|
Currently, the financial and investment circles both at home and abroad are paying close attention to two topics: one is whether commodity prices have peaked; the other is whether the Federal Reserve will start tightening at this point and burst the global asset price bubble. On Weibo, "Fan Ye's Jianghu" published an article titled "The Fed Has No Way Out", commenting on these two topics. The article reviewed the financial and economic policies of the United States since the Great Depression of 1929, and gave a very novel explanation for the repeated economic crises in American history, especially giving a unique insight into how the United States got out of the Great Depression of 1929. Since the article is very long, I will share with you the more critical parts today. I have reorganized the following content based on my own understanding. When it comes to the Fed raising interest rates, many people in the financial world will immediately think of the Fed in the late 1970s and early 1980s. At that time, under Volcker's leadership, the Fed raised interest rates to an astonishing 19.1% in order to curb inflation. But what many people don't realize is the special historical background at that time. In the 1970s, the US financial market was far from being as bubbly as it is today. From 1966 to 1982, the US stock market basically fluctuated in a large box. During these 16 years, the Dow Jones Index had almost no increase. The sluggish capital market made the Federal Reserve less worried about the financial market when tightening. On the other hand, the US debt situation was quite healthy at that time. Throughout the 1970s and 1980s, the federal government debt accounted for only about 30% of GDP at its worst. Under such circumstances, even if the Federal Reserve raised interest rates, the US government's debt repayment burden would not be very heavy. Now, neither the capital market nor the US debt level can support the Fed's tightening. In the capital market, since the financial crisis in 2008, the Dow Jones Index has risen sixfold and the Nasdaq has risen 11 times. The current US stock market is at a historical high, and the bubble is epic. Most Americans have their family assets and pensions in the stock market. Under such circumstances, the Federal Reserve began to tighten, and the US stock market collapsed, which is equivalent to a self-implosion. Neither the financial market nor the people can bear it. On the other hand, the US national debt has reached 28.4 trillion US dollars, equivalent to 130% of the US GDP. Even under the current zero interest rate situation, the US national debt interest expenditure has reached 600 billion US dollars a year. In addition to the federal government, the level of corporate and household debt in the United States is also very high. As of the first quarter of 2021, the total outstanding debt of all sectors in the United States reached 84.5 trillion US dollars. In this case, assuming that the overall interest rate level in the United States rises by 2%, an additional 1.69 trillion US dollars will be paid each year. This interest cost is equivalent to more than half of the net profit of all American companies in one year. This is unbearable for companies and residents. Therefore, under such circumstances, it will be very difficult for the Fed to actually promote tightening. Once tightening is implemented, the financial shock caused by the bursting of the bubble will cause government departments, enterprises and residents to go bankrupt, and the United States will directly enter a depression. Under the current circumstances, there are only two conditions under which the Fed may adopt tightening measures: First, there have been major breakthroughs in science and technology, which have led to a huge increase in productivity and a subsequent increase in corporate profits. Second, the Federal Reserve has pushed up inflation moderately by flooding the market with money, which has led to a gradual increase in corporate profits, improved employment, and the ability to withstand austerity. Obviously, we can’t wait for a major breakthrough in science and technology, but we can try to push inflation up moderately. We can wait until inflation rises before raising interest rates. As long as the rate of increase does not exceed inflation, companies can bear the cost. Therefore, we can see that the Fed is not afraid of a mild rise in inflation. On the one hand, flooding the market with money can maintain asset bubbles, and on the other hand, the huge government debt can be diluted through inflation. Furthermore, it can use the inflation to push up its opponents and see who can't hold on first, so that it can reap the world. Therefore, in this process, all the Fed can do is "tighten with words" and scare the market with its words from time to time (Note: I strongly agree with this point). Will the Fed stop raising interest rates altogether? No, when inflation penetrates into daily necessities such as food and has seriously affected daily life, the Fed may have to raise interest rates. The author of the article believes that this time point may be in 2022, which is next year. Therefore, the author believes that the current volatility of commodities is just a rest, and the next wave of outbreak is ready to go. When the next wave comes, we may see oil prices break through $100 again, or even reach $120. When the Fed is forced to start raising interest rates and burst the bubble, another financial crisis will follow, and the Fed will resort to its old trick: flooding the market with money. But the next flooding will likely turn interest rates into negative interest rates. Once the dollar turns into negative interest rates, the author believes that the biggest investment opportunity will become precious metals. Back to our digital asset market, according to my original estimate, I think that even if this round of bull market has a second half, the second half will at most last until the end of this year or the beginning of next year, and then there will be a 3-4 year bear market. If you look at it from another point of view, now is a bear market, then according to common sense, the next few years will also be a bear market. In other words, no matter which point of view, digital assets are very likely to be a bear market next year. But according to the view of this article, 2022 is likely to be a bubble bursting first, followed by a massive release of money. If this is true, will digital assets go bullish again during that massive release of money? Will this break the bull-bear cycle of the past four years? |
