Tsai Enze: The U.S. debt economy is a global "parasite"

The U.S. debt grows savagely, blatantly exploiting people all over the world by deliberately carrying debts, and one day it will shoot itself in the foot.

Although the United States has laws and regulations on the debt ceiling to reduce the risk of U.S. debt, on June 3, 2023, U.S. President Joe Biden signed a bill on the federal government's debt ceiling and budget, suspending the debt ceiling until early 2025, which is the 103rd time that any U.S. administration has adjusted the debt ceiling since the end of World War II. [Bloomberg]

The United States makes irresponsible remarks about other countries' debts, but ignores its own country's debt risks. On June 3, 2023, U.S. President Joe Biden signed a bill on the federal government's debt ceiling and budget, suspending the debt ceiling until early 2025, the 103rd time that a U.S. administration has adjusted the debt ceiling since the end of World War II.

According to a report released by the U.S. Treasury Department on January 2, the size of the U.S. federal government debt reached $34 trillion for the first time. The International Monetary Fund (IMF) forecasts that the gross domestic product (GDP) of the United States in 2023 will be $26.95 trillion. In other words, the size of the U.S. federal debt is close to 126% of the U.S. GDP, and each person has a debt of more than $100,000, based on the country's population of 338 million.

The United States makes irresponsible remarks about other countries' debts, but ignores its own country's debt risks. Although the U.S. has laws and regulations on the debt ceiling to reduce U.S. debt risks, on June 3, 2023, U.S. President Joe Biden signed a bill on the federal government's debt ceiling and budget, suspending the debt ceiling until early 2025, which is the 103rd time that a U.S. administration has adjusted the debt ceiling since the end of World War II.

This means that the U.S. government is determined to break the debt ceiling, demand that the U.S. Federal Reserve printing press run at full capacity, brutally print huge dollars and put them on the market, and continue to make the world pay for the U.S. debt crisis.

Americans rely on the debt economy to eat and drink, and live a very good life. The huge debt also provides strong financial support for the United States' science and technology and military, so the strength and hegemony of the United States are also accumulated in debt, which is not something to be proud of.

There are all kinds of indications that the US debt economy is a global "parasite" that is using debt to exploit people all over the world.

The U.S. government itself does not have a central bank and cannot directly issue currency, so in order to solve the problem of the empty treasury, the only way to issue a large number of treasury bonds is to obtain the approval of Congress. Then, the Federal Reserve, which essentially acts as a stand-in for the US central bank, started the money printing press, purchased a large amount of treasury bonds from the government, controlled the yield of treasury bonds, maintained long-term interest rates at a low level, promoted enterprise equipment investment and personal mortgage to purchase houses, and promoted the flow of financial institutions and personal funds to the stock market and corporate bond market, so as to promote the prosperity of the capital market, form a wealth effect, and promote household consumption.

Then, the United States lured emerging market countries into investing heavily in U.S. Treasury bonds, mainly through trade deficits, to release liquidity to the international community, thereby raising commodity prices and pouring the scourge of inflation on the world. The Fed will also see the opportunity to lower the price of the dollar and help the US government repay its debts through the depreciation of the dollar, which is tantamount to "shearing sheep" and plundering global wealth into its own pocket. Every time the dollar depreciates, the United States gains hundreds of millions of dollars in wealth.

Alan Greenspan, the former chairman of the Federal Reserve, said in 2004 that the U.S. economy has been a debt-based economy since 1973.

The so-called debt economy model means that the United States does not need ordinary industrial enterprises to support the national economy, and all other commodities are imported from the international market, except for mass consumer goods such as food, core industrial equipment, and military products, which are produced by the United States itself. This means a steady stream of dollars to the world.

Trade surplus countries "enshrine" the dollar by building up foreign exchange reserves. However, in order to maintain the quality of foreign exchange, the trade surplus countries have used the dollars in their hands to buy a large number of US Treasury bonds in order to make profits. In this way, the dollars earned by the trade surplus countries return to the United States to "finance" the debt economic model of the United States, and the dollars that flow out flow back to the United States and lend to the common people to spend, so as to achieve a gorgeous cycle. The result is a sustainable debt economy in which Americans will never run out of money.

The reason why the United States has been able to implement a debt economy is because it has taken advantage of the special international status of the US dollar. Since the Bretton Woods system established the US dollar as the main international reserve currency in 1944, the US dollar's international financial supremacy has never wavered. The fate of international finance is tied to the carriage of the dollar, and the United States takes the opportunity to dominate the world economy. As soon as the United States coughs, the whole world catches a cold.

Relying on the hegemony of the US dollar, US Treasury bonds are widely issued around the world and penetrate everywhere. The special status of the dollar in international settlements has given other countries an excessive amount of U.S. claims. After the US financial crisis, creditor countries cannot let the US go bankrupt and buy US Treasury bonds head-on, otherwise some creditor countries themselves will go bankrupt. In a sense, U.S. Treasuries have hijacked the global economy.

After the financial crisis in 2008, the U.S. government frequently issued additional currency, resulting in excess liquidity throughout the world, and the global market was full of complaints, but there was no boiling of public discontent in the United States. In the U.S. daily necessities consumer market, ordinary people rarely feel the pressure of rising prices.

Of course, during the financial crisis, the US dollar was once "turned against the times" and ridiculed as a "weak dollar," and the euro seized the opportunity to challenge the hegemony of the US dollar, but the unexpected debt crisis made the euro choke to death and was too busy to take care of itself, so how could it have the strength to fight with the US dollar? Japan's economy was already in a recession, and it was also confronted with the nuclear leakage crisis, which made the economy even worse, and the yen could not raise its head and could not compete with the US dollar. Although the renminbi has taken the pace of internationalization, it is not yet at the same level as the US dollar, and it cannot fully assume the responsibility of international currency circulation for the time being.

The US dollar is the world's currency and the eldest in the international financial family, and a large amount of US dollars circulate in the international market, especially emerging market countries, which are competing to buy US Treasury bonds and make money with US dollar debts. In this way, all dollar holders in the world have the same "dollar fortune dream", sharing the cost of the Fed's additional currency issuance, reducing the risk of inflation caused by the excessive issuance of dollars, and diluting debt.

However, the wild growth of US debt, which openly exploits the people of the world by deliberately carrying debts, will one day shoot itself in the foot.

Robert Hockett, a professor at Cornell University in the United States, believes that the collapse of the US debt will bring four serious consequences to the United States, that is, the United States will lose its sovereign debt credit rating, lead to the depreciation of the US dollar and cause domestic inflation, the government will have no money to support overseas wars, and the treasury will be mended by the high cost of debt.

At that time, the United States will completely lose its trust in the rest of the world, its debt routes will be blocked, and no one in China, Japan, and other countries will be "wronged" anymore, and the hegemony of the dollar and military hegemony will fade in a gloomy manner, and then lose the throne of the world's number one power.

The author is a columnist for Chinese financial media and the chief analyst of Jingsu Media