Introduction
The phrase "one cannot have both fish and bear's paws" could not be more apt in describing the predicament of the United States! Amidst the global economic turmoil, the U.S. interest rate hike policy has undoubtedly exacerbated this instability.
When 77% of U.S. debt flows back to America, we cannot help but ask: Does this mean that American industrial capital is fleeing? Is U.S. Treasury Secretary Yellen in the throes of a final frenzy?
Main Text
Did you know that the U.S. interest rate hike policy is like a seasoning for the global economy? Its purpose is to attract more global capital by raising interest rates, while using inflation subsidies to stimulate the development of domestic manufacturing, making America great again.
But reality is always less than ideal, isn't it? Although capital has indeed flowed back, American industrial capital is quietly escaping.
In theory, higher interest rates should help revive American manufacturing, but look at those figures; the electricity consumption in the U.S. has been declining, which is not a good sign.
The contradiction between non-farm employment data and the number of unemployment benefit recipients seems to be telling us that the economy is becoming increasingly virtual.
And what about the situation outside the United States? The strategy of hoping to collapse global debt and harvest overseas capital to fill the economic black hole at home through interest rate hikes has not been as effective as imagined.Take a look at Japan and the United Kingdom, these traditional allies are all selling off U.S. debt, and China's increase is just a drop in the ocean. These all expose the potential weaknesses of U.S. strategy and may reveal deeper economic challenges.
So the question arises, is the U.S. interest rate hike policy really helping the development of domestic manufacturing, or is it inadvertently accelerating the exodus of industries?
The Shattering of the American Dream
Since the Obama era, the United States has been striving to transform its economic model, attempting to shift from finance-driven to manufacturing-led, in order to achieve "reindustrialization of America."
This strategy was highly anticipated, believed to bring widespread job opportunities and more balanced economic development. However, years of effort seem not to have yielded the expected results, and the glory of the American dream in the manufacturing sector has gradually dimmed.
Although the government has invested huge amounts of money, provided tax incentives, and even risked trade frictions with other countries to protect domestic manufacturing, the results have been less than satisfactory.
The U.S. manufacturing index has not shown a significant and sustained upward trend, but has shown obvious fluctuations and declines in some periods. For example, in recent years, the U.S. monthly manufacturing index has broken through the boom and bust watershed several times, showing signs of weak growth.
What is more worrying is that even during the COVID-19 pandemic, when the global supply chain was greatly impacted, it should have been a favorable time for the return of U.S. manufacturing, but the actual situation was a reduction in factory orders and restricted production activities.
Some production lines that were originally transferred back from countries like China, due to various domestic and foreign factors, have not been able to operate smoothly. This further reveals the fragility and uncertainty of the recovery of U.S. manufacturing.
The Hollowing Out of AmericaLook, the total scale of U.S. debt has reached an astonishing $34.8 trillion, with overseas investors holding about 23% of the debt.
Although this figure seems controllable, it actually hides many risks and challenges. The United States once relied on its strong economic influence and the international status of the U.S. dollar to attract global capital, but a series of recent signs indicate that this trend is reversing.
Specifically, the behavior of overseas investors has changed significantly. Japan, one of the main holders of U.S. Treasury bonds, has been reducing its holdings for several months in a row;
The UK and other European countries also show a trend of reducing holdings; Even China's small increase cannot offset the impact of reductions by other large economies. These behaviors reflect concerns about the future economic prospects of the United States and potential challenges to the status of the U.S. dollar.
The consequences of this reduction are dual: on the one hand, it increases the pressure on the domestic capital market in the United States, leading to higher financing costs for the government and businesses; On the other hand, it triggers speculation that the status of the U.S. dollar as the world's reserve currency may be shaken.
This has far-reaching effects on the global economic pattern. The economic model of the United States, which relies on debt, faces increasing risks without sufficient external support.
As some economists have warned, without the continuous support of external funds, the United States may face the risk of being "hollowed out", which not only affects the economic security of the United States itself but also poses a potential instability factor for the global financial market.
The United States is in its final frenzy
Faced with the uncertainty of the global economy and domestic economic difficulties, the United States chooses to continue to advance the interest rate hike policy. This decision is seen by many as a gamble, betting on the fate of the entire empire.
So, why does the United States still insist on this strategy at such a moment? One possible reason is that policymakers hope to curb inflation by raising interest rates while attracting capital backflow to support the domestic economy.The risk of this strategy lies in its potential to cause further turmoil in the financial markets, especially against the backdrop of a global economy that is already showing signs of recession. This move by the United States is not only facing domestic skepticism but has also attracted global attention and concern. An interest rate hike could lead to a stronger dollar, which is unfavorable for U.S. exports, and at the same time, it could increase the debt repayment pressure on emerging market countries, potentially leading to instability in the global financial markets.
However, the United States seems to have few options, as the alternative—lowering interest rates—might trigger an increase in inflation expectations, causing a greater blow to the economy.
In this context, the economic dilemmas faced by the United States are multifaceted: in addition to high inflation and the plight of the manufacturing industry, the fiscal deficit and debt issues in the United States are also becoming increasingly severe. This makes the U.S. government appear ill-equipped to deal with economic challenges.
In the future, the United States may need to take more aggressive measures, such as promoting larger-scale fiscal stimulus or undertaking structural reforms, in order to boost the economy and restore investor confidence.
This series of policy choices and potential courses of action will have a profound impact on the U.S. economy and the global economy as a whole.
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