What is the United States worried about?

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The following article is from Yunshi, the author of Yunshi

The U.S. interest rate hike cycle is in full swing, but the situation is not very good: Although the Russian Ukrainian war and the sudden sh epidemic in China have made the speed of dollar return meet expectations, the money returned has not taken over U.S. stocks and bonds as expected. Now the US has only raised interest rates twice, and the scale reduction has just begun, but the US financial market has already suffered a heavy fall. The Nasdaq, the largest foam, has fallen 30% and entered a technical bear market; U.S. bond yields have returned to a high of 3 again.


This is not a good thing for the United States. It is well known that the tide of the dollar reaps the world, and the necessary prerequisite for the success of the harvest is to ensure that our own countries do not collapse before the collapse of other countries – otherwise, it will not be the harvest of the world, but the Japanese.

But now the interest rate has only been raised for the second time, and the table contraction has just begun. At this time, there are signs that the U.S. stock market can not hold up. This is a little shameful. But even so, Powell still did his best to advocate the radical interest rate hike, which almost forced the U.S. stocks and bonds to death.

Why did Powell, knowing that the risk of radical interest rate hike was huge, rush forward with an iron head? In fact, there is no way. After all, the US inflation figures are too high. The CPI in May released by the United States some time ago rose by 8.6% year-on-year and 1% month on month, directly exceeding market expectations.

This is the highest level in 40 years. And this high level is actually the result of multiple weight adjustments. So it is entirely conceivable how terrible inflation in the United States is now.

Of course, many people think that inflation is actually no big deal – after all, with a per capita GDP of $60000 in the United States, how much more will it cost to eat, drink and go up? Although it’s hard, it’s not too bad!

It sounds like such a thing, but if you really understand the economy, you know that such words are very naive.

The harm of inflation lies not only in the rise in consumer prices, but also in the overall damage to economic operation:

First of all, unlike China, the United States is a typical consumer nation, with consumption accounting for 70% of the national GDP, which means that the consumption power caused by inflation is damaged, directly affecting production. In the past few months, although it seems that the total amount of consumption in the United States is increasing, in fact, its consumption is declining.

This logic is also well understood. As prices rise, consumers must pay more for the same goods than before. As inflation comes too fast and too hard, the increase in consumer spending caused by price increases is greater than the decrease in total consumption caused by frugality. This is reflected in the consumption data, which means the increase in total consumption.

But is that a good thing? Of course not. People spend more money, but they can only buy fewer goods.

This is not good news for manufacturers and channel suppliers. With less consumer demand, producers and distributors will naturally have less goods to sell. This is reflected in their declining profits, production cuts and layoffs.

Of course, everyone will have a problem. Although the quantity is small, the price has increased. Can they use the price increase to make up for the loss of production reduction?

This is not the case. This round of commodity price rise is mainly caused by the rise of bulk commodities and the destruction of the supply chain. Naturally, the upstream enterprises, midstream producers and even channel providers are the first to suffer from the impact from the upstream. They directly bear the price rise of the upstream, but when transmitting the pressure of rising costs to the downstream, Constrained by the limited purchasing power of consumers (after all, the U.S. government has stopped paying money, and the Federal Reserve is still raising interest rates and shrinking its balance sheet), it is impossible to fully pass on the cost increase to consumers – so these midstream enterprises are the hardest hit.

This is also the reason why last year, when the economy was booming, China tightened its credit and strictly restricted the expansion of production capacity – China was the largest external supplier of industrial consumer goods in the United States. If it had expanded its production capacity wildly at that time and waited until the tide of American consumption ebbed, China would surely be a chicken feather.

China is only a part of the U.S. suppliers of goods, and many goods are produced by other countries and U.S. domestic enterprises. Moreover, channel providers, such as supermarkets, are owned by the United States. So we see that Wal Mart, Costco, etc. also fell sharply some time ago.

If the sales volume of these enterprises declines, they will naturally reduce production and lay off workers. While production reduction means economic contraction, and layoffs mean a decline in consumption power, which will fall into a vicious circle.

How to save the economy? The conventional approach is to cut interest rates and expand the table. However, the United States has put too much water in the past decade or so. Both US stocks and US bonds are at historic highs. Now they are unsustainable – if they continue, they will collapse. Therefore, they have to increase interest rates and shrink their balance sheets. This is adding insult to injury – it is not only difficult to control inflation, but also further exacerbates the contraction of consumption power.


In fact, the United States also knows that this is not the right way. The correct approach should be to try every means to lower commodity prices and increase the supply of cheap industrial products. However, for bulk commodities and low-cost industrial products, one depends on resource countries and the other on producer countries. In terms of resource countries, Russia has raised the table; Among the producing countries, China is also at war with the United States. The most important thing is that we all see the weakness of the United States, the decline in the credit of the US dollar, and the tidal harvest that the United States is starting. Therefore, we do our best to take precautions. We do not want to replace our precious resources with the continuously depreciating US dollars that may be harvested at any time. Instead, we take this opportunity to get rid of the traditional mode of dollar pricing and settlement of bulk commodities and regain the right to speak about our precious resources.

This lack of coordination and careful thinking between resource and producer countries has further weakened the credit of the US dollar and reduced the total amount of goods that the US dollar can buy. With more money and less goods, dollar inflation will naturally grow. As long as Biden is uncertain about China and Russia and about the Middle East, India and Indonesia, which are hiding behind China and Russia to see the wind, the Fed’s monetary operation and expectation management alone will be stable for a while at most, let alone for a long time. Even in the medium term, inflation will still be unstable.

Even with the deterioration of the situation, the Fed’s monetary operation and expectation management will become increasingly unsustainable:

High inflation magnified the panic in the capital market. At present, the yield of U.S. Treasury bonds is about three points – in this case, treasury bonds. Treasury bonds are nominally risk-free bonds. If an enterprise wants to borrow, the interest rate should be higher. Especially now that stagflation is coming and enterprise risks are increasing, when issuing bonds, the interest rate needs to rise further. No matter how, it takes fiveorsix points before someone is willing to buy.

Such high debt interest will not only aggravate the operating pressure of enterprises, but also inevitably lead to pressure on the P / E ratio of listed enterprises. After more than ten years of blowing bubbles, the US stock market has already become very fat; In such a comparison, enterprise stocks are obviously overvalued – this overvaluation may be better said in the period of economic expansion and monetary release; However, when the economy is stagnant and the currency is closed, it will be troublesome and it is easy to cause the collapse of confidence in the stock market.

The impact of corporate bonds on U.S. stocks is more than that. As we all know, the bull of US stocks in the past decade or so is largely supported by enterprises’ repurchase of their own stocks:

After more than a decade of loose monetary cycle, the Federal Reserve has released a huge amount of water. The market is flooded with funds and the interest rate is extremely low.

So, where did the money go? In addition to consumption, some went directly to U.S. stocks, while others bought corporate bonds – a larger market than Treasury bonds.

So that’s the problem? What do enterprises do with issuing bonds? In theory, it is to invest in the expansion of production and operation. However, in fact, due to the widening gap between the rich and the poor in the United States and the long-term scientific and technological revolution, the public consumption power at the social level has gradually dried up in the past decade or so (which is also the reason for the rise of populism and trump).

What can we do? No money? This is also impossible – why not have such a cheap money? Therefore, the common practice of American enterprises is to take advantage of the big water release cycle and the bull trend of the stock market to buy back their own shares and raise the stock price. This not only increases the market value of the enterprise, but also allows major shareholders and professional managers to cash in more benefits.

This is all right in the water release and prosperity cycle. In the water collection and stagflation cycle, trouble will come. The water collection cycle, the stock market would have been under pressure; Under the environment of economic stagnation, the financial statements of enterprises will not look good, which further exacerbates the market value pressure of listed enterprises. But at this time, the enterprise will face the pressure of paying off its debts. After all, you have borrowed so much money in the past ten years. This step by step should be due, or not?

During the period of water collection and stagflation, the operating profit of the enterprise is greatly reduced or even lost. What do you want the enterprise to pay back?

There are three ways: directly repay with your own cash flow, issue new bonds to repay old bonds, or sell the stocks you bought back before your company.

Cash flow is roughly constant, and it will be reduced by one point. Moreover, in the stagflation cycle, enterprises will generally face difficulties in operation, and it is more necessary to have sufficient cash flow to support operation. Not every enterprise has the cash flow of apple and Tesla. What’s more, even apple and Tesla can’t afford to sit back and eat!

Issue new debt to repay old debt? This can be done in theory, and it has been done in the past few years. But it was in the water release cycle. There was too much money in the market, and the interest rate was too low. At that time, it was easy for you to issue bonds, and the interest rate was too low; But now it is the water collection cycle. There is less and less money in the market, and the interest rate of your bonds is much higher than before. This means that if you issue bonds now, you can certainly borrow less money than before – it may not cover your old debts; Even if I borrowed it, the interest rate would be several times higher than before. All these will seriously affect the operation of the enterprise, the confidence of investors and the stock price of the enterprise.

In the last step, we have to sell our own stocks. Anyway, we have bought back a large number of stocks in the past ten years, and they have also been fried to a high level. Now we sell them and recover cash to cope with them.

If only one or two companies play like this, it’s OK. But if a large number of companies play like this, it will certainly not work. This time, the problem facing the U.S. economy is holistic, so the companies that have this problem are certainly not one or two. If they want to sell, they should sell together.

This is trouble. Now everyone knows that the US stock foam is shocking, and it is on the verge of collapse – this vigilance is greatly enhanced under the cycle of raising interest rates and shrinking the balance sheet. At this time, once all enterprises collectively sell their own stocks at the same time, it is bound to cause panic and stampede, leading to an avalanche in the stock market.


This is the biggest weakness of the United States now! Over the past ten years, the large-scale release of water has created a shocking foam for the capital market, but it has not created a matching growth point for the real economy, which has led to the complete disconnection between the capital market and the real economy. Now, with the arrival of inflation, the unprecedented expansion of water meters has come to an end, but the unprecedented contraction of water meters is imminent. However, this time, we have to shrink the scale for the water collection, but it is doomed to exceed the endurance limit of American enterprises and capital markets, and eventually lead to the overall collapse of the American economy!

So is it possible to avoid all this?

Two approaches:

First, subdue Russia and China, which are the main source countries for commodity inflation and de dollarization; One holds the main supply of global industrial consumer goods; Hold them both, and other small countries with evil intentions will be obedient immediately. Then, with the adjustment of the monetary policy of the Federal Reserve, this round of inflation can be eased, and the US dollar harvest cycle will proceed smoothly as in the past – when the time comes, enough high-quality assets from overseas will be enough to wipe out high-level debt and hedge the foam in the stock market.

Second, terminate the interest rate hike in advance and restart the water release cycle. If the interest rate hike cycle has not been completed, the stock market will have fallen to the limit that the United States can bear. At that time, the Federal Reserve will have no choice but to change its course and expand its table again. Otherwise, the U.S. stocks, bonds and even the U.S. economy will collapse. In this way, it means that the plan to harvest the world with the tide of the US dollar fails, and the US economy and even the US dollar credit will suffer a great blow in this process. Although the epic crash has been avoided, the long-term big inflation and the serious weakening of the US dollar as the world currency will be inevitable, and the US hegemony will also be severely damaged in this process.

The second way is definitely not what the United States wants – after all, in the long run, it is similar to a crash, but it is the difference between quick death and slow death. But from now on, it is difficult for it to avoid this by its own twists and turns.

So the United States can only think about the first way. So we saw the United States’ aggressiveness against Russia – perhaps at the beginning, the United States did not expect to play such a big game when it launched a fire against Ukraine; However, after Putin established the natural gas ruble and led the resource countries to start the wave of de dollarization of bulk commodity trading and the struggle for control, the United States had no choice but to fight Russia to the end.

So we also see that the United States is aggressive in East Asia and ready to take off on the Taiwan issue – strictly speaking, the United States has no strength to fight against China, let alone fight on the Eurasian front. However, our economy has been sitting at the crater of the volcano. Even if we know we can’t do it, we must do our best. Otherwise, this round of interest rate hike cycle will really become a grave digger for the United States!

Cutting is also dead, not cutting is also dead, not like cutting! I didn’t expect that the powerful US emperor would also let himself fall into the dilemma of Zhugeliang during the northern expedition. All this is the general liquidation of the evil deeds of the United States in the past few decades – when a leading world power, it no longer wants to keep ahead by leading human civilization to explore the future; When it only wants to maintain its comparative advantage and extravagance by exploiting and squeezing the same kind, it will lose its qualification as a beacon of mankind and no longer deserve the halo of the chosen country. At this historical stage, letting his lighthouse go out and his aura fall to the ground is the greatest justice of human civilization! What we have to do is to act according to the situation and promote the coming of justice!

This is the macro strategic direction. So, when it comes to practical operation, does China have any means to burst the US foam? Actually, there are, but we usually don’t take the initiative to do such things that harm others. However, if the United States plays the Taiwan card next, in combination with the current situation of the United States, China actually has a killer mace against the United States in terms of economy and finance.

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