Globally, the amount of the dollar has far exceeded the actual demand, leading to the depreciation of the dollar and the intensification of inflation. Our country, on the other hand, has the largest foreign exchange reserves in the world, the vast majority of which are dollar assets, including US Treasury bonds. In 2023, we also increased our holdings of U.S. Treasuries to 1$1 trillion, or more than a third of our foreign exchange reserves. What are the consequences of this?
Not only do we face the risk of a weaker dollar, but we also make it easier for the U.S. to run a fiscal deficit so that the U.S. can continue to borrow and spend without fear of paying it back. Isn't that asking for trouble for yourself?
After the end of the Cold War, the United States took the opportunity to expand its power around the world, not hesitating to start wars, but also to promote liberalization. It has even dragged a powerful adversary, such as China, into the WTO and let China play according to the rules of the United States. In doing so, the United States has made a lot of money, and it earns far more than it spends.
However, the good times in the United States did not last long. As technological innovation slows down, as the benefits of globalization dwindle, America's advantage begins to slowly eliminate. Because, it began to spend more than it earned. The United States is getting more and more indebted, the purchasing power of the dollar is getting weaker, and its economy is getting more and more sluggish.
The U.S. debt already exceeds its economy as a whole, and it's rising. The United States wants to solve the problem by increasing taxes, but it is useless.
Why? Because the U.S. tax system has been exploited by some wealthy people and large corporations, who use various methods to evade taxes, leaving ordinary people and small businesses with heavy tax burdens. The proportion of tax revenue in the total economy of the United States has dropped from more than 20 percent in the sixties of the last century to more than 10 percent now. This means that tax revenue in the United States is getting worse and worse, and it continues to decline.
Collecting taxes is an art, and it is the real skill to be able to enrich the treasury without offending the people. We used to make a lot of money selling land and appreciating the dollar, which was not objectionable. However, now these methods are not working, and as soon as you raise the tax rate, the people will not be happy.
In the past 20 years, we have mainly relied on land sales to obtain fiscal revenue, which is called land finance. The advantage of this approach is that it meets the needs of urbanization, gives the government money to spend, and stimulates economic growth. Moreover, most of the money from the sale of land comes from bank loans, that is, it is taken out in advance from future income, so the current taxpayers do not feel much about it.
The U.S. dollar is the most powerful currency in the world, and we have enjoyed its benefits over the past 40 years. Although the US dollar harvests the world's wealth through the tidal effect, it also brings wealth to us. Our low labor costs have been exchanged for a large number of US dollars, which has enriched our foreign exchange reserves. Then, we used the dollar to buy the resources and goods we wanted around the world, making our lives richer and our renminbi more weighty.
The United States has the same dilemma. Since the end of the Cold War, the United States has relied on its military, economic, and cultural superiority to meddle in the affairs of other countries and expand its influence.
The advantage of this approach is that it allows the United States to control the world's resources, markets, rules, and ideas, thereby reaping huge profits and maintaining its superpower. Moreover, this interference and expansion of the United States not only does not burden its own taxpayers, but makes other countries pay for it, because it takes a large chunk of the future gains of the world first.
However, this model will not last long. This is because the development of science and technology has brought the competitiveness of countries around the world closer and closer, and it is becoming more and more difficult for the United States to maintain its advantage. This is because the advancement of globalization has made the interests of countries around the world more and more diverse, and the influence of the United States has become more and more limited. This means that if the United States wants to continue to enjoy the benefits of hegemony, it must increase its foreign interference and expansion, or expand the scope of its interference and expansion to more regions, or both.
The current global strategy of the United States is based on a shaky foundation: its debt crisis.
The United States has made two fatal mistakes: first, it is too confident that it is leading the world in science and technology, and that future innovations will come from the United States, allowing it to earn economic benefits; Second, it is too arrogant to think that it can use force and intimidation to make the whole world listen to it.
Therefore, this conflict between Russia and Ukraine is the first time that the global periphery dares to resist the imperialist expansion of the United States by means of war. This shows that both domestic taxation and international hegemony have reached a critical point, and the world is facing a crisis.