Does The Fed Raise Interest Rates Or Destroy Emerging Economies?

Yellen, chairman of the Federal Reserve, said on Wednesday that due to the good performance of the US economy, the Fed may start raising interest rates at the regular meeting of monetary policy in December this year, but no formal decision has yet been made.

Conspiracy theorists worry that the Fed will raise interest rates, saying that it may destroy emerging markets and collapse the Chinese economy.

But as long as the Federal Reserve does not go crazy, it will realize that the collapse of China's economy will do no good to anyone.

The nightmare of pessimists is this: the Fed hints at raising interest rates, emerging market outflows, the downward trend in global emerging market currencies, falling stock prices and falling gold prices, and the tragedy of the market before October will repeat itself.

China's ongoing economic restructuring and the purging of the old economic order may cause some high-income people to expedite the pfer of large amounts of wealth abroad, hoping to permanently protect their own wealth. On the other hand, the middle income group in the economic downturn may also consider global asset allocation, which will also cause some funds to be pferred overseas.

The biggest risk obviously comes from the former. These high energy funds have a large number, and their psychological implication to the market is also obvious, and there are enough channels to move around.

For China's economy, the risk of wealth pfer is obviously greater than that of the Fed.

Before that, emerging markets did look a bit of a panic.

Data show that in the past 13 months as of the end of July this year, the total capital outflow of the 19 largest emerging market economies amounted to US $940 billion 200 million.

This data looks very frightening.

If billions of dollars of arbitrage funds around the world follow suit, there will be great floods.

These funds flow out of the market, like the Domino dominoes, bringing the currencies and commodities of emerging markets together, and then pushing the US dollar index to the extreme, thus pushing up the yield of US Treasury bonds.

The low interest Carnival of the US government and enterprises ended, the junk debt collapsed, and the bond market went downhill until it could not support it.

But will these phenomena really happen? The result of rational game is win-win, or at least maximize the profits of one side.

If the global economic downturn and the emerging market are over, the United States will not benefit from it, which is not in line with the principle of rational game.

The United States does have the possibility of raising interest rates in the future, but even if interest rates are raised, the yield of treasury bonds is expected to remain at a low level, so as to ensure that the market does not lift enough waves to cause shipwreck massacres.

Let rival countries

The United States seems to be able to do that.

Foreign exchange reserves accumulated by central banks, led by China and oil producers in the past 15 years, are now being depleting.

Global foreign exchange reserves expanded from US $1 trillion and 800 billion in 2000 to US $12 trillion in 2014, and then dropped by at least US $500 billion.

This is the case. Although the short-term changes are dramatic, the market is still operating within the range.

In January 2nd this year, the US two-year Treasury bond yield was 0.66%, and the 10 year treasury bond yield was 2.41%, 30 years treasury bonds.

For 3.69%, by November 2nd, the yield was 0.77%, 2.2% and 2.95% respectively.

The cost of financing has fallen further and banks can make profits by lending to businesses and individuals, which is very good for the debt entangled countries, and the United States can't give up such dividends.

The idea that the dollar index will go up sharply is somewhat naive.

From the euro and US dollar trend, the euro fell from its high level in May last year and began to enter the shock zone in March this year.

The US dollar is also too strong relative to the Swiss franc, which has made us multinationals pay a loss of about 250 billion dollars, reaching the highest level in the past 15 years.

For the United States, the best way is to continue to panic the global market, while keeping the turmoil, allowing the commodities such as gold to be abandoned, so that the market will continue to embrace the US dollar bonds, and at the same time use the spread to seduce commercial banks to lend loans to businesses and individuals.

At this time, China will not make a big mistake if it stares at the US dollar and the US debt.