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Chapter 20 - 20

Russia!" He Zhengcheng said seriously.

"This is the key for Daxia Country and Hong Kong to break the deadlock!"

Let's briefly explain the current situation in Russia: Since early 1992, after President Yeltsin implemented 'shock therapy' reforms, the Russian economy continuously declined until 1997, when it finally stopped falling and began to recover, but the increase was minimal, only 0.8%.

Following this, Russia opened up to foreign investment starting in 1996. People, mainly European and American financial capital, were optimistic about the Russian financial market and invested heavily in stocks and bonds, due to the high potential for stock price increases and high returns.

Russian stock par values were set very low, averaging only between 50 cents and 4-5 US dollars, and the average stock return rate was over 100%! The return rate on Russian government bonds was also over 20%, with 80% being short-term bonds of 3-4 months, making them quick to cash out.

During this period, the entire country of Russia was privatized, and almost all state-owned assets (including large companies and enterprises) were equally distributed to every citizen.

This approach led to severe inflation. Those with power and connections who could raise large sums of cash acquired shares of various companies at extremely low prices. This period also gave rise to many oligarchs, such as Abramovich.

1997 was the year Russia attracted the most foreign investment since its economic transition. Russia attracted a total of 23.75 billion US dollars in foreign investment since 1991, with over 10 billion US dollars coming in 1997 alone.

However, direct investment accounted for only about 30% of the total foreign capital, while short-term capital investment accounted for about 70%.

By October 1997, foreign capital in Russia controlled 60-70% of its financial market's stock trading volume and 30-40% of its government bond trading volume.

By this year, Russia's domestic debt (such as government bonds) reached 70 billion US dollars, and foreign debt reached 130 billion US dollars, with total debt amounting to approximately 200 billion US dollars.

Owing money is not a big deal. America, for example, owes 20 trillion US dollars to the world and is still thriving, because it has sufficient income sources and national credit protected by the world's top military power.

However, leaving aside Russia's national credit, its income sources are very singular. Its economic development and international income rely on abundant natural resources, primarily oil.

Yet, before the 21st century, Daxia Country had always been a crude oil exporter. This meant that the two biggest rivals of Europe and America, Daxia Country and Russia, both exchanged foreign currency through oil trade. To suppress competitors, Wall Street and other international capital strictly controlled the international crude oil price.

The current oil price is less than 15 US dollars per barrel. The highest price in recent years occurred in 1997, which was less than 27 US dollars per barrel.

Compared to the exorbitant price of over one hundred US dollars per barrel a decade later, the current oil price is pitifully low.

Russia won't make money anytime soon, and its maturing short-term debts won't disappear into thin air. Repayment is due soon, so what can it do? What can it possibly do?

This is like someone who has maxed out a credit card with 100,000, but his monthly salary is only eight thousand. Repayment is due this month, so what can he do, what can he do?!

Anyone who can come up with a good solution can join the financial circle. The Russian Ministry of Finance cannot come up with a solution right now.

"What methods do you think Russia has? Auctioning off the country's natural resources or robbing Daxia Country?" He Zhengcheng looked at these people with a half-smile. Some listened with partial understanding, some seemed to grasp a lot, while others were completely confused and somewhat impatient, seemingly looking down on He Zhengcheng.

What is the best way to resolve debt? Of course, it's to default!

America owes so much money to the world, what does it do? Of course, it also defaults, but because it holds the power to set the rules of the game, its methods are so sophisticated that most people don't realize it's defaulting.

"Alright, let's not talk about what Russia will do for now. Let's discuss the more direct connection between Hong Kong and Russia. According to public information, Soros has a heavy position in Russia. Additionally, a very important small company in America, Long-Term Capital Management, also has a relatively large position in Russia.

If Soros and Long-Term Capital Management incur significant losses in Russia, do you all think there is still a need to continue the battle here in Hong Kong?" He Zhengcheng asked.

"How can we be sure that Soros will lose money in Russia? Didn't he demand the devaluation of the Russian ruble in the media? Since you also believe Russia has no choice, can the Russian ruble avoid devaluation?

Soros doesn't look like he will lose!" someone asked.

"How many choices do you think the Russian government still has?

Either let European and American capital control the country's lifelines, or break the existing rules of the game. If you were Yeltsin, what would you choose?

If it were me, I'd just throw caution to the wind. Anyway, I'm old and about to retire, and I don't have much longer to live. I might as well do my best to smash all the current restrictions and all forces hindering national development. They can all go to hell. I want to leave the best possible space for my successor to operate." He Zhengcheng looked around, and for a moment, he felt like he was looking down upon the world.

Didn't Emperor Putin treat Yeltsin's family well later because he received great political help from Yeltsin?

"What does Russia's choice have to do with Hong Kong's situation?" someone asked.

"Even if Soros suffers heavy losses in Russia, it won't affect his speculative activities in Hong Kong!" Someone, a bit smarter, saw the problem.

"..." There are many smart people in this world. In He Zhengcheng's past memories, Soros indeed failed in Hong Kong, but the reasons for his failure were not summarized satisfactorily.

He even watched a video by a 'Me-centric' UP on Bilibili. The video was very good, but he probably only half-believed the reasoning himself, as data can be 'me-centric,' but the causal relationship within it is not necessarily established.

For example, if a person gets cancer, will he definitely die very quickly? There is no causal relationship between these two; there is still a wall between data and conclusions.

Many elites in the financial industry have significant differences in their vision and perspective due to their different positions.

You should know that they often deal with numbers and particularly believe in the power of numbers. Many mathematicians believe that numbers are everything, but it is almost certain that the greatest power in this world will always be the human heart.

Those who are superstitious about numbers will be lost in them.

The Hang Seng Index in Hong Kong fell from nearly 9,000 points in July to a low of 6,500 points on August 14th. Then, the Hong Kong Government's Hong Kong Monetary Authority counterattacked, directly intervening in the stock market. By the end of August, when the main futures were settled, the Hang Seng Index futures were still below 8,000 points.

To call this outcome a victory would be somewhat unkind. But the final result was indeed that Soros stopped making trouble in Hong Kong. Why was that?

"Where do Soros's funds come from? Although I don't know the specific companies, I think no one would object if I said they came from major Wall Street banks.

If a huge crisis were to occur on Wall Street, would Soros still have funds to stir up trouble?" He Zhengcheng began to stretch his arguments to prove his point.

"We don't have the ability to cause a financial crisis on Wall Street at this time." Someone chuckled softly.

"You don't even dare to dream?" He Zhengcheng looked at him with a slight disdain. What's the difference between someone without dreams and a salted fish?

"We speak with strength, not with dreams!" someone retorted.

"Perhaps. It's very difficult to cause a financial crisis on Wall Street, but at least right now, it's a relatively easy thing to do." He Zhengcheng was too lazy to look at these people without ideals and beliefs.

"Oh! How do you do it?" Someone became interested.

"Expand the scale of Long-Term Capital Management's losses!" He Zhengcheng said firmly.

At this moment, no one could keep up with his wild ideas. Many people looked at him as if he were a clown, and some were half-believing, half-doubting. Xu Xin was also a bit worried; what He Zhengcheng said today far exceeded her imagination. What was he talking about?

"Do you want me to explain Long-Term Capital Management (LTCM)?" He Zhengcheng asked with a half-smile. The vision and perspective of these people in front of him were too narrow; they only saw what was directly in front of them and failed to see the changes in the world.

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