Chen Sijin: The United States "Liang Jian" &Nbsp; &Nbsp; Currency War Intensified.

At a meeting in Cape Town, South Africa, on November 2nd (Tuesday), Roubini, an economics professor at New York University who was known for his successful prediction of the subprime mortgage crisis and was dubbed "Dr. doomsday", said that the extremely loose monetary policy has promoted the global housing prices to rise. If the US house prices fall again, it will trigger a chain reaction worldwide. The impact of mortgage default will bring unprecedented disaster to the world economy.

More than a month ago, I also mentioned in the "zero interest rate, a bigger bubble mask bubble" and "the hidden danger of the next round of economic crisis in the currency war" also mentioned that the current main stimulus measures of the world's major central banks to rescue the financial crisis - the very low interest rate is the main cause of the subprime crisis. In order to cure the consequences of the financial crisis - high unemployment, quantitative easing monetary policy is once again seen by the Fed as a good medicine to save the US economy.

In fact, many economists in many countries expressed similar views in those days.

　　 The mind of the United States

But for policymakers, these scholars' warnings are like ears.

On the second day (November 3rd), the Federal Reserve announced that it would launch the second round of quantitative easing monetary policy, purchase 600 billion US dollars of long-term treasury bonds, and continue to maintain the benchmark interest rate of 0-0.25%. At the same time, the Federal Reserve will buy 600 billion US dollars of long-term treasury bonds before the end of the second quarter of 2011, which is equivalent to buying 75 billion US dollars a month. This is far from enough. The Fed will instruct the New York Fed's open market trading office to reinvest the proceeds from previous purchases of institutional bonds and institutional mortgage backed bonds to about 300 billion US dollars. As a result, before the end of the second quarter of 2011, the Federal Reserve will buy about $900 billion of treasury bonds, which is nearly 3 times the amount of the first round of quantitative easing policy to buy treasury bonds.

Bernanke, chairman of the Federal Reserve, argues that "the United States is good and the world will be fine." All this is done to increase employment and reduce inflation. But it is just the opposite of what happened. Bernanke's stream of measures to save the economy from escaping nightmare can not solve the economic problems of the United States. It is clearly a behavior of injure others, but it will directly lead to the further expansion of the global asset bubble, the uncontrollable inflation of the whole sphere, and even the trade and even the currency war among nations. If the Fed's measures have a positive impact on the US economy, it is also extremely limited and insignificant.

The Fed is wishful thinking that loose money can be invested in the real economy, thereby boosting employment and stimulating consumption and restoring the weak economy as soon as possible. Up to 20% of the real unemployment rate in the United States is so high that mortgage loan defaults have been rising, and the auction houses have flooded into the housing market. Also in November 3rd, Freddie & amp; Freddie asked the government for $100 million, just because the default rate of mortgage loans rose by 3.8%, resulting in the loss of 2 billion 500 million dollars in the third quarter of this year. The Case - Shiller index announced on November 1st that the US house price will fall by at least 8%.

In terms of employment rate, its decision power is in the hands of entrepreneurs, and profit maximization has prompted entrepreneurs to make decisions. In other words, capital is chasing profits, but the profit maximization is determined by the aggregate demand of the society. Then what is the total demand and what is the propensity to consume? But in the US, with the government's inflated deficit and the cooling of real estate, employment opportunities are no longer available. Weak purchasing power weakens the total demand of the society, and the expectation of the entrepreneur will definitely drop. Even if the company generates profits, it will try to adopt a strategy of preserving strength rather than hiring new people. This is the real reason why the US government desperately smashed money, but the unemployment rate can not be reduced. The United States has tasted the bitter fruit of the "financial crisis of a hundred years". It can not survive in two years in three years. {page_break}

　　 Hot money shatter emerging markets

Deflation has become a trend from consumers' refusal to consume, businesses to reduce investment and weak demand for cash loans from banks. In such a dilemma, Bernanke clamored for the "good American world to be good" argument, boldly adopted. Quantitative easing The monetary policy has spread the curse to the whole world and kidnapped countries at all costs.

However, due to the different economic strength and economic foundation of different countries, the irresponsible behavior of American banknotes has different effects on countries. Take trade as an example, Germany's export industry flows to Europe 50%, and the settlement in Euro accounts for a small loss. In Japan, Canada and other industrial countries, due to strong monetary pressure, exports will obviously slow down, and Canadian exports will decline to 6% from 11% this year. For emerging market countries such as China, the US move is no doubt a repetition of the Plaza Accord. American "sword" Now.

The Federal Reserve has issued a large number of "banknotes" and "new money" will soon seek to enter the emerging markets, such as China. In the case of no self interest, the United States created international public opinion that forced RMB appreciation, making a large number of "new money" gamble in Renminbi appreciation and inflow into China in various ways. Because capital is always chasing profits, if these new money flow into China's housing market, a sharp increase in investment will further blow up China's asset bubble and bring great risks to China's economy.

And because the cost of borrowing has been reduced, the biggest beneficiaries of loose monetary policy are financial institutions at all levels. Take Japan as an example, Japan has adopted low interest rate policy or even zero interest rate policy for a long time. The Japanese economy has not recovered and is still in a state of hibernation. This is the case in the us today. The worse the economy is, the more stimulating it is, the more severe the problem is, the more addictive it is, or if athletes use stimulants, they will not be able to extricate themselves if they become addicted. People who leave the drug will wither and continue to take drugs. In the short term, they will become excited. But once the medicine is over, people will fade away, and they will have to increase the measurement of drugs before they can reach their previous excitement.

The sick economy in the United States is like a drug addict. There is no specific "strong drug" to save it. Low interest rate and quantitative easing monetary policy is like a shot in the arm. It can only relieve the disease for a while and can not cure its root cause. The massive printing of "new money" by the US will only aggravate the pressure of global inflation in the end. According to the data released recently by the China Development and Reform Commission, although the government has tried hard to control domestic prices, the retail price of foodstuffs has generally increased. The prices of 58 kinds of vegetables and edible oils in 36 large and medium-sized cities in China have risen sharply, and the increase has reached 50% in some areas.

　　 Currency wars Open up

When our life is back to the era of inflation, countries will have to raise interest rates to fight inflation. The Fed is no exception. It will be forced to take positive actions to raise interest rates rapidly. At that time, a lot of hot money would withdraw from emerging markets to return to the United States. When the bursting of asset bubbles in emerging markets, the engines of global economic growth would be forced to stop, and a new round of global catastrophes would inevitably happen again.

At the same time, currency disputes will inevitably open up battlefields. According to the global fund EPFR's tracking, in the fourth week of October this year, the flow of funds to emerging markets has reached US $46 billion 400 million, compared with 9 billion 400 million US dollars in 2009. In order to prevent inflation from spreading, countries will build a protective network through capital controls.

In October 5th, the BoJ announced that it would reduce the inter-bank unsecured overnight interest rate from the current 0.1% to 0 to 0.1%, and decided to strengthen the quantitative easing monetary policy to stabilize the Japanese economy. The move immediately led to the recent fall in the yen against the US dollar. Recently, Japan has warned again that it is ready to intervene again in the appreciation of the yen, and will not impede Japanese exports. {page_break}

Following the Japanese Ministry of finance, the Ministry of Finance said in November 4th that they had issued a "message" to the market in a positive way to deal with capital flows - the appreciation of the won won in the first 6 months of the balance, while the Minister of foreign trade of Brazil said that the Federal Reserve's action might lead to its "retaliatory measures" - a doubling of the capital flowing into its territory. The response of the Minister of economic affairs of Turkey was that the Central Bank of Turkey constantly increased its foreign exchange to curb the appreciation of the lira against the US dollar, and Thailand, Malaysia and India will all take measures to curb the appreciation of the local currency against the US dollar.

However, it is hard to say whether these measures in the world will finally come into force under the irresponsible hot money of the United States.

In fact, economic operation is just like nature. Zero interest rates and loosely quantified monetary policy are useless in the long run and will only cover up the previous bubble with a bigger bubble. In fact, for the United States, the best way is to use traditional Chinese medicine therapy to recuperate slowly, so that it can return to nature. That is, appropriate deflation, like drug addiction, though painful and long journey, it is necessary to restore health.

And Bernanke's "the United States is good, the world will be good", from another perspective, it also reflects the fact. Because of the current global economic integration, most countries have entered the chain of American economic models, and the United States is at the top of this chain. It is clear that the United States is unwilling to "drug addiction" and continues to aggravate "drug addiction". Then the big ship of the whole world will be dragged down by the United States. Moreover, at the very top of the ship, other countries will sink before the US.

Whether this is alarmist or not, we will wait and see.

　　 background information

What is quantitative easing?

The term "quantitative easing" was proposed by the Bank of Japan in 2001. "Quantification" refers to the currency that will create the specified amount, while "loose" refers to reducing the pressure on banks' funds. It means that the central bank deliberately creates new liquidity for the economic system by encouraging excessive capital injection into the banking system, including printing money or buying government and corporate bonds to keep the benchmark interest rate at zero, so as to encourage spending and borrowing. Generally speaking, the monetary authority will take this extreme action only if the conventional tools such as interest rates are no longer effective.

Because quantitative easing is likely to increase the risk of currency devaluation, the government usually adopts quantitative easing measures in deflation. Continued quantitative easing will increase the risk of inflation.

The first quantitative easing: after the collapse of Lehman Brothers in September 2008, the Fed launched the quantitative easing policy immediately. Over the next three months, the Federal Reserve created more than $one trillion in reserves, mainly by lending the reserves to their subsidiary bodies, and then supporting the securities through direct purchase of mortgages.

The second quantitative easing (QE2): the Federal Reserve announced the second round of quantitative easing monetary policy in November 4, 2010, and purchases US $600 billion treasury bonds by the end of June 2011 to further stimulate the US economic recovery.

In fact, since the disappointing US economic data in April 2010, the Fed has been under pressure to launch another quantitative easing policy.