U.S. Treasury Secretary Yellen visited China, and on the surface she reached some fictitious consensus with China. But in fact, Yellen’s biggest hidden agenda is to ask China to take over the continued issuance of bonds by the United States. This is the goal of the U.S. Treasury Department. Number one problem.
Before and after the meeting between the heads of state of China and the United States in San Francisco last November, China significantly increased its holdings of U.S. bonds, buying more than 100 to 300 billion in U.S. bonds a month, which is interesting, but it is open to the issuance of bonds by the U.S. government. It seems that there is not much that can be filled in the blood market. It is estimated that China will still buy U.S. bonds in a social way in the future. The United States, both as an individual and as a country, spends too much money. This is another symptom of the American disease.
First, it’s a big deal. As of April 8, the total national debt of the United States reached 34.6 trillion U.S. dollars, and it is growing at an alarming rate of 1 trillion U.S. dollars every 100 days. It seems that the United States does not have to repay the money it borrows. However, even if the principal is not repaid, it can issue new debt and replace old debt, but the interest still has to be repaid. Bank of America estimates that if the Federal Reserve does not cut interest rates this year, interest expenses in the United States will increase to US$1.6 trillion per year by the end of the year, which will exceed social security, health, Medicare and defense expenditures and become the largest expenditure item of the U.S. government. Just paying interest on the debt alone will cost $1.6 trillion, which is really scary.
Second, the interest rate is high. Don’t think that the United States will raise interest rates like crazy and raise interest rates by 5% within two years. The United States itself will not have to pay the price. In fact, the high interest rate on the national debt is the price. This year is an election year, and President Biden certainly hopes that the Federal Reserve can cut interest rates. Cutting interest rates can not only boost the economy, but also boost the stock market. The market now expects that the Federal Reserve may cut interest rates three times this year, and the market expects that there is more than a 50% chance of an interest rate cut in June. However, whether the United States can cut interest rates still depends on inflation figures, but the recent figures are not very good.
As of last month, although the U.S. inflation rate has dropped from a high of 9.1% to 3.2%, inflation seems to have turned back recently. One of the U.S. Federal Reserve’s indicators for estimating inflation, the Personal Consumption Expenditures Price Index (PCE), rose year-on-year in February. 2.5%, an increase of 0.1 percentage points from January, showing that U.S. inflation rebounded in February. The rebound in inflation is closely related to the rebound in energy prices. In February, U.S. energy prices rose by 2.3% month-on-month. This calls into question whether U.S. Federal Reserve officials’ previous prediction that interest rates can be cut three times this year can be realized. If the U.S. does not cut interest rates, or if it cuts interest rates less than expected, it will have a huge impact on U.S. debt.
Third, there is a crisis. Many people say that the U.S.’s debt is high, but many people also say that because the U.S. has the hegemony of the U.S. dollar, everyone regards U.S. debt as a risk-free asset and is not worried about the U.S. going bankrupt, so it is just nonsense to say that the U.S. will go bankrupt. But the rise in U.S. debt at such a rate has indeed triggered concerns from all parties.
Bloomberg recently conducted a simulation test, which involved one million simulated estimates. The results showed that in 88% of scenarios, U.S. borrowing would be unsustainable. In the worst 5% simulation scenario, 10 years later, in 2034, the U.S. debt-to-GDP ratio will exceed 139%, which means that the U.S. will have a higher debt ratio than Italy, which had a debt crisis that year. Bloomberg predicts that in this case, there will be a crisis, either because the U.S. sovereign credit rating is downgraded, triggering a collapse of the Treasury market, or the federal Medicare or Social Security trust funds are exhausted, triggering panic. No matter what scenario arises, it is a case of playing with fire.
Although Bloomberg said that due to the core position of the U.S. dollar in world finance, the possibility of a burnout is reduced, and a lot of things will have to happen to shake investors’ confidence in U.S. Treasury bonds as the ultimate insurance asset, but when this confidence is really lost, This is the moment when the dollar’s watershed occurs, when the United States will not only lose its financing channels, but also its global credibility and strength.
What Bloomberg issued is an objective warning, not without purpose, and the market is also worried. Looking at the U.S. 10-year bond interest rate, even with the prospect of interest rate cuts, the current price is still as high as 4.43%. This shows that because the U.S. debt supply is rapidly expanding but demand is weak, it can only use higher Treasury bond interest rates to attract investors.
High borrowing in the United States is a disease, and under the political structure of the United States, this disease is not easy to cure. In the Obama era, the contribution of U.S. government spending to GDP growth reached a low of 5.2%, increased to 8.7% in the Trump era, and increased crazily to 14.6% in the Biden era. Spending money to buy votes has become a drug addiction for politicians. They seem to think that borrowing money does not have to be repaid.
Lu Yongxiong
U.S. Treasury Secretary Yellen’s visit to China this time brought less drama, but more criticism from Chinese people. From the dining scene she deliberately arranged, we can see the difference in the reactions of the people who visited China during the two visits.
In July last year, Yellen visited China for the first time during her term in office. Photos of the dinner were circulated. She had lunch with a group of Chinese female economists and entrepreneurs at Chang’an No. 1, a Chinese restaurant in the Grand Hyatt Oriental Hotel in Beijing. This scene is full of American political correctness: women, intellectuals, etc. The propaganda dinner that day was met with mixed reviews. At that time, some Chinese netizens pointed out that the diners were not representative of China.
During Yellen’s visit to China this time, photos of the dinner were circulated again. Yellen was seen dining at Taotaoju, a time-honored restaurant in Guangzhou. She seemed to be just dining with her fellow officials, and there were no guests with special “personalities.” The publicity point was that “Yellen insists on sitting down. Have fun with the people in the lobby” (title of “Free Asia”).
Even “Voice of America” admitted that the Chinese official media used Yellen’s chopsticks well, believing that “the humane reporting method of the Chinese official media released a signal that Beijing hopes to further ease relations with the United States.” However, “U.S. Voice of America also noticed that the Chinese people are very anti-American. The report quoted Yellen’s dining in Guangzhou. A comment on Weibo that received more than 2,000 likes called her an “elegant robber.” Another comment also said, “Instead of caring about what Yellen eats, it is better to care about how they plan to make things difficult for China.”
You can also take a look at the highlights of the US official account of Yellen’s visit to China. The U.S. Embassy in China posted on April 5 quoted Yellen as saying, “I have followed President Biden’s instructions and we have responsibly managed our relationship with China from a position of strength. Our economic agenda is making historic progress. The economy is recovering. Our significant investments in production capacity will drive continued, strong economic growth.”
Does the United States really have such a “position of strength”?
In the past, the United States complained that China subsidized old industries such as steel production. Now Yellen is complaining about overcapacity in China’s new energy industry, which has caused American companies to take action, so she wants to confront China.
China kept its promise and expressed its sincerity. Yellen issued a statement after two days of talks with Vice Premier Ho Lifeng, saying that the two sides agreed to launch two important new initiatives. One is that the United States and China agreed to hold in-depth exchanges on “balanced development” of the domestic and global economies. The second is that the U.S. Department of the Treasury and the People’s Bank of China have launched new anti-money laundering cooperation and exchanges in order to expand cooperation between the two countries in combating illegal finance and financial crimes.
Yellen has obtained these “results” and has homework to hand out when she returns to the United States, giving Biden more topics to talk about in the November election, and that’s it. Has the true “power status” of the United States improved? It seems not.
Strength and status come from real strength. The essence of the problem Yellen is talking about now is that China’s core industrial manufacturing capabilities are too strong and its production capacity is too strong, which has forced the U.S. manufacturing industry to death. But behind these complaints, isn’t it the same as saying that the U.S. manufacturing industry has no strength?
We have said that the first disease in the United States is to practice double standards. This kind of double standard has lost the moral high ground and makes real intellectuals around the world (not the kind of “public intellectuals” who like to show off) at a loss what to do.
Why does the United States want to move the gantry? It is because of the second condition: the lack of core manufacturing capabilities. Yellen said that as long as China does not produce so much, American companies will not die. Is this true?
Just look at new energy vehicles. “The price of China’s BYD is unmatched and has undoubtedly shocked car company boardrooms in the U.S., Europe, South Korea and Japan,” said Michael Dunne, CEO of Dunne Insights, an automotive consulting firm. The average price of a new car in the U.S. this year It’s about 48,000 US dollars, while BYD’s “Seagull” car costs only 79,000 yuan, or 10,900 US dollars. The price of American cars is nearly five times that of Chinese cars. How can it compete with China?
Dunn said, “Imagine a Chinese car priced at US$20,000. Even if a 25% import tariff is added and the price reaches US$25,000 or US$26,000, the price still has a clear advantage.” Therefore, the United States will set more restrictions on the import of Chinese cars and complain about China’s overcapacity, which will affect the U.S. auto industry.
The reason why a car in the United States sells for $48,000 has a lot to do with wages. On the capitalist’s side, it’s very simple. Calculate the number of games, do it if you have money to make, and don’t do it if you don’t. If the wage cost is high, then raise the price of the car a little higher. Anyway, the government’s protectionist policy limits the competition of imported cars, and Americans will buy a car regardless of the price. Therefore, the key factor that affects the price of a car is how the workers ask for it.
The first is that unions negotiate higher wages.
Last year, the United Auto Workers (UAW) launched a series of strikes and finally reached an agreement with the three major automakers General Motors, Ford, and Strantis Group. Taking Ford as an example, according to the agreement, employees will receive an 11% salary increase in the first year and a total salary increase of 25% in the next four and a half years, plus a $5,000 living cost adjustment. More importantly: you only work 32 hours a week and get paid for 40 hours. The conditions given by the other two car companies are also similar.
Calculated in this way, the salary increase is as high as 30%, with a low salary of US$30 per hour and a maximum salary of US$42 per hour. Such a low-level ordinary car factory worker twisting screws, working 32 hours a week and receiving 40 hours of salary, can earn at least US$5,000 per month, and the maximum salary can reach US$7,360, not counting other benefits. Converted into RMB, that’s a monthly salary of 36,000 to 53,000 yuan.
The monthly income of an ordinary assembly line worker in a major electronics factory in China, with basic salary and overtime pay, is about 5,000 to 6,000 yuan, and that of a large car factory is 10,000 to 11,000 yuan. The wages of American car factory workers are 4 to 5 times that of China. This is also proportional to the price of the car.
Secondly, we are opposed to electric vehicles.
One of the main conflicts between American car companies and labor unions comes from the transformation of electric vehicles. The structure of electric vehicles is simpler and there are fewer system components. Therefore, it is generally believed that the manufacturing of electric vehicles requires fewer workers compared with traditional internal combustion locomotives.
Ford’s president of operations previously said that the man-hours required to produce electric vehicles in factories can be reduced by 30%. Bosch, the world’s largest auto parts supplier, also said that the number of employees required to manufacture gasoline systems is three, but electric vehicles only require one employee. In order to protect workers’ jobs, the automobile union vigorously opposes electric vehicles.
When Biden ran for president in 2020, he made environmental protection and climate change his main platform. After taking office, he formulated many climate-related policies and proposed that electric vehicles account for 50% of new car sales in 2030 and 67% in 2032. . In 2023, electric vehicles will account for 7.6% of new car sales in the United States, which is far from the target.
As the election approaches, Biden turns the tables. Michigan is a key swing state in the 2024 U.S. presidential election. In order to win votes from the auto industry workers in these states, the Biden administration announced in March this year that it would lower the 2032 electric vehicle penetration target from 67% to 35%. Kick the concept of environmental protection into the trash can.
The third is that American diseases are called Chinese food and medicine.
Manufacturing costs in the United States are high and efficiency is low. The more products are sold, the more expensive they are. Sales naturally decrease, economies of scale are lost, and products become more expensive, creating a vicious cycle. The United States’ own products are expensive, and it does not want to study how to reduce costs. It only complains that other people’s products are too cheap. This is a mentality of asking others to take medicine when it is sick. Even if China takes medicine, can it really cure the disease of the American manufacturing industry?
The United States itself subsidizes the new energy industry, and then comes to China to force China not to subsidize. Does it really think that China is a fool? If American cars continue to be like this, who else will buy American cars except in the United States? The result will be like American ships, becoming a supporter. What a shame, Adou.
Lu Yongxiong
2024-04-09 11:05:47
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