Minister and ‘Irony Lady’ Margaret Thatcher. If China doesn’t pay out, she says, it should be blocked from selling new debt in international markets. (Emphasis added)

And there you have it. The problem, of course, is that the legalities themselves are dodgy:

People familiar with the Treasury Department say the China bonds have been studied, but ABF’s suggestions—including the possibility of selling the defaulted debt to the U.S. government to then exchange with China—aren’t legally viable. Spokespeople for Treasury and Commerce declined to comment. People familiar with the views of Chinese officials say they’re aware of the meetings, but they don’t think the claims can be revived.

At issue is a statute of limitations that has long run its course and the fuzzy legal obligations of governments that inherit their predecessor’s debts following civil upheavals. In one of the most famous cases, the Soviet Union repudiated bonds sold under the Tsar, inflicting losses on thousands of investors who had snapped up the paper. Still, most agree that as a legal principle, political regimes inherit their predecessors’ debt; most governments choose to honor old bonds, in part because they don’t want to alienate investors who might buy new ones.

“I think everyone who works for Trump at the Treasury Department thinks this is loony,” says Mitu Gulati, law professor at Duke University and a sovereign-debt restructuring expert. “But I can’t help but be tickled pink, because at a legal level these are perfectly valid debts. However, you’ve got to get a really clever lawyer to activate them.”

But now there's a few problems that, of course, don't appear on the conventional radar of conventional narratives. I've already mentioned that the Taiwanese government still exists. So whose debt is it? The Communists'? or the Khoumintang's? Since many of the bonds were issued by the latter when they were the mainland government, one would have to assume that it is Taipei's, not Beijing's, loathsome as the latter regime is. But even there, there are two significant legal flies in the ointment. The first is, as the article points out, is Beijing's claim to represent the successor of the previous government. And the second is that the USA, while maintaining its ties to Taiwan, has by recognizing and establishing diplomatic relationships with mainland China also recognized those claims.

So could these bonds be, as the Bloomberg article avers, an "ace up the sleeve" in the Trump administration's strategy vis-a-vis China? Perhaps, but if it is, I would urge them to take another look, and consider some "other problems" that the mainstream press will never consider nor talk about, and that's those "Morgenthau Gold-backed bearer bonds", remember them? Well, if you're working for the Fed or the Treasury, you probably don't, and even if you do, you're probably going to dismiss the whole thing as a kooky story and pay it no attention. And one reason you're not going to pay attention and dismiss it is that if it is true, then it spells big trouble. The story goes that in the 1930s, as the Nationalist Chinese government of Chiang Kai-shek was struggling to contain the Japanese invasion, that it transferred a large amount of its gold bullion to the United States Federal Reserve for "safe-keeping" to prevent its possible capture by the Japanese. In return for this physical transfer, the Khoumintang government received bonds that were backed by that very gold. It was a novelty to be sure, for the bonds effectively functioned as certificates of deposit, in one sense, but also as a financial asset on the other (and hence, probably the reason that the Khoumintang may have insisted on bonds rather than just certificates of deposit). In any case, the story goes that these bonds were called "Federal ReserveD Bonds" (with a "d"), and were issued over the signature of Roosevelt's Secretary of the Treasury, Henry Morgenthau. (One wonders if Soviet agent Harry Dexter  White any anything to do with this, but that's another speculation for another time.) The authenticity of these so-called "Morgenthau bonds" has always been denied by the US Government. And therein lies the rub, because the bonds weren't issued by the US Treasury, but by the US Federal Reserve (which supposedly doesn't issue bonds at all).

Now, frankly, I've always thought this whole story was substantially true; it's the sort of thing one would do to rip off some other government's gold, especially if the ultimate objective was to turn that  gold over to its arch-rival, Mao's Communists. (Enter Harry Dexter White...) And the Morgenthau bonds story became the template, as it were, for several bearer bonds scandals after the war, including Japanese Prime Minister Tanaka's "57 bonds" scandal.

But what does all this mean? Well, for all you folks high up in the Treasury or better, the Fed, it means simply that if either Beijing or Taipei (or in the ultimate nightmare, both) produce originals of those bonds along with reasonable provenance, and any other evidence for or intelligence or hitherto undisclosed facts aboutthat gold transfer, either Taipei or Beijing (or both) could insist on a physical return of that gold - plus interest in bullion - before any talk of payment on those other bonds proceeds.  And of course, the Chinese have been buying gold like crazy... and the Germans had a spot of trouble getting their gold from the NY Fed, which actually lost it in 1928 (according to the ever-oily Hjalmar Schacht). But of course, those stories couldn't possibly be related to today's high octane.

Just a thought. You know me... high octane speculation &c &c...

See you on the flip side...

Joseph P. Farrell

Joseph P. Farrell has a doctorate in patristics from the University of Oxford, and pursues research in physics, alternative history and science, and "strange stuff". His book The Giza DeathStar, for which the Giza Community is named, was published in the spring of 2002, and was his first venture into "alternative history and science".


  1. augenguy on September 8, 2019 at 7:43 pm

    I have actually held a box of Morgenthau bonds in my hands. They come in wooden boxes with a gold plaque on the lid, and the bonds are the size of standard dollar notes, but printed on yellow paper. Each box holds $3 million in nominal value. There is a thriving underground trade in these boxes around Asia, and they may be part of the “fake bonds” scandals that have cropped up from time to time. It could be that the misprinted “D” is used to claim they are counterfeit and the bearers a thus arrested and the bonds “disappear”.

    Very interesting story.

  2. Maria Clarke on September 8, 2019 at 7:57 am

    Interesting… What if all those bonds are once and for all denied because of the circumstances, could this pave the way or at least get the ball rolling for rigging it so that the current derivatives pile of sh*te that is plaguing the bankers could be just denied too? That would clear a few balance sheets. Maybe do both scenarios?

  3. Pierre on September 7, 2019 at 11:26 pm

    How about reparations to China for the Opium wars and exploitations, many US high flyers were involved in that nasty stuff, including the Delano/Roosevelt’s.
    How about the missing gold that was stolen from Asia by the militant Japanese, funded by a very special and chosen Jacob Schiff.
    I suppose if Poland has to pay Jabob’s mob for what did not happen much anyway , but happened under German rule, then that just shows, as everyone knows, anything goes.
    Maybe Trump is just a jealous guy about China actually building a wall all those years ago.
    I suppose it is premature for China to blame the Londonites/Frankists for Communism itself, but Russia could have a go at that one.(assuming it has made the break , which it has not).
    0ne day irony will explode as Western gunboat diplomacy forces Chinese to ban fire crackers cause they might be used as offensive weapons to take over the world.

  4. DownunderET on September 7, 2019 at 6:08 pm

    No worries the cheque is in the mail.

  5. Robert Barricklow on September 7, 2019 at 12:33 pm

    Taiwan w/the International Nazi connections?

  6. marcos toledo on September 6, 2019 at 6:39 pm

    It is interesting since the USA was reintegrated into the British Empire via WW1 through WW2. Since the USA has for all intent become the Empire muscle harassing China and Russia is par for the course. It a new variant of the old opinion wars.

  7. Kelly Em on September 6, 2019 at 4:55 pm

    it could be another layer deeper. if the US 1870 corporation control was superceded by the Government of The United States of America, the original Constituuutional goverment, then the US could say to China that the obligations of the United States Government (the 1870 corporation) do not apply to the USA either….

  8. anakephalaiosis on September 6, 2019 at 9:56 am

    Pivotal point of clearing spaces is – and has always been – the teapot. A British agent brought down the fraudulent clearing house, in beginning of Common Era.

    Our hypothesis has yet to place the tea drop on an optocoupler, to determine the flavor. A henhouse of lords, cackling their goodness, is a perfect litmus test.

    An optocoupler inside the teapot will determine the level of plant swamp. There is a precedent legislation older than Narnia.

  9. Katie B on September 6, 2019 at 8:34 am

    JPF, you nailed it. Excellent speculation and yep the penny has dropped (or the bond has dropped to coin a pun!). It all begins to make sense now. I wonder if some of those bonds were also deposited at the old lady of Threadneedle St? Would explain a lot too.

  10. DanaThomas on September 6, 2019 at 7:41 am

    Let’s not forget that one of the measures of the Yeltsin government, after the liquidation of the USSR, was to redeem Imperial Russian Government Bonds held by British citizens – albeit at a huge discount. While many of these holders were just collectors of stock certificates, there were obviously some serious wealthy players involved in this operation. The fact of agreeing to recompense such bondholders could have been a legal device for the Russian Federation to accredit itself as the legal successor of the Imperial Russian Government, for whatever reason. Something similar may be going on in the Chinese bonds case, with various parties interested in “unlocking” certain assets or “financial facilities” in the language of the Gnomes of Basel.

  11. johnycomelately on September 6, 2019 at 7:26 am

    I wonder if the wholesale shipment of US manufacturing to China was in fact a payment for the Morgenthau bonds.
    Never really made sense why the US would offshore so much of its manufacturing.

  12. goshawks on September 6, 2019 at 5:53 am

    Article: “The Trump administration has been studying the unlikely prospect of reviving century-old claims on Chinese bonds sold before the founding of the communist People’s Republic.”

    The Republic of China (the Nationalist/Khoumintang government) was militarily conquered by the communists (and now known as the People’s Republic). It was not a successor ‘internal’ change; it was by troops and tanks, and could even be seen as a late extension of WWII. So, any bonds issued by the former would be fancy toilet paper.

    The more interesting aspect is: Why would a well-known outfit like Bloomberg be pushing this story? Was it a slow news day? Or, is this subtle propaganda? Or, yet more ‘static’ to keep the public from looking for the man/men behind the curtains? It gives off a ”something is rotten in the state of Denmark” vibe…

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