At the end of 2011, the US dollar index rushed to the 80 mark. In the second quarter of 2012, the US dollar index broke through the 82 mark. In my opinion, this is a very noteworthy trend.
The strength of the dollar is beyond the expectations of most people. Since 2001, the United States has been implementing a weak dollar strategy, trying to stimulate the domestic economy through the continuous depreciation of the US dollar. After the subprime mortgage crisis in 2008, the Fed increased the stimulus of monetary policy and even played the game of “quantitative easingâ€. . Coupled with the high debt of the US government, many people tend to judge the US government to gradually "sell debts" through inflation. In short, the market believes that the dollar will continue to be weak in the future.
The author believes that it is difficult for the economy to get rid of the current predicament through monetary policy. The weak dollar will only make the US economy fall into a vicious circle. The correct approach is to re-implement the strong dollar strategy. A strong dollar is in line with the national strategic interests of the United States. Both the Chinese government and investors must have sufficient knowledge of this and be wary of the possibility of a dollar reversal.
The perspective of the author's analysis is the comparative advantage between countries.
First, look at the role of the dollar from the historical cycle
From the perspective of the comparative advantages of the economies of the world, they can be divided into three categories: First, countries with technological and R&D advantages, with the United States, Western Europe and the Nordic countries as typical representatives, they occupy the upper end of the global industrial chain for a long time; the second category is Countries with natural resource advantages typically represent Russia, Canada, Australia, and Middle East oil producing countries; the third category is countries with cheap labor resources, and China and India are typical examples.
In the past few decades, with the transformation of the strength of the US dollar, the strengths and weaknesses of these countries with different advantages have also changed.
Before 2000, since China was not fully integrated into globalization, the transformation of strengths and weaknesses between countries around the world was mainly carried out between the first category of countries and the second category of countries. Countries with technological advantages and countries with resource advantages are leading the way.
In the 1970s and early 1980s, the dollar continued to depreciate, and the prices of petroleum and other resource products soared. As a result, the first category of countries fell into a stagflation, and the Soviet Union and the Middle East oil-producing countries rose, even though the Soviet Union was still there. In the Western economic blockade, but the rise in oil prices has undoubtedly provided it with sufficient funds to support the development of its weapons manufacturing industry.
In the 1980s, the United States underwent a tighter currency under the leadership of former Federal Reserve Chairman Paul A. Volcker. The dollar regained its strong track and resource-based product prices entered a bear market. Regardless of whether this is intentional from the perspective of national strategy, the second category is indeed in trouble. The extreme example is the disintegration of the former Soviet Union. (The Soviet Union’s disintegration has political reasons, but the financial trouble is an important reason. If the price of oil does not rise shortly, there will be a big change in the situation).
The 1990s were also the era of the United States and Europe. During this period, the most influential person in the US economy was Robert Edward Rubin, the former president of Goldman Sachs, whose thinking was Wall Street-style thinking. For Wall Street, with enough money to make more money, Rubin’s idea is to concentrate global capital on the United States and gather on Wall Street. In 1995, he clearly declared that “a strong dollar is in the interest of the United Statesâ€. Affected by this, the US stock market has seen a spectacular big bull market, which has spawned a new technological revolution represented by network technology. Facts have proved that the strong dollar strategy is indeed in the interests of the United States. At this time, the United States not only leads the direction of world science and technology development, but also achieves a surplus in finance.
Corresponding to this is the outbreak of the Asian financial crisis. The common feature of Asian countries is that they like to save, work hard, and value education. But since the 18th century, the level of economic development has lagged behind the West. It belongs to the third category of countries in the global economic classification. When the European and American economies in the 1970s and 1980s suffered from stagflation, many capitals entered Asia, and Asia experienced a rapid industrialization process. The rapid development of exports created the miracle of the "Asian Four Little Dragons." Therefore, the economic miracle about 20 years before the Asian financial crisis is directly related to the international capital flows under the weak dollar. Under the influence of the strong dollar, the Asian financial crisis has taken place.
After entering the 21st century, the most populous China has joined the ranks of global competition, and the global economic structure has undergone tremendous changes. If the global economic competition in the late 20th century was mainly between European and American countries with technological advantages and oil-producing countries with resource advantages, then after entering the 21st century, the global economic competition pattern has added a new pole, that is, taking advantage of cheap labor. China participates in global economic competition.
Just as China joined the globalization (marked by China's accession to the WTO), two major events occurred in the United States, namely, the collapse of the technology stock bubble and the "9.11" incident. Affected by this, the United States embarked on the wrong track and began to implement the weak dollar strategy . Beginning in 2001, the Fed kept cutting interest rates in order to alleviate the impact of these two incidents on the US economy. But the weak dollar has caused international capital to withdraw from Wall Street and find new destinations. At this time, China’s economic door was completely open. Rich and cheap labor, perfect infrastructure and vast market made China a new paradise for international capital. Together with the fixed exchange rate system between the renminbi and the US dollar, China quickly became A new global manufacturing center.
Second, the strength of the dollar and the redistribution of global wealth
It can be clearly seen from the above historical phenomena that the strength of the US dollar will lead to the adjustment of the global economic structure and even the political structure. Because the US dollar is an international currency, the world's major commodities are priced in US dollars. The strength of the US dollar has actually led to the re-emergence of global wealth. distribution.
The recent round of weak dollar strategy not only made China's competitiveness rise rapidly, but also led to a continued bull market for global commodity prices. From a demand perspective, the cause of this round of commodity bull market is the rapid expansion of China's real estate and infrastructure investment. But without a weak dollar strategy, China's industrialization will not be so fast, and the expansion of real estate investment and urban infrastructure investment related to urbanization will not be so fierce. Therefore, it can be said that the US's weak dollar strategy has helped China improve its competitive advantage. Similar to China, there are countries such as India.
When the weak dollar and the global commodity bull market created by China's large-scale industrialization and urbanization are developing in depth, the wealth of the second type of resource-rich countries is unprecedentedly unprecedented, not only the Middle Eastern oil-producing countries are full of money, but also Russia. Beginning to re-emerge, Canada, Australia and other countries have earned a lot of foreign exchange because of export resources. The Canadian dollar and the Australian dollar have seen significant appreciation against the US dollar.
Therefore, if the world is divided into three parts, under the US's weak dollar strategy, the competition pattern of these three parts has undergone profound changes in the past decade: the first category of countries has declined relatively, while the second category of countries has declined. Relative rise to the third category of countries (especially the third category). The so-called "BRIC" is actually a product of a weak dollar.
The US economic policy makers may not have thought that the implementation of the weak dollar strategy not only failed to solve the problems of the United States, but also caused their own competitive advantage to decline relatively, and even entered the quagmire of the crisis. Why is this so? From the perspective of economic logic, the weak dollar corresponds to the price increase of bulk commodities. The United States must pay more funds to meet domestic needs. As a result, the trade deficit widens and the fiscal deficit increases. Under the strong dollar, commodity prices continue to fall. US import prices have fallen, trade deficits have fallen, and fiscal deficits have fallen .
By the same token, the US's weak dollar strategy has directly led to the plight of many European countries. Despite the many reasons for the European debt crisis, the weak dollar strategy is an important reason. European countries have already seen that the US dollar is not good for themselves as an international currency. The euro was introduced to replace the US dollar more than a decade ago. Unfortunately, the euro is full of ruggedness on the road to international currency. So far, it has not been able to replace the US dollar. Commodity trading is still basically priced in US dollars. Therefore, the euro is difficult to become a climate and a weak dollar, but also impacted the euro zone countries belonging to the first category of countries. The reason is still in the price of bulk commodities.
Of course, the relative decline of Europe and the United States is caused by many reasons, and the weak dollar strategy is only one of them. In the case of the European and American debt crisis, the high welfare system and low savings rate led to the expansion of the country's fiscal expenditure, and the democratic political system was difficult to change the status quo, so the country pushed the debt crisis. Among the countries with the same institutional background, Canada and Australia did not have similar crises because they belonged to the second category (with resource advantage) and were the beneficiaries of the weak dollar. This fact shows that the weak dollar is an important factor leading to the relative competitiveness of Europe and the United States.
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