On June 1, the debt ceiling suspension bill passed by the US Senate, pending Biden's signature.
This result is not surprising to everyone. After all, by now, almost everyone understands that the so-called upper limit itself is a joke. As for the boycott of the donkey and elephant parties, it is just a way of bargaining for the distribution of benefits - no matter how fierce they quarrel on the face, they will certainly not smash the common rice bowl and let the US debt really default.
But that doesn't mean the trouble is over. On the contrary, with the adjustment of the debt ceiling, the biggest test of the United States in this round of unprecedented changes in a century has really begun, and the biggest problem facing the United States now is that with the ceiling raised, who will buy this newly issued US bond?
This is a very critical question. Everyone now knows that the U.S. economy, the U.S. financial system, and even U.S. hegemony are at great risk. So buying U.S. bonds has also become a very high-risk behavior. In the past year, while the Midland Fed raised interest rates frantically and drove funds back, it came to take over U.S. stocks and U.S. bonds for itself.
Although the strict defense of various countries, as well as China's support and even the collective de-dollarization of emerging countries, etc., caused this return to detonate the financial system of emerging countries as expected, but the money did return under the temptation of rising interest rates. It's just that these returned money, a small amount of boldly entered the stock market to speculate in AI, and most of them directly rotated in reverse repurchase. As for U.S. debt - this thing has a long maturity, and now everyone lacks confidence in the long-term economic trend of the United States, resulting in very bad liquidity, and no one wants to take it.
This is very troublesome. If there are not enough people in the market to buy new bonds, there are only two ways, either raise the issuance interest rate and attract the bile with high interest rates, or the Fed will directly print money to buy it itself.
The Fed directly buys the most direct and refreshing thing by itself. But the problem is that the United States is still in the water cycle. If you directly print money to buy bonds, it is equivalent to injecting liquidity into the market, which is equivalent to aggravating inflation and amplifying the risks of the financial system and even the economic system internally; Externally, as the world's largest consumer, the United States will print and spend this money, and it will definitely gradually flow to overseas producers led by China. They get dollars, foreign exchange reserves are more abundant, and they are less prone to thunderstorms - they are more self-frightened by the already difficult cycle of interest rate hikes.
So it is better to buy with stock funds in the market. But in that case, interest rates must be offered high enough – which is tantamount to laying a mine for the future, which will make it harder to service the debt in the future. Taking a step back, even if you are in a hurry to focus on the present and the future, the current level may not be passable.
Why do you say that? Because the market has a chain reaction. If you don't print money from the Fed and let Treasuries pump out of the market, that means that liquidity in the market will increase tensions.
What are the possible consequences of liquidity crunch? This Silicon Valley bank has already demonstrated that a bank with very good qualifications was bankrupt overnight because it bought a large number of US bonds, resulting in insufficient cash flow to cope with the run!
According to Reuters, citing JPMorgan's latest estimates, after raising the debt ceiling, the United States will issue treasury bills totaling nearly $1.1 trillion within 7 months, which will suck away hundreds of billions of dollars in the market. With so much cash being withdrawn, can the market, which is already in a high-interest rate environment and highly liquid tight, be able to hold up? If it doesn't hold up, another bank thunderstorm – especially if it spreads to the Big Four banks like Rich Quoc and JPMorgan Chase this time, the sky will fall apart, and the financial tsunami will return – even more fierce than 15 years ago!
This is why Biden is anxious to resume communication with China during this time. Printing money to buy bonds will hedge the effect of interest rate hikes, and the liquidity of the domestic market is very tight, in this case, it is best for large overseas buyers to buy bonds - and China not only has more than 800 billion US dollars in debt on hand, but also has a huge trade surplus. Coupled with China's current influence, if it is willing to take the lead in buying bonds, it will inevitably trigger a chain reaction that will drive central banks to regain confidence in U.S. bonds and then repurchase U.S. bonds. In this way, the pressure on US debt issuance will be greatly eased - even if the Fed is still partially covered in the end, but the negative effect will be much less.
But the question is, with Sino-US relations in such a mess, how easy is it to want China to increase the credit of the United States? Not to mention that China does not agree, even if it does, the conditions will be extremely harsh for the United States. Another factor is that Washington is now in a lot of politics, Biden is unable to suppress the mountains, let alone promote the implementation of policies, from the experience of the past two years, even if the results of the negotiations cannot be implemented, so the Chinese side is also lack of interest.
Of course, if the Chinese economy can't hold on by itself, then the Chinese side will indeed lower the asking price - so we not only see that the United States is further increasing sanctions and blockades, but also Chinese all kinds of monsters on the Internet recently, or excessive singing about the domestic economy - by inciting the trolls, demagogizing the bears, trying to suppress the confidence of the Chinese, and further squeezing China's domestic demand, so that the Chinese economy passively shrinks its balance sheet, falls into a deflationary cycle, and then throws chips in advance, and is even forced to compromise with the United States - this is called consciousness acting on matter!
However, at least so far, Chinese officials are still maintaining strategic concentration, and the policies are all supportive, and there is no big bailout.
As long as China can't get it right, the United States will also be difficult to get it done. If they do not buy bonds, they can only force US allies to buy them - and this amount is undoubtedly limited, and the credit enhancement effect on US bonds is even more limited.
The outside is uncertain, and the internal pumping is very likely to draw out the financial tsunami. This is the biggest hit of the US national debt ceiling adjustment this time! Congressional adjustment of the ceiling is actually not a hurdle - although Americans like to make this thing noisy and scary, but those who understand the economy know that this is just a drama, and it will not be done.
For the United States, the real hurdle is how the Treasury Department can send out these new US debts, and it can't make problems!
This one is too hard! According to the current situation in the United States, unless China and the United States reach a major compromise, or other countries have a collective thunderstorm, and the United States successfully harvests globally, the issuance process of this huge debt will inevitably cause super turmoil in the financial market.
So, what is the turbulence law? This depends on the situation: either market liquidity is drained, and then there is a larger wave of bank thunderstorms - the consequence is the financial tsunami, the Fed releases water and cuts interest rates; Either the Fed prints money to pay - while inflation picks up, harvesting other countries is more a dream.
Of course, the possibility of success is not excluded:
The first is that the Fed prints money to pay for it, from releasing water to flowing water to other countries, there is a process here, if the water has not flowed to the world, other countries will not be able to support the financial system first explode, then the harvest of the United States will be successful, the US debt also has the support of high-quality sovereign assets harvested overseas, the risk is greatly reduced, and it is easy to be accepted by the market.
The second is to successfully attract the massive amount of floating funds hoarded in reverse repurchase to U.S. bonds - no matter what method the United States uses, as long as it can make these funds that have not been optimistic about the US economy and dollar credit for a long time change their views, then they will be willing to take over U.S. bonds - after all, the interest rate of the U.S. bonds issued now must be quite high.
The third is that China and the United States make peace or China cannot hold on to compromise first. As long as China and the United States negotiate and cooperate to resist the economic crisis, as in 2009, the confidence of the market will naturally increase, and there will be no hindrance to the issuance of US bonds.
The fourth is a complete break between China and the United States - directly tearing their faces and starting to dry, when funds will choose the safest place to avoid danger out of fear. After all, the United States is the current global hegemon, and its overall strength is above China, so its national debt will definitely be favored by capital.
As for the fifth and final one, that is, the scientific and technological revolution broke out in the United States, the space for wealth rise was opened, the space for imagination was opened, and the national debt of the United States, as the leader of the next wave of scientific and technological revolution, was absolutely popular.
Of these five possibilities, the fifth can basically only be utopia - although after the birth of chatGPT, many people say that this is a technological revolution, but the reaction of the capital market has said it all - AI concept stocks are hot, but national bonds are still not recognized. This means that capital at most considers it to be the precursor of the scientific and technological revolution, but it is still far from the scientific and technological revolution. So Microsoft and Nvidia's stocks can be speculated — because they're really at the forefront of technological development, but U.S. bonds are still unattended — and people don't think the productivity gains brought by chatGPT are strong enough to lift the United States out of its current predicament and return to the top of the planet.
The fifth is impossible, and only the first four can be counted on. The first four possibilities for success have a common feature - that is, whether they can be realized in the end, they are all invariably related to China. The third and fourth of this have directly explained the meaning, and we mainly explain the first two:
First, other countries, especially emerging countries that are the main harvest targets of the United States, are closely related to China, in addition to their own foreign exchange reserves. If they can't stand to go to China for help, with China's foreign exchange reserves and surpluses – not to mention bringing these countries back to life, at least let it survive.
As for the second, the reason why the US interest rate hike cycle is going so badly, the reason why the funds flowing back lack confidence in the United States and the dollar, to put it bluntly, everyone has no confidence in the United States to continue to maintain its hegemonic position in the medium and long term? The most direct reason for the lack of confidence is China's strong challenge. Everyone is worried that with China's strong rise, the United States can no longer be mighty in the world, and then can no longer be global wool———— if the US hegemony declines or even is not guaranteed, then who will buy its medium- and long-term US debt?
So, going around in circles, I finally returned to Sino-US relations. Whether the next US bond issuance and even interest rate hike cycle can be successful depends to a large extent on Sino-US relations.
Given that China certainly won't let the United States get its way—at least not if the U.S. doesn't compromise. So the first two possibilities are basically non-existent - as long as the major emerging countries are willing to cooperate, China will certainly not let the United States harvest them; And as long as China does not admit it, it will be difficult for the market to restore confidence in the United States and the dollar.
Then, if the United States wants to succeed in issuing bonds, there are only two third and fourth possibilities. In fact, the United States has indeed worked these two roads: those who have major interests in China and are unwilling to have a complete showdown between China and the United States, while frantically sanctioning and blockading, while launching a water army in the public opinion field to sing a big song, blowing a point of difficulty into ten, inducing China's domestic demand to accelerate the contraction, hoping that through this method, China's economy will be forced to the edge of the cliff, and then force the Chinese government to hold on, and has to take the initiative to compromise with the United States; Those who are more hawkish and have no major interests in China, as well as some external forces (such as an island country) who hope to split China and the United States, hope to force China to make a move by arching the fire, and then copy the Ukrainian model in East Asia, especially the Taiwan Strait, and push China to break up while dragging China into a proxy war with the United States. Anyway, as long as these two roads go through one, then global funds will be actively or passively closely bound to the United States as a global hegemon, and US debt will become fragrant food in their eyes, and the United States can achieve the purpose of "using the country without endowment" and letting the market pay for its debt.
In this way, the problem shifts to China. China must not bail out the market easily – these bullets will be used after the collapse of the United States. But China must not fall before the United States. So, the most important thing now is faith. As long as public confidence does not collapse and domestic demand can be maintained, then according to the logic of consumption acting on production, the industrial system can survive, and then the economic cycle can survive. As long as the economy survives, there is no need for us to put out policy reserves in advance, let alone compromise with the United States. And if everyone's confidence collapses, and the forced government has to hit the reserves in advance, or even compromise with the United States, then although we can change it for a while, but later, we will inevitably be beaten by the bloody United States to find teeth, and what we get for a while, we will spit back tenfold in the future.
This is an economic response. At the military level, in the face of the hawkish arch fire of the United States, we must have the thinking that we must be prepared for war in order to avoid war, and a big fight is the wisdom of not fighting.
For American hawks, although they arch the fire and hope for a showdown between China and the United States, they are not fools, and if China and the United States start a full-scale war, it is bound to be a defeat for both sides - and even the United States may lose. So for them, the target of the arch fire is the Ukrainian model, not the Korean War model, and even more so the World War II model. Specifically, it is to limit the war to a corner of the Taiwan Strait, which can not only completely tear Sino-US relations, but also confiscate China's assets in the United States, rely on China's debts, and force global funds to side with the United States (buy US bonds); And without having to end up in person, losses can also be limited to a controllable range.
How do we deal with this? The coping strategy is either not to fight or to fight. We can't stop the United States if it wants to arch the fire, but if it really arches the fire and burns it, it is not for the United States to decide. American hawks, as well as external forces that support the arch fire (such as Japan), want to control the war in the Taiwan Strait, so why should we do what it wants? All our deployments, whether political or military, must be carried out according to the criteria of fighting a big war and a decisive battle - if we really tear our face in the Taiwan Strait, the battlefield is by no means in the Taiwan Strait, but in Japan, on the peninsula, in East Asia, and even in the second island chain - in short, if we really fight, within the scope of China's military superiority, it will be the battlefield between China and the United States!
This is the best way to deal with the US military threat. These external instigators of Japan, which is hawkish in the United States, want to arch the fire of the Sino-US rupture, but also do not want a full-scale Sino-US war - after all, they also know that they cannot hold on to the big trouble. Why should we do what they want? Either they don't fight, and everyone continues to fight without breaking; Or fight hard, do your best to separate you from death and life, even if both lose!
Only in this way will it be possible to deter those American hawks who want to make a bargain through the Sino-US rupture and do not want to be martyred themselves; Only in this way will it be possible to deter the external shackles (such as Japan, and even South Korea) that hope arches the fire and takes the opportunity to get out and loosen their bonds. Anyway, the logic is one: you can use the American state apparatus to engage China. But don't think that after engaging China, you can still hide behind the US state apparatus to make profits! The real collision of the Chinese and American state apparatus, it is difficult to say what the final result will be, but those of you who are behind the archers must first turn Lao Tzu into cannon fodder!
This is the logic of returning forests to farmland across the country - for example, the logic of changing the tens of billions of yuan ring trail worth tens of billions of dollars in Chengdu into farmland some time ago; This is also the reason why leaders emphasized extreme thinking on top of bottom-line thinking at the national security conference a few days ago. With China's grain reserves, if it is only a small fight, it really does not need such a big effort - even if it is to fight the Cold War, it will not come to this point. The reason for this is, on the one hand, that it is really preparing for a big fight; On the other hand, it is also through this huge "toss" to warn those hawks and Xiaoxiao who want to arch the fire - Lao Tzu has already opened up, you really want to die, then come! If you don't want to die, then give Lao Tzu a little leisurely next!
Prepare for war to avoid war, and a big fight is not to fight!
All in all, with the issuance of new U.S. bonds, the flood has spread over the waist of the United States, and the great changes unprecedented in a century have also reached the climax. Now the United States has reached a dead end, and it must either compromise with China or accept the end of self-explosion. The political environment determines that the United States now has no room for compromise with China, and it is bound to use all kinds of methods in the next time, either to force China to compromise, or to instigate a break between China and the United States. What China needs most is an economic foothold on the one hand; On the one hand, prepare for a big war. And China's endurance, determination and boldness will ultimately determine the outcome of this round of global century-old changes, determine the victory or defeat of the first historical stage of the Sino-US game, and determine the direction of our national fortunes in the next ten years or even longer!
So, now the key has become one - which path will the next United States choose in terms of China? It is to continue soft persecution - such as blockade sanctions and increase the weight, and use public opinion hegemony to hit consumer confidence in China's domestic demand; Or is it desperate to arch fire in East Asia and try to copy the Ukrainian model?
Now it can only be said that everything is possible - which is why the top emphasizes the preparation to withstand the major test of high and even rough seas. But what will happen in the end actually depends on the development and evolution of the international situation, especially China's political wisdom in the most critical period of this game! As for this, pay attention to the WeChat public account: Yunshi, Yunshi Jun will continue to interpret in the next section.
This article is chapter 2329 of the Yunshi Overseas Storm Series. If you like friends, please use WeChat to search for the public account: Yunshi, and continue to watch all Yunshi overseas series of articles.