US dollar hegemony: the biggest source of chaos in the world economy | The United States' massive borrowing and kidnapping of the world
According to a report by US media on September 4th, the Federal Budget Accountability Committee, an independent research institution, estimates that the federal deficit for the 2023 fiscal year, which will end on September 30th, may reach $2 trillion, approximately twice that of the 2022 fiscal year. To fill the deficit, the US government usually borrows money by issuing national bonds. The US federal government debt is the accumulation of this type of borrowing and related interest. According to information on the website of the US Treasury Department, as of August 31st, the size of the US federal government debt has reached $32.9 trillion, an increase of approximately $300 billion compared to a month ago.
The huge debt of the United States is a microcosm of the hegemony of the US dollar. Relying on the hegemony of the US dollar, the United States has acted recklessly in its economic policies, with aggressive and variable monetary policies and fiscal policies that consume more than it needs, constantly causing turbulence in the international financial market and even artificially creating financial crises in other countries.
The United States maintains a long-term foreign trade deficit, exports US dollars and inflation, and forms a "debt cycle" system of US dollar recovery through a large amount of debt issuance. The extremely low borrowing costs have made the United States increasingly addicted to abusing hegemony and becoming addicted to borrowing.
On June 3rd this year, US President Biden signed a bill on the federal government's debt ceiling and budget, which temporarily suspended the debt ceiling until early 2025, marking the 103rd adjustment of the US debt ceiling since the end of World War II. According to data from the US Treasury Department, the size of the US federal debt has skyrocketed from $3.2 trillion in 1990 to over $32 trillion today, accounting for over 120% of the US gross domestic product.
On August 1st of this year, international rating agency Fitch downgraded the default rating of long-term foreign currency issuers in the United States from AAA to AA+. Fitch Ratings issued a statement on the same day stating that the downgrade of the US credit rating is mainly due to the high and continuously increasing debt burden of the US government, and the fiscal situation is expected to continue to deteriorate over the next three years.
Analysts point out that the reason why the United States can continuously raise new debts to repay old debts ultimately lies in the hegemonic position of the US dollar in the international monetary system. Grasp the right to print money in international currency, use the US treasury bond to hold the world and control the global economic and financial lifeline.
Abuse of hegemony and addiction to US economic policies trigger crises in multiple countries
In addition to borrowing recklessly, the US government has also long abused the hegemony of the US dollar by adjusting its monetary policy and artificially manipulating exchange rates to trigger crises in multiple countries.
Taking Latin America as an example, in the 1970s, the Federal Reserve implemented a low interest rate policy to stimulate investment and employment, and some Latin American countries took the opportunity to borrow large amounts of low interest US dollars to invest in oil development. In the late 1970s and early 1980s, the Federal Reserve suddenly raised the overnight lending rate to 20%, causing the US dollar to appreciate and oil prices to fall. And those Latin American countries that borrowed US dollars to extract oil suddenly fell into the trap of the US dollar, with multiple countries experiencing debt crises one after another. The 1980s, which followed, was also known as the "lost decade" of Latin America.
The strong US dollar has attracted a large amount of capital from around the world to the United States, but it has also damaged its export competitiveness, leading to a huge trade deficit. Therefore, the United States turned to seeking to devalue the US dollar and targeted Japan, which had a huge trade surplus with the United States at that time. In September 1985, the United States, Britain, France, Federal Germany, and Japan signed the famous Plaza Accord, agreeing to jointly intervene in the foreign exchange market and induce the depreciation of the US dollar against the Japanese yen and German mark. In less than three years, the US dollar depreciated by 50% against the Japanese yen. The strengthening of the Japanese yen has had a huge impact on Japan's export-based industry. Finally, at the end of the 1980s, Japan's economic foam was forced to burst, and from then on, it was trapped in the liquidity trap, and it has not recovered for decades.
