By: Forexter
US Financial Cliff Worries Over? What’s Next?
Good
day everyone, with the bullish Dow Jones for past 2 days, it seems like the US
Fiscal Cliff has come to an end. Or is it not?
The Congress has
eventually came up with a mutual understanding, both parties had compromised
for “a better United States”, is that so?
This fiscal cliff issue does looks too dramatic and it looks like part of the
political game, which clearly shows that the Republicans who represent the
interests of the rich prefer spending cuts; Democrats prefer to raise taxes,
especially towards the rich. One thing is for sure, no matter how many internal
contradictions that the congress is facing, they would actually not let the
economy fall to the bottom of the cliff. Over the years, such a compromise to
the dispute is always occurred in the nick of time, such as the 2010 and 2011
year-end financial agreement which had their motion tabled and passed on 17 and
23 December of the current year respectively. In conclusion, I do feel that the
“dramas” made by these two political parties are just taking this opportunity
to show their political stance to the American public, for the sake of the
future General Elections.
By now, everyone will be paying too much attention on this political “game”,
but they’ve ignored the economic fundamentals of this financial cliff which is US
Dollars being the status as an international currency, according to the past, the
US Government should have optioned for quantitative easing. But in this Fiscal
cliff the US Government reacted in an unusual way, instead of supplying more
dollars into the market, they’ve optioned something else… Why?
First and foremost, the current Dollar system wouldn’t collapse, the accusation
of US will be heading towards bankruptcy is baseless. So, is U.S having
financial problems? This is obvious. Ever since the Government has passed the
authority of the mint to the Feds, the U.S government’s financial status
weren’t “healthy” as they’ve been in deficit budget which yields more than $1
Billion Dollars for the fourth consecutive year! Throughout all these years,
with several Presidents leading the country, the only time when the US
government has fiscal surplus would be during President Clinton’s era. In 2009,
the government deficit reached a historical high of $1.41 trillion; compared to
1.1 trillion in 2012!
Fiscal deficit has never been a problem that politicians and the White House
need to be worried about, why would they need to worry about money? The reason
is very simple, the way to resolve the problem is to settle their old debt with
a new loan. This is how the U.S
government increases their income, and who is the one willing to assist U.S?
They are the biggest U.S Treasury bond holders – China & Japan.
The United States has been borrowing money as a form of generating income; the
main reason due to U.S Dollar is the international trading currency, which
resulted that most countries includes China & Japan own a large number of
reserves in U.S. dollars. Ironically, U.S. dollars are not to be used for
domestic consumption in China or Japan. In other words, apart from being able
to use U.S Dollars for direct investment into U.S, this would just be a stack
of papers. What do we mean by direct investment into United States? It would be
either to purchase government bonds, or direct investment into the real
economy, and this would be equivalent to have been directly or indirectly lending
monies to the United States in order for them to sustain their own economy.
Let us have a clearer picture towards this “awkward
phenomenon” - China would be handling their monies to United States in
exchange of fine stacks of printed papers
(dollars), and in return China would replaced their stacks of fine printed papers (dollars) into
another stack of paper (U.S Treasury Bonds), and the United States shall re-use
these stacks of fine paper (dollars)
to buy more of Chinese’s exports. As a result, by executing Quantitative Easing
(print more Dollars), the United States has the ability to plunder the resources
of foreign countries.
It is saddening, but why China, Japan or other countries would still lent
monies to United States? Do they have an option to say no? Imagine, should
they’ve stopped lending monies to U.S, then we’ll have the United States to set
various trade barriers to prohibit the importation of the country’s products,
which means their products would not be able to enter the United States. China,
for example, there are large numbers of export-dependent companies,
organizations and several of these enterprises would suffer significant hit
which may resulted a vast impact towards the entire industry chain. That is
why, these countries would option to lend United States a “helping hand” in
exchange for a barrier-less trades which may stimulate or drive further
developments for the industry chain.
This phenomenon has started way back during the times where the United States
is involved in World War 1 & 2, which resulted of a skyrocketed nation’s
debt. “Quantitative Easing” policy has
been executed since then for the sake of an evasion towards their debt, and
also for the hope of vast development. The drawback of this “holy” policy is by
printing more notes, the value will depreciate accordingly. For those countries
who holds significant U.S. Dollars reserves will feel the pressure as what they
are holding a currency which has depreciating value, it is possible that one
day the stack of fine papers
(Dollars) will turn into a stack of worthless papers. Bound by these pressures,
many countries has started to sell their U.S Dollars and in order to curb this
problem, the United States has started this drama called “Fiscal Financial Cliff” to ease the tension among its’ debtors.
It is to be informed that with the results or decision for this “Fiscal Financial Cliff” would temporary
ease off the worries and doubts regarding the financial situation of the United
States, but bear in mind, there would be more problems to be resolved by them
in years to come. But at the very least, with the congress making announcement
which somehow “satisfies” the entire world, it is possible that the United
States is trying to revert the message to the world that “they would like to
break away from this awkward phenomenon, and U.S. Dollars or the United States
is still a worthy investment.”
Does this sound
like good news to you? Think again, the whole “act” has just started, sooner or
later the fiscal cliff would arise again, and we will have to re-enact to the
whole drama again and this time the United States will make it clear that:
“With U.S Dollar being the international currency for trade, the rise and fall
of every countries in the world are greatly bonded
by this special relationship between the United States and them.”
The history of the
evolution of the global economy has proven once again that the statement stated
by former Secretary of State Mr. Henry Kissinger – “who controls the currency will
control the world.” Is indeed true.
But does that mean that the world economy will not be able to extricate themselves
under the control of the United States and U.S. weapons? Apparently it is not.
The starting point of the U.S. dollar being the single dominant currency
started during World War 2. But with the rise of Euro, the internationalization
of the Chinese Yuan (RMB), and the strengthening Asian currencies, the U.S
Dollars as a strategic “global domination” weapon for U.S. has no longer
exists.
After the rule of
U.S Dollar being the world's dominant currency for the international monetary
system for 100 years, the U.S. dollar, based on the external compression due to
the recession factors and global economic competition, it is inevitably that
United States may suffer from full-blown recession. Based on the financial
crisis which began in 2008, some experts claimed that the collapse of the
dollar system cycle will last 30 years. The present practice of the United
States would just postpone the after effects from the 2008 crisis, but the
history shall repeat itself. This “awkward phenomenon” may be abolished from
time to come.
Disclaimer:
The information and analysis mentioned above are solely based on Invest ACE’s
personal technical analysis with the aid of professional training, decades of
experience and meticulous foresight; Invest ACE shall NOT be held liable for
any losses (financially or otherwise) incurred by any parties relying on
aforementioned analysis without prior professional consultation. Should you
wish to find out more on how to invest wisely, do not hesitate to contact
Invest ACE via investace126@gmail.com.
