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The United States is clearly not experiencing inflation now, but rather stagflation.
This is mainly because of the impossible triangle of currency. Due to the unlimited QE of the United States, a huge amount of dollars flow from the Federal Reserve to the market. In theory, the dollars will be consumed by ordinary people. Merchants will increase their purchases and settle in dollars, and the dollars will flow to producers in China or Southeast Asia. China and Southeast Asian countries will use these dollars to issue additional currency, thereby bringing real economic growth to the country. The received dollars will flow into the central bank, and then the central bank will use dollars to buy US bonds.
Because it can maintain its value, and when the US dollar flows back to the Federal Reserve, the Federal Reserve can transfer inflation to emerging countries, and it will not be affected so much. This trick has been used before. From 2008 to 2012, China took the initiative to take over, using the US dollar as an anchor and over-issuing RMB to develop the economy. In fact, this trick is not right or wrong, because it did promote the economy at that time. After 2012, the anchor of RMB became land. Therefore, after the influx of US dollars from 2012 to 2021, China did not take over. On the contrary, due to the upgrading of manufacturing industry, China used this money to invest in Southeast Asia, which is equivalent to transferring inflation and giving inflation to others. This also led to the prosperity of Southeast Asia, such as the Vietnam miracle, etc., but in 2020, everything changed. The Federal Reserve's unlimited QE came out.
Not only did China not take over, but due to the impact of the epidemic, a large number of manufacturing orders were transferred to the mainland between 2020 and 2021. China received the money and bought raw materials, oil and gold. Moreover, Sri Lanka stopped releasing water, resulting in the water of US dollars flowing to China and not being able to flow out. In addition, China transferred low-end manufacturing to Southeast Asia, but I stopped the intermediate channels and supply chains, and instead used the RMB exchange rate to send inflation to the United States and downstream countries in the opposite direction. It boosted the US CPI. When the Federal Reserve saw that the water was not released and inflation was rising, it had to raise interest rates to pump water, so it has been raising interest rates until now.
But what's funny is that, since the interest rate hike has been going on until now, since China's RMB is not anchored to the US dollar, the money that was put into China cannot be withdrawn, because the US dollar has become raw materials and commodities. China's manufacturing industry has returned to buy commodities, and the conflict between Russia and Ukraine has pushed up commodity prices. Combined with inflation, it has entered a double spiral of wages and prices, so the Fed's pumping out money is not working. Now the question is, at the current interest rate of 5%, the GDP growth rate has slowed down, but the CPI cannot go down. The Fed can neither raise nor lower interest rates. Look at the loan interest rates in the United States. Ordinary people can no longer bear the debt, and the low-cost funds of enterprises are about to expire.
It needs to be replaced. In this case, the Federal Reserve is also in a difficult situation. So the United States is actually entering a stage of stagflation. What the United States fears most in stagflation is that someone will pump or release water to the US dollar. Now China will not take over the US debt and will not continue to buy new debt after it expires. This is equivalent to flooding the United States with money in disguise, but the scale is not large, so the impact will not be too great. However, Japan is now in such a big problem, and Japan will definitely release a large amount of US dollars and US debt in order to save itself.
In this situation.
Once Japan starts to sell off U.S. debt in large quantities, if the Fed does nothing, Japan will withdraw at least hundreds of billions of dollars of liquidity. Such a large shell cannot be sold without a big discount, which will indirectly lead to the collapse of U.S. debt. Secondly, investors in the market simply cannot bear it. A large amount of dollars will hit the international market. Not only will China not accept it, it may even kick it. Others don't have such a big appetite to eat it, coupled with such high interest rates.
The US dollar index is running in the opposite direction. I am afraid that the Federal Reserve is going to take off on the spot, so Yellen is anxious. Therefore, for the Federal Reserve, Japan's US debt cannot be sold anyway. In fact, the Bank of Japan and the Federal Reserve are in a state of being unable to get off the tiger. The important purpose of Blinken's visit is to hope that China will take over the US debt, otherwise there is a high probability that stagflation will not come down. However, it seems that China not only refuses to take over, but also kicks it twice. Although Japan has not sold US debt at present, it must sell US debt if it wants to save the yen. Now Powell will also slow down the process of shrinking the balance sheet.
Starting from June, the scale of government bond holdings will be reduced by 45 billion US dollars per month, which means that the Fed has stated that it will release 45 billion US dollars of liquidity every month, which is actually giving the green light to Japan, which is actually equivalent to a disguised interest rate cut, which is also a small benefit to China. Therefore, Japan should not smash the yen before 200. You can refer to the central bank's guarantee period that year. However, once it breaks through 200, it will be very troublesome. At an interest rate level of 5%, a huge amount of US dollars will outflow, which is bound to raise CPI, but can the United States withstand another Volcker shock? However, don't underestimate the Fed's determination to reduce inflation. If it is really necessary,
Powell will also launch a Powell shock. It is not impossible to raise the interest rate to 10% or even 20%. It will depend on who has the best luck then.
First of all, congratulations to our country Long for gaining the upper hand in the Asia-Pacific financial war. Although the bull market in the cryptocurrency circle has been generally delayed, the loosening of liquidity has been quietly carried out, and the overall bull market is still moving forward, so feel free to buy at the bottom!
