You may not know that just last night, the central bank of the United States, the Federal Reserve, made a shocking decision to announce its own capitulation. Yes, you heard it right, the Fed capitulated!What does this mean?It means that the order of the global economy will be completely disrupted, that the position of the dollar will be seriously challenged, and that our lives will face huge changes. What a momentous event this was, can you imagine?If you don't know, then come with me to take a look.
Why should the Fed capitulate?
To answer this question, we must first understand the role and objectives of the Federal Reserve. The Federal Reserve is the largest bank in the United States, and its main task is to control inflation and promote economic growth by regulating interest rates and currencies. The Fed's goal is to keep inflation around 2% while maintaining full employment and stable financial markets.
In order to achieve these goals, the Fed has taken a series of policy measures over the past few years, including:
From 2008 to 2014, three rounds of quantitative easing (QE) were implemented, that is, through the purchase of long-term bonds, a large amount of liquidity was injected into the market to lower long-term interest rates and stimulate the recovery of the economy and financial markets.
From 2015 to 2018, gradual interest rate hikes, i.e., raising the federal ** interest rate, began to tighten monetary policy, curb the rise in inflation, and prevent the economy from overheating and the formation of financial bubbles.
From 2017 to 2019, the balance sheet was reduced, that is, by no longer buying bonds at maturity, reducing the liquidity of the market in order to reduce the size of the Fed's assets and return to normal monetary policy.
These policies and measures, to a certain extent, have indeed achieved some results. The U.S. economy has remained above 2 percent, inflation has stabilized at around 2 percent, unemployment has fallen to its lowest level in 50 years, and the housing market has hit record highs. The Fed seems to have succeeded in achieving its goals, earning the trust and respect of the market.
However, just when the Fed was complacent, the crisis crept in. Economic growth in the United States is starting to slow, inflation is also lower than expected, and war and geopolitical tensions are also creating uncertainty and risks for the global economy. What's more, the debt level in the United States has reached an all-time high, and the debt burden of both companies and individuals is increasing, while the policy of raising interest rates and shrinking the balance sheet has exacerbated the debt repayment pressure, triggering panic and sell-off in the market. The Fed faces a dilemma of either continuing to raise interest rates and shrinking its balance sheet to prevent runaway inflation and disordered financial markets, but this could trigger a recession and a debt crisisEither stop raising interest rates and shrinking the balance sheet, or even start cutting interest rates and expanding the balance sheet, to stimulate economic growth and financial market stability, but this could lead to a rise in inflation and a depreciation of the dollar.
In this dilemma, the Fed finally chose the latter, that is, capitulation. Yesterday evening, the Federal Reserve announced that it would keep interest rates unchanged and hinted at a rate cut next year, and possibly even a restart of quantitative easing. Fed Chairman Jerome Powell said that the Fed has begun to discuss interest rate cuts, arguing that the current level of inflation is transitory, while economic growth and employment stability are priorities. He also said that the Fed will flexibly adjust its policies according to changes in the market to support the development of the economy.
The Fed's decision is undoubtedly a shot in the arm for the market and a negation of its previous policies. The market reacted very enthusiastically, with U.S. stocks, ** and ** and other assets all seeing a sharp **, and the US dollar showing a clear **. The market believes that the Fed's transformation will bring more stimulus and security to the economy and financial markets, and will also provide more space and opportunities for global monetary easing and asset allocation.
What does the Fed's capitulation mean?
The Fed's capitulation, which seems to be good news, is actually bad news, very bad news. Why?Because the Fed's capitulation means serious consequences in the following aspects:
The collapse of the dollar. The Fed's capitulation means that the credibility of the dollar will be seriously damaged, the value of the dollar will be sharply**, and the position of the dollar will inevitably be shaken. You may not know that the value of the dollar is actually based on the economic power and political influence of the United States, both of which depend on the debt of the United States. The debt of the United States is a double-edged sword of the United States, which is both an advantage and a weakness of the United States.
The debt of the United States allows the United States to obtain global resources and capital through the issuance of US dollars, thereby supporting the economic and military hegemony of the United States. However, the debt of the United States also makes it necessary for the United States to ensure the circulation and acceptance of the dollar by maintaining the credit of the dollar, so as to avoid the collapse of the American debt. The Fed's capitulation is a betrayal of the dollar's credibility, and it shows that the United States is no longer able to repay its debts and can only evade its responsibilities by printing money and devaluation. This will lead to a surplus of dollars, insufficient demand, a decline in value, a loss of credit, and a shaken position. The collapse of the dollar will be a disaster for the global economy and the end of the United States.
The explosion of inflation. The Fed's capitulation means that inflationary pressures will be uncontrollable, the level of inflation will rise sharply, and the risk of inflation will be everywhere. You may not know that inflation is actually the depreciation of currency, the decline of the purchasing power of money, the ** of prices, and the shrinkage of wealth. Inflation is the poison of the economy, the bomb of society, and the enemy of the people. Inflation can lead to economic imbalances, social unrest, and dissatisfaction among the people. The Fed's capitulation is an indulgence in inflation, which shows that the United States has abandoned its goal of controlling inflation and can only deal with the threat of inflation by stimulating the economy and stabilizing finance. This will lead to a vicious circle of inflation, skyrocketing prices, loss of wealth, and difficulties in life. The outbreak of inflation will be a nightmare for the global economy and a sorrow for the United States.
The outbreak of the financial crisis. The Fed's capitulation means that bubbles in the financial markets will be inevitable, the volatility in the financial markets will intensify significantly, and the crisis in the financial markets will erupt at any time. You may not know that the financial market is actually a barometer of the economy, a distribution center for capital, and a source of risk. The financial market is the driving force of the economy, but also the restraining force of the economy. The financial market is both the creator and the destroyer of capital. The financial market is both a bearer of risks and a disseminator of risks. The Fed's capitulation is a stimulus to the financial market, which shows that the United States has abandoned the goal of stabilizing the financial market, and can only support the development of the financial market by providing liquidity and security. This will lead to overheating and runaway financial markets, bubbles and crashes of assets, accumulation and explosion of risks. The outbreak of the financial crisis will be a disaster for the global economy and a nightmare for the United States.