After the Fed's recent interest rate cuts are hopeless, some countries are becoming more and more difficult to support, recently, Asian currencies are competing to depreciate to record lows, South Korea's exchange rate fell below 1400, a new low this year, and the exchange rate of Japan, an economic powerhouse, also fell below 154, a new low since 1991. The exchange rate of emerging country India also fell to a record low of 83.7 after a year and a half of trading sideways. Vietnam's exchange rate has also been depreciating at an accelerated pace since April, falling as low as 25,420, a record low, and the exchange rate of Indonesia, an ASEAN powerhouse, has also hit a new low this year.
1. How does the United States use interest rate hikes to harvest other countries?
This article will talk about this issue, people with a little knowledge of economics know that the central bank has the ability to harvest the wealth of its jurisdiction, and the central bank promotes the fluctuation of prices and asset prices through the cyclical movement of raising interest rates and cutting interest rates, and finally achieves the goal of harvesting wealth, but the central banks of ordinary countries are relatively restrained in their own countries, and will not create obvious inflation unless it is absolutely necessary, especially not to create hyperinflation.
The currencies of the vast majority of countries in the world do not play a role in other countries, and you have to use the dollar to buy things abroad, the dollar is the global settlement currency, and the dollar is hard currency to buy things internationally, so the Federal Reserve has naturally become the world's central bank, and the Federal Reserve has achieved the regulation (harvest) of the global economy through the rhythm of raising and lowering interest rates, as well as tightening and loose monetary policy.
For example, if the current property market in China is in a downturn, housing prices have fallen by about 20 percent from the high, and if the housing prices continue to fall, I mean hypothetically, for example, if they fall to 30 percent of the high, the price at this time is obviously lower than the value, and if you happen to have unlimited cash in your hands, then you can buy the bottom, pocket the high-quality real estate at a very low price, and "transfer" the wealth of the original property owners into your own hands.
There are two well-known richest people in the world who rely on this to make their fortune, Li Ka-shing, the richest man in China, and Warren Buffett, the richest man in the world, of course, their personal abilities are extremely good, but this is not enough for them to have the current wealth, they have unlimited funds every time they are in a crisis, Buffett is insurance funds, this is long-term funds, Lao Ba is like a hunter, waiting for the crisis (opportunity) to come, and then fight with infinite bullets, hunting rich every time. The same is true for Li Ka-shing, when the crisis comes, housing prices plummet, and everyone has no money, but he has a treasure chest that can conjure up unlimited money to buy assets.
What does this story illustrate? It shows that there are two conditions for harvesting/acquiring huge wealth: first, there is a crisis, and once a crisis occurs, the price of the asset will fall sharply, and the second is that you have unlimited money that you can buy after the price of the asset has fallen. The U.S. dollar is a global currency, and if the U.S. dollar index continues to rise and other countries' currencies continue to depreciate, it is equivalent to a decline in the price of other countries' assets.
In the late 80s of the last century, after the United States raised interest rates, the former Soviet Union exploded, the currency depreciated sharply, and then the United States cut interest rates, and Americans and institutions held unlimited low-cost dollars into the former Soviet Union and Eastern European countries to buy cheap assets.
Ten years later, in 1997, with the depreciation of the Thai baht as a breakthrough, the currencies of Asian countries have depreciated sharply, triggering the famous Asian financial turmoil.
In 2008, the subprime mortgage financial crisis broke out in the United States, triggering a debt crisis in Europe, Iceland, Greece and other countries went bankrupt, the euro depreciated rapidly, the United States was sick, but it was Europe that was admitted to the ICU, the European economy was stagnant for 10 years, the EU GDP in 2008 was 16.3 trillion US dollars, and in 2019 it was still only 15.7 trillion US dollars, while the US economy recovered quickly, and the GDP in 2010 exceeded the pre-crisis high.
2. Why isn't the United States in a hurry to cut interest rates? What are you waiting for?
At the beginning of the year, the world had great expectations for the Fed to cut interest rates this year, but after the latest CPI announcement, the expectation of interest rate cuts was greatly reduced, and on April 10, the United States announced that the inflation rate was 3.5%, a new high since October last year, and inflation remained high, breaking the expectation of interest rate cuts. Subsequently, the chairman of JPMorgan Chase said that the Federal Reserve may raise interest rates to 8% again in the future, and the world was in an uproar.
The direct reason is that inflation is high and high, and the time is not yet ripe, but I personally think that it is because there is no "blood" this time, the author has written an article before, the United States will probably trigger a region between interest rate hikes and interest rate cuts every 10 years/ The global economic and financial crisis, the former Soviet Union and other Eastern European countries in the late 80s, the Asian region in the late 90s, and Europe in 08, but this time the Federal Reserve carried out the largest QE in history, released countless currencies, and started raising interest rates in March 2022, increasing to a 30-year high, but so far no large economy has "seen blood".
Except for small countries such as Sri Lanka in the early days, which almost went bankrupt, the major economic powers are basically safe and sound, offering the dollar and the stick of sanctions, the GDP of the sworn enemy Russia has increased instead of decreasing, the economic momentum of the ASEAN region is also good, although the growth rate of Japan and South Korea in East Asia is low, but it has basically stabilized, and some of Europe's capital has flowed to the United States, after all, Europe is an ally of the United States, and I don't want Europe to be too weak.
The United States needs external blood transfusion to solve the current economic crisis, with the size of the American economy, the size of the blood transfusion source cannot be too small, ASEAN's GDP is about 4 trillion US dollars, Japan is also 4 trillion US dollars, South Korea is less than 2 trillion US dollars, India is 3 or 4 trillion US dollars, Africa is too poor, and Latin America is also chaotic.
On April 10, Fitch downgraded China's sovereign credit rating, on April 16, Fitch downgraded six Chinese state-owned banks, and on April 17, Fitch downgraded the credit ratings of Alibaba and Tencent.
What does it mean for the United States to downgrade its ratings? It means that you are at risk and you can't do it, so your price has to be lowered! What did I say above? The price must be lowered before the harvest! Only when the price falls below the value can it be cost-effective to buy, and Fitch has downgraded China's national sovereign credit, state-owned bank credit, and the credit of leading Internet enterprises.
The timing of the downgrade is very interesting, Yellen visited China from April 4 to 9, and before she came, she put the hat of overcapacity on us and created bargaining chips for the negotiations, and we were not used to her, there was no red carpet, and the boss was not seen.
With the size of a large country in the East, if it falls, it will naturally be able to continue for the US imperialism for several more decades, but will it fall? Obviously not, from 2018 to now, it has been six years, and the cards have been played for a round, and the result is that the industrial upgrading is still ongoing, the new energy vehicles are leading in the world, the photovoltaic industry dominates the world, and the chip industry is poised to go.
3. What is the next best option for the United States?
Since April 10, the exchange rate has been basically stable, the current exchange rate has not fallen below the low point of last year, our stock market has stabilized at 3,000 points after undergoing policy adjustments, the stock market core asset prices are rising, and the banking sector index has hit a new high this year. GDP grew by 5.3% in the first quarter, beating expectations, and house prices are also expected to bottom out.
For the United States, the dollar is not a cost-free card, interest rate hikes are required to pay interest costs, which can be borne in the short term, but the long-term is unbearable pain, if the eastern powers are as stable as dogs, and the steel dogs of the United States cannot gnaw enough meat, will the United States silently choose to blow itself up?
The United States must "suck blood", and if it cannot suck the big countries in the East, it can only suck other countries, after all, it is not dead friends who are poor to die, and it is most important to live themselves, and former US Secretary of State Henry Kissinger once famously said: It is dangerous to be an enemy of the United States, but it is fatal to be an ally of the United States.
After the subprime mortgage crisis in 08, the European economy collapsed, stagnant for 10 years, suppressed Japan in the 80s of the last century, and the Japanese economy lost 30 years, Japan is the most hardcore ally of the United States in Asia, and Europe is the most core ally of the United States in the world, and he has not let go.
Europe needs to continue to contain Russia, it can't be too weak, and it has already been sucked up since 2022, it's a snack, the Asian economy is rising, if something happens here, it's still cost-effective for the United States, isn't it rising in the east and falling in the west?
In fact, China's global trade mainly revolves around ASEAN and East Asia, which account for more than a quarter of China's global trade.
Interestingly, however, today the United States, Japan and South Korea issued a joint statement on financial and economic issues: the three countries will communicate closely on the foreign exchange market, while acknowledging the serious concerns of Japan and South Korea about the recent sharp depreciation of the yen and the South Korean won.
The Philippines has been very close to the United States in recent years, and the governor of the Bangko Sentral ng Pilipinas said that the problem with the depreciation of the Philippine peso is not the weakness of the peso, but the strength of the dollar!
In fact, Japan, South Korea, and the Philippines all understand what is going on, and it depends on whether the United States will treat these so-called allies differently.
I don't think it's very likely that a crisis like that happened in 1997, this time is different from the past, the east rises and the west falls is a historical trend, once it rises, the trend is difficult to change, the biggest possible result is that everyone also has some blood, the United States is also a little injured, it is absolutely unlikely that the United States will eat and drink spicy, and Asia will live in the ICU.