- 2024-07-20
- News
Dollar Rallies, Yuan Drops Below 7.25
The US dollar is strengthening significantly, seemingly aiming to 'harvest' wealth from the global market, while the Chinese yuan continues to depreciate, causing ordinary people to worry: will my wallet be affected?
The A-share market is also sluggish, with 3300 points becoming a tough hurdle to overcome. Will the central bank intervene? When will the depreciation of the yuan come to an end? Is the opportunity for a stock market counterattack just around the corner?
The depreciation of the yuan will not be bottomless.
Starting from November 6th at 7.10, the yuan exchange rate has depreciated by over 1500 points to the current 7.256, leading many to worry whether the yuan will continue to depreciate endlessly, eventually reaching a 'bottomless' situation as in the past.
However, the central bank has made it clear that the yuan exchange rate will be maintained at a "reasonable and balanced level," meaning that the depreciation of the yuan will not be without limits.
As we all know, a weaker exchange rate facilitates exports, but other countries may suffer, and our international relationships may become tense, which could make China's position in international politics and economics more delicate, especially when facing a strong country like the United States.
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This is not what we want.
Therefore, the current depreciation of the yuan exchange rate is just a temporary interlude and will not go on endlessly.
Moreover, the depreciation of the yuan will also affect China's financial stability. If the exchange rate continues to depreciate, foreign capital will also be concerned, fearing that their investments will shrink, and then they might decide to withdraw! If they withdraw, the stock market will follow suit, and we do not want to see this happen.
If the exchange rate is not stable at this moment, how can we successfully promote the internationalization of the yuan?
Looking at the overall situation, the main reason for the current pressure on the yuan exchange rate lies in the appreciation of the US dollar.
Tracing back to the source, why has the US dollar been so strong recently?
The reason is that the market is worried by his remarks, claiming that the next Federal Reserve Chairman has been decided, causing Wall Street financial giants to be restless, fearing that Powell will not be able to effectively reduce interest rates during the remaining term.
This uncertainty has stimulated the market's strong expectations for the US dollar, leading to the continuous strengthening of the US dollar.
In addition, by continuously promoting trade wars, the US dollar income of other countries in the world has also decreased. In other words, other countries have fewer opportunities to earn US dollars through exports, which has brought stronger upward momentum to the US dollar.
Although this "blood-sucking" effect is continuously created, for other countries, especially China, the situation becomes complicated.
In this way, our domestic market rescue plan also needs to weigh whether to maintain the exchange rate or focus on growth. This is really a difficult problem.
Now, the whole world is watching, and stock market fluctuations are just child's play. The real financial war is in the bond market!
US debt has become a heavy burden.
The US national debt has soared to 36 trillion US dollars! This number is staggering. Originally, according to last year's plan, it was expected to increase by 1 trillion US dollars per year over the next decade, which seemed quite stable.
However, from 35 trillion to 36 trillion, it only took 3 months. At this rate, the end of the 2.0 era, the US debt is likely to directly break through the 50 trillion mark.
Such a large debt scale, relying solely on the Federal Reserve to lower interest rates to "debt化解" is far from enough.
Although the government's fiscal revenue seems to be able to barely repay the debt, the problem is that there are many rigid expenditures in the US fiscal expenditure that cannot be easily reduced.
Now everyone is watching the Federal Reserve, hoping that it can continue to lower interest rates to "reduce the swelling" of these government bonds.
However, the current scale of government bonds is close to several times the GDP, which is undoubtedly not a small problem.
In the United States, after the fiscal year 2024 budget plan was announced, the fiscal revenue is expected to be about 5 trillion US dollars, which is only enough to repay the interest. However, the funds are still insufficient.
Social security, medical insurance, and other major livelihood items have gone out of more than 3 trillion, which cannot be moved; military expenditure of more than 800 billion, that is the face of the United States, to reduce it? Not at all! And those civil servant salaries, more than 500 billion, not to give? The government will directly shut down!
In addition to these rigid expenditures, the US government also has to pay 510 billion US dollars in civil servant salaries each year. These people are not just sitting in the office, FBI, CIA and other department staff are directly related to the core of government operations. If the salary is not paid, the consequences of the government paralysis are unimaginable.
In addition, some international aid, such as support for Ukraine, Israel and other countries, all cost money. Just these expenditures have already reached 4.5 trillion US dollars, which has almost exhausted the US fiscal revenue.
In the end, fiscal revenue is not enough to cover these expenditures, and the deficit continues to snowball.
So, the US government is now like a gambler who has borrowed usury, knowing that it can't be repaid, but still has to continue borrowing. Long-term bonds are no longer wanted, and short-term government bonds are issued, which is jumping into the fire pit!
After all, whether it is the Democratic Party or the Republican Party, everything they are doing now is just delaying time, trying to wait for a miracle to appear, or simply pushing the problem to the next government.
Everyone knows that to completely solve the US debt problem, the price is too high, and no one is willing to really face this reality. Obviously, the US debt problem has reached a point where it is difficult to return, and the difficulty of solving it is increasing.
Our trump cards are behind us.
The US debt problem is like a sword hanging over our heads, which may fall at any time, and the principal cannot be repaid, and interest also needs to be saved.
If the US fiscal collapses, the global financial market will be turbulent, the stock market may suffer a heavy blow, companies may go bankrupt, unemployment rates may rise, and people's lives will fall into difficulties.
What is more serious is that the United States is running out of time, like an ant on a hot pan.
Faced with the US debt problem, it is necessary to seek a solution or a temporary measure until there is no other way.
However, for our country, this is not an urgent problem to be solved. We still have trump cards - gold, crude oil and other resources will appear together, completely disrupting the US dollar system.
Now we are just letting the US debt yield fly for a while, waiting patiently to see how the situation develops.
But on the other hand, how much fiscal deficit can these moves solve?
It still depends on the Federal Reserve's long-term low-interest-rate national policy, which is the magic weapon for the US debt not to fall.
However, this low interest rate has been long, and global inflation has to follow the skyward monkey, it's scary to think about.
On our side, the yuan is different. It is tied with the world's most complete industry chain, not like the US dollar, which is supported by US debt.
To put it bluntly, the yuan is now undervalued, with great potential! We have production capacity, we have economic development, and upstream resources are stable.
China's strong productivity and stable resources mean that although we will also experience inflation, the mildness of this inflation will be much better than that of the United States.
In this way, we are more confident in stimulating domestic demand, and we can also slowly weaken the hegemonic position of the US dollar.
This may not last long, and the pressure on the yuan will not always exist. The current most important strategy is to stimulate the yuan, enhance the attractiveness of yuan assets, and increase the "sense of security" of yuan assets.
China's assets are now at a low point, which is a good opportunity to attract foreign capital. The policy has absorbed a part of the funds, but how long can the global capital flow to the United States really last?
Now, our Chinese assets are like a treasure, waiting for foreign capital to dig.
Everything has just begun. After the "three axes", it is time to counterattack. It is expected that from January to March next year, our actions will be more accurate.
Remember, this is not a matter of a day, it has to be ground slowly, to see who laughs last!
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