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China's $776B Debt Move Threatens US Bankruptcy
The top two creditors reduce holdings, the Federal Reserve begins to cut interest rates again, can the US economy still withstand it? How has the US historically resolved economic issues? What do we need to guard against?
Recently, the US Department of the Treasury released the report on international capital flows for July this year, showing that the top two overseas creditors of the US, Japan and China, both chose to reduce their holdings. Among them, Japan sold $2 billion in US debt, with the total holding scale still above $1 trillion, while China sold $3.2 billion, reducing the total holding scale to $776.5 billion in US debt.
What does this indicate? First, China had increased its holdings by $11.9 billion in June, and then sold in July, indicating that China merely treats US debt as an investment. Buying low and selling high, China is pursuing the maximization of investment returns. Second, in July, the US military conducted an unprecedentedly large-scale military exercise in the Indo-Pacific region, which was clearly aimed at China, full of malice, and this inevitably affected Sino-US relations.
Now, the US economic problems are becoming increasingly severe, with the debt ceiling freeze bill about to expire, and the US government departments may once again be shrouded in the crisis of a "shutdown." Tesla CEO Musk even exclaimed that the cost of the US repaying its huge federal debt now exceeds the defense budget, and the US is "rapidly heading towards bankruptcy." At this time, the US must be worried that China will withdraw its support and sell US debt, thereby causing huge turmoil in the US financial market.
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Recently, to boost the economy, the Federal Reserve announced a rate cut, aiming to lower the target range of the federal funds rate by 50 basis points, marking the first rate cut by the Federal Reserve in over four years. Behind the first cut, there must be an unusual signal. Directly looking at the inflation index that the Federal Reserve cares most about, it can be found that at the end of August, the US core personal consumption expenditure price index dropped to 2.6%. In addition, the US employment rate also decreased, according to data from the US Department of Labor, the number of US employment increases in July was further revised down from 114,000 to 89,000. It's simple to see that with the inflation index down and the employment situation not optimistic, the Federal Reserve naturally has to shrink back and start cutting rates.
Previously, the Federal Reserve relied on interest rate hikes to attract global dollars back to the US, thereby harvesting other economies and alleviating its own economic problems. But now, the Federal Reserve's rate cut may not be a good thing for other countries. Because during the long cycle of US interest rate hikes, the asset prices of other countries did not depreciate severely, but at least fell sharply, so after the Federal Reserve's rate cut, US capital can just spread to other countries and bottom-fish.
The US is irresponsible, arbitrarily adjusting monetary policy, and transferring its own economic crisis to other countries. China, Russia, and other countries have realized this and have taken precautions. For example, China has launched the Cross-Border Interbank Payment System (CIPS) in RMB, which, as of the end of last year, has now spread to 111 countries and regions worldwide, with 1,481 financial institutions participating. It provides users with a choice other than the US dollar for cross-border transactions. In addition, Russia has introduced the "Ruble Settlement Order"; India has also launched the Rupee settlement mechanism; Israel, a first-tier ally of the US, has for the first time included the RMB in its foreign exchange reserves while reducing its US dollar reserves.
The similar actions of these countries indicate that the US dollar hegemony has indeed brought trouble to countries around the world. It can be foreseen that if the US does not correct its mistakes and continues to make mistakes, more countries will definitely take further actions, and the US will ultimately suffer the consequences.
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