Raising interest rates is not terrible. What does the Fed use to cut the world's wool?

On June 15, Aunt Yellen finally issued her strongest voice, and the Fed raised interest rates again. On the evening of June 14 (the early morning of June 15, Beijing time), the Federal Reserve announced that it would raise interest rates by 25 basis points and raise the federal funds rate to 1.25%. This is the fourth time since $20 15 began to raise interest rates, and it is also the second time since this year. Seeing this, Han Ge felt that all this was completely in his expectation. However, it seems that the news is not over yet. In addition, the next sentence is: In addition, the Federal Reserve said that it will begin to implement the plan to reduce its balance sheet this year.

Nani, when I saw this sentence, Brother Han was completely shocked. If raising interest rates is just something that everyone has long expected, then shrinking the table is Aunt Yellen's most horrible financial nuclear bomb. As expected, while the Fed ignored the recent weak economic data and raised interest rates by hawks, Aunt Yellen even took pains to hint that it would reduce its balance sheet earlier. As soon as the news came out, the market was in an uproar and the dollar rebounded strongly. The price of gold dropped by more than $20, and reached the lowest value of 1.257 USD/oz in the past three weeks.

Then the question is, why is it said that raising interest rates is the market expectation, and shrinking the table will have such a terrible impact? Today, let's talk about it. Raising interest rates is not terrible. Why is table shrinking a real financial nuclear bomb?

1. What exactly is a shrinking table?

I believe many non-financial professionals must be puzzled when it comes to table reduction. Raising interest rates is already chaotic, so what the hell is shrinking the table? According to news reports, the Federal Reserve plans to gradually expand the monthly limit of not reinvesting the principal of US Treasury bonds due, and finally rise to $30 billion. With the gradual increase of the upper limit, the size of the securities reinvested by the Fed every month will gradually decrease, and the balance sheet of the Fed will also gradually shrink. At present, the size of the Fed's balance sheet is as high as 4.5 trillion US dollars. Federal Reserve Chairman Yellen said at the press conference that the details of the "shrinking table" plan announced by the Federal Reserve on the same day were to prepare the market in advance.

I believe that friends with economic foundation here probably have some concepts, but they are still very confused about most of them. Let's talk about it first What is an abbreviated list?

As the name implies, the so-called "shrinking table" means that the Fed's balance sheet begins to shrink. To understand table shrinkage, we should start with the financial crisis in 2008. In 2008, Fannie Mae and Freddie Mac, two major real estate companies in the United States, detonated American subprime mortgage products, which led to the global financial crisis. At that time, in the face of the global economic depression, the whole world was closed, and then Federal Reserve Chairman Ben Bernanke had to choose a helpless way, that is, since the whole world had no money, I would print money. So Bernanke used a very literary term called quantitative easing monetary policy, also known as QE. In fact, the so-called quantitative easing is that the Federal Reserve started its own nuclear-powered printing machine and started printing money crazily. This process of printing money will accumulate a large amount of reserve liabilities in the balance sheet of a famous Federal Reserve. Simply put, printing money and injecting water will make the balance sheet bigger. However, now that the American economy seems to have recovered, there is always so much water on the market. So Aunt Yellen began to say that it was really impossible, so I began to shrink my watch. This is the simplest explanation for narrowing the table.

Second, why is table shrinking the most horrible financial nuclear bomb?

According to the above explanation, isn't it normal for tables to shrink? There is too much water in the market, so it's not a bad thing for me to draw some water. However, things are not that simple. As Brother Han said yesterday, it is not just a central bank of a country. Because of its special economic status, the United States has become the world's central bank, so this kind of deflation has become a worldwide problem, especially for other countries in the world, which will have a great impact. Let's talk about the impact first.

First, avoid the currency itself and lead the problem to other countries. For a long time, the round after round of quantitative easing monetary policy by the Federal Reserve has made the US dollar one of the most oversubscribed currencies in the world. If it were not for the long-term accumulation of world currency, the military strength of the United States would remain the first in the world, and many countries might choose to ignore the qualification of the US dollar. However, because the US dollar is still the settlement currency of international necessities such as oil, we still can't get rid of the US dollar. However, due to the long-term depreciation of the US dollar, there is a huge amount of liquidity in the market. On the one hand, many countries are reluctant to use the US dollar any more, and adopt the method of settlement in pairs. On the other hand, because there are a lot of dollars in the market, once the capital market collapses, it will trigger a new round of economic crisis, and uncontrolled inflation will completely destroy the dollar credit system. In order to prevent this from happening, and to spread the currency problem to other countries, the dollar will inevitably adopt the way of shrinking the table and raising interest rates.

The second is to create monetary tightening and let the dollar return to the United States. The goal of the Federal Reserve has always been to create the expectation of raising interest rates and shrinking the table when the economy improves, resulting in a tightening trend of the US dollar currency, thus strengthening the US dollar and allowing the liquidity of the US dollar to return to the US market for investment, thus accelerating the growth of the US economy. However, the problem is that the American economy actually lacks real economic highlights. Although the growth rate is good, the places where you can really invest are relatively limited. No matter the amount of science and technology, new energy technology or high-tech medical care, it is not enough to support dollar investment. Therefore, the Federal Reserve began to use monetary means to shrink the table, believing that this created the reality of dollar shortage, thus attracting the return of American funds. But this method is tantamount to forcibly drawing blood from other countries, using the liquidity of other countries to serve themselves, regardless of the life and death of other countries.

The third is to publicize the mistakes of other countries and solve economic problems abroad. Under normal circumstances, if central banks want to shrink their statements, they can only do so when the economic growth is very strong to prevent the economy from overheating. However, if macroeconomic development is not enough to support central banks to shrink their statements, forcing them to shrink their statements is tantamount to economic suicide. However, why did the Fed dare to take the world by storm? The reason is that the Federal Reserve has the dominant position in the world currency. Through this special status of the world currency, table shrinkage is no longer a matter for one country, but for the whole world. By forcibly detonating the European debt or economic problems that may occur in other countries, we can not only reduce the threat of other countries to the United States, but also let the capital outflows of other countries flee to the United States to avoid risks, thus achieving the goal of beggar-thy-neighbor and promoting economic growth.

The fourth is to create a crisis in other countries with expectations and prepare to take the opportunity to shear wool. The Fed raised interest rates by shrinking its balance sheet, which played the role of expected management in economics. Raising interest rates by shrinking the balance sheet can make capital flow back to the United States, and can also depress the asset prices of various countries through capital outflow. For example, by raising interest rates, the cost of raw materials in Latin American and African countries is lower, and even local economic bubbles are detonated, which leads to economic crisis in these raw material exporting countries. At this time, American capital will buy high-quality assets and resources of crisis countries at low prices, thus achieving the purpose of shearing wool. Moreover, if we can detonate Europe or an emerging economy country by shrinking the table, we can make a big profit in this currency war.

It can be said that it is really insidious for the Fed to shrink its watch. This well-known Si Mazhao heart can only be played by an international monetary control organization like the Federal Reserve. I hope China can deal with it as soon as possible, so as not to let the Fed cross the river in vain and sneak attack Jingzhou.