The dollar, which has been sung down but has never collapsed, is now in a brave state, and the more it fights, the more courageous it becomes.
However, while the dollar is a joy for the United States, it is also frightening. Because the soaring dollar seems to have fallen into self-isolation, it has lost the support of economic fundamentals, the support of economic theory, and the support of the entire domestic and foreign environment of the United States.
The dollar seems to have become a perpetual motion machine that can realize self-circulation, opening a death spiral that the dollar plays with itself.
Physics proves that a perpetual motion machine cannot be realized. The self-circulating dollar is bound to go down a dangerous path.
(1) Loss of support from the U.S. economy.
The U.S. economy is doing quite well. Economic growth of a few quarters of a percent is remarkable for a super-large advanced economy like the United States, especially in the current global environment, which is very good compared to all other developed and developing economies.
Unfortunately, the strength of the US economy is not the basis for the dollar's success. On the contrary, the strong performance of the US economy reflects only the monetary boom brought about by the strength of the dollar.
Because from the perspective of the U.S. economy itself, we don't see the growth point of the U.S. economy.
The United States has no new three kinds of exports,
Second, it is still making a series of adjustments, including trade wars, science and technology wars, decoupling and chain breaking, supply chain transfers, and manufacturing relocation.
Third, there is no scientific and technological breakthrough, no matter how close the breakthrough of generative artificial intelligence is, it still has not really broken through to commercialize and cannot bring real benefits to the economy.
You say that the United States consumes well and has internal circulation, but this is all fooled by politicians. No economy can achieve impressive results through internal circulation. The self-circulation of the economy can only maintain basic survival, and the economy has basically made no progress.
The so-called economic progress is to achieve leapfrog development, such as urbanization, industrialization, or scientific and technological breakthroughs, such as the Internet economy, mobile Internet economy, intelligent Internet economy, and so on. Only this kind of development can bring about real economic growth.
The second is to convert the advantageous value of their economy into higher economic output through exchange through foreign trade and exports.
And the United States has been mediocre in all these areas, not that it has not, but it is no different from before, and it is not enough for the United States to produce such a brilliant report card.
Therefore, the current economic prosperity of the United States is not the cause of the strength of the dollar, but the result of the strength of the dollar. The U.S. economy, on its own, is not strong, no matter how strong its data is.
(2) Losing the support of economic theory.
Since entering the current interest rate hike cycle in 2022, the US dollar has increased interest rates from zero to 5% in one go. But unexpectedly, the US dollar interest rate hike did not blow up the US economy, nor did it blow up the US stock market. The U.S. economy and stock market are booming, and the job market is booming. This state of aberration breaks the basic laws of economics and completely transcends the scope of economics.
According to traditional economic theory, the biggest effect of the US dollar interest rate hike is that investors are more willing to deposit their money in the bank to eat interest in order to obtain high interest income, rather than take risks to invest. There is less dollar currency in the market, and there is more money in the bank.
This will lead to a slowdown in economic activity, contraction. This is also the core purpose of the dollar's current round of interest rate hikes, to cool the U.S. economy and reduce the crazy surge in inflation in the United States.
After more than two years of interest rate hikes, inflation in the United States has dropped sharply, and finally it has froze at a few tenths of a percent, and it can no longer go down.
This puts the dollar in a very dangerous position.
On the one hand, the dollar cannot continue to raise interest rates, and the rate of 5% is already high. If the dollar raises interest rates again, it is really possible to blow up the US stock market, economic growth and job market.
These markets have been able to thrive because the United States has absorbed the dividends of dollars from around the world and the Federal Reserve has been printing money to replenish the market.
And they maintain this growth trend, and their biggest hope is to wait for the Fed to cut interest rates, so as to perfectly avoid a crash.
On the other hand, the dollar is even more afraid to cut interest rates rashly. Once interest rates are cut, inflation in the United States will continue to soar, and years of hard work will be in vain. The Fed's target of maintaining 2% inflation cannot be achieved. The damage to the US economy from inflation is also evident.
So the dollar is now in an awkward position of not being able to move. And even if it doesn't move, it's not a long-term solution for the dollar. It doesn't work if you don't move.
(3) Losing the support of the domestic and foreign environment.
As we said earlier, the strength of the dollar is not supported by the United States. In addition to reducing U.S. inflation, the Fed's interest rate hike also aims to harvest the world's inflated economies. Through the US dollar interest rate hike cycle, the global dollar will flow back, causing the economic collapse of some countries, and the dollar can take the opportunity to suck blood and replenish nutrition.
However, this time the dollar raised interest rates, and none of the world's large and medium-sized economies collapsed, which made the United States very collapsed, leaving the dollar with nowhere to suck blood.
Therefore, the current strength of the US dollar does not have any external foundation and support, and it has not absorbed any new blood.
At the same time, with the outbreak of the Russia-Ukraine conflict, the United States took the lead in sanctioning Russia and kicking Russia out of the dollar system, and Russia started the process of de-dollarization.
Coupled with the positive progress of RMB internationalization, the trend of global trade settlement de-US is very obvious.
In the past two days, the Maldives has just announced that it will replace the US dollar with RMB settlement, and de-dollarization has one more country.
Therefore, the external environment does not have the basis to support the strength of the dollar at all.
At the same time, the United States is deeply involved in the two conflicts between Russia and Ukraine and Palestine and Israel, and instead of taking advantage of anything, it is difficult to get out.
In the competition with the great powers of the East, it also did not take any advantage.
In this case, what are the external conditions that support the historical strength of the US dollar?
Of course, it is not advisable to downplay the United States and the dollar. The United States and the dollar, as entities of global hegemony, have hegemonic resources beyond the system, and can harvest the whole world to replenish its own blood.
But if the dollar is unable to find a reasonable outlet to release its hypercongestion, the dollar's strength will lead it to a self-strangulation death spiral, and as the spiral goes higher and tighter, the dollar will lose all retreats and eventually die of congestion.
The perpetual motion machine cannot be realized, and the self-circulation of the dollar can only lead to destruction.