At this week's Federal Reserve interest rate meeting, the United States sent a clear signal to cut interest rates, and the Federal Reserve meeting has begun to discuss the timing of interest rate cuts, and the median federal interest rate at the end of next year is 46%, and many Feds** expect to cut rates three times next year.
This not only means that the current round of interest rate hike cycle in the United States has come to an end, but also that the United States will quickly enter a cycle of interest rate cuts. In the past, most of the U.S. interest rate hikes have caused turmoil in the global financial market, and even many countries have fallen into serious crises and become the targets of harvesting. However, this time, the United States has raised interest rates 11 times in a row, which is very rare in history, but it can no longer achieve the expected effect as before, and can only end hastily.
The United States is the world's largest economy and the world's most important currency issuer. As an international reserve currency and settlement currency, the US dollar has a huge influence on the global economy and financial markets. By adjusting its monetary policy, the United States can affect the supply, demand and value of the dollar, thereby having spillover effects on the economies and finances of other countries, which is the so-called "dollar hegemony".
In the past, the United States first cut interest rates, issued currency indiscriminately, let the dollar flow abroad, and then raised interest rates to collect water, prompting the dollar to flow back, wantonly "tidal harvesting" to other countries, and tried again and again.
Now, compared with the past, the decline in the comprehensive national strength and economic growth momentum of the United States, the sharp increase in the scale of debt and financial asset bubbles, resulting in the United States itself can no longer afford to continue to raise interest rates The series of huge financial wars in the United States can only return in vain and end hastily.
In the past, each round of interest rate hikes in the United States has mostly exacerbated or caused turmoil in global financial markets
Since the late 70s and early 80s of the last century, a series of interest rate hikes in the United States have triggered or boosted many countries into difficulties. In 1980, the massive interest rate hikes during the Paul Volcker era in the United States exacerbated the debt crisis in Latin American countries, causing their economies to stagnate, increase poverty, and finally fall into the "lost decade".
In 1987, the Federal Reserve raised interest rates, which contributed to the bursting of the economic bubble in Japan and the housing crisis in the United KingdomIn 1994, the Federal Reserve raised interest rates abruptly, triggering the Mexican peso crisisIn 1997, the Federal Reserve raised interest rates during the Asian financial crisis, exacerbating the financial crisis in Asian countries and the Russian crisisFrom 2015 to 2018, the gradual increase in interest rates in the United States exacerbated the currency crises in Turkey and Argentina.
In addition, from 1999 to 2000, the U.S. raised interest rates during the tech bubble period, which accelerated the bursting of the tech bubble in the U.S. From 2004 to 2006, the Federal Reserve raised interest rates continuously and triggered the global financial crisis.
The U.S. interest rate hike has already hurt itself so much that it has forced the U.S. to stop raising interest rates
The continued interest rate hikes in the United States have led to a sharp rise in U.S. Treasury yields, leading to a recent historic decline in U.S. Treasury bonds, and U.S. individual and institutional investors have suffered significant losses. The paper loss (floating loss) of the Fed's U.S. Treasury holdings has exceeded 1$3 trillion. According to Sina Finance reported in September, according to the data released by the Federal Reserve, the realized loss (excluding paper loss) has exceeded the $100 billion mark.
The Federal Reserve holds about 18% of U.S. Treasury bonds (about $5 trillion), and other U.S. individuals and institutional investors hold about 52% of U.S. Treasury bonds.
At the same time, US Treasury yields have risen due to US interest rate hikes, which has led to a significant increase in US Treasury interest costs. In fiscal year 2023, the interest cost of U.S. Treasury bonds rose sharply from more than $500 billion in the past to $879 billion, and exceeded U.S. military spending. If U.S. Treasury yields remain high, the cost of interest on U.S. Treasury bonds will continue to rise sharply in the future, and the U.S. will not be able to afford such an outcome.
With a huge amount of debt coming due in the future, the United States will be forced to roll over its maturing debt by borrowing new debt to pay off old debt. Since the interest cost of new debt is significantly higher than that of old debt, and the size of US Treasury bonds continues to grow rapidly, this will lead to a significant increase in the interest cost of US Treasury bonds in the future. The market expects that if the current Treasury yields are maintained, the interest cost of US Treasury bonds will reach $2 trillion by 2030, which will lead to a sharp increase in the US fiscal deficit, which will drive up the size of US debt, forming a vicious circle.
Therefore, the United States needs to cut interest rates quickly, quickly drive down US Treasury yields, and reduce the paper losses (floating losses) of US Treasury bond holders such as the Federal Reserve. At the same time, the United States also needs to cut interest rates to lower US Treasury yields and reduce the interest cost of US Treasury bonds, so as to avoid fiscal deficits and debt surges, which will fall into a dead loop.
In addition, the United States needs to cut interest rates quickly to stabilize the economy and maintain a bubble in financial assets
At present, there is a serious bubble in US financial assets, including real estate and **, and the value of US private sector financial assets is 6Three times, much higher than any period in history, fully demonstrates the seriousness of the bubble in financial assets, including the United States. It also shows that there is already a serious disconnect between financial markets and the real economy.
The economic growth and financial assets of the United States in recent years have largely relied on the $8 trillion economic stimulus measures launched by the United States during the epidemic. As the impact of economic stimulus fades, the downward pressure on the U.S. economy will increase, which is a key reason why many foreign institutions have lowered their economic growth forecasts for 2024. Therefore, against this backdrop, the United States needs to cut interest rates quickly, stabilize the economy, and maintain ** and the real estate bubble.
The size of the U.S. debt continued to surge, and in 1970, the total debt of the United States (national debt, corporate debt, and household debt) was 1. % of GDP5 times. Currently up to 36 times. This means that in order to achieve nominal GDP growth, the US debt must grow at a rate of 2 times GDP6 times more. That is, without credit and money printing, it will be difficult for the United States to achieve GDP growth. As a result, the U.S. will eventually have to cut interest rates and print money to boost economic growth and maintain a bubble in financial assets.
In the final analysis, the deep-seated reason behind the forced end of this round of interest rate hike cycle in the United States is that the United States' comprehensive national strength, economic growth momentum has declined, and the scale of debt and financial asset bubbles have increased sharply, resulting in the United States itself can no longer afford a series of huge problems caused by continued interest rate hikes