The Fed'S Distorting Operation Indicates That The Global Economy Is In Recession.

In September 21st,

Although the Fed's strategy of "long debt for short debt" has been avoiding the expansion of the scale of assets and liabilities, the Federal Reserve usually conducts monetary policy by adjusting short-term interest rates such as federal overnight interest rates. Therefore, the policy of "free from vulgarity" in traditional operation is described as "twisted operation" by the market.

Frankly speaking, the Federal Reserve is willing to hold the market's appetite when and when the QE3 is launched. However, whether the current "twist operation" or the QE3 finally came out, the Fed has put itself into the embarrassment of fatal self Conceit: monetary policy will not only boost economic and employment, but also the "normalization" of the unconventional monetary policy has seriously distorted the price of the financial market in the US and even the whole world, so that the market's risk management and control of risk assets is out of order, and thus the market credit crunch and debt deflation are normalized.

On Wednesday, the three major indexes of the US stock market all fell by more than 2%, of which the Dow Jones Industrial Average fell 2.49%, and the September 22nd European and Asian Pacific stock market collectively.

Specifically, the Fed's policy is undoubtedly in line with the recent $447 billion stimulus package proposed by the Obama administration, thereby lowering the cost of US Treasury bond financing and stimulating government investment and spending.

However, the effect of Obama's new stimulus plan and the Fed's "distorting operation" policy is far less effective than before, especially for China.

There is no doubt that the Fed has directly depressed the yield curve of the us long term treasury bonds. Although the cost of Obama's new stimulus plan has been reduced, the US economy and employment have rebounded under the government's stimulus. However, the decline in the cost of government financing will undoubtedly further squeeze out the private sector, resulting in a short-lived recovery in the US economy.

Even if the US economy is short-lived, it has limited impact on China: first, China has not yet joined the WTO agreement on government procurement, so it is difficult to directly share the needs of the new stimulus plan of the US government. Moreover, the crowding out effect of the government stimulus plan on private sector investment will further reduce the demand for Chinese goods in the US market; one of the proposed new stimulus plans is to increase taxes on the rich. In 2009, the huge stimulus program of the US government promoted China's exports to the United States to a certain extent, largely owing to the prominent tax reduction provisions of the stimulus plan, which made the US consumers use the tax refund to spend, thereby increasing the demand for Chinese goods.

Today, the high unemployment rate and weak economy in the US will further reduce the demand for Chinese goods. The weakening of the US market on China's demand will push up the paction costs of some Chinese goods in the US market, so that some products in the US market will have local production instead of import effect (for example, the recent part of the US manufacturing reflow).

Obviously, all of these have adverse effects on China's economy and exports.

At the same time, the Fed's new "twist operation" policy not only provides a direct operational tool for lowering the yield curve of the us long term treasury bonds, but also gives significant asset gains and losses to the 1 trillion and 173 billion 500 million foreign exchange reserves held mainly by the US medium and long term treasury bonds, and also has a devaluation pressure on the US dollar from a long-term perspective.

Despite the Fed's new rules, the US dollar index rose 0.8% to 77.63, but this is mainly due to the current risk demand in the euro zone debt risk and the tight liquidity in the global market.

In other words, the major currencies such as the US dollar have entered a dynamic devaluation trend, that is, the depreciation of the world's main banknotes relative to international commodities.

This will aggravate the pressure of RMB appreciation on the one hand, and on the other hand, affect China's terms of trade, which will lead to higher import price / export price and will also bring difficulties to the asset allocation of China's foreign exchange reserves.

It can be seen that the current Obama administration's new stimulus plan has not yet fallen to the ground, and the Fed has introduced the "distorting operation" unconventional policy, which reflects that the US and the global economy is no longer a simple recession risk, but more likely the global economy is in deep freeze.

Therefore, China needs to reassess the role of the stimulus plan in due course, because stimulus is expected to bring positive benefits to the global economic recovery, but now the recovery is stagger.