• Economic Market Analysis
• 2024-05-31

US Rate Hikes: Impact on Global Econ; China Boon?

In the past two years, the United States has adopted an interest rate hike policy in order to stimulate its own economic growth and alleviate internal economic pressures.

However, recently, several economic experts have expressed that the Federal Reserve may not be able to withstand the pressure in September and is likely to announce a rate cut.

It is foreseeable that this policy will have a significant impact on countries around the world, but for China, it is a good thing.

Tens of trillions of dollars of funds will flood into China, bringing new vitality to the Chinese economy.

Some say that the United States' move is undoubtedly self-sabotaging, which will raise the international status of the renminbi, while others say it will increase the risk of war.

Are these statements true or false?

The United States' recent maneuvers

Today's United States can be said to be beset with internal and external troubles. First, its international influence is continuously diminishing, followed by increasing domestic economic pressures. According to the latest debt data released by the United States, the current debt scale of the United States has exceeded 35 trillion US dollars.

Advertisement

If every American citizen were to bear the burden, each person would have to carry at least $104,000 in debt. It can be said that the current debt crisis in the United States is unlikely to be repaid even if the country wants to. This is because the amount owed has far exceeded the United States' GDP for the entire year of 2023.

In order to alleviate the debt crisis, the United States has been printing dollars in large quantities and injecting them into the global market. They want to use this method to stimulate the development of the national economy, but while this is effective in the short term, in the long run, it is undoubtedly dragging the United States into an abyss.Unrestrained printing of US dollars leads to currency devaluation, also known as inflation. The purchasing power of money decreases, and naturally, prices will rise. This will inevitably affect the US debt, increasing the pressure to repay.

The United States cannot afford to let this situation continue and immediately demands that the Federal Reserve raise interest rates to combat the domestic economic crisis.

The US also hopes that by increasing the interest rates on the dollar, it can attract global capital to flow back to the US. This would add a boost to the US economy and help it quickly escape the debt quagmire.

However, this is not the true intention of the United States. Its real target is China and Russia. It wants to use the policy of raising interest rates to strike at China and Russia, aiming to weaken our economic strength in order to maintain its position as the world's hegemon.

Has the US interest rate hike policy really affected us?

Cleverness can be a source of folly.

We need to examine the logic behind the US actions, as the US dollar has always been a globally circulating currency and has always held a dominant position in the international economy.

Once the US interest rate hike policy is implemented, it will inevitably have a significant impact on the global lending market. The cost of borrowing will continue to rise, especially for countries dependent on the US dollar, which will face many debt crises.

This has caused a lot of hardship for many countries, but they can only endure it. After all, the United States is still the most powerful country in the world. How could they offend it unless absolutely necessary? The impact can only be silently digested and borne by their own countries.

The United States naively believes that this method of raising interest rates will also affect China and Russia. It can only be said that the United States is becoming increasingly naive in its thinking.Although they have had an impact on other countries, they have overlooked the actual economic conditions of China. It should be recognized that China's economic development has always adopted a diversified policy, not like other countries where the economic structure is very singular.

We have many pillar industries, not to mention that we hold a large amount of U.S. Treasury bonds. Faced with the impact of U.S. interest rate hikes, with our diversified economic structure and our vast market size, we can completely eliminate the impact brought by the interest rate hikes.

Russia's approach is even more straightforward and crude. Russia is rich in energy, and the energy economy is one of their pillar industries. Russia has been conducting a large amount of energy transactions with China, and energy exports have always been very stable, which has kept Russia's economic income very stable.

Moreover, what is more important is that Russia conducts transactions with us in Renminbi, so the impact of the U.S. dollar is almost negligible.

In contrast, the United States can be said to have lifted a rock only to drop it on its own foot.

The side effects of the interest rate hike quickly took effect on the United States itself, and now the economic pressure on the United States is increasing. Due to high interest rates, the interest rates on U.S. Treasury bonds have been soaring, and the extra money is naturally borne by the U.S. government.

One can imagine that the U.S. government must be feeling desperate, as they intended to sanction China and Russia, but how did it end up sanctioning themselves?

The sharp increase in debt repayment costs will also affect the economic development of the United States. How many banks in the United States have now declared bankruptcy due to the inability to bear the cost of borrowing, trapping a lot of people's money to leave. The American people are also complaining, but what's the use? Capitalists, how could they care about their lives and deaths?

It can be seen that the current economic situation of the United States is not very good, and even capitalists are making money and running away.

The huge potential of China's economyThe U.S. economy is riddled with problems, yet it presents a huge opportunity for China. Due to the U.S. interest rate hikes, many countries have found that the dollar is fundamentally unreliable, while in contrast, our yuan is much more dependable than the dollar.

Now, an increasing number of countries are choosing to settle in yuan, and the international status of the yuan can be said to be soaring. Recently, news from the U.S. has emerged again, suggesting that they will lower interest rates for the dollar in an attempt to halt the rising trend of the yuan's status.

But what good will that do? The U.S.'s flip-flopping has already made global capital markets not optimistic about it, instead turning their attention to China.

Nowadays, Western countries such as Germany and the United Kingdom, as well as several Middle Eastern nations, are beginning to position themselves towards China, preparing to enter the Chinese market on a large scale.

China's economy is vast and its market is stable, which is exactly what their capital is most eager to see. Their arrival will inevitably make our economic development even more rapid, and will also help to elevate the international status of the yuan.

Experts estimate that as a result, at least over a trillion dollars will flood into the Chinese market. It can be said that such a scenario must make the U.S. envious. What it needs most now is economic stimulus, but capital has chosen us.

However, in this case, the U.S. will surely play dirty tricks behind the scenes. It will undoubtedly keep stirring up regional conflicts to delay our economic development. Just like its tactics against Russia, it provoked disputes with Ukraine, plunging Russia into a war quagmire from which it cannot extricate itself.

But we are not Russia and will absolutely not allow the U.S.'s conspiracy to succeed. If the U.S. wants to provoke war through local disputes, what awaits is China's fierce retaliation.

The U.S. should be able to understand which is more important.