Source: Dashuxiangzhang Township Chief (ID: dashuxiangzhang)
It is well known that the world economy is in a downward cycle.
However, it is puzzling that China, which has been given high hopes for recovery, has ample production capacity and a huge surplus, yet its exchange rate is constantly depreciating, and asset prices in the domestic capital market are gradually declining.
On the other hand, in Europe and America, major industrial countries are facing deficits and interest rate hikes, and their stock markets are steadily rising; The sharp interest rate increase in the United States in the short term not only did not burst the stock market foam, but under the impact of bank failures, the NASDAQ was constantly recovering its lost ground and was about to make up for the previous decline.
Even the Nikkei Index, which has been lost for thirty years, has reached a new historical high, causing many self media to exclaim that Japan is about to rejuvenate its second spring.
The phenomenon is confusing.
If something goes wrong, there must be a demon. Flowing into phenomena can easily overlook the essence, and it is easy to revolve around contradictory phenomena, wasting effort and effort.
To realize the relationship, we should first distinguish between the financial cycle and the business cycle. These two cycles are often not completely synchronized. Moreover, with the help of modern financial instruments, the financial cycle is often driven by monetary and monetary policies.
In other words, the US stock market has been bullish and the economy has been bullish, really because the US is the birthplace of the T-car and the internet economy. Every development and prosperity of new technologies and industries will generate new prosperity, and every technology stagnation and industry maturity that leads to widespread diffusion will cause the economy to slow down.
Similarly, technology and industry alone are not enough. Every development of productivity will inevitably bring about adjustment of relations of production. Just then, the United States was in the ascendant period, and they produced several outstanding politicians.
There was a US President named Theodore Roosevelt who, after the United States reached the top of the world’s largest industrial nation, decisively implemented antitrust measures domestically, improved public welfare, and promoted environmental protection for the “green mountains and waters” of the United States. It was precisely because of his reforms that eased domestic conflicts and laid the foundation for a new prosperity in the future.
He was also a President named Roosevelt. In the face of the Great Depression in the capitalist world, he advocated for state intervention in the economy and built a welfare society in the United States with high taxes and benefits, greatly alleviating labor and capital conflicts, enabling the United States to successfully overcome the depression, defeat fascism, and ascend to the iron throne of the world’s lighthouse.
So looking back at the current situation, has the United States made another contribution to the ability of humans to transform nature?
At present, it seems that it is indeed true that ChatGPT emerged in the first year, immediately sparking a wave of artificial intelligence, making the world feel that humans may have truly entered the AI era with one foot. AI changing human society may no longer be a mere talk.
So even though the United States is still raising interest rates and closing, the US stock market cannot stop rising.
If we take a closer look, we can actually see that although technology stocks seem to be flourishing, the core is very clear. Microsoft behind ChatGPT and Nvidia behind GPUs (AI chips) used for AI computing are the core technology companies that have risen in this round. In fact, the recent increase in the Nasdaq index has been mainly contributed by several major technology companies.
Capital has bet on new industries, and the imagination brought by AI has led capital to bet against high interest rates, which is one of the main reasons for the current strength of the US capital market.
But it should be noted that in 2022, during the rapid interest rate hike in the United States, the return of US dollar capital was very conservative.
Specifically, US dollar capital would rather lie down and earn some short-term interest money than buy large amounts of financial assets, such as buying US bonds or depositing them in banks. The size of the Federal Reserve’s overnight reverse repurchase account has rapidly increased from less than $100 billion in the early stages of interest rate hikes to $250 billion. Money is indeed money, and caution is indeed cautious.
The external expectations for us are not about leading breakthroughs, but about large-scale recovery, so when our recovery falls short of expectations, our evaluation will naturally decrease by one level. Therefore, the main difference in performance between the Chinese and American capital markets lies in fundamental differences.
What about compared to Europe? The rise in Europe is more of a monetary performance, a rise brought about by changes in expectations.
Why did Europe stabilize and rebound? In 2022, with rapid interest rate hikes, many emerging market countries have nothing to do. Instead, it is the old financial powers that have had major problems, first with the explosion of pension funds in the UK, then with the explosion of Credit Suisse in Switzerland, and then with the bankruptcy of their own banks in the United States.
This is not an existing script for the US dollar tide, or rather, it has not achieved the main goal of the US dollar tide.
If we fall first with our little brother, we won’t be able to continue playing this game.
So while UBS Group acquired Credit Suisse with 3 billion Swiss francs, the Federal Reserve also issued a statement saying that the Federal Reserve, the Bank of England, the Bank of Canada, the Bank of Japan, the European Central Bank and the Swiss Central Bank announced that they would take coordinated action to strengthen liquidity supply through the permanent dollar liquidity swap line arrangement and provide more liquidity support for the global market.
This is not just providing liquidity to the global market, but also providing liquidity to one’s own younger brother. On the one hand, global water harvesting, and on the other hand, targeted water release to provide support for allies. This measure is to tell allies that you are safe and not the ones who are being stabbed.
Since the last 75 basis point interest rate hike by the Federal Reserve in November last year, the Fed has also been constantly speaking up, releasing expectations that the rate hike will end, giving countries a chance to breathe.
Does China have this treatment?
Of course not, they still expect Chinese people to sell off RMB assets, hold US dollar assets, and continuously extract liquidity from the Chinese market. Of course, compared to Europe and even Japan, China is not dominant in the financial cycle, and even targeted.
However, the current world is a world that runs faster than anyone else.
China is at a disadvantage in the financial cycle, but its fundamentals may not be weaker than industrial countries such as Europe and Japan. Our industrial upgrading is still in full swing; We have temporarily lagged behind the United States in the development of technology breakthrough industries, but we have made breakthroughs in improving international distribution and adjusting international relations of production.
The current difficulties will continue, and external risks have not yet been lifted. However, as long as we persist until everyone faces an economic depression, life will be relatively easier. It’s just so magical.