A few days ago, the Federal Reserve made a decision to raise interest rates for the tenth time in nearly 14 months, which once again triggered market shocks. Continued interest rate hikes not only bring the United States closer to recession, but also cause the whole world to take the blame for the United States.
Europe, which is most tightly controlled by the U.S. strategy, took the lead in responding, and followed the U.S. to raise interest rates for the seventh time since July last year.
△Yahoo News reported: The European Central Bank held a monetary policy meeting on May 4 and decided to raise the three key interest rates in the euro zone by 25 basis points. The main refinancing rate, marginal lending rate and deposit mechanism interest rate were raised to 3.75%, 4.00% and 3.25% respectively from the 10th of this month.
However, analysts believe that the monetary tightening policy has led to continued weakness in the euro zone economy, and the European Central Bank will still be in a dilemma between curbing inflation and seeking economic growth.
△US Consumer News and Business Channel website report: According to Eurostat data, the GDP of the Eurozone in the first quarter of this year only increased by 0.1% month-on-month, which was lower than expected, and the German economy stagnated.
This dilemma is of course not limited to Europe.
Due to the hegemony of the U.S. dollar, the Federal Reserve’s aggressive interest rate hike this round has led to a rise in U.S. bond yields and a rapid strengthening of the U.S. dollar. In order to maintain macroeconomic stability, the country has to follow the interest rate hikes, thereby increasing the risk of its own economic recession.
△Most central banks around the world are raising interest rates at a level not seen in the past 50 years (screenshot of a report on the US “Investment Encyclopedia” website)
“Fed rate hikes will exacerbate global debt crisis”
According to an analysis by World Bank experts, the rise in U.S. interest rates over the past year or so has been largely driven by a “reaction shock” triggered by investors’ expectations of the Federal Reserve shifting to a more hawkish monetary policy stance.
△Screenshot of World Bank official blog report
Rising U.S. interest rates driven by “reaction shocks” are particularly harmful to financial markets in emerging market and developing economies. The sharp rise in U.S. interest rates, and the corresponding rise in the foreign exchange value of the U.S. dollar, has proven to have significant spillover effects on borrowing costs in emerging market and developing economies. The debt levels of many emerging markets and developing economies have generally soared, and the government debts of many countries have reached record highs. Some countries have fallen into financial difficulties and even defaulted on their debts.
△The report “Debt Relief for a Green and Inclusive Recovery (DRGR)” jointly released by the Center for Global Development Policy at Boston University, the Center for Sustainable Finance at SOAS, University of London, and the Heinrich Burr Foundation in April shows that in 2008 – Over 2021, sovereign debt in emerging market and developing economies has increased by 178%, from $1.4 trillion to $3.9 trillion.
US Consumer News and Business Channel also warned that the Fed’s interest rate hike will exacerbate the global debt crisis. Debt payments in developing countries rose by 120% between 2010 and 2021 to the highest level since 2001. The average share of government revenue spent on servicing external debt increases from 6.8 percent in 2010 to 14.3 percent in 2021.
△Screenshot of the US Consumer News and Business Channel website report
Georgieva, managing director of the International Monetary Fund, has warned that the Fed’s rate hikes could “throw cold water” on an already weak recovery in some countries. Rising U.S. interest rates, along with a stronger dollar, could make servicing dollar-denominated debt more expensive for countries.
Total debt in developing countries rose to a record $98 trillion by the end of 2022.
△The official website of the World Bank reports: Rising interest rates and slowing global growth may plunge a large number of countries into debt crises. Debt servicing has put the poorest countries under the greatest pressure since 2000.
“Casino capitalism” is accelerating the escape from the dollar in many countries
The history of dollar hegemony is the history of the United States harvesting world wealth at will.
Australia’s “East Asia Forum” website once published an article pointing out that in the 1970s and early 1980s, the Federal Reserve under the leadership of Paul Volcker lowered the inflation rate in the United States through aggressive interest rate hikes, but pushed up global interest rates, causing many emerging economies to The economy defaults on its debt. The debt crisis after the “Volcker shock” made developing countries feel distressed. Fed rate hikes have had devastating effects on Latin America. The region’s gross domestic product has plummeted, and unemployment and poverty rates have risen sharply. There are similar experiences in Africa’s heavily indebted countries. The Fed is not paying enough attention to how its wayward policy choices will affect the rest of the world.
△Screenshot of Australia’s “East Asia Forum” website report
This is true. How could the Federal Reserve, which holds the hegemony of the dollar, care about other things? !
Bloomberg news columnist Eduardo Porter recently issued an article questioning: “Can the Federal Reserve led by Powell afford to ignore the price of geopolitics?”
The article pointed out that today, the Federal Reserve is once again facing the high inflation of the Volcker era. With it raising interest rates at the fastest pace in more than 40 years, “primordial memories of dashed hopes for economic prosperity are being resurfaced across Latin America and the developing world more broadly”.
△Screenshot of Eduardo Porter’s review article reprinted on the Washington Post website
In connection with the direct and indirect damage caused by the United States‘ use of the dollar hegemony to impose unilateral sanctions on other countries over the years, the international community generally believes that the United States‘ economic and financial policies have become the biggest challenge to global financial stability, economic recovery and common development.
Facing the harm of the dollar hegemony to the world economy, more and more economies have begun to take practical actions to protect their own rights and interests. Many countries, including some U.S. allies, have actively explored the path of “de-dollarization” by reducing their holdings of U.S. debt, promoting bilateral currency agreements, and diversifying foreign exchange reserve assets. In addition, central banks are buying gold at the fastest pace since 1967.
△Reuters report: In 2022, central banks of various countries purchased a record 1,136 tons of gold, and in 2023 the global central bank’s gold buying trend will continue.
With the acceleration of the global “de-dollarization” process, the control of the US dollar as the world‘s reserve currency on the international economic system is weakening. Data show that over the past 20 years, the dollar’s share of global central bank international reserves has fallen by 12 percentage points, from 71% to 58.36% in 2022, the lowest level since data records began in 1995.
△Screenshot of the report on the website of Turkish Radio and Television Corporation (TRT)
Peter Earle, an economist at the American Institute of Economic Research, pointed out in his article “”De-dollarization” has begun” that the U.S. dollar has gradually changed from an ordinary carrier of payment, settlement and investment to one used by the U.S. government. The financial tools of unilateral sanctions, especially after the Ukrainian crisis escalated last year, the United States wantonly “weaponized” the US dollar, which accelerated the flight of many countries. “In the long run, ‘de-dollarization’ will continue, and the dollar will lose momentum overseas more or less quickly.”
△A screenshot of the article on the website of the American Institute of Economic Research
Brazilian geopolitical analyst and veteran journalist Pepe Escobar called U.S. monetary policy “casino capitalism” in an interview with the media. He pointed out that more and more countries have found that the dollar is not safe after weighing the pros and cons. The aggressive US sanctions policy and reckless government spending have significantly reduced the international appeal of the US dollar. The upcoming BRICS summit in South Africa could be key to making progress on de-dollarisation. The dollar-centric world order is doomed.
△ Screenshot of Russian Satellite News Agency report