After World War II, the United States became the most powerful country in the world, and through the adjustment of relevant trade and financial policies, the dollar began to be linked to many international commodities.
Since then, the hegemony of the dollar has begun to take shape.
With the interest rate hike of the US dollar and the generalized inflow into the international market, the United States can realize the so-called dollar harvesting action to feed the domestic economic development.
But now things are starting to change.
Now many countries have begun to accelerate the process of de-dollarization and have started a wave of interest rate cuts, as if they want to dismantle the hegemony of the dollar and take back the right to regulate currency from the Fed.
Such a situation may lead to the waste of money, and the pressure on the Fed is also increasing.
This time, US Deputy Secretary of the Treasury Janet Yellen also expressed her intention to carry out economic structural adjustments.
So what's going on here?
First, the wave of interest rate cuts by central banks in many countries has begun
Previously, due to the adverse impact of the epidemic, the industrial market of many countries has indeed fallen into an extremely difficult and passive stage, and the economic level has also been seriously impacted.
Specifically, there are many countries that not only have supply chain disruptions, but also show tight market capital.
Even the world's largest economy is no exception, but compared to other countries, it seems that the United States can support economic development by leveraging the benefits of dollar hegemony.
You know, the hegemony of the dollar began to be established long after the formation of the Bretton Woods system.
Because the United States itself is the world's number one scientific and technological power, it occupies an important position in the international market supply chain.
Therefore, the US dollar has also become the most widely used world currency in various countries, and in the process of performing the function of world currency, it can harvest the high-quality assets of other countries.
At the same time, it also brings many economic benefits to the United States.
In order to better prevent the harvest of the dollar, the trends of financial policies in countries around the world are also strikingly similar.
On the one hand, many countries are constantly selling US bonds and reducing US dollar foreign exchange, so as to reduce the impact of US dollars on the domestic industrial market and accelerate the related process of de-dollarization.
On the other hand, it is to start a relatively loose interest rate cut policy to stimulate the domestic industrial market to solve the problem of tight funds, and at the same time prevent excessive inflow of dollars.
For example, European countries such as Germany, France, and Italy are reducing their holdings of U.S. bonds and are beginning to seek more stable investment channels.
As for Japan, which has always had an "ambiguous" relationship with the United States, it has also reduced its holdings of U.S. bonds a lot in the past two years, and our country's reduction in holdings in the past two years is also extremely significant.
As of April this year, the mainland's holdings of U.S. Treasury bonds have fallen below $1 trillion, a year-on-year decline of nearly 30 percent or more.
In addition, it can be seen that countries around the world have also started a new wave of interest rate cuts since the beginning of this year.
Just in March this year, the Swiss Bank was the first to cut interest rates by 25BP.
On June 6 this year, the European Central Bank also started the first interest rate cut in five years, which also attracted the attention of the whole world.
As for the UK, it is currently brewing a corresponding interest rate cut, and it is very likely that the relevant interest rate cut policy will be announced immediately.
In fact, for these countries, the corresponding interest rate reduction policy is indispensable.
After all, after the epidemic, the world inflation situation in all countries is very serious.
In addition, the increase in the price of many energy products due to geopolitical conflicts has indeed brought obvious burdens and restrictions to the development of the industrial market.
The corresponding financial policy adjustment, in addition to preventing the harvest of the dollar, is also to ensure a smoother decline in inflation and ease the capital of the entire industrial market.
However, for the United States, the wave of interest rate cuts and sell-offs in various countries around the world may not be conducive to the timeliness of the subsequent financial policies of the United States, and the pressure on the Federal Reserve will continue to increase.
Its currency may be "scrapped", and the Fed may lose its corresponding status as the so-called "world central bank".
Second, the pressure on the Federal Reserve has increased
Whether it is the wave of interest rate cuts in various countries around the world or the wave of dollar selling, it will have an extremely powerful impact on the subsequent economic development of the United States.
And it is worth noting that after the wave of interest rate cuts and dollar sell-offs in countries around the world, the United States will lose not only the benefits related to dollar purchases, but also all that it has accumulated before.
It is important to know that the economic system of the US dollar is extremely complex and deeply related to the financial aspect.
As for the development of the real industry market, it has not brought a significant impetus to the economic development of the United States.
In fact, this is also correlated with the market development policy of the United States.
It is true that the United States is the world's number one scientific and technological power, and all scientific and technological industries are basically at the forefront of the world, but this is the United States sacrificing the large-scale basic manufacturing market in exchange.
However, the arrival of an epidemic and the frequent occurrence of subsequent geopolitical conflicts have made the United States feel the market crisis brought about by relevant policies.
Now the U.S. industrial market has fallen into an extremely difficult stage, and there have been many fractures in the supply chain, and even the relevant needs of the social market cannot be met.
Under such circumstances, it seems that the United States can only use two means to enhance the vitality of economic development.
The first is to hope that other countries will bless the U.S. debt and borrow money to restore the domestic economy, while the second is to start a widespread dollar harvest and save the economy by "sucking blood".
However, all this will definitely not be able to be implemented after the corresponding financial policy adjustments in other countries.
What is even more frightening is that due to the previous acquisition actions of the United States and the widespread issuance of US bonds, the United States has indeed accumulated a large amount of debt.
In the development of this year, the U.S. Congressional Budget Office also released a related budget report.
Its report shows that the United States has adjusted its projected fiscal deficit again this year, and the current amount has reached about $1.9 trillion, an increase of nearly 27 percentage points from the previous year.
At the same time, the cumulative deficit of the United States will also increase significantly in the following decade of development due to factors related to the increase in foreign military support and deposit insurance spending.
If the subsequent wave of interest rate cuts and dollar sell-offs continues, then the United States will not only be unable to save the weak domestic economy, but even the financial risks accumulated before will completely explode.
U.S. Treasury Secretary Janet Yellen, who had pinned her hopes on countries to increase their holdings of U.S. bonds, and even did not hesitate to fabricate false remarks about this, also stated that she would adjust the economic structure accordingly in the future.
3. Breakthrough strategies
Theoretically, the wave of U.S. bond sell-offs around the world and the related actions of continuous interest rate cuts will indeed make the United States lose the dollar harvest as a method of promoting domestic economic development.
But if we think about it dialectically, this may also be a huge conspiracy of the Fed.
The continuous interest rate hikes in countries around the world will definitely release the liquidity of funds to a great extent.
And these regional currencies may once again assist in the harvesting of the dollar cycle due to interest rate differentials.
To put it simply, after these hot money flows into the international market, if the United States implements the corresponding interest rate hike again, it is likely to prompt the United States to carry out reverse repurchase of currency and related international bulk products.
This is likely to increase the accumulation of foreign exchange reserves in the United States to some extent, as well as substantial product accumulation.
From a macro point of view, although such an approach may make the financial risks taken by the United States expand again, it has to be said that it may also be the best way to let the United States go longer.
In previous developments, given China's importance in the international supply chain, the United States may not be able to achieve all this.
However, in the past two years, the United States has continuously proposed targeted sanctions against China, and has also joined forces with many European countries to boycott related trade goods from China.
It can be seen that since the beginning of this year, many European and American countries have raised the tariff standards for Chinese products.
Such action can completely block the adverse impact of Chinese goods under the situation of continuous interest rate cuts in Europe and the United States.
In such a situation, the timeliness of the corresponding financial policy of the United States may continue to expand.
Whether or not the US has the wisdom to adopt such a breakthrough strategy, we cannot afford to take it lightly, after all, the renewed strength of the US dollar and the depreciation of the Chinese currency under the wave of interest rate cuts could bring huge foreign exchange pressure to our country.
The mainland should be more cautious in adjusting its financial and trade policies in order to cope with such pressures.
epilogue
Countries around the world are now accelerating the process of de-dollarization, constantly selling US bonds, and constantly cutting interest rates.
Under such circumstances, the United States may no longer be able to carry out the kind of dollar harvesting operations in the past to feed the domestic economic development.
Because before that, the financial risks accumulated by the United States may also completely explode, which is extremely unfavorable to the American economy.
But if we think about it in reverse, this may also be a conspiracy on the part of the United States.
After all, under the operation of continuous interest rate cuts in many countries, the liquidity of the currency will be greatly improved, which may also enhance the relevant effect of the reverse repo in the United States, and play a certain supporting role in the economic development and market-oriented policies of the United States.
If that were the case, it could boost U.S. foreign exchange reserves to some extent as well as substantial product accumulation.
This also means that the scope of the dollar harvesting operation will be further expanded, which will be extremely detrimental not only to those developed countries, but also to developing countries.
We must be cautious.
Resources:
Prof. Kwan Quan 2024.6.26 "Money or Waste Paper? The wave of interest rate cuts by many central banks has begun, the pressure on the Federal Reserve has increased, and Yellen has made a statement》
It's not difficult to learn happily 2024.6.24 "Money or Waste Paper? The tide of interest rate cuts by central banks in many countries has begun, and the pressure on the Federal Reserve has increased.