As the economic lifeline of other countries, the status of the US dollar has been challenged. European countries have already accelerated "dollarization" and insisted on settlement in local currency. The hegemonic position of the dollar has been challenged. Russia, France and Germany sold a lot of American bonds. In the face of the precarious dollar hegemony, what are the countermeasures of Biden administration?
Biden's approach is straightforward, either issuing a large number of US bonds for other countries to buy or printing money on a large scale. The two are interrelated. At present, the debt of the United States has reached $28.4 trillion, which has to make other countries daunting. What's more, every country is fighting the epidemic, and every country has its own mess to deal with. Even if any country is willing to lend a helping hand, it cannot afford it.
Moreover, the fiscal revenue of the United States is known to all countries. In 2020, the US fiscal revenue was 7.3 trillion US dollars, and now the debt due is 7.7 trillion US dollars. Judging from the current domestic economic situation in the United States, the fiscal revenue in 20021year may not be as good as that in 2020. At this rate, the snowball of American debt will only get bigger and bigger.
For this "bottomless pit", all debtor countries have sold dollars and chosen to be immune, especially Russia and Iran. As early as 20 18, Russia sold US$ 48.7 billion in US debt. After continuous liquidation, Russia holds less than $4 billion in US debt. More importantly, Russia has also established a financial information transmission system.
In order to counter the US-led international trade settlement system swift, the US dollar settlement method is no longer the only choice. With the gradual access of Europe and other countries to Russian financial information transmission system, the process of "dollarization" will be accelerated.
Iran, which has been sanctioned by the United States, has already embarked on the road of "dollarization". Twenty-five years after signing the Sino-Iranian agreement with China, RMB has become the main settlement method of oil trade, and the status of the US dollar has been further shaken.
Just as countries were selling American debt, Japan did the opposite and chose to increase its holdings of American debt. According to the data of the US Treasury Department, Japan is still the largest holder of US debt, with an increase of US$ 36.4 billion in April alone, ranking first among the US debt holders with US$ 1.227 trillion.
If something goes wrong, there will be demons. Japan is on the side of the United States at this time, just trying to gain a vested interest in politics and economy. When we saw Suga Yoshihide attending the G7 Summit and standing in the second row for a group photo, everything was self-evident.
At this time, even if Japan chooses to be the bottom of the United States, how many urgent needs can it solve? Affected by the epidemic, the Japanese economy experienced negative growth and the consumer market was narrow. In the long run, Japan can't be the tray of the United States.
Biden knew this for a long time, otherwise, how could he put forward the plan of "returning to a better world" at the G7 summit? Judging from the current economic situation in the United States, this is tantamount to drawing a pie for European countries.
According to Biden, the plan aims to meet the huge infrastructure needs of low-and middle-income countries. In other words, Biden wants to stimulate domestic demand and provide more jobs through large-scale infrastructure projects, so as to buffer the domestic inflation contradiction. But don't forget, this plan needs 40 trillion dollars. How else can Biden draw a pie for Europe? This may be a high-sounding reason for printing money.
As early as March, Biden launched a "package" plan as soon as he took office. Whether it is a big infrastructure or an economic stimulus plan, in a word, it is to keep printing money. Since March, the government has launched a 5 trillion fiscal stimulus plan, releasing 65,438+00 trillion dollars of water in one year.
Biden's ordeal immediately caused domestic inflation, which soared from 4.2% in April to 5% in May in just one month. At the same time, it directly pushed the US national debt to a record high of 28.4 trillion US dollars, which greatly increased the living cost of the American people, and the prices of dairy products such as meat and eggs and various daily necessities rose one after another.
More importantly, inflation in the United States has also led to an increase in commodity prices around the world. Iron ore, petroleum and pulp raw materials all increased by more than 50%. The downstream industrial chain can only follow the price increase. Commodity prices have risen and exported to all countries in the world. In the end, the people still pay the bill.
In the process of global economic integration, no country can stay out of it, and it will be affected by American inflation. Due to the reasons of the United States, imported inflation has spread to Europe, Japan, China and other countries. More importantly, the Biden administration has not stopped. In order to fill this hole, it can only rob Peter to pay Paul and make a living by selling American debt.
The money owed will always be paid back, and the United States has no ability to pay back, so it can only print money faster, which inevitably forms a vicious circle. Therefore, the American debt has not been effectively solved, but has been over-issuing money to aggravate domestic inflation.
With the increasing financial pressure caused by US Treasury bonds, Finance Minister Yellen couldn't sit still and shouted to Congress to cancel the quota. In fact, it is not surprising that all countries make a hullabaloo about like the US Treasury Secretary.
Whenever the United States is facing insolvency, the US Treasury Secretary will be the first to step forward and deliberately create a smoke bomb, just to create an excuse for the United States to raise the debt ceiling. Since 1960, the US debt ceiling has been raised 78 times. The last time was 20 19, which rose once every eight months on average. This time, Yellen's appeal is just a "routine script".
So, will US Treasury bonds specifically default? The answer is almost impossible. The United States is well aware of the global status of the dollar, which is the cornerstone of its world domination and an important means to strangle the economic lifeline of other countries. In addition to the huge impact of default on the global economy, there will be a crisis of confidence in the US dollar, the credibility of the United States will be greatly reduced, and the hegemony of the US dollar established by the brenton Woods system will also be lost.
You know, the reason why the dollar occupies a dominant position in the world is that the US government punched it down. After the wars in Afghanistan, Gulf and Iraq, they managed to bite the Middle East and reached an oil trade agreement with Saudi Arabia. The dollar has become the main settlement method of global trade. Biden's government never dares to destroy the "great foundation", let alone bear the stigma of sinners through the ages.
If the hegemony of the dollar is challenged and its status declines, the United States will also change its ideology. At that time, sanctions will be waved and import tariffs will be raised. In fact, the United States is already doing this. Otherwise, how could the United States do everything possible to block the Nord Stream 2 project from the beginning?
"Allies" NATO and the European Union have long seen the face of the United States, but now they are drifting away and no longer listen to the orders of the United States. Although the United States has repeatedly intervened in the "China-EU Agreement", France and Germany still have their own firm positions. The "China-EU Agreement" is only temporarily stranded and will inevitably have results.
So let's go back to the original question, will the US debt default? At present, the US dollar is still the main settlement method of global trade. The trade settlement of oil, iron ore, wood pulp raw materials, soybeans and other commodities is still dominated by US dollars, and the United States still has a certain say in pricing.
However, foreign exchange reserves held by countries are still dominated by US dollars, and local currencies are linked to the US dollar. Exchange rate fluctuations are deeply influenced by the appreciation and depreciation of the US dollar, and the United States is also aware of this.
Another reason is that the Fed has the right to print dollars. Otherwise, in the face of a large number of US debts, how can the Fed bear the brunt and become the biggest "receiver"? At present, the US debt held by the Federal Reserve is as high as $26 trillion. President Powell publicly stated that "we will use all available tools to help the United States revitalize its economy".
Then the policy of "zero interest rate+quantitative easing" was introduced. To put it bluntly, does the "quantitative easing" policy mean printing more money? At present, the Fed has run out of water. It can only devalue the dollar and American debt by printing more money, and absorb American debt from the market at the least cost.
It can be seen that the United States only considers itself, and in order to protect its own interests, it pursues the policy of "America first" everywhere, regardless of its creditors. At present, the US debt is depreciating. Aren't US debt holders and investors just holding a pile of waste paper? Thirdly, the United States once again scattered a wave of wool around the world by releasing a large amount of water and issuing a large number of American debts.
This has always been an old American trick. When there is more money circulating in the market, it will raise interest rates, increase taxes and issue government bonds. When the currency in circulation in the market tightens, it will cut interest rates and print money. Everything is to ensure the smooth flow of the American economy and the dominant position of the US dollar in the world.
Whether the Fed chooses to raise interest rates or cut interest rates, it is bound to cause shocks in the US stock market and real estate market, and the capital predators on Wall Street are the cheapest. You know, the United States, which abandoned low-end manufacturing, will only see its own economic prosperity in the stock market and real estate industry, although the bull market is only a bubble economy.
Knowing this, the wealthy Americans have transferred a lot of assets out of the United States, and large enterprises and wealthy investors are more willing to invest and build factories overseas. Or why Biden has been clamoring for tax increases for businesses and the rich? It is planned to increase the tax rate from 2 1% to 28%, and even advocate the establishment of a "minimum corporate tax" standard in the EU to prevent domestic enterprises from fleeing the United States.
As the biggest "receiver" of US debt, the Fed is still releasing the smoke bomb of raising interest rates, and its attitude is vacillating. Chief Powell only said to raise interest rates before the end of 2022, and the exact time is still unknown. When the Fed was hesitant, some countries had learned from their mistakes and took the lead in raising interest rates. Russia, Brazil and other countries took the lead in raising the benchmark interest rate.
It can be said that the United States is riding a tiger, and the inflation caused by unlimited printing money is caused by the United States itself, which will eventually turn itself into the hegemony of the dollar and can only eat its own fruit. In the face of the decline of dollar hegemony and the maturity of American debt, Biden also shouted, "Inflation is only temporary, and the American economy will eventually recover." I'm afraid it's just Biden's wishful thinking.
Biden's helplessness can be seen from the hastily concluded G7 summit and the US-Russia meeting without substantial progress. After all, who wants to talk to you without money, and who will obey the command of the United States to send numbers? 17 European countries have accelerated the process of "dollarization", and global central banks have sold US debt to varying degrees, which undoubtedly puts the hegemony of the dollar in jeopardy. No country wants to be taken over by Bai Piao, let alone become a "takeover hero".
Unlimited quantitative easing has become the last straw in the United States, and the Federal Reserve and wealthy investors who are lucky have become the "takers" of American debt.