Kissinger said cruelly:”The United States has lost, no one should think better, especially China”! Has the”post-dollar world” come?
China Economic Weekly Chief Researcher Niu Wenxin
7.14 trillion US dollars-equivalent to 34%of US GDP, which is the size of the US dollar base currency on the Federal Reserve’s balance sheet on June 18. If the Fed launched the”unlimited quantitative easing” monetary policy of 4.2 trillion U.S. dollars on March 23, it took approximately 70 days for the U.S. dollar base currency to expand by nearly 3 trillion U.S. dollars, up 70%.
Whether the United States is so indiscriminate in currency, will it cause global inflation? Will it lead to a complete disintegration of dollar hegemony? At present, many unprecedented visions have emerged in the stock market, bond market and oil market.
Perhaps many people think that this is just a short-term economic and market imbalance caused by the outbreak, but an old and top American think tank figure and former Secretary of State Henry Kissinger made a different Astonishing judgment:”The new coronavirus pandemic will change the world order forever.”
What is the original world order? An important feature is that the economy is centered on the dollar, or the hegemony of the dollar.
Today, the extreme expansion of the US dollar is leading to a global trend of”de-dollarization.” As the American scholar Lana Frouhal pointed out, we may be moving towards a”post-dollar world.”
The more the United States uses the dollar hegemony to the extreme, the more turbulent the trend to weaken or disintegrate the dollar hegemony. This is certainly not what the United States wants to see. However, the law of history is such that people’s will is not transferred.
Kissinger said he felt a”surreal atmosphere”
On April 3, Kissinger published a column entitled”The New Coronavirus Pandemic Will Change the World Order Forever” in The Wall Street Journal. He pointed out that the attack of New Coronavirus on human health is temporary, but the political and economic turmoil it caused may continue for generations. Now, as in 1944, there is an early sense of danger. This danger is not directed against any specific person, but is a random attack and destruction. Therefore, he believes that after the new coronavirus, the world will no longer be the same.
This article by Kissinger has attracted global attention. In his view, the United States alone cannot defeat the virus. The United States must make major efforts in three areas:first, to strengthen the global ability to resist infectious diseases, and constantly develop new infectious disease prevention and control technologies and vaccines, Including local governments, we must always be prepared to protect people from epidemics. Second, in an effort to heal the world’s economic trauma, the government needs to mitigate the impact of the economic recession on the most vulnerable people. Third, uphold the principles of world order, exercise restraint in internal affairs and diplomacy, and determine the priority of issues.
The first two are easier to understand, but what does the third one mean? Could it have expressed Kissinger’s concern that the epidemic could destroy the original world order?
The original world order was:the United States as the center politically, and the dollar as the center economically. Is this order really likely to be broken by the new coronary pneumonia epidemic?
“We are living in a new era. The historic challenge facing leaders of all countries is to build the future while responding to crises.” But Kissinger also used a subtle tone to make extremely threatening Remarks:The United States has lost, no one should think better, especially China! So,”China wants to help the United States overcome difficulties.”
What help? Anti-epidemic materials? Kissinger will definitely not ask for this level of problems. His concern is that China helps the United States maintain the”original international order”, maintaining both the political center of the United States and the economic hegemony of the US dollar.
Historically, the two world wars were far from the United States, which gave the United States the opportunity to use the war to weaken Europe and rise strongly. In the past 100 years, except for the”9.11″ sneak attacks, wars with mass destruction have never landed on the United States, which has made the United States more powerful and safe.
But the new coronary pneumonia epidemic broke this historic situation. Whether it is from a life perspective or an economic level, is the destructive power of the New Coronary Pneumonia epidemic on the United States equivalent to a”war in the United States”? In particular, the super consequence of the spread of the epidemic caused by the US government’s contempt in the early stages of the epidemic. Is it subverting the once unquestionable global politics, economy, and especially the currency status of the United States?
This may be the”surreal atmosphere” that Kissinger felt in the column, just like the”Battle of the Prominence” in World War II.
Nothing is unique. On May 31st, Lana Frouhal, an economic columnist for Time magazine in the US and a global economic analyst for the US cable network, wrote in the Financial Times in the UK that he clearly stated that we may be heading for a”post-dollar world.”
US dollar assets have suffered credit collapse, the US dollar should not depreciate
In theory, the Fed is desperate to inject water into the market and put a lot of money, which will lead to global hyperinflation and will make the dollar a waste paper. But the reality we are seeing now is that the US dollar has not depreciated significantly, the US dollar index has not fallen but has risen, and even a”dollar shortage” has appeared globally.
For this reason, based on traditional theory, many people mistakenly believe that this is”the financial market crash caused investors to hope to hold dollars to avoid risks.” The reason is simple. People cannot worry about the depreciation of the US dollar while increasing their holdings to avoid the risk.
So, what is the real situation? During the massive sell-off of US dollar stocks and bond assets,”credit collapse” occurred in US dollar assets. This is not only the reason for the Fed’s super currency launch, but also the”dollar dead spot” hidden behind the super currency launch.
An example. The United States has the most developed financial market in the world, and its huge market resilience and stability allow it to accommodate huge credit transactions. On Wall Street, no one uses 1 dollar of cash to buy 1 dollar of bonds, at least 1 dollar of cash to buy 10 dollars of bonds, and the higher the level of bonds, the higher the allowable leverage ratio of bonds. Therefore, in a stable market, investors investing $1 in cash can bring liquidity of $10 to $20 to the bond market. But the situation after the New Coronary Pneumonia epidemic in the United States is just the opposite:a large number of investors need to exchange $1 to $20 in financial liquidity for $1 in cash. If there is a serious shortage of market takers at this time, there will inevitably be a”credit collapse” in the financial market.
Not only is the bond market, but the scale of credit transactions in the US stock market is also spectacular. In the process of continuous”melting down” in the stock market due to selling, it will also lead to”credit collapse” and the liquidity of the entire financial market will be exhausted.
So, in the face of the depletion of liquidity in the financial market, who will act as the receiver? The answer can only be the Federal Reserve. As a loyal guardian of U.S. financial credit, the Fed must fully support the collapsed credit, especially not to see the price of U.S. Treasury bonds plummet (yields soar), which not only violates the Fed’s interest rate will, but also triggers a greater degree of credit crisis, which leads to The entire financial market collapsed. How to do? Buy, buy, buy, buy bonds, print, print, print, and print paper money, and constantly put money to ensure that the interest rate benchmark is satisfactory. This is the inevitable and helplessness of the Fed to implement unlimited quantitative easing monetary policy.
However,”There is too much garbage in the US financial market, and this time the Fed bought even garbage.” This is Yu Yongding, a member of the Chinese Academy of Social Sciences and an international financier who quantifies the Fed”unlimited amount.””Easy” monetary policy revealed.
Despite this, the Fed has not stopped corporate bonds from plummeting. For example, under the dual effect of”epidemic situation + oil situation”, the debt of US oil and gas companies that were still trading at more than $1 at the beginning of March was mostly less than 60 cents by June, with a decline of more than 40%. According to Bloomberg statistics, corporate bonds with a yield of at least 10 percentage points higher than US Treasury bonds, and debts with a face value of $1 and a market transaction price of less than 80 cents, totaled $533 billion on March 20, compared with March 6’s $214 billion is 100%higher.
How to stabilize the market and stop selling? The way is to give investment institutions enough long-term funds (US dollars) to give them the opportunity to “swap time for space” and wait for asset prices to rise. Not only the United States, all investment institutions in the United States need such money to supplement transaction margins, or to buy assets at low prices and dilute costs.
This shows that the collapse of the US dollar asset credit will inevitably increase the market’s demand for US dollar cash. If the Fed cannot be 100%satisfied, a”dollar shortage” will inevitably occur. As a result, the Fed has successively implemented currency swaps with the central banks of nine countries or currency zones to provide dollar liquidity to financial institutions in other countries. The implication is:you want US dollars, but don’t sell US dollar assets in large quantities. In this context, the dollar index has been hovering around a high of around 100.
To sum up, we need to realize:First, the reason for the “dollar shortage” is not that the dollar is favored by investors from all over the world, but the liquidity caused by the “credit collapse” of dollar assets Shortage; second, pushing up the dollar index due to”credit collapse” does not mean that the dollar is really strong, but more like deliberate maintenance of”should not be depreciated”; third, in the fierce”credit collapse” of dollar assets In the context of this, we cannot simply think that the US “unlimited quantitative easing” monetary policy will surely bring flooding hyperinflation.
After entering June, the US dollar index dropped from around 100 to around 97, but does this mean that:under the support of unlimited quantitative easing monetary policy, the stock market, bond market, and oil market quickly recovered. Has the bomb basically solved the dilemma of”credit collapse” of US dollar assets? There is currently no definite answer. Because no one dares to guarantee that the US stock and debt markets will not plunge again. After all, the American society is”the epidemic is unsettled and the riots are on the rise”, and the process of deteriorating economic fundamentals has not ended.
Why do you say that the US dollar”should not be depreciated”?
First look at why”should be depreciated”. The current problems facing the US economy and society have never been seen since the Second World War. In the face of the New Coronary Pneumonia epidemic, 2.3 million people have been infected and 120,000 people have died, and the police’s violent law enforcement against African Americans has led to national riots. On June 5, the Labor Department released an employment report showing that the unemployment rate in the United States reached the end of May. At 19.8%of the peak, this figure is the highest level since it was recorded in 1948. The Federal Reserve’s semiannual monetary policy announced on June 20 stated that the high unemployment rate in the United States will take two years to digest before returning to normal by the end of 2022. Such economic fundamentals, coupled with the Fed’s”zero interest rate” and”unlimited quantitative easing” monetary policies beyond the rest of the world, of course the dollar index should depreciate.
Secondly, why do you not dare to depreciate? If the dollar depreciates sharply now, it would be tantamount to killing the United States. First, as far as the current US economic dilemma is concerned, not only can it be solved by the depreciation of the US dollar, but the depreciation of the US dollar will lead to a larger sell-off of US dollar assets; If you use cash to buy gold or other durable commodities, it will inevitably lead to global inflation expectations, which will cause the global economy to fall into the”stagflation” dilemma of economic stagnation and rising prices, and ruin all global efforts to support the economy. The dollar policy must be pointed out by thousands of people. Third, once prices rise, the Fed’s efforts to maintain the US economy through the “unlimited quantitative easing” monetary policy will also be lost, and it will bring an even more uncontrollable economic vicious circle to the US dollar. Hegemony is dangerous.
So, the Fed, daring not to devalue the US dollar, can only follow the trend and use the process of “credit collapse” of US dollar assets to create and control the degree of the “US dollar shortage” and at the same time control the US dollar index to release The US dollar is still strong, and the US dollar is still the smoke screen of the global safe-haven currency to ensure that the dollar hegemony is not hurt too much.
Probably because of this, Trump, who always believed that the strong dollar is detrimental to the economic interests of the United States, suddenly changed his course. On May 14th, he said in a FOX Business show:The United States has a strong dollar. Great thing.
This abnormal remark by Trump further proves and explains that”the dollar does not dare to depreciate”, especially for a long period of time from now on.
The U.S. changes the trading rules of the national debt market without authorization, so that its actual credit level has been downgraded by itself
The national debt credit and currency credit are like”one piece Two sides of the coin.” Therefore, if the US Treasury bonds”credit collapse”, it will be a big hole in dollar hegemony.
Now, there is indeed important evidence for the “credit collapse” of US Treasuries:More and more countries prefer to reduce their holdings rather than increase their holdings. According to the continuous tracking statistics of BWC Chinese website, as of March this year, in the past 23 months, the global central bank had 22 months of net reduction of US Treasury bonds, totaling $749.3 billion. According to a report released by the US Treasury Department on May 16, at the end of March, among the 34 countries that held U.S. Treasury bonds, 28 countries reduced their holdings, and only 6 countries increased their holdings. US$100 million, a historical record; and this data on June 16 shows that as of the end of April, overseas investors held a total of US$6.765 trillion in US Treasury bonds, which not only set a new low for the year, but also meant that overseas investors reduced their holdings by 176.703 billion US dollars.
One side is that countries reduce their holdings of US Treasury bonds, and the other side is a sharp rise in the balance of US Treasury bonds. Entering June, the total amount of US Treasury bonds has exceeded US$26 trillion, a sharp increase of US$3 trillion from less than US$23 trillion at the end of March. According to the estimate of the US Treasury Department:By the end of September, the scale of the US government’s fiscal deficit will expand to 4.5 trillion US dollars this year. Market speculation that by the end of 2020, the total US Treasury bonds may reach 30 trillion US dollars.
The question then arises:who still has the money to buy such a huge amount of US debt? Who would be willing to buy these debts?
Historically, the subscription rate of the US Treasury bond auction is basically above 3, but on May 11 this year, when the 10-year US Treasury bond with an annual interest rate of 0.70%was auctioned, the subscription rate was 2.9; Subsequent auctions of $22 billion of 30-year U.S. Treasury bonds, with interest rates raised, the subscription rate is only 2.3, the lowest since October 2019. From a multiple point of view, there does not seem to be a risk of undersubscription in the issuance of U.S. Treasury bonds, but market analysts point out that behind the smooth issuance of U.S. Treasury bonds is actually the Fed’s “unlimited quantitative easing currency”, which actually states to the market:How much U.S. Treasury bonds you buy can be mortgaged to me and exchanged for cash. This can be said to be the current”attractive charm” of US Treasury bonds.
In fact, the international recognition of US Treasury credit is being restricted by three major obstacles.
The first is traditional dissatisfaction. The U.S. government has no deficit and pays for the deficit by issuing currency. This is actually transferring the cost of debt to all U.S. Treasury holders. This kind of thing is not a day or two, it has long aroused the resentment of all countries in the world. Now, the new Coronary Pneumonia epidemic has given this process a great acceleration, and the resentment of US Treasury holders has naturally increased. According to the calculation of the International Gold Council, according to the current price of gold, the value of the US dollar relative to gold is only equivalent to 2.78%40 years ago. More data shows that in the past 46 years, the US dollar has depreciated by 50%to 70%against most major currencies.
The second is that the US government is looking for various excuses for”debt.” For example, under the epidemic situation, some American politicians are not seeking international cooperation to save lives, but are desperately trying to”dump the pot” in China, and they have an excuse to make excuses for”repaying their debts” in an attempt to repay part of the debt owed to China. In fact, the United States’ intentions and actions towards China’s dishonest dishonor will not only be lost due to small losses, but also a “very destructive demonstration”. For example, don’t look at some countries cheating with the United States, but they are constantly selling U.S. Treasury bonds and shipping back gold stored in the United States. This shows that these countries are deeply concerned about the credit of the US Treasury bonds. Following the United States, I am afraid that it is only for the smooth sale of US Treasury bonds.
Thirdly, the yield of US Treasury bonds is unattractive. In recent market transactions, 10-year U.S. Treasury bonds once had a yield of only 0.35%, while 2-year Treasury bonds fell to a level of zero. In this regard, Wall Street once expected that the Fed may implement a negative interest rate policy in December this year. Trump also repeatedly shouted at Powell, hoping that the Fed will implement a negative interest rate policy, and even believe that the United States has suffered a big loss because of its monetary policy inferior to Europe and Japan. Does the United States dare to implement a negative interest rate policy? If the market really has such expectations, the demand for US Treasury bonds will be further reduced. Powell understands the dangers better than Trump, so he firmly rejected Trump’s opinion.
In addition, there are many factors that drag on the credit of US Treasury bonds. For example, developing countries that hold U.S. Treasury bonds have not received liquidity care from the Fed’s currency swaps; and the normal market behavior of selling U.S. Treasury bonds in exchange for U.S. dollar cash has also been restricted:Pledged to the Federal Reserve to borrow overnight US dollar cash liquidity.
Undoubtedly, such a rule change shows that:First, the liquidity of the US Treasury market has been greatly reduced, and it is even insufficient to support the realization needs of other countries holding US Treasury bonds; second, due to liquidity Insufficient and change the market trading rules of bonds, this is a behavior that seriously damages debt credit. Third, in view of the need to pay interest to the Federal Reserve mortgage, modifying the rules means that the cost of holding U.S. Treasury bonds in other countries is increased in disguise.
If the above acts of US Treasury bonds happen to any other kind of bonds, their credit rating will be reduced by at least two grades by the rating agency. Therefore, regardless of the nominal credit rating of the US Treasury, its”actual credit rating” has been greatly discounted and downgraded due to a series of dishonest behaviors.
The Fed is desperate and has broken the”century taboo” of the Central Bank
Today, the Fed’s balance sheet has become”credit trash” heap”. American media commented that the Fed is almost directly issuing large amounts of loans to companies, state governments and various cities, which has made it break the central bank’s”century taboo.” Adam Tuz, a professor of history at Columbia University, said the Fed is being sent to places it has never been to. He said that the financial and economic crisis caused by the virus has caused central bank officials to be involved in a series of challenges beyond their control.
Right now, US Treasuries have to rely on the Fed’s bill-issuing rights to maintain credit, which reflects that US Treasuries are moving toward “garbage” and also proves that the US Treasury market is seriously oversupplied. On April 29, Goldman Sachs issued a report stating:In 2020, the Fed will eat up 60%or more of the increase in US Treasury bonds that year, and the number of orders received may reach 2.4 trillion to 2.6 trillion US dollars. To what extent will the Fed’s balance sheet eventually expand? The United States has estimates that this number will eventually be expanded to 8 trillion to 11 trillion US dollars, equivalent to 38%to 52%of the US GDP in 2019. This not only tore up all textbooks, but also defeated the boldest imagination of mankind.
In this context, to what extent will the Fed’s future interest rate policy be subject to US government debt? If the U.S. Treasury balance reaches US$27.5 trillion at the end of September this year, that one basis point (one ten-thousandth) increase in interest rate will mean US$2.75 billion in government interest expenditure; The interest rate increase will cause the US government to increase interest expenses of US$68.75 billion. According to the US federal government’s revenue of 3.4 trillion U.S. dollars in 2019, each time the Fed raises interest rates is equivalent to a reduction in the U.S. government’s income by more than 2%. Therefore, the Fed can only maintain extremely low interest rates.
Although the Fed’s balance sheet has recently dropped from 7.22 trillion U.S. dollars to 7.14 trillion U.S. dollars at its peak, the reason is because of the reverse operation of currency swaps, not the reduction of the US fiscal deficit. As a result, it will not affect the final result of the Fed’s balance sheet rushing to 8 trillion to 11 trillion US dollars.
Next, the United States will face a series of practical problems:Will the Fed’s balance sheet shrink in the short term? How many years does it take to shrink? Will US dollar credit continue to deteriorate following US Treasury credit? Will central banks in other countries implement a”minimization strategy” for holding US Treasury bonds? Does the Fed need to continuously eat down the US government debt held by governments? And will some politicians in the Trump administration say that the rhetoric will make the world more worried about the credit of the US government?
Vortex vibration of dollar hegemony
China Economic Weekly chief researcher Niu Wenxin
With the US dollar The hegemony is so powerful that the United States dares to”monetize the fiscal deficit” with impunity; but it does not see the end of the large-scale”monetization of the fiscal deficit”, which in turn threatens the foundation of US dollar hegemony-American national credit.
What are the consequences of this vicious circle? Zheng Yongnian, a professor at the East Asia Institute of the National University of Singapore, pointed out:”The United States does not seem to be able to escape the logic of survival and development of all previous empires-rise, expansion, excessive expansion, powerlessness, and decline.”
Obviously, the United States is To push the hegemony of the dollar and its huge benefits into extremes. But does this extreme mean that the result is going in the opposite direction? Does it mean that the United States is saving the dollar hegemony from the stage of history at all costs?
Many performances of”de-dollarization”
Multinational central banks sell US treasury bonds and buy US stocks-is the equity of large companies safer than US national debt?
It is the law of history that things must be reversed, and it is also a law of history that hegemony will not automatically withdraw from the stage of history. The violent collision of the two major historical laws brought violent chaos to the world, which is also an unavoidable historical law.
At that time, Obama, who had not yet taken office, held the Nobel Peace Prize in one hand and a page of paper in the other. On this page, Obama clearly rewrites the reasons for the war in the United States from the two”endangering the interests of the United States and defending human rights” into three. The additional one is”when the economic status of the United States is threatened.” It can be seen that the United States will not hesitate to maintain dollar hegemony by means of war, because that is the core interest of the United States.
On May 5, 2020, Dr. Henry Kissinger, who has always been regarded by the Chinese as the”ambassador of Sino-US friendship,” actually threw away the usual implicit and clear threat:”At this critical juncture, China should help the United States overcome the difficulties to avoid war!”
Coincidentally, Kissinger’s voice just fell, and a vortex occurred in the Humen Bridge in Guangdong, China.
What is vortex? This is a fluid mechanics phenomenon:a large tide passes quickly through obstacles-choking fluid (such as reefs in water, mountains in the air), and a series of reverse vortices must form behind the choking fluid. A string of reverse vortices will cause a huge vibration of the obstacle (blocking fluid).
In fact, no matter what the wishes of the United States, the dollar hegemony that hinders the tide of history seems to be vortexing.
You can see more and more vortexes that trigger dollar hegemony. The euro does not need to mention more, it appeared to fight against dollar hegemony. Now, a huge vortex is:Central banks in more than 30 countries in the world are trying to spend dollars, and the use of dollars to buy gold is a typical case. For more than a year, central banks around the world have realized more than 700 billion U.S. Treasury bonds, and the World Gold Council’s data shows that gold purchases with central banks in the background have a net increase of nearly 500 tons in 2019; in the first quarter of this year, A net increase of 145 tons continued; at the same time, the amount of global investors buying gold in US dollars has reached US$55 billion, the highest value since the second quarter of 2013.
Keynes once said that gold is used as a”last guard” and a reserve when the market urgently needs it. Historically, gold is the old counterpart of the dollar. The disintegration of the Bretton Woods system in 1971 was actually the decoupling of the dollar and gold, and then the United States brought to the world the perception:Do not hold gold, it is just a general commodity, the dollar is the world’s most liquid currency, and it can maintain value and increase in value. . But now, the central banks of various countries have begun to increase their holdings of gold again. Does this mean that the US dollar has been abandoned? At the very least, this is a phenomenon in which the dollar hegemony is very fearful.
In addition to gold, another vortex faced by the dollar hegemony is:after the central bank of some countries dumped US Treasury bonds, the US dollar was used to purchase US stocks. The so-called”de-dollarization” is nothing more than two steps:the first step is to throw away U.S. debts in exchange for U.S. dollar cash; the second step is to use the U.S. dollars to buy”things that can be bought with U.S. dollars”. In the past, it was gold and commodities, but now it has Expand to US stocks. The typical case in this regard is the Swiss National Bank. According to statistics, the value of the US stock market held by the Swiss National Bank has increased from US$26.7 billion in December 2014 to US$97.5 billion in December 2019, an increase of more than three times. There is also the Saudi sovereign fund, which reduced its holdings of US$25.3 billion in US Treasury bonds in March this year, while backhandedly increased its holdings of US stocks. The disclosed information shows that they bought stocks of international giants such as Microsoft, Apple, Amazon, Google, Facebook and so on.
What is heralded by this behavior? Does it indicate that the central banks of some countries believe that the equity of oligopoly capital is safer and more realistic than the US national debt?
The price of oil is also a big whirlpool. The US dollar used to be the”only” pricing and settlement currency in the international oil market. The higher the oil price, the greater the dollar usage; the greater the dollar usage, the more countries will export goods to the United States in exchange for dollars, and the United States will receive more”Mint Tax”-the rights and interests of printing money to buy goods from other countries. Therefore, maintaining moderately high prices for oil prevents central banks from daring to reduce their dollar reserves arbitrarily. This is probably the interest appeal of dollar hegemony. But now, Saudi Arabia, Russia, and some other oil-producing regions have begun to”float”, either allowing other currencies to settle oil, or”arguing” about the reduction in oil production, and causing oil prices to plummet. This is definitely not good news for the defenders of dollar hegemony. Not only is the problem of the possible collapse of the American oil company’s debt, but also the problem of the instability of the “U.S. valuation settlement”, which urges other countries to get rid of the US dollar, thereby weakening the dollar’s hegemonic benefits. Looking at it now, the more rigorous”negative correlation” between oil prices and the US dollar index, which has been maintained for roughly 40 years, has become chaotic. Does this mean that the growth of the dollar’s control over oil prices has weakened? Does this mean that global dollar holdings will be further reduced?
Probably, there are four more deadly vortexes.
First, the military strength to maintain dollar hegemony is being challenged. In the past, whoever dared to use non-dollar currencies to settle oil, then the United States will inevitably use force against them, both in Iraq and Syria. But now, when Iran’s oil pricing and settlement are more widely adopted in euros, yens, rubles, renminbi and other currencies, the United States is not afraid to use force against Iran in addition to economic sanctions. Does this reflect the US attack? Iran has no confidence to win? The updated news is:Brazil and Venezuela tried to”de-dollarize” international trade such as oil, which was threatened by the use of force by the United States. But now, it is only a threat.
Second, the digital currency based on the blockchain technology is coming out. Will it have a fundamental impact on traditional currency hegemony? Will it bring about a new division of currency power? After all, the traditional dollar hegemony corresponds to the globalization of the traditional industrial chain. Does the”currency block effect” caused by digital currency indicate that the traditional global economic integration will inevitably bring about the regionalization of the global industrial chain? Regionalization of currency? If this is the case, the sphere of influence of the dollar hegemony will be compressed and eventually it will become a small group of currencies. The important evidences are:(1) The digital currency plan launched by Facebook-Libra was strongly resisted by the euro area and was accused of being a tool to disrupt the financial order of the euro area; (2) The country that closely follows the US has become Canada and Australia , As well as some Eastern European countries that are not in the Eurozone, and traditional allies in the Eurozone are moving away from the United States. Is this a sign that the Eurozone is trying to get rid of the dollar further?
Thirdly, the Italian “new Marxist” Gramsci once said:Hegemony status is obtained because hegemony can transcend their own interests and take care of the interests of other roles. In the past, the United States took care of the interests of other actors by”providing a large number of public goods to the international community”, for example, to ensure the normal functioning of international organizations in order to maintain international order; for another example, it assumed the role of a world police and provided military protection for its allies. But now, does the United States still have the ability to provide increasingly high-cost public goods? The fact is that the United States is withdrawing heavily from international organizations, the so-called”retreat”; at the same time, it is also reducing military base expenditures in Europe and Asia as much as possible, and pushing the burden on allies.
Fourth, the recent violent ethnic conflicts in the United States have exposed the dilemma of “extreme polarization between the rich and the poor” in American society. Joseph Stiglitz, a famous American economist and Nobel Prize winner in economics, pointed out that all Trump’s actions show that this president who is full of representatives of the poor actually represents the interests of the rich. He is accelerating the progress of American society. Torn. Stiglitz believes that under the current political and economic system in the United States, the polarization between the rich and the poor will only go to the extreme, and reversing the situation requires a”remodeling change” of the political and economic systems. So, will this change happen? Where does the occurrence or non-occurrence lead the United States? In this process, the basis for the existence of dollar hegemony-economy, military, science and technology, society is extremely strong and stable, is it still there?
Fifth, although the rise of the stock market and the bond market has cracked the”credit collapse” in the United States, based on very bad economic fundamentals, have such stocks and bonds prices already generated more serious asset bubbles? Is this bubble released by falling, or by”time for space”? If the U.S. government, the Federal Reserve, and Wall Street all hope to repair them in a”time for space” manner, how long will this process take? During this period, has the US stock market been threatened by a plunge? Will a collapse lead to a greater collapse of American credit? Will it lead to a larger sell-off of US dollar assets, thereby threatening dollar hegemony?
Sixth, the U.S. national savings skyrocketed recently, and the personal savings rate soared from 12.7%in March to 33%in April, which was a record high. For the American public accustomed to overdraft spending, such a high savings rate is incredible. Although there are incentives for the government to make money and nowhere to spend during the epidemic, on the whole, after the financial crisis, the US personal savings rate has been rising from almost zero. Another data from the Federal Reserve is:In the first quarter, the national net assets of the United States decreased by 6.55 trillion U.S. dollars, a record high. Taken together, does the two data indicate that the consumer power, which accounts for more than 70%of the US economy, is stalling?
On May 19th, Paulson, a former US Treasury Secretary, former Chairman of Goldman Sachs, and one of the”Three Musketeers” who governed the 2008 financial crisis, published an article in the US”Foreign Affairs” magazine, specifically discussing the US dollar the future of. Paulson believes that the long-lasting dominance of the US dollar is a bit incredible, especially considering the rise of emerging markets and the relative decline of the US economy (from nearly 40%of the world’s GDP in 1960 to 25%today), thus giving the dollar a status Tested:One is whether Washington can overcome the new coronavirus epidemic, and the other is whether the United States can adopt economic policies after the outbreak to manage national debt and control structural fiscal deficits for several years.
At the same time, the famous investor Peter Schiff frequently warned:The real collapse will be the collapse of the dollar. Stephen Roach, an economist at Yale University, made it clear that the “over-privileged era” of the US dollar as the world’s main reserve currency is coming to an end, and the living standards of Americans will be squeezed as never before, and the US dollar is likely to collapse.
“Globalization’change’ club”, is the United States destroying itself?
Economic globalization is an important economic foundation for dollar hegemony. Only globalization can make the dollar important for other countries. For example, in order to attract U.S. companies to invest in developing countries, they must maintain sufficient U.S. dollar reserves, on the one hand, to import supporting raw materials, and on the other hand, to ensure that the U.S. companies’ profits are remitted for profit. This not only brings huge benefits to US hegemony, but also makes it necessary for countries to maintain US dollar reserves, and these dollars in turn have become an important supporting force in the US Treasury market.
But now, the United States is trying to turn”globalization into a club.” But the question is:Dollars and Euros coexist inside the”club”. Can the dollar hegemony be accepted? Therefore, the construction of the”club” presents a”broken and broken” posture, especially after Trump took office, he has been trying every means to force American companies to return to the homeland and take the lead in building a”deglobalization” economic pattern. In fact, during the 2016 US election, Trump’s opponent, Hillary Clinton, attacked that Trump’s policy proposition would seriously damage the dollar’s status. But Trump was indifferent, and news came out on May 11, 2020:The White House has begun negotiations with chip manufacturers such as TSMC and Intel, hoping that they will build chip foundries in the United States to achieve the self-sufficiency of American chips. At the same time, we have seen the US Department of Commerce increase its technical blockade against China and further upgrade its technological warfare.
It can be seen that the United States cannot give up dollar hegemony, let alone break the pot. Its essence of”de-globalization” is the intention of”closing China at any cost and suffocating China.” Why is China? Because worldwide, only China’s renminbi has a conditional bid for the US dollar. Behind the renminbi is the world’s second-largest economy, with GDP equivalent to 70%of the United States; behind the renminbi, there is a population of 1.4 billion people who have quickly and steadily achieved a well-off life, the world’s largest single market, and the world’s largest total trade volume; China’s industrial system has a decisive position in the global industrial chain; behind the RMB, there is a strong and unified financial force unmatched by the euro. More importantly, the RMB has obvious institutional advantages behind it, as well as the unified and powerful national will derived from it, as well as a diplomatic appeal for win-win cooperation.
Adding the above characteristics of RMB together, the United States certainly cannot bear it. On the other hand, seeing China die at any cost actually shows that the instability of the US dollar’s foundation is further intensifying. There is no doubt that after the 2008 financial crisis, especially since the outbreak of the 2020 epidemic crisis, the US government has used the dollar hegemony to the extreme, then to the extreme, and more extreme, but at the same time, the trend of weakening the dollar hegemony will inevitably increase, No matter how big or bigger it is, the vortex of dollar hegemony will intensify, and it will be more dramatic.
At the same time, China has always maintained and displayed sufficient calmness. During a major historical turning point, the world will never be a gentle breeze, only wilder storms. China has involuntarily stood at the center of this turbulent wave. This is the historical necessity of historical choice, and does not shift with the single will of China. As Li Yang, a member of the Chinese Academy of Social Sciences and a well-known financial scientist, said:We need to pay special attention to the fact that, in both the real economy and international financial fields, an “alliance” that excludes RMB and China may be forming. From this perspective, when we look back at Kissinger’s statement that”the United States has lost, no one should think better, especially China!”, we will have a deeper understanding.