The US dollar cut interest rates by 50 basis points, shaking the world!
Yesterday, I saw a question: Which will collapse first, the US dollar, US stocks, US bonds, or the Chinese yuan?
Will the United States start a war?
This question is interesting because there is an important logic behind it.
As the US dollar enters a rate-cutting cycle, how can the US slow down the pace of capital flight and prevent the dollar from flowing to China?
With the US dollar interest rate cut, which will collapse first: the US dollar, US stocks, US bonds, or the Chinese yuan?
Will the United States start a war?
Everyone has been very excited these two days, which is why such a question arises.
This is because the heat hasn't cooled down yet, meaning that people haven't calmed down.
Some people say, when you say this, is there something wrong with the question?
The question itself is not wrong, the logic is sound, but it's just a bit too eager, as if the US dollar, US stocks, and US bonds will collapse as soon as the interest rates are cut, and in the end, the US has no choice but to start a war.
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Also, how does the Chinese yuan fit into this?
Is the yuan going to collapse too?
This seems a bit off.
Some say, now that the US dollar has cut interest rates, doesn't the US have to mess with our yuan?
According to their nature, they can't let us have an easy life.
Alright, let's talk about the yuan by the way.
First, we say this question is a bit too hasty because the US dollar has just started to cut interest rates, and the Americans are also testing the waters.
Why do we say the Americans are testing the waters?
Powell made it very clear at the press conference yesterday that there is no clear path for interest rate cuts, whether to cut or how much to cut in the future, it will depend on economic data, and it might even pause the rate cuts.
Why is that?
In fact, the Americans are very clear about the hardships in their hearts.
The current situation is very dangerous, and they need to carefully control the pace of interest rate cuts, otherwise it could be a disaster.
Some people say, the US dollar interest rate cut has released liquidity, how can more money lead to a disaster?
Historical experience has proven that interest rate cuts are the beginning of disaster.
The interest rate cut in 2001 triggered the bursting of the internet bubble, with the Nasdaq evaporating 80% in two years; the interest rate cut in 2007 was accompanied by the bursting of the US real estate bubble, and the subprime crisis broke out; the interest rate cut in 2020 triggered four US stock market circuit breakers, plunging 30%.
However, disasters are often not caused by interest rate cuts, but triggered by them.
Because the Americans always start to cut interest rates when they see a crisis, which is actually too late, so it seems like interest rate cuts cause disasters every time.
Why do interest rate cuts trigger disasters?
The reason is simple, once the US dollar cuts interest rates, the US dollars that are piled up in American banks, US stocks, and US bonds will run out, looking for more valuable investment targets.
If the US dollar runs out too fast, US stocks and bonds will lose blood too quickly, and they might collapse, which is called a hard landing, you can understand it as falling directly to the ground, which will be damaged.
If the US dollar slowly drains away, US stocks and bonds can slowly and gently fall to the ground, which is called a soft landing.
However, the root of the problem is not the flight of US capital, but that US stocks and bonds themselves have already had a crisis, which was previously supported by a large amount of US dollars, but they can't hold on once the US dollar runs away.
In addition, the US dollar is also the same, once interest rates are cut, the US dollar index has to fall.
Yesterday, as soon as the news was announced, the US dollar index immediately fell, once falling below 100, and then rebounded a bit.
Why did the US dollar index first fall and then rebound?
Because many people's first reaction was, I go, the Americans are really ruthless, they directly cut by 50 basis points, then I have to run quickly and buy euros.
Later, after cooling down, I thought carefully, I was just over-tense, where is this, the interest rate cut has just started, the US dollar interest rate is still higher than other currencies, I should be stable first.
If the interest rate cut is too fast, it will also trigger a global US dollar sell-off, and the US dollar index will collapse.
So, will the US dollar, US stocks, and US bonds collapse after the US dollar interest rate cut?
To a large extent, it depends on the Fed's control of the pace of interest rate cuts.
So, which of these three major markets is the most dangerous?
Which one falls the fastest?
Let's talk about the conclusion directly, the US dollar falls the fastest, but US stocks are the most dangerous, US bonds are not so fast, why?
This is because the US dollar is the most directly affected by the interest rate cut, the bubble in US stocks is the largest, and US bonds are a chronic disease.
So, what about the yuan?
Once the US dollar starts to cut interest rates, the primary task of the Americans is the safety of the domestic financial market, and they can't take care of the yuan.
So, they won't spare any effort to mess with the yuan, at most they will ask the yuan to cooperate at key points, such as not to hit their plates when they are in trouble and so on.
So, if the Americans can't stop the trend of US dollar capital flight, and the speed of capital flight is out of control, the US dollar, US stocks, and US bonds collapse at the same time, will they start a war to make US dollar capital temporarily stay in the country to take refuge?
Starting a war also has the advantage of cutting off the global economic context, making US dollar capital lose investment targets.
Because once the war starts, the transportation routes may be short-circuited, oil will also rise in price, and everyone will not make money, who will invest in the US dollar?
So, starting a war is completely possible, and the United States has done this more than once in history.
So how do Americans start a war?
There are two ways.
The first is on energy or key transportation routes, the best combination of the two is the Middle East, so the United States is always fighting in the Middle East, and they are addicted to it.
The second is more direct, which is to start a proxy war around us.
So, what should we do?
If the Americans want to start a war, we should unite the people of the world to stop them from messing around, and that's it.