The European Central Bank (ECB) has once again lowered interest rates, leaving many people bewildered.
Are they no longer concerned about the US dollar?
Or has the European economy reached a moment of extreme peril?
Currently, the US dollar's interest rate cut is still pending.
Once the US dollar also begins to cut rates, the global economy will face a monumental shift akin to a landslide and tidal wave.
The advantages of the Western world may be completely wiped out.
What will Americans do?
On September 12th, the ECB, headquartered in Frankfurt, Germany, decided to cut the deposit facility rate by 25 basis points to 3.5%, the refinancing rate by 60 basis points to 3.65%, and the marginal lending rate by 60 basis points to 3.9%.
This is the second time the ECB has cut interest rates this year.
In June, the ECB lowered all three key interest rates by 25 basis points.
With this cut, the eurozone's interest rates have returned to the era of 3%.
This rate cut has a very distinct feature: the deposit rate was reduced by only 25 basis points, which is the smallest reduction, but the two major lending rates saw significant cuts, both by 60 basis points.
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This is a very clear monetary policy aimed at rescuing the economy.
Why did the ECB cut interest rates?
The reasons are quite apparent, stemming from two main issues.
First, the European economy is in a dire situation.
In the first quarter of this year, the eurozone's GDP grew by 0.4% year-on-year, and in the second quarter, it grew by 0.6%.
In the first half of the year, Germany's GDP actually decreased by 0.2% year-on-year, while France's grew by 1.3%.
The ECB has also revised down its economic growth forecast for the eurozone for the next three years, expecting a GDP growth rate of 0.8% in 2024, previously forecasted at 0.9%; 1.3% in 2025, previously forecasted at 1.4%; and 1.5% in 2026, previously forecasted at 1.6%.
Many European countries are at a loss regarding the current economic situation.
France has chosen to strengthen cooperation with China, Germany has made large-scale investments in China, the Italian Prime Minister recently visited China, and recently leaders from Norway and Spain have also visited China, looking for answers in the East.
Thus, Europe has stopped worrying about the interest rate differential between the euro and the US dollar, stopped being apprehensive about the US, and must first save the European economy.
Second, Europe's inflation has been controlled, which is much better than the situation in the United States.
The latest data shows that the inflation level in the eurozone has approached the ECB's target range.
This year, Europe's inflation rate has remained below 3%.
In August, the overall inflation rate in the eurozone fell to 2.2% year-on-year, reaching a new low in three years.
As the world's second-largest currency, this rate cut, which is not insignificant, raises the question: will the US dollar follow suit?
The US dollar's rate hike is a tightening policy, while the euro's rate cut is an easing policy.
This divergent monetary policy also significantly undermines the US dollar's high-interest-rate policy.
Additionally, core US allies such as Canada and the United Kingdom have also cut interest rates.
Europe has stopped worrying about capital outflow and is determined to save its own economy.
With this easing, euro capital will flow to the world.
What's the point of the US dollar still maintaining high interest rates?
The bigger issue for Americans is that once the US dollar cuts rates, central banks around the world will enter a rate-cutting cycle, and the global economy will face a major shift.
In recent years, the global economic situation has proven one very important thing: the pandemic is a natural disaster, while aggressive rate hikes and anti-globalization are man-made disasters.
Various financial and economic sanctions, trade barriers, have already fragmented the global economy with scars everywhere.
However, human history has also proven that times of crisis are also times of great opportunity and transformation.
The disasters of recent years have led many countries to seek solutions in other directions, which has actually weakened the economic advantages of the Western world.
What are the economic advantages of the Western world?
Over the past few decades, the economic advantages of the West have been to control finance and high-end technology and industrial chains under the framework of globalization.
They have, in fact, divided the main benefits of the global economy and have become the biggest beneficiaries of globalization.
Now they are dismantling globalization themselves.
Finance, without a target to harvest, can only wound itself.
Technology without a place to apply will regress.
High-end industries no longer trade with developing countries and can only force the other party to start anew.
A clear example is that US chip manufacturers like Intel have lost the Chinese market and suffered greatly.
Over the years, the situation has changed.
Once the world enters a rate-cutting cycle, the Western world has only two paths to follow.
The first is to establish their own financial circle and economic cycle, preventing funds from entering developing countries on a large scale.
They will definitely try this path, especially those paranoid politicians in the United States.
The second is to lift restrictions and re-integrate into globalization.
But this globalization has changed, and developing countries are also participating.
This path is the result they have to accept after failing to take the first path.
This is the greatest change in the global economy.
The trend is irreversible, and Americans have no way out but to integrate into the new global economic system.
Therefore, many people say that this round of rate hikes will be the last time the US dollar will harvest the world.
The situation has changed, and they will not dare to do it again.