The United States wants to “release water” again? Experts talk about how to respond

The US Senate voted on the 6th local time to pass the $1.9 trillion economic stimulus plan. Next, the House of Representatives will vote on the version passed by the Senate, which will be submitted to US President Biden for signing into law. Whether the House of Representatives will “release” the plan has attracted market attention.

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Experts expect the stimulus plan will eventually pass

Regarding the reason why the 1.9 trillion stimulus plan passed so smoothly in the U.S. Senate, Jia Jinjing, assistant to the dean of the Chongyang Institute of Finance and Director of the Macro Research Department of Renmin University of China, told the Sino-Singapore Jingwei client: “The United States is actually under great pressure. The impact of the epidemic has exhausted the ammunition, and now it is barely collecting ammunition. If the new measures cannot be met, it means that the entire stimulus plan has failed.”

Therefore, Jia Jinjing predicts that the plan will be passed eventually. The current market has reacted to the impact of the new stimulus plan. “Since the last week of February, the 10-year and 5-year yields of U.S. Treasuries have skyrocketed. The skyrocketing actually means that bonds have fallen, and the 5-year U.S. Treasury yields have also seen a linear jump on March 3. It’s very obvious.”

Jia Jinjing explained that the current prices of all assets, including stocks, are mostly valued according to the discounted cash flow method. It is equivalent to the money that the United States uses now is borrowed from the future. For example, a five-year treasury bond is equivalent to borrowing money after five years. The 5-year maturity is the shortest maturity among long-term bonds. The meaning of being madly thrown is that the entire market is extremely pessimistic about the economic prospects of the next 4 years, leading to a substantial reduction in the valuation of current assets, so the stock market will plummet. Prices skyrocketed. Jia Jinjing predicts that based on the current situation, commodity prices will continue to rise in the future.

The transmission mechanism of the US “large water release”

What kind of transmission mechanism is based on the impact of the United States’ “large water release” on the economy of other countries and the global market?

Liu Chunsheng, an associate professor of the School of International Economics and Trade of Central University of Finance and Economics, said in an interview with the Sino-Singapore Jingwei Client that the reason why the US’s “big water release” will have an impact on other countries’ economies and global markets is determined by the importance of the dollar in the global economy of. It is one of the reserve currencies of various countries, and international trade settlement is also dominated by the U.S. dollar. Such a mechanism will produce a process of transmission through international trade, investment, and financial markets.

The United States’ “large release” will cause passive adjustments in the monetary policies of various countries, and then trigger changes in domestic asset prices and rise in inflation around the world, and it will have a greater impact on some countries whose exchange rates are only pegged to the US dollar. “For example, many countries in Latin America only peg to the US dollar. In order to maintain the relative stability of the currency, these countries must print and issue corresponding national currencies to maintain the relative ratio between the two.” Liu Chunsheng explained.

Even for some countries that are not only pegged to the US dollar, there will still be some impact. Liu Chunsheng further analyzed, “For example, China’s renminbi is targeted at a basket of currencies, but there are also US dollars in it, and its proportion is relatively high, so it will definitely be affected. Of course, the fluctuation of the renminbi exchange rate is mainly determined by the market. ”

Recently, global commodity prices have risen sharply. Liu Chunsheng believes that this has a lot to do with the dollar. “Because many commodities are priced and settled in U.S. dollars, the additional issuance of U.S. dollars will definitely bring about abnormal changes in commodity prices. Of course, the rise in commodity prices is also related to the recovery of the world economy.”

“At the same time, this is also a process of linkage. The United States’ “big water release” has accelerated the recovery of the US economy, which has led to an increase in demand for commodities and demand-driven prices.” Liu Chunsheng added.

How should countries respond?

In the era of economic globalization, the economic ties between countries are highly close. It is obviously unrealistic to want to be completely free from the US “mass release of water”, but is there any way to mitigate the negative impact of the US “mass release of water”?

In this regard, Liu Chunsheng said that from a national perspective, first, the exchange rate can be adjusted, not only pegging to the US dollar, but also using exchange rate floating mechanisms. The reserve currency can also be adjusted dynamically. The second is that the euro or other world currencies can be used more in commodity settlement to smooth some price fluctuations.

Liu Chunsheng also said that in recent years, China has been working hard to promote the internationalization of the renminbi and has also done a lot of work in the renminbi settlement of cross-border trade, which can play a certain role. From the perspective of a company, risks can be avoided by purchasing options such as US dollars, exchange rates, exchange rate indices, and commodities.

For ordinary people, the impact may be imported inflation. Liu Chunsheng suggested that money should be invested in safe assets and diversified asset allocation should be carried out at the same time. This is because when the United States “successfully releases water”, there will be repeated rises in assets, such as gold, silver, bitcoin, and rising housing prices are all related to this.

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