(Finance and Economics) How does the US "wealth-gathering machine" "harvest" global wealth?
China News Agency, Beijing, May 1 (Reporter Xia Bin) In the conflict between Russia and Ukraine, traders are relying on the dominance of the dollar hegemony in the global monetary system to complete the "harvest" through the financial market.
In the past few decades, in many major geopolitical frictions and conflicts, almost all of the United States "spreads fuel" while "shutting down the fire".
Once risk aversion is aroused and rises rapidly in the financial market, global funds tend to flow back to the United States, buying U.S. assets frantically, pushing the U.S. dollar index to a high, panic looming over the foreign exchange market, and other major currencies in the world "suffering".
"Every time a geopolitical crisis occurs, the US dollar will always strengthen compared to other currencies, and this time is no exception." He Weiwen, a senior researcher at the Chongyang Institute for Financial Studies at Renmin University of China, said that during the Russia-Ukraine conflict, the euro and the pound were both stronger than the US dollar. Down, the dollar, with its stronger moves, attracted capital from the rest of the world, especially Europe, into the United States.
Data show that since the conflict between Russia and Ukraine, the US dollar index has soared from around 96, reaching a peak of 103.94, the highest value since 2003.
Zhu Min, Dean of the National Institute of Financial Research at Tsinghua University and former Vice President of the International Monetary Fund, previously said: "The U.S. capital market has increasingly become a 'debt haven' during the crisis. When a crisis comes, funds will quickly flow out of emerging markets. Flowing back to the U.S., the appreciation of the U.S. dollar will bring liquidity tensions.”
The United States has launched a "money-gathering machine", which not only disrupts the situation externally, but also "cooperates" internally.
The Federal Reserve announced to raise interest rates in March, and then continued to release tightening signals that exceeded market expectations. The familiar "dark cloud" floated over the global financial market again.
After the establishment of U.S. dollar hegemony, this "old routine" has been played too many times-during the easing of the United States, the Federal Reserve cut interest rates, causing emerging markets to borrow a lot of U.S. bonds, and the economy is booming. Once interest rates are raised, capital flight, bubbles burst, emerging markets. Mourning is everywhere.
Luo Zhiheng, dean of Yuekai Securities Research Institute, pointed out that the multiple risks of the US interest rate hike cycle are superimposed, and if emerging market economies respond improperly, it may directly lead to exchange rate crises, foreign debt crises, and financial crises.
For example, the Turkish currency crisis in 2018, the Latin American foreign debt crisis in the 1980s, and the Asian financial crisis in 1997.
In fact, after the disintegration of the Bretton Woods system that made the dollar pegged to gold and obtained a special status as a world currency, the United States found a new binder for the dollar—oil, and created a settlement system and operation method to maintain the hegemony of the dollar.
Talking about the "magic weapon" of the United States "harvesting" the world, Chen Wenling, chief economist of the China Center for International Economic Exchanges, mentioned the US dollar return mechanism.
She said that, on the one hand, the world trade settlement currency is in US dollars, and the reserve currency is in US dollars. The hot circulation formed by depreciation and currency release also includes the cold circulation formed by the appreciation of the US dollar and the shrinking of the US debt balance.
For example, Chen Wenling said that after the outbreak of the international financial crisis in the United States in 2008, the issuance of US treasury bonds exceeded US$10 trillion for the first time.
Since then, the United States has accelerated the use of national debt to transfer its own financial crisis. The 2008 international financial crisis started in the United States and affected the world.
Liang Haiming, dean of the Silk Road Intelligence Valley Research Institute and dean of the Belt and Road Research Institute of Hainan University, said that the U.S. dollar and U.S. dollar assets (such as U.S. Treasury bonds) are still the world's most important reserve currency and the most liquid financial asset, respectively.
The strong position of the U.S. dollar enables the U.S. to achieve financial hegemony through the U.S. dollar, transfer domestic economic risks and extract the interests of other countries through U.S. dollar hegemony.
Under the appearance of being tough and bloodthirsty, America's "money-gathering machine" actually has a "malfunction" inside.
At present, the size of the US government debt has exceeded the US$30 trillion mark, and inflation has continued to rise. In March, its consumer price index (CPI) and industrial product price index (PPI) increased year-on-year to 8.5% and 11.2%, respectively. Continued to hit 40-year and record highs respectively.
Hu Yi, an associate professor at the American-Canadian Economic Research Institute of Wuhan University, believes that the uncertainty of the Russian-Ukrainian conflict in the above context is by no means a blessing for the United States to maintain long-term economic growth, and external conflicts will not help solve the industrial hollowing out in the US economic development. Serious long-term structural problems such as low national savings rate, inefficient infrastructure investment, and widening income gap, and its various tactics of deliberately expanding geopolitical conflicts and ignoring European security interests have also been fully exposed, which will inevitably lead to its allies and the conflict. The vigilance of the rest of the world will ultimately shake the United States' cornerstone of credibility in the international system.
(Finish)