The Reflection Of The Federal Reserve'S Wisdom Is Worth Learning.

The "catastrophe" of the US dollar and the wisdom of the Fed

If viewed from the time node, in the past thirty years, the dollar has been "havoc" for ten years. Many countries have not fully grasped the resistance, including the United States itself.

Whether it was the great stock market crash of 1987 or the Asian financial crisis of 1997, or the subprime mortgage crisis of 2007, the wealth brought by the US dollar to different countries was hard to imagine.

Will China's economy and RMB exchange rate be hit by the strength of the US dollar from 2016 to 2017, as manufacturing exports are weak and the exchange rate and capital markets are open?

China's accession to the WTO brings surprises to the global economy

Since China's accession to the WTO, it has brought infinite surprises to the global economy and has stirred up the whole global financial and capital market.

In the past more than 10 years, China has consumed most of the world's iron ore, cement, coal, agricultural products and gold crude oil, making more than 50% of the world's daily necessities (such as: 70% of the world's toothbrushes are made in China, 75% of the toys are made in China, and 100% of the microwave are made in China).

But with the slowdown of China's economic growth and the upgrading of the consumption and manufacturing market, the development mode of cheap labor and ecological destruction has been gradually rectified, and the global adjustment due to the adjustment of China's economy has entered the right direction.

Redistribution and reflection.

China's commodity price index (CCPI) and China's production price index (PPI) trend

So far, commodity prices such as iron ore, copper, coal and gold, which are dominated by China's demand, have dropped to the bottom of the subprime crisis.

As China's demand continues to slow and the US dollar continues to grow, many investors around the world continue to sell related commodities.

Australia's economy, which is highly correlated with China's demand, has been in a predicament. The Australian dollar has fallen to the level of the US dollar in 2009. Net external debt has reached 1 trillion dollars, accounting for more than 60% of GDP, and the market began to worry that Australia would become the next Greece.

Latin American economy will break the worst record

If there is no Chinese style economic growth, what will happen to the global investors' asset allocation? The fact is that the investment and interest of investors in emerging countries depend entirely on their growth rate and are unlikely to accompany them through the adjustment period or the crisis period. This is like a lot of rich people willing to make money in the countryside, but when they spend money, they must go to the city.

At present, the problem facing the world is that many international investors are very willing to make money in emerging developing countries, but after making money, it is difficult to circulate in emerging economies, instead they go to the United States to spend, invest, buy American stocks and treasury bonds, and other countries' currencies and economies have been run.

The decline of China's economic growth is only a fuse of the "catastrophe" of the US dollar.

The Bloomberg index shows that the Latin American currency has fallen by 10% so far this year.

The world bank predicts that the Latin American economy will hit the worst record since the outbreak of the financial crisis in 2008.

In addition, the worst performing stock market in the world is also in this area.

If the economic downturn in Russia, the Middle East and other countries caused by the fall in oil prices and the euro weakness problem caused by Greece's debt problem, the whole world seems to have only sustained improvement in the US economy, and there is not much risk and controversy. Only six years ago, the US economy was still in the subprime mortgage crisis that made the US economy crumble.

The Fed leads the US economic recovery.

Since the subprime mortgage crisis, what has the White House done for the recovery of the US economy? The market really does not have any idea. The fact is that the White House has really done nothing in addition to a little tax and a universal medical insurance.

In the six years since the start of the recovery of the market after the crisis, the market has seen only the US Federal Reserve, which is fed by several rounds of the US economic data.

And the well controlled price level saved the United States.

The Fed's quantitative easing policy is not a simple currency, which is quite different from the loose monetary policy of the European Central Bank and the Bank of Japan.

In the past six years, the unemployment rate in the United States has dropped from 10% to 5%. Real estate market "new housing starts" and "home sales" have reached or surpassed the level before the crisis.

More importantly, the average interest rate paid by the US government in the 2014 fiscal year for public debt is only 1.8%, which makes the ratio of government debt to GDP lower than forty years ago (but the proportion of debt to GDP is three times that of forty years ago).

The Fed seems intent on maintaining the deficit.

At present, the US debt and deficit may still be a problem that has long troubled the market. The Federal Reserve has also been worried about the acceleration of the US government debt and deficit expansion. But maintaining the controllable debt and deficit seems to be the Fed's intention.

From the time of President Kennedy to the current Obama era, the United States has been maintaining a deficit level. In fact, it has been able to achieve fiscal surplus for many periods.

Budget deficit accounts for GDP ratio

Especially in the Clinton era, because of the fiscal surplus of individual years, the White House began to "expand", and Clinton everywhere publicized his ability to run the country and solve financial problems, which made the Federal Reserve begin to worry that the White House would interfere in more commercial activities.

By the time George W. Bush came to power in 2001, the Congressional Budget Office predicted that the next 10 years would achieve a cumulative surplus of US $5 trillion and 600 billion. In fact, in the next ten years, the White House's fiscal deficit was close to $6 trillion and 200 billion, which is quite different from the forecast.

In fact, in 2001, Alan Greenspan, chairman of the Federal Reserve, explicitly expressed concern about the consequences of repaying the federal debt (Fed chairman's competition was worried that the government would pay off debts), for example, the government might invest its surplus in stocks and then interfere with the management of Greenspan.

This shows that the Fed does not want the White House to expand its power due to fiscal surplus. The initiative to induce the White House to borrow is probably only part of the Fed's strategy.

This may not be imagined by the whole world.

What happened next, we all know, no matter what the excuse is, the result is the "good" financial situation created by Clinton during the period of the Republic of Korea. It has ceased to exist under the various expenses of the George W. Bush and Obama governments. During the Obama term, the US budget deficit has accounted for more than 7% of the GDP share, which is at a higher level in history.

However, just as the world is worried about it, the Federal Reserve has created the "continued attraction" of the US dollar in the form of QE and expected interest rate increase and the instability in Europe and Asia. Especially after the sanctions against Russia, the demand for us dollar in the whole international market has increased dramatically, and speculative and investment funds have been repatriating to the US. The US government's financing cost has continued to decline, and at the same time it has also reduced the operating cost of the US business.

China needs to learn from the Fed

By the end of last year, the US government's fiscal deficit in 2014 has been the lowest in 6 years. This has led to increased confidence in the United States in solving the fiscal deficit problem and concerns about the US debt problem have begun to slow down.

All this seems to be under the control of the Federal Reserve.

China, as a newly emerging power, especially in the process of constantly integrating the RMB into the world, has too many places to learn from the Federal Reserve.

With regard to the Fed, there is no conspiracy here. Human beings create their own credit currency with their own wisdom. The United States has created a new world currency (US dollar) with its powerful influence. The Pandora magic box has been opened, and its greed and fear always exist. What we need to be vigilant is that the damage to other countries caused by the cyclical "catastrophe" and reconstruction of US dollar based on the interests of the United States can not be underestimated.

But human nature is so, there is no dollar, making "turbulence" may be war, disease, gold, religion...

In the world of credit and currency, even though there will be financial crisis and economic depression, the whole world will develop towards interconnection and commerce, rather than towards closure and confrontation.

This is that we know that US dollar hegemony is unfair to many countries, but we still need to learn the attitude and the positive way to deal with the reasons and logic.