After much anticipation, on September 19th, in the early morning Beijing time, the Federal Reserve finally announced a rate cut, and it was a substantial one of 50 basis points. Even Federal Reserve officials hinted that there would be at least one or two more cuts this year, with at least another 50 basis points reduction. What does this indicate? It indicates that after two years of rapid interest rate hikes, the US dollar has finally returned to a path of rate cuts, and the competition between high blood pressure and low blood sugar has finally ended in our ultimate victory.

Over the past two years, the Federal Reserve has raised interest rates at an extremely fast pace, with the US benchmark interest rate soaring from 0 to over 5.5% in a very short time. Do you know that two or three years ago, many people complained about high interest rates in our country, saying that when buying a house in China, the loan interest rate could easily be over 5%? At that time, we even bought second or third houses with a 10% to 40% increase on the benchmark interest rate. Meanwhile, in the US, many people said that mortgage rates were very low, as low as around 2%. At that time, the US benchmark interest rate was 0, so adding two points for the loan interest rate was also normal. However, in just two short years, the interest rate gap between China and the US has undergone a major reversal.

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In the past two years, we have continued to lower interest rates, to the point where many people say that now is the most relaxed era for buying a house, with mortgage loans not even reaching 4%. On the other hand, in the US, the benchmark interest rate for savings is 5.5%. Just think, how high would the loan interest rate have to rise? There are many "house slaves" in the US who have been suffering greatly in the past two years, as the amount they have to repay is much higher than before, so in the past two years, no one has said that buying a house in the US is cheaper. Of course, the adjustment of interest rates only reflects a small part of the impact on the real estate market, and the adjustment of interest rates has a great impact on the global economy.

Especially the adjustment of US dollar interest rates, why? Because the US dollar is the world's currency. Since World War II, we know that the United States, with its strong national strength, has made the US dollar the world's currency. Even if you are an enemy of the United States, you still have to use the US dollar. Over the past two years, although more than 60 countries have started a strategy of de-dollarization, the proportion of the US dollar in international settlements is still close to 60%. Although the dominant position of the US dollar is being lost, it cannot be completely destroyed in a short period of time. Therefore, the US dollar's interest rate cuts or hikes have a huge impact on the global economy.

Over the past two years, why did the Federal Reserve want to raise interest rates? The superficial reason is the shocking inflation in the United States. Since President Biden took office, he saw the US economy devastated by the COVID-19 pandemic, so he kept printing money and flooding the market with tens of trillions of dollars out of thin air, causing the US to face shocking inflation. Prices have been soaring, and the American people can't stand it anymore. Biden will definitely not be re-elected, so over the past two years, the Federal Reserve has been raising interest rates, causing the US base interest rate to soar from zero to 5.5%, and finally almost suppressing US inflation.

On the other hand, in fact, there is another function of the Federal Reserve's interest rate hikes, which is to harvest the world. What is the reason? The reason is very simple. When the US dollar raises interest rates, funds from all over the world will flow to the United States. For capital, they are profit-seeking. They find that if you move your money to the United States and do nothing, just deposit it in a bank, the annualized return exceeds 5%. What kind of annualized return is this? Previously, senior officials of our country's banks told ordinary people that if someone tells you that he can get you an annualized return of 6%, you can basically regard him as a liar at the first time, because even the listed companies in our country today do not have such good returns.In the United States, however, it's not a scam; when you deposit money in a bank, you can genuinely earn such high returns. Consequently, naturally, after the US dollar interest rate hikes, a substantial amount of capital flows back to the US. Moreover, many countries must follow the US in raising interest rates. This is why we see Canada, the European Union, and other allies of the US almost continuously raising interest rates in lockstep with the US. Why? Because they are very clear that if they don't raise interest rates, they will be harshly reaped by the US dollar, and their exchange rates will suffer a significant devaluation against the US dollar. Isn't the Japanese yen a living example of this?

For the past 30 years, Japan has adopted a zero or negative interest rate policy. Why? On one hand, the Japanese economy is really poor, so it uses zero or negative interest rates to stimulate the economy. On the other hand, the Japanese government is heavily in debt, with the quantity of Japanese government bonds accounting for 2.5 times its GDP. Fortunately, the interest rate on these bonds is 0, allowing the Japanese government to juggle finances. If this interest rate were to be raised, the Japanese government would not be able to afford the annual interest payments. So even though the US dollar has been continuously raising interest rates, Japan has hardly followed suit over the past two years, but there is a cost to not following. The cost is the wild devaluation of the yen against the US dollar. At its peak, one US dollar could be exchanged for 160 yen, which is equivalent to all of Japan's products being discounted by 30% for foreigners.

However, conversely, all the goods that Japan imports will cost you 30% more. So after the US dollar interest rate hike, it directly burst Japan's economy. Many ordinary Japanese people wonder why the prices of all items in the supermarket are rising. Japan has experienced deflation for decades, and then suddenly it becomes inflation? Of course, after the US dollar interest rate hike, it originally wanted to harvest our country well, after all, our country has not only not followed the US interest rate hike in the past two years, but we have actually been lowering interest rates. However, we have withstood this war of high blood pressure against hypoglycemia.

In previous programs, we said that the US was waiting for China to not hold on, the US was waiting for China to follow the US dollar interest rate hike, and then our economy would collapse, and then the US would come over to harvest us harshly and buy away a large amount of our assets. Just like what the US has done to Japan, Southeast Asian countries, and European countries over the past few decades, but this time the US has failed. The US did not wait for the day we raised interest rates, the US itself first lowered interest rates.

Moreover, in the past two years, we have clearly seen the interest rate difference between the yuan and the US dollar becoming larger and larger, and we still dare to lower interest rates. At the same time, although the yuan against the US dollar has depreciated a bit, it has not depreciated much. US economists believe that after this time the US lowers interest rates, the yuan against the US dollar will appreciate by more than 10%. In other words, all the depreciation we have experienced in the past two years will all rise back. So the US dollar's interest rate hike channel in the past two years, although it has pressed down inflation, has not achieved its goal of suppressing China's economy or harvesting Chinese assets. Why? There is a very simple reason, that is, the advantage of the US dollar is indeed not as before.

Looking back a few decades, the proportion of the US dollar in international settlement may exceed 80%, and the US dollar is unobstructed in almost all countries. So as long as the US dollar moves its fingers, raises interest rates or reduces interest rates, it will cause a sensation and help the US to harvest other countries. However, after the Russia-Ukraine war, more and more countries have started the strategy of de-dollarization, which has indeed lost the advantageous position of the US dollar, making the US dollar unable to easily set off huge waves as before. And there is another more important reason, that is, the strength of the yuan. Why is the US dollar strong? At first, the US dollar was pegged to gold, and later the US dollar was pegged to oil, so the US obtained the status of a world currency, and the US dollar hegemony was established. The US can harvest the world through raising and lowering interest rates.

But this time it is different. On the one hand, the US dollar is decoupling from oil. Why? The reason is very simple. After the success of the US shale oil revolution, it has become an oil-exporting country. The US is worrying about the large amount of oil and gas resources it produces every year. Who should it sell to? It no longer needs to buy a large amount of oil from the Middle East, so the Middle East is no longer the core interest of the US, and the US does not need to invest a large amount of resources in the Middle East. Subsequently, the US dollar is slowly decoupling from oil.On the other hand, what should the Chinese yuan be pegged to? The yuan should naturally be pegged to oil, as we are a major buyer of oil today, and many countries in the Middle East will agree to accept yuan for payment in the future. On the other hand, the real anchor for the yuan is our country's vast industrial production capacity. Today, we are a construction mania, we are the world's factory. In just three years, we have gone from exporting 1 million cars per year to exporting 5 million cars per year, becoming the world's largest car exporter. Even in just the past August, we have won more than 90% of global shipbuilding orders, and our domestically produced large aircraft have also started commercial use. The industrial products we manufacture are supplied globally, which makes any country willing to use the yuan to do business with us.

How did the US dollar gain its dominant position? Because the United States used the dollar to buy oil, Saudi Arabia was willing to accept the dollar, and countries around the world wanted to buy oil, and you had to spend dollars later, so the scope of use of the dollar gradually became wider. Today, every country needs to buy industrial products from us, and our industrial products are of good quality and low price, so they can of course use dollars to buy, but gradually, we suggest that they use yuan to buy. We will even establish various types of currency swap agreements with them, which means that the global demand for the yuan is continuously increasing.

Especially after the Russia-Ukraine war, Russia has exchanged all its foreign exchange reserves for gold and yuan, which has made the yuan more robust. So in the past two years, under the big background of the United States raising interest rates, Japan did not follow suit, and the yen was pulled out, depreciating by 30%. Not only did we not follow suit, but we also lowered interest rates. However, the depreciation of the yuan against the dollar was only about 10%, and we will soon be able to recover this 10%, so the fundamental reason is still the decline in the dominant position of the dollar, which makes it unable to cause much turmoil, and it has not harvested us in the past two years of interest rate hikes.

After we stood firm, the United States could only lower interest rates. This battle, after all, was a defeat for it, and this battle also gave us an inspiration, that is, although the dollar is still a world currency, although the dollar still has a huge advantage. But given time, as more and more countries start to de-dollarize, as long as the yuan is bound with our vast industrial production, the gradual loss of the dollar's advantage will come quickly.