"3 Black Swans Push US to Cut Rates Early? Yuan Surges Near 7 Mark"
Regarding the evaluation of the United States, it must be said that this genius who emerged out of nowhere commands respect, with its advanced scientific and technological capabilities, a well-established financial system, and the establishment of the dollar's hegemony.
However, the current United States seems to have transformed into a domineering and unreasonable "shrew," using its hegemony to force small countries not to use the renminbi, confiscate Russian assets by force, and provoke geopolitical tensions.
Now, in order to harvest the global economy, the United States frequently uses interest rate hikes on the dollar, stirring up the international financial markets. But it seems to have forgotten that while the United States is developing and progressing, so is the rest of the world. The method of dollar interest rate hikes to harvest seems to be less effective now. More importantly, the dollar's hegemony is being challenged, and the era of U.S. interest rate cuts has arrived, with the emergence of three black swans. Yet, the elites on Wall Street have been immersed in their own dreams, committing three major mistakes in succession, ultimately causing a disaster and putting the dollar in such an awkward situation. Elon Musk even criticized the Federal Reserve as fools. What the United States did not anticipate was that the dollar's interest rate hikes seemed to have also paved the way for the renminbi.
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The U.S. interest rate cut wave, the emergence of three black swans.
As the global hegemon, the United States has enjoyed the supreme rights of the dollar for a long time. However, due to the United States' boundless greed, this good hand of cards has ultimately led to disaster.
The unexpected cold of the U.S. non-farm data, the sharp drop in U.S. tech stocks, and the rapid weakening of the dollar have finally hit the United States with the boomerang of the dollar.
The Federal Reserve announced that there would be no interest rate cuts for the dollar in August. It was thought that the dollar would continue to strengthen as before, harvesting the global economy once again. However, international capital no longer bought into it, and the U.S. financial market suffered an unprecedented blow.
With the announcement of the dollar not cutting interest rates and the possibility of cutting interest rates in September increasing, the U.S. non-farm data also unexpectedly turned cold. What was once seen as a cradle of capital now seems to have become a capital purgatory.
It cannot be denied that the dollar's interest rate hikes did bring a large amount of capital to the United States. After all, the Federal Reserve kept stepping on the gas pedal to increase interest rates, and the exchange rates of other countries' currencies also suffered a heavy blow.The Federal Reserve's actions are essentially aimed at maintaining the US dollar's exchange rate at a high level over the long term, thereby luring funds from around the world to the United States.
Although the appreciation of the US dollar may make the US stock market appear more prosperous in the short term, the influx of a large amount of capital, like a river of spring water flowing eastward, also leads to a corresponding increase in the interest payments the United States needs to make. For a country with an external debt of as much as $35 trillion, this is akin to a financial disaster.
Therefore, even though the United States is well aware that lowering interest rates will bring a host of troubles, the high interest burden is simply unbearable for them.
US Treasury Secretary Yellen stated in February of this year that the United States has to spend $1.3 trillion annually to pay interest, while the country's total fiscal revenue is only $4.2 trillion.
This means that the United States has to allocate nearly one-third of its fiscal revenue to pay interest each year. If this continues, the United States will truly be unable to sustain itself.
Thus, a reduction in US interest rates is only a matter of time, and there are currently two major black swan events affecting the timing of such a rate cut.
The so-called black swan events refer to those that are difficult to predict and are extraordinary.
The first is whether inflation in the United States will rebound again before the dollar's interest rate cut.
After all, one of the reasons the Federal Reserve raises interest rates is to reap global benefits, and the other is to curb inflation within the United States. Inflation in the United States has been somewhat contained, but if it rises again, the Federal Reserve's determination to cut interest rates may be shaken.
After all, once the interest rate cut is initiated, the inflation that the Federal Reserve has carefully nurtured may take flight overnight.And this second matter is the upcoming United States election.
As early as the 17th of last month, Trump publicly warned Powell that the Federal Reserve should not cut interest rates before the November election, threatening to end Powell's term before 2028, and the reason Trump did this was to control the direction of economic policy, to let the public evaluate Biden's policies, and thereby increase his own electoral advantage.
Faced with Trump's threat, Powell seemed unfazed, stating at a recent press conference that the dollar's interest rate cut would not involve any political factors and would not be related to the upcoming U.S. election.
Even if Jerome Powell tries every means to clarify the facts, for a country that can politicize even the simple act of eating Chinese garlic, it is hard to convince people that the Federal Reserve's interest rate cut has nothing to do with the election.
Now that the dollar is in such an awkward situation, people are no longer overly concerned about whether the dollar's interest rate cut involves political factors; they only care whether the dollar will cut interest rates and by how much, after all, the dollar's actions have tormented the global economy.
Yellen has made three mistakes in a row.
As the saying goes, you cannot wake a person who is pretending to be asleep. As the U.S. Treasury Secretary, instead of actively dealing with the mess of the U.S. economy, Yellen has been immersed in the dream of dollar hegemony. Now that the dollar is in such an embarrassing position, Yellen cannot escape responsibility.
The United States, once the economic hegemon, lived up to its name, but the current United States may no longer be as strong as people think. The United States has played its good hand into a mess.
Now that the dollar's hegemonic status is challenged and the United States is abandoned by many countries, finding itself in such an embarrassing situation, the U.S. Treasury Secretary has contributed a lot to this.Firstly, she believes that the U.S. economy will continue to soar as it has in the past, insisting on raising U.S. dollar interest rates. However, the reality is that the U.S. non-farm data in July was a shock, with the growth in the number of employed people in the United States completely deviating from expectations, the unemployment rate climbing, and the U.S. economy having reached the critical value of the Samuelson Rule, showing signs of recession.
Secondly, she believes that the U.S. dollar hegemony will continue to exist, insisting on raising U.S. dollar interest rates. But she seems not to realize that the United States frequently uses the U.S. dollar hegemony for evil purposes, and the world has long been resentful of the U.S. dollar, but has not yet found a substitute. However, the "de-dollarization" process is gradually accelerating, and it is only a matter of time before the U.S. dollar hegemony is shaken.
Thirdly, she believes that with the support of U.S. high-tech companies, international capital will definitely rely more on the U.S. investment market, insisting on raising U.S. dollar interest rates.
However, looking at the progress of the industry, AI giant models are still insufficient in solving basic mathematical problems, and Apple's response to Huawei's challenge is clumsy, with market share continuously declining.
Looking at the situation in the field of Tesla electric vehicles, its profitability has also been affected in the global price war, with net profit dropping by 40%.
Musk recently expressed dissatisfaction with the Federal Reserve's decision to postpone interest rate cuts, calling the Federal Reserve fools, saying that interest rates should have been cut in July. He also previously stated that the U.S. dollar will never return to its past peak.
The brilliance of the United States in the past cannot be denied, but in the eyes of U.S. political decision-makers, the elite represented by Yellen are still immersed in the past glory, causing their judgment on issues such as the U.S. dollar exchange rate to be biased, thereby affecting the decision-making of the White House and the Federal Reserve. This is the key reason why the U.S. economy and the U.S. dollar hegemony are in a dilemma - the elite's self-interest first decision.
The elite on Wall Street should also open their eyes to see the world, after all, the United States today is not as good as before.
The U.S. dollar interest rate hike failed to harvest but made a wedding dress for China?
As the saying goes, stealing chickens without success and losing rice, the U.S. dollar interest rate hike was originally intended to harvest the world, but now it has not harvested and has seriously challenged the U.S. dollar hegemony. On the contrary, the Chinese yuan has grown against the trend, and the United States has made a wedding dress for China.On August 2nd, a report from the U.S. Department of Labor indicated that only 114,000 non-farm employment positions were added in July, with the unemployment rate soaring to 4.3%, reaching a high not seen since October last year, which sparked market concerns.
This news intensified the risk-avoidance sentiment in the global financial market, particularly exerting significant pressure on the U.S. dollar, which rarely fell below the key psychological level of 104, and was pressured to a recent low of 103.12.
In stark contrast to the United States, the Chinese yuan has successively broken through important thresholds, once approaching the round number of 7.
China's economy has been growing steadily, and according to data, in the first half of 2024 alone, our country's Gross Domestic Product (GDP) achieved a rapid growth of 5.0%, while the Consumer Price Index (CPI) also rose by 0.1%.
The weakening of the U.S. dollar, the rise in the yuan exchange rate, and the steady development of China's economy have led more and more countries to increasingly favor the yuan. Although the Federal Reserve has not yet lowered interest rates, the momentum of the yuan is growing stronger.
Recently, the asset management department of UBS published their research results. Through this report, we clearly see that in the next year, major central banks around the world plan to significantly increase their holdings in euros and yuan.
What is even more astonishing is that over 70% of the participants in this survey indicated that they are actively investing or considering investing in the yuan. Among these individuals, on average, they plan to include yuan assets in their total reserves at a weight of 5.0%.
The weakening of the U.S. dollar and the strengthening of the yuan are both warning the United States that China and the U.S. could have been good brothers promoting and developing each other, but the U.S. has been persistently stubborn, viewing China as a perceived threat and making things difficult for China at every turn. Now, with the U.S. being abandoned by many allies and the dollar's hegemony being challenged, the U.S. can truly be said to have lifted a rock only to drop it on its own foot.
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