The biggest turning point in the financial war between China and the United States may have already appeared.
Just a few days ago, the Federal Reserve announced a major news, that is, starting from June, it will slow down the pace of balance sheet reduction, which means that the Federal Reserve's "disguised interest rate cut" will officially begin, and the real interest rate cut is probably coming soon.
This means that this round of financial war between China and the United States will end with the failure of the United States.
Why do I say this? Please take a few minutes to listen to me analyze it for you.
As we all know, since 2022, a large-scale conflict has actually broken out between China and the United States, but this conflict is mainly presented in the form of a financial war, so many people cannot see it clearly. The so-called Russia-Ukraine conflict, the Israeli-Palestinian conflict, the North Korea-South Korea crisis, the chaos in the Middle East, the Taiwan Strait crisis, etc., are actually just branches of this round of Sino-US conflict. The real main battlefield has always been in the Sino-US financial war.
If you don’t believe me, take a look at this timeline:
On February 24, 2022, the Russia-Ukraine conflict officially broke out.
In March 2022, the Federal Reserve announced that it would enter a new round of interest rate hikes.
These two events happened almost simultaneously, and in a clear order. Why is this so? The answer is that this is the beginning of a head-on confrontation between China and the United States. The financial war is the hidden line, and the Russia-Ukraine conflict is the obvious line. One is the obvious line, and the other is the hidden line.
The purpose of the United States launching this war is to explode the Chinese economy by raising interest rates, while China's counterattack this time is to make the United States explode with debt first. The winner for both sides lies here.
To explain the logic here is actually very simple. I will tell you in language that even elementary school students can understand. First of all, let me tell you some basic common sense. In the past 20 years, China has been the world's largest commodity producer, and the United States has been the world's largest commodity consumer. To put it simply, China has goods but no money, while the United States has money but no goods. Therefore, for the economic development of the two countries, the two sides can only strengthen cooperation and complement each other's strengths. Thus, the so-called "Sino-US honeymoon period" emerged.
But then Trump gave in and launched a trade war.
This resulted in China losing the world's largest consumer market overnight, while the United States lost the world's largest supplier of goods.
As a result, problems between the two countries broke out one after another:
Our production capacity is too strong and we have too many products that cannot be sold, resulting in the risk of deflation.
The United States, on the other hand, prints money out of thin air, and there is too much hot money, but it cannot buy anything, so prices are rising and inflation is serious.
At this juncture, the United States launched a financial war and started a cycle of interest rate hikes to control inflation, while we continued to stimulate the economy by lowering interest rates to prevent a deflationary crisis. As a result, the two sides formed a classic situation of high blood pressure versus low blood sugar.
I know some people will ask, what does this incident have to do with the Russia-Ukraine conflict?
The answer is that in addition to the purpose of controlling inflation, the US interest rate hike also has another function, which is to attract global dollar inflows through high interest rates. After all, high interest rates mean that you can make a lot of money by just putting your money in the bank. If this is the case, why take the risk of doing business?
So when the United States ignited the war between Russia and Ukraine, Europe instantly became a mess, and a large amount of European capital and industry fled. So where is the safest place in the world? Without a doubt, it is the two superpowers of China and the United States.
Therefore, the industrial capital fleeing Europe will inevitably flow into China and the United States, but the Americans don’t want us to reap the benefits, so after the outbreak of the Russia-Ukraine conflict, they immediately started a cycle of interest rate hikes, and sucked the "homeless" wealth back to the United States by intercepting it.
This is the causal relationship between the Russia-Ukraine conflict and the US interest rate hike.
Now that we understand this, let's look at what kind of dilemma the US interest rate hike will put us in:
On the one hand, from a grand strategic perspective, we cannot abandon Russia and need to provide them with some help, which may affect our relationship with the EU.
On the other hand, with the US interest rate hike, hot money from all over the world (including Europe) has flowed back to the US, and everyone has become poorer. Naturally, there will not be much money to buy our goods, so our foreign trade will also fall into trouble.
Third, when the United States raises interest rates and we lower them, an interest rate gap will be formed. For example, now the US benchmark interest rate has reached 5.5, while our deposit rate during the same period is less than 2. The interest rate gap of up to 3.5 is enough to attract a large amount of capital from China to the United States for investment, which will cause our market to become very short of money all of a sudden.
So starting from 2022, layoffs, salary cuts, and difficulty finding jobs have occurred one after another. The root cause is that hot money has flowed to the United States. The Chinese market as a whole is short of money and no one is investing. Factories cannot expand production and corporate profits will decrease, so they can only choose to seek survival by reducing labor costs.
Moreover, it is not just the foreign trade and employment markets that are in trouble. The sharp rise in US interest rates has also caused a two-way stranglehold on our real estate and stock markets. Everyone knows that the stock market is short of money, so it is naturally impossible for it to be very good. What about the real estate market? Why is it also affected by the US interest rate hike? Because some Chinese real estate companies have debts in the United States, such as Evergrande. The reason why they went bankrupt was partly because their debts in the United States matured. When the Americans demanded repayment, the cash chain was directly broken.
If the Americans insist on raising interest rates for a long time, it means that these real estate companies will face greater repayment pressure. If they cannot bear it, they will go bankrupt one after another. Therefore, the United States originally wanted to detonate China's real estate market in this way, so that we will have a systemic financial crisis like Japan. The United States will be able to win the game between China and the United States without fighting, which is a good sign for the United States.
Moreover, the United States has a huge appetite. It not only wants to swallow us, but also wants to swallow Europe, Japan, Southeast Asia and other places at the same time. Only in this way can they fill their 35 trillion US dollar debt hole. So while they are competing with us, they also want to explode the exchange rates and economies of other countries so that they will have the opportunity to reap the rewards.
But ideas are always good, but various problems arise during the implementation process.
The first thing to be affected is that the United States failed to completely blow up our real estate market. The systemic financial crisis they anticipated did not happen. Although we have encountered difficulties in the past two years, we have generally held on. The United States has not found an opportunity to reap the benefits from us.
Not only that, we are also preventing them from reaping the benefits of other countries. When they wanted to boost the economies of various countries by raising interest rates, we stood up and told everyone, "If you are short of dollars, it's okay, I will lend them to you, but you will need to use RMB to repay the money later." This not only saved the countries whose economies were about to collapse and prevented the Americans from reaping the benefits, but also expanded the influence of the RMB in disguise, which was equivalent to cutting off the source of the dollar's hegemony.
Coupled with the RMB internationalization movement that we have been promoting, this has led to a magical situation now, that is, this round of interest rate hikes in the United States not only failed to catch big fish, but even caused a huge crisis for the dollar hegemony.
If you don't believe me, look at the current situation:
In recent years, several major oil-producing countries in the world, including Russia, Saudi Arabia, Iran and Venezuela, have all announced that they will settle their oil trade with us directly in RMB.
As the world's factory, we are the origin of various global industrial products, such as automobiles and mobile phones, which means that countries that cooperate with us can also settle directly in RMB.
There are also Ghana and the Democratic Republic of the Congo, which are both traditional major metal mining countries and have close cooperative relations with us. It is not impossible for them to fully use RMB for settlement in the future.
Seeing this situation, Americans are very embarrassed, because if all kinds of goods in the world are not settled in US dollars, then what kind of world currency is the US dollar? So Americans are very anxious recently. Friends who often pay attention to the news must have seen the following news:
On May 7, the Saudi Crown Prince’s convoy was attacked.
On May 15, Slovak Prime Minister Fico was assassinated (seriously injured).
On May 15, the Turkish president encountered a coup and assassination (which was suppressed).
On May 16, the Hungarian Prime Minister received an assassination threat.
On May 16, the Serbian President received an assassination threat (unsuccessful).
On May 19, the Iranian president's plane crashed.
On May 19, the Ghanaian presidential motorcade had an attempted car accident.
On May 20, an assassination attempt was made in the Democratic Republic of the Congo (DRC), and three Americans were arrested.
These countries have one thing in common, that is, they are either countries along the Belt and Road Initiative or they have in-depth cooperation with us.
So, I believe everyone knows who did these things.
The reason why Americans are anxious is that the domestic situation is indeed not optimistic. After all, maintaining such high interest rates has a price. The first is the debt crisis. The total debt of the United States is about to exceed 35 trillion US dollars. The interest paid each year is as high as 1.2 trillion, which is higher than the annual military expenditure of the United States. According to this trend, the United States will not be able to repay the principal in the next 150 years. If the current high interest rate situation continues, there will be only one or two outcomes:
First, the U.S. finances were completely ruined and the government went bankrupt.
Second, the United States has become a deadbeat, and the dollar hegemony has officially collapsed.
No matter what the outcome, it will be an unbearable burden for the United States.
In addition to the debt crisis, the United States is also facing a huge financial risk. The extremely high interest rate has caused an interest rate inversion in the United States. The bank's deposit interest rate is actually higher than the loan interest rate. Do you know what this means? It means that in the United States, you can first borrow 1 million from a bank, pay the bank 40,000 interest per year, and then immediately deposit another 1 million in the bank, and you can get 50,000 interest per year. You don't have to do anything, you can earn money from the bank just by lying down.
How can this be called a bank? It is clearly a charity. In such a situation, banks in the United States have collapsed one after another. At the end of last month, the Republic First Bank in the United States announced its closure. This is the sixth bank to collapse in the United States since last year. If the wave of bank bankruptcies in the United States continues to spread, it may trigger another financial crisis.
In such a special period, if a financial crisis occurs, it will probably directly cost the United States half its life.
So now the United States has persisted for more than two years and is finally unable to hold on. In June, the Federal Reserve will slow down the pace of reducing its balance sheet, which is actually a disguised interest rate cut. It’s just that the United States is embarrassed to admit it now. When the market timing is ripe, the United States will most likely officially cut interest rates this year.
By then, it will mean that the Sino-US financial war that has lasted for more than two years will officially end with the failure of the United States. If this opportunity is missed, China's recovery momentum will be unstoppable.