As the Federal Reserve announced a 25 basis point rate cut, the federal funds rate target range was lowered to 2% -2.25%, the international financial situation has changed in recent days, ups and downs. Coupled with the increased risk of the global economic slowdown, market confidence has been suppressed by the tensions that have been caught off guard, and discussions on the new round of financial crisis are endless.
In the past few decades, a global financial crisis has erupted every ten years. Since the US subprime mortgage crisis in 2007, the wheel of history has passed for more than ten years. Then, will the magic of the “10 years” be reproduced?
Looking back at history and analyzing the present, we try to find commonality from the past financial crisis, and combine with the current global economic situation to explore some factors that may lead to the outbreak of a new round of financial crisis.
The risk of the macroeconomic situation in the global economy has intensified, and market investors are not optimistic about the effect of multinational central banks to cut interest rates and save the market. Corporate profit margins are lower, financial practitioners are worried or once again igniting the economic and financial crisis. According to research data released by the well-known investment company Strategas Securities LLC in August, the profit margin expansion of the S&P 500 index has shrunk for two consecutive quarters. In history, this is the downside. The trend is brewing a harbinger. Bloomberg’s BusinessWeek also pointed out that the current low profit margin will allow investors to find more returns under each available stone, which means taking more risks, which is likely to lead to the formation of bubbles and ultimately damage to finance. The stability of the system. Therefore, it is widely believed that cheaper liquidity cannot solve the dilemma of the profitability of the entire enterprise. When the profit rate drops to a certain level, entrepreneurs will reduce investment and even start layoffs, resulting in large-scale unemployment, consumer demand fell again, profit margins continue to decline, forming a vicious circle, eventually leading to the crisis.
In addition, global debt levels continue to rise, and investors are worried that the next round of financial crisis will be hidden. The International Monetary Fund warned in April that rising levels of corporate and government debt, coupled with a surge in risky lending, could cause the global economy to be hit by a new wave of sharp declines.
According to the International Finance Association, global debt increased by $3 trillion in the first quarter of 2019, and total debt accounted for 320% of global economic output, higher than in the 2008 crisis. In the United States, for example, private debt is still very high, accounting for 250% of US GDP. If the Fed reduces interest rates to near zero interest rates, it will cause losses to banks and endanger the entire financial system. In addition, Trump signed the bill on August 2, local time, and will suspend the debt ceiling until the next year’s general election, while authorizing the government to increase spending. This has caused the US government deficit to continue to deteriorate, and has also triggered the prospects of the US economy and the US economy. Worry.
In this context, the global central bank interest rate cut cycle may start, but the market generally expects the bailout effect to be unpredictable. Central banks in a growing number of countries have reduced or are considering cutting interest rates, indicating that there is growing concern that global economic growth is slowing. The theory behind the rate cut is that lower credits will encourage businesses and individuals to spend more and buy more.
However, it is widely recognized that there are risks associated with adopting a loose strategy. First of all, the current interest rate levels of many economies are already at historically low levels, and the space for further reduction is very limited. Second, a new wave of easing measures may exacerbate the turmoil in the housing market and other asset bubbles. Therefore, although central banks cut interest rates simultaneously, most investors recognize that policy space is limited and may bring more uncertainty to the economic crisis.
At the same time, the decline in the independence of the Fed and the instability of the trading system have increased the risk of financial market volatility and combated business confidence. The significance of the Fed’s independence from monetary policy is to prevent the government from implementing too loose monetary policy simply to pursue high economic growth, and to avoid the “money debt monetization” threatening the security of the dollar-based monetary system.
However, under the new interest rate regulation mechanism of the Federal Reserve, the vacancies of the executive committee members of the Board of Directors made it easy for Trump to “reshape” the Fed and indirectly influence the direction of monetary policy. The independence of the Fed’s monetary policy has been “not as good as it used to be”. Therefore, the current Fed’s easing policy will help Trump be re-elected in the 2020 presidential election, but its interest rate and risk premium have been pushed to an unprecedented low. Because political forces intervene in monetary policy decisions or threaten the Fed’s presidency, it will undermine public confidence in the central bank, which will lead to financial market instability and worse economic consequences.
Business confidence and financial market volatility, deepening the risk aversion in the capital market. The turmoil in US stocks has continued since August, causing a sustained chain reaction in the global financial market, especially the two-year and 10-year US Treasury yields have re-emerged in the “nuclear bomb” level after 12 years, due to recent Before the US economic recession, there was a phenomenon in which the long-term and short-term US bond yield curves were upside down, and panic sentiment quickly spread to the world. The core region of the European Union, the German economy, is experiencing a “blood loss” and Germany’s 10-year bond yields have fallen further to negative values.
In this context, China must focus on preventing major risks, adhering to the independence of monetary policy, and maintaining sustained and healthy economic development. The superposition and strengthening of various bad news has intensified the market’s concerns about the economic outlook. Marked by the Fed’s interest rate cut, the global financial market was shrouded in the mood of “wolf coming”, and uncertainty and volatility became the dominant signs.
In the face of the current severe economic and financial situation in the world, how should China properly handle it? The Central Political Bureau meeting in the second quarter just concluded that China’s current economic development is facing new risks and challenges. The downward pressure on the domestic economy is increasing. It is necessary to enhance the sense of urgency, grasp the long-term trend, seize the main contradictions, and be good at turning crises into opportunities. “Do your own thing.”
Therefore, at a time when global liquidity is re-emphasizing a loose turning point, China should adhere to the principle of relying on me to continuously enhance the vitality of the domestic economy through deepening reforms, promote the smooth and continuous transition of the new and old kinetic energy of China’s real economy, and do a good job in the six stables. “Working, to stabilize the situation, to eliminate all kinds of inherent risks and hidden dangers in a timely manner, especially to better combine the prevention and mitigation of financial risks and the service of the real economy, and to promote high-quality development, so as to open the next stage of the Chinese economy.