The United States finally couldn't stand it and was about to collect water. Since the 2008 financial crisis, the United States has been releasing water in finance. Due to the depth of the crisis, the Fed basically ran out of ammunition and interest rates were close to zero. In yellen's day, the Fed was trembling to collect water, but every throbbing wave drew a hurricane. Trump strongly opposed any water collection by the Federal Reserve, and Powell did not smell the chicken dancing, but when the new crown epidemic came, he still ran out of ammunition at once. At the same time, U.S. Treasuries jumped to a new level.
U.S. inflation has also jumped to a new level. A year ago, inflation had begun to show signs, but Powell resisted the pressure of interest rate hikes, vetoed the Fed's traditional "every 2 rate hikes" rule, and changed the "dynamic touch 2" rate hike condition to "average over 2", but did not say how long the average is the moving average of the window. Since there is such flexibility, as long as it seems to be able to hold on, and there is a possibility of a rebound in the inflation rate of dynamic over 2, it can be said that the average is still not more than 2, because according to the trend, the time window is extended a little longer, and the average is expected to fall below 2.
12-month U.S. inflation
But now this word game can't be played anymore. The 12-month inflation rate (year-on-year CPI growth rate) in the United States is already 6.2%, the highest since November 1990. This round of inflation is also comprehensive, especially in the energy sector, where gasoline reaches 49.6%, housing reaches 3.5%, food 5.3%, cars 9.8%, used cars 26.4%, transportation 4.5%, clothes 4.3%, and medicines 1.7%. And the trend of high inflation is stubborn, with another 0.9% month-on-month CPI growth from September to October alone.
In Yellen's day, the Fed was eager for inflation to rise to 2 percent in favor of a rate hike. Inflation is a delicate matter. Of course, it is not good to be too high, the purchasing power of the currency has depreciated, and the consumption power has shrunk over time, but this has also forced people to moderately expand consumption and not save money. Too low is worse, when deflation, consumers hold the currency and wait, consumption shrinks, and the economy may enter a death spiral.
After the 2008 flood, the U.S. economy was slow to survive. There is a lot of money flowing in the market, ordinary consumers benefit less, and the recovery of the substantial economy is slow, so the inflation rate is low. This is the paradise moment of "making money with money", the cost of borrowing is very low, the threshold for speculation is very low, and the result is that the economic bubble in the United States jumps to new heights and the structural economic dilemma deepens.
Appropriately raising interest rates can curb bubbles, and it is even more important to save a little ammunition for the Fed and plan ahead. The next round of economic crisis is not a question of whether it will come, but when it will come. But this also inhibits economic growth, so Yellen does not dare to act rashly, and finally "leaves the problem to future generations to solve".
Now the problem is reversed. Inflation has risen solidly, interest rates remain close to zero, the problem of economic bubbles has not changed, but substantial economic growth remains hopeless. The massive excess money that has been injected into the U.S. economy has created a flood of liquidity, and biden's 3.5 trillion new investments in the BBB plan to rebuild the United States will continue to increase liquidity until it takes effect. Continue to listen to the continuation of inflation, the consumption power and living standards of ordinary consumers in the United States will be substantially reduced, which is to affect the basic social stability.
Powell has used the phrase "inflationary pressures are no longer transitional" to clearly signal that there is only interest rate hikes. This will immediately inhibit the real estate, automobile and investment markets, but the role of general consumption such as food, clothing, transportation and so on will be more indirect, and the suppression of energy prices will be more indirect.
Why energy prices remain high is a mystery. The biggest disadvantage of shale oil and gas is the higher production cost, but the biggest advantage is that it is easy to start and grow. However, the ease is only relative, and if a large number of companies withdraw from the industry, it is even less easy to say. The low oil prices in previous years have forced a large number of companies out of the market that insist on not reaching the day when oil prices rise. The valley hurts the farmers, and the oil is also going to hurt the oil companies, especially the small and medium-sized companies in the shale oil and gas industry. It has always been said that in the past few years, the Middle East and Russia have refused to reduce production despite low oil prices, on the one hand, there are factors that sell cheaply than no income, and on the other hand, there are factors that squeeze US shale oil and gas out of the mainstream market. If that's the case, this is the first time the postwar oil and gas industry has been put in the way by someone else. The world has really changed, and the tiger has been deceived by the dog.
But the reality is that the U.S. is out of control of oil prices. OPEC ignored the US call to increase production, and the release of the STRATEGIC PETROLEUM Reserve by the United States was not topped, because this could only be top for a while, not for a long time. In fact, this is like the 1997 Southeast Asian financial crisis, the central banks of the affected countries used foreign exchange reserves to top the financial predators, the bottom card was seen through at a glance. Europe and Japan have responded to the U.S. call, but have not acted aggressively. China is simply verbally "considering", in fact, it is not moving, not a drop of strategic petroleum reserves have been released, although China has released some before, curbing the problem of soaring domestic oil prices. Now it is different, "not in the mood" to respond to the appeal of the United States, if the United States can suppress the price of oil, China free-riding income, if not, anyway, China's situation is not the worst, the sky fell down with the United States on top.
China has also taken the policy of rising manufacturing costs caused by rising raw material and energy prices in the international market, no longer trying to absorb at home and maintain exports, but instead passing on the price increases to downstream, that is, consumers in Europe and the United States. China is not afraid of export squeeze, shipping and demand have made Chinese manufacturing in short supply, and this trend will continue longer than expected, why bother to bear it?
The epidemic is a big dark horse. Looking back now, I am afraid that some people believe that the epidemic is China's conspiracy, otherwise why can China be left alone? Of course, this is not a conspiracy, China is the first victim, but China's fight against the epidemic is more successful than any other country or region in the world, and it is much more successful. Many of the much-maligned measures have now proved to be the most reliable and effective in practice, at a much lower cost than the various "clever" approaches.
Even in the most difficult times, China has not released water, and the rapid resumption of production and life has made China the only major economy in the world to maintain positive growth in 2020, and economic growth in 2021 will continue to lead all major economies by a large margin. This gives China's central bank enough ammunition to deal with Tidal Financial Manipulation by the United States.
If the United States is an exception, tidal financial manipulation is really a privilege of the United States. If in the past, the Fed released water and the dollar flowed overseas in exchange for goods representing real value, and did not cause inflation in the United States. The Fed raised interest rates, the floating funds of various countries were attracted back to the United States, and after the previous large-scale release of water to the world's liquidity was "gilded" around the world, it turned from boiled water to nutritious water, and the return to the United States not only did not cause inflation, but also brought wealth back to the United States from all over the world. The right to print money in the United States makes it impossible to print money without causing an immediate risk of inflation, and when inflation is finally late, it can harvest a handful from all over the world through interest rate hikes and liquidity returns. Such tidal financial manipulation has become a magic weapon for the United States to turn dangers into disasters several times.
But now it's different: China!
China's economy has a large base and rapid development, and China is one of the best investment destinations in the world. The economy is healthy, the base interest rate is healthy, the hedging power is strong, and the attractiveness of China's government bonds is rapidly increasing. In the first three quarters of 2021, China's GDP exceeded that of the EU by 27 combined. In the first 11 months, foreign investors increased their holdings of Chinese treasury bonds by 500 billion yuan, totaling about 2.4 trillion yuan.
When the Fed raised interest rates, China did not cut interest rates, but the reduction of the RMB account immediately released the liquidity of 1.2 trillion yuan of banks, and the foreign exchange account was raised to avoid a large loss of foreign exchange. One in and one out not only throttling foreign exchange outflows, but also attracting a large number of international floating funds that are hesitant to return to the United States.
The Fed raised interest rates again, and the benchmark interest rate remained lower than China's. Under inflationary pressures, the long-term economic outlook for the United States is uncertain. China also has a strong economic development and rRR cuts to boost the mark. China is expected to attract a lot of international floating capital that originally returned to the United States.
Such a reverse cycle operation is not a new trick, the investor's bottom is a reverse cycle operation, and the manufacturing industry also has the practice of investing heavily at the bottom of the cycle. But backlash operations have to be costly. The reason why the cycle is a cycle is because everyone has money at the high tide, and now they don't follow the trend to make money, and when they are low, they have no money to earn, and they must hurry up. At the low tide, everyone is tight on hand, and they are weak when they see opportunities, or they can't lend money at all. But having money is different, sticking to the stomach as usual at the climax, but there is still cash to bottom out at the low tide, which is a win-win situation.
China's counter-cyclical operation is also reflected in "building the roof when the weather is clear". At a time of strong economic growth, "inexplicably" tightening the three red lines of real estate, over-leveraged Evergrande has not yet come out of the crisis, but the water of the real estate economy has been squeezed out solidly, and the entrance to this channel has built a dam to prevent water from flowing there. The cage of the Internet economy has been tightened to avoid barbaric growth and "too big to fall", and dams have also been built here. The make-up economy and the game economy are much smaller and more involved in social justice and ethos, but they are still industries that do not work.
When these heavy measures were introduced, there was no shortage of doubts and worries, and they did cause a short-term economic growth slowdown. In calm times, the impact of these measures on long-term economic health will take a long time to see. Now that the global financial storm triggered by the Fed's interest rate hike has come, we can see the timeliness of these measures in advance.
The United States engaged in a diplomatic boycott of the Beijing Winter Olympics, and China has made it clear that there will be consequences. The U.S. needs China's cooperation far beyond climate, anti-epidemic, and arms races, but most importantly, economic and trade. The phase one agreement of the Trump era expires at the end of December, and there is no sign that the agreement will be extended or that the United States and China will negotiate a new agreement.
The first phase stipulates that China will buy $200 billion in additional U.S. products, which China cannot cash in due to the epidemic, which is an "irresistible external force". Whether the United States accepts it or not, it is the same. China will increase its purchases of products that China needs, such as soybeans and liquefied gas, and the United States will not want to force China to buy products that China does not need now, including Boeing airliners. It's not that you never buy it, you buy it when you need it. Isn't that what buying is all about?
The first phase also stipulates that the United States will not impose additional tariffs on some Chinese exports. But two years later, the facts are very clear, the vast majority of the tariff burden falls on The United States consumers, the United States loves to collect or not. Yellen has repeatedly let the wind go, lowering tariffs is conducive to curbing inflation, and it is the United States' own business to do or not to do. It is good to reduce it, and both the United States and China will benefit; it is also good not to reduce it, and the United States itself bears the burden of fueling inflation and suppressing consumption, and China's exports are still increasing.
The United States collects water and China releases water, highlighting the importance of central banks keeping ammunition and the importance of "building roofs on sunny days". The Fed's ammunition has been run out at one time during the epidemic period, and the roof is not repaired on sunny days, and now that the wind and rain are coming, the water leaking everywhere can only be carried, and can only be pushed by the situation. However, there are not many sunny days in the United States in the past twenty years, but when it is cloudy, you can also repair the roof. The United States is good, always thinking about going somewhere in the world, playing a sunny day, just refusing to accept the heart and repairing the roof.
This rate hike is really not the Fed's intention to harvest, but a last resort. But China's countercyclical operation is deliberate, why not? Even if we do not consider the issue of economic and trade weaponization, in business, the rich people operate in a reverse cycle, is this not a matter of course? Whisper: they are all cursing the Jewish profiteers, and the anti-cyclical operation is really a common trick used by Jewish merchants. This is a legal accumulation of wealth, oh, why adultery?
Will the United States bear the risk of inflation by releasing water this time, but China will reap the benefits of the dollar flowing through various countries to absorb gold? If played, this is a weapon more powerful than any hypersonic missile, aircraft carrier, and H-20. It is more powerful than the MICROELECTRONICS EUV and SMIC 5NM.