Unexpectedly, the United States raised interest rates 11 times in a row, not only did not succeed in harvesting other major economies, but instead forced itself into a dead end. Now the United States is really a three-piece crisis set, and if it is not a new economic crisis, what does this mean?
The first is the reappearance of the great bubble of the century in the U.S. stock market, the second is the unprecedented 11 consecutive interest rate hikes in the United States, and the third is the frequent thunderstorms in core commercial real estate. The situation is very similar to that before 2008.
The reason why the United States has not cut interest rates is because if it does not handle these three major crises well, all the force of the current interest rate cut will be reversed on itself.
The first problem in the United States now is the problem of the bubble in the US stock market. After the epidemic, the United States began to release water frantically, so it began to push the U.S. stock market higher. In 2022, the United States will begin to raise interest rates, and according to normal people's understanding, the stock market should start to fall back after raising interest rates in the United States. But this is not the case.
Because the U.S. dollar is the world's currency, the logic is different from other currencies. The U.S. interest rate hike, a lot of money flowed back, and then a lot of that money flowed into the U.S. stock market, and once again launched the U.S. stock market.
At the same time, the United States is hyping the concept of AI at this time, and in order to maintain its scientific and technological status, the United States preaches that AI is the fourth industrial revolution, so it has increased the market value of Nvidia dozens of times.
The Nasdaq is now breaking its all-time high every day. It can be said that the US stock market has now brewed an extremely terrible bubble.
The second is the unprecedented 11 consecutive rate hikes in the United States. Since March 2022, the United States has entered a cycle of interest rate hikes. However, in history, the United States has not had a rate hike cycle that is so strong. Today, the base interest rate in the United States is around 5.5%. Many small banks are no longer able to hold on.
Banks are making a profit by earning interest differentials. Rising interest on deposits means that their costs are rising. If there are no more loans, the money in the bank becomes a liability for the bank. If you think about it, you will know that now that the interest rate on loans in the United States is so high, the number of people who take out loans will definitely decrease. Real estate interest rates in the United States have exceeded 7%, an all-time high, and home buyers have fallen to a low point in more than a decade. In such a situation, how can banks make money?
However, the Federal Reserve is not willing to cut interest rates, and the United States may usher in a collective thunderstorm of small and medium-sized banks.
The more terrifying problem is the third problem, that is, the commercial real estate in the United States is also surging. A recent report by Barclays Bank of America showed that buyers of the AAA portion of a $308 million note, backed by a mortgage on a Broadway building in Midtown Manhattan, also suffered a 25% loss.
In the past, rents in central areas like Manhattan have only gone up, not down, and the occupancy rate has been very high. In other words, the office building does not have to worry about renting out at all. However, there was a thunderstorm of 3A-rated commercial real estate bonds.
This thunderstorm was not caused by accident, but by the overall unsatisfactory rental situation of commercial real estate in the United States. According to Moody's preliminary report, the U.S. office vacancy rate climbed to 19.8% in the first quarter of this year, a new record.
The occupancy rate of commercial real estate is a barometer of the economy, and when the economy is good, the occupancy rate is high, and the rent will rise. If the economy is bad, the occupancy rate will fall, and the rent will fall. The collapse of commercial real estate bonds is due to the sharp decline in rental income, which ultimately cannot cover interest expenses.
In other words, the real economy of the United States is now far less good than the data released by the US government. Or rather, someone is whitewashing the U.S. economy.
Not only has the occupancy rate fallen sharply, but the valuation of commercial real estate has also fallen sharply, and recently core commercial buildings such as Burnett Plaza in Fort Worth, Texas, 62 Aon Center in Los Angeles, and 1740 Plaza Building of Blackstone Group have all sold their lowest valuations in history. Some of them are directly sold at a 50% discount of the previous valuation, and some are even worse than the land price of the land purchased at that time.
There are serious contradictions in the US economy right now. In the past two years, so much money has flowed back to the United States, but in fact, this money has not been invested in the real industry, but most of it has flowed into the stock market.
The total profits of listed companies in the United States are declining, but the total market value has also been rising wildly. This shows that this round of U.S. stock market rallies are not driven by the good underlying economy, but by a real bubble.
What is even more terrifying is the more than $34 trillion national debt of the United States. Although it does not seem to be a thunderstorm yet, the United States has never found a way to reduce its national debt, and blindly relies on borrowing new money to repay the old, and this problem will only get worse. The U.S. government's annual revenue is just over $4 trillion, but last year's spending was already more than $7 trillion.
Once the dollar's status as the world's currency is damaged, and they can no longer continue to issue dollars to maintain all this, then the hegemony of the United States will collapse in an instant.