The US "policy poison" is a scourge on the world economy
The US Federal Reserve recently announced the fourth consecutive 75 basis point rate hike in an attempt to combat high inflation. Although the US economy grew in the third quarter of this year, the real difficulties cannot be hidden, and mainstream economists believe that the US economy cannot escape recession.
In order to curb high inflation, the Fed has historically raised interest rates aggressively and allowed the economy to fall into recession. The bottom line is that the United States has the means to quickly pass the crisis out of recession. Triggering a recession through aggressive interest rate hikes conceals the calculation of the United States to use "detoxification tools" such as dollar hegemony to accelerate the transfer of crises to the outside world.
US Federal Reserve Chairman Jerome Powell attends a press conference in Washington on November 2. Photo by Xinhua News Agency reporter Liu Jie
Analysts pointed out that under the influence of institutional drawbacks such as the polarization of party struggle, the United States has continuously released "policy poison" to amplify the risk of economic recession, push up global inflation, disrupt financial markets, undermine the international economic and trade order, and harm the world economy.
The prospect of a recession hangs over us
According to the U.S. Department of Commerce, U.S. real gross domestic product grew at an annualized rate of 2.6 percent in the third quarter of this year, an improvement from a contraction of 0.6 percent in the previous quarter. Personal consumption expenditure, which accounts for about 70 percent of the U.S. economy, grew by just 1.4 percent, a marked contraction from the previous quarter. Analysts believe that given the continuous contraction of the US economy in the first two quarters, coupled with the rapid weakening of consumer spending and the housing market, the recession is still cloudy.
Nobel laureate Paul Krugman said that the main reason for the growth of the US economy in the third quarter was the narrowing of the trade deficit. He believes that aggressive interest rate hikes will hit the US export and housing markets, leading to the US economy eventually heading for recession. As the appreciation of the dollar reduces the competitiveness of U.S. exports, and slowing economic growth abroad could weaken demand for U.S. goods, the momentum of U.S. economic growth will disappear. High interest rates will also raise mortgage costs, eroding Americans' financial space and ability to buy homes.
Jeremy Siegel, a professor at the Wharton School of the University of Pennsylvania, argues that the Fed has made "one of the biggest policy mistakes" in its more than century-old history by raising interest rates too high to fight inflation, and then "pressing the brakes too hard," which will "destroy the [U.S.] economy."
Since March, the Fed has raised interest rates six times in a row, nearly four of which have been 75 basis points, and the US federal funds rate has risen to its highest level since January 2008. However, the US consumer price index remained at an all-time high in September. US financial columnist Rick Newman bluntly said that economic growth data cannot really improve American lives, and the negative impact of high inflation on lives has pushed consumer confidence to record lows.
This is a picture of a food shelf at a supermarket in Fallschurch, Virginia, USA. Xinhua News Agency
Indulge in the pursuit of short-term gains
The cause of this round of global inflation can be traced back to the 2008 international financial crisis. The Fed launched unprecedented quantitative easing at that time, and after the outbreak of the new crown epidemic in 2020, it implemented "unlimited" quantitative easing, and monetary policy "released water" in huge quantities.
At the same time, fiscal policy has also started the "throwing money" mode, from direct injection of capital into distressed enterprises during the subprime mortgage crisis, to extraordinary fiscal stimulus such as large tax rebates, to fiscal means to boost consumption during the epidemic. Long-term large-scale currency issuance continues to accumulate, resulting in a situation of high inflation that is difficult to contain.
William Greide, a well-known American financial journalist, wrote in his book "The Federal Reserve": "There is evidence that the Fed pursues short-term economic interests too easily and too often. ”
Over the years, U.S. fiscal and monetary decision-making authorities have become increasingly obsessed with chasing short-term goals and catering to the short-term interests of election politics. In line with the White House's political agenda, the Fed has repeatedly underestimated the severity of the inflation situation and missed the best time to control inflation.
In early February 2021, former US Treasury Secretary Larry Summers wrote an article warning that massive fiscal stimulus could trigger "inflationary pressures not seen in a generation", but both the US government and the Federal Reserve downplayed inflation risks at the time. As late as last year, Fed officials insisted that inflation was "transitory" and that risks were "manageable." Then, when inflation really got out of control, the Fed catered to the government's political agenda of "reducing inflation", adopted sharp brakes and sharp turn policy adjustments, suddenly tightened liquidity, and superimposed on other US maladministrations, not only did not help, but exacerbated the spillover of the crisis and caused global damage.
Chart production: Miao Peiyuan
Under the influence of multiple US factors such as the Fed's strong contraction policy, the US industrial return policy, and the United States provoking the Ukraine crisis and taking the opportunity to raise the price of domestic energy exports, the inflation rate in the euro area hit a record high in October; Japan's inflation rate in September was the highest since August 1991. Inflation is more severe in developing countries, and Latin America is likely to experience the worst inflation since the 80s, with the African Development Bank expecting inflation in the region to average 13.5% this year.
In the early 80s, then-Federal Reserve Chairman Paul Volcker curbed US inflation by aggressively raising interest rates, at the cost of the US economy falling into recession twice in two years, known as the "Volcker moment". Currently, some economists point out that "Volckerian" economic pain may be a necessary price.
But in fact, the United States can transfer "economic pain" through the export of dollar hegemony, but other countries do not have such privileges. The United States clearly does not mind detonating a global recession with a "strong contraction." Because, based on past experience, simply ensuring that other economies are worse off can give the US economy a head start on recovery after a brief period of shock.
Undermining global economic governance
The International Monetary Fund (IMF) recently warned that the world economy is facing huge downside risks under the challenges of high inflation, tightening financial conditions and the escalation of the Ukraine crisis. There are indications that the American factor is inseparable from these challenges. A series of "policy poisons" in the United States are undermining the effectiveness of global economic governance.
Global economic growth cannot be separated from reasonable and appropriate financial support. The aggressive interest rate hike in response to inflation in the United States has led to tightening of global financial conditions, limited decision-making space in other countries, and bleak growth prospects.
The European Central Bank has been forced to follow the Fed in raising interest rates, and the recovery is even more precarious. ECB President Christine Lagarde said the prospects for a recession in the eurozone are traceable and could worsen further by the end of this year and early next year. Daniel Leigh, director of the IMF's research department, said countries that borrow in dollar terms have soared to service their debt, with more than 60 percent of low-income countries facing debt distress.
Under the influence of the Fed's aggressive interest rate hikes, the euro continued to fall against the dollar. Photo by Xinhua News Agency reporter Meng Dingbo
Global economic growth is inseparable from a fair and efficient market order. In order to cope with its own industrial dilemma, the United States has changed its laws to engage in trade protectionism, artificially raising trade costs, and worsening international relations.
The Financial Times recently reported that the European Union is dissatisfied with the introduction of the Inflation Reduction Act by the US government, and the risk of a trade war between the two sides has increased. The United States provides industrial subsidies under the bill to incentivize green technologies and combat carbon emissions, and the EU believes that EU products should be treated with the same subsidies.
Global economic growth is inseparable from a peaceful and stable international environment. In order to safeguard its hegemonic interests, the United States is constantly arching fire in geopolitics, undermining international stability and affecting investment willingness and economic activities.
Cliff Kupchan, chairman of the US Eurasia Group, recently pointed out in an article on the US "National Interest" website that the escalation of the Ukrainian crisis has caused a shortage of global goods and supplies, and import risks and price shocks have caused heavy losses to enterprises in various countries.
All of this is rooted in the U.S. decision-making mechanism dominated by special interest groups. Political polarization and partisan fighting in the United States have made its policy-making process increasingly disordered, showing short-term, extreme, and populist characteristics, seriously threatening world peace and development. The toxicity of the US "policy poison" is spreading rapidly around the world.
Planner: Ni Siyi
Executive Producer: Li Zhenyu Feng Junyang
Co-ordinator: Fu Yunwei Yan Junyan
Reporter: Deng Qian, Xu Yuan
Editor: Ouyang for Xu Jiatong, Deng Qian, Xu Chao, Fan Yu, Liu Yifang, Yu Maofeng, Du Jing, Dong Longjiang, Ling Shuo, Zhang Tao
Vision: Miao Peiyuan
Produced by the International Department of Xinhua News Agency
Produced by Xinhua News Agency's International Communication Integration Platform
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