Dollar Rate Cut: US Wins in Upcoming Financial Battle

Recently, many people have said that the US dollar rate cut means that the United States has already lost. Have they really lost? What have they lost?

If we say the United States has lost, then have we won? What have we won? The significant move by the central bank yesterday may have revealed the answers to these questions. This is a war without smoke, and the war is far from over, with even more brutal events to follow.

Today, I want to discuss whether the financial war between China and the United States has ended. Why do I want to discuss this topic in depth? Because I often receive two completely opposite types of messages recently.

The first type of message says, where is there any financial war, it's all you people making a fuss every day.

These people don't even understand the most basic common sense, so they made two common sense mistakes.

The first common sense mistake is that the term "financial war" has been around for a long time, and the 1997 Asian financial crisis is a vivid reality.

Especially the defense and attack battle in the Hong Kong financial market at that time, many people still have lingering fears to this day, you can look for articles in the Hong Kong financial industry, it's really thrilling, thinking about it is very frightening.

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Hong Kong is the financial center of Asia, its status at that time was far more important than it is today, if it was breached, the consequences would be unimaginable.

Not only that, but many economists have been talking about the financial war between China and the United States in the past two years, and you actually say it doesn't exist? Which village in the United States are you from? How much did the $1.6 billion go to you?The second common misconception is that the so-called financial war is not necessarily an organized offensive and defensive battle. In fact, it is the U.S. authorities creating a "momentum" centered on the advantage of the U.S. dollar. This momentum does not appear to be a targeted offensive action, but it is the most important overall situation.

Once this momentum is formed, the U.S. financial capital group can find opportunities to harvest, which is an offensive battle in the dark that you cannot see.

Therefore, if you think that financial warfare is like trade warfare with tariffs that are on the surface, then you are very wrong. Often, you have not yet reacted, and the war is already over.

The second type of message says that from the moment the U.S. dollar cut interest rates, the financial war between China and the U.S. ended, and the Americans have already lost.

This is a typical theory of quick victory. The great man taught us that we must fight a protracted war against imperialism.

Why does this theory of quick victory exist?

Because since last year, there has been a popular saying on the internet that both China and the U.S. are now gritting their teeth and persisting. Whoever cuts interest rates and releases water first will lose.

Does this statement make sense? It makes a lot of sense.The United States has now cut interest rates, and it has done so by a full 50 basis points in one go. But have they flooded the market with liquidity? Have they given up resistance? Absolutely not! Is there a basis for saying this? Of course there is, and there are three reasons.

Firstly, although the initial cut was 50 basis points, which might seem like a rush to lower rates, the reality is that the dollar's rate cut has only just begun. A couple of days ago, we mentioned that this is the Federal Reserve's way of enticing several major central banks to follow suit in lowering rates, in order to maintain the interest rate differential and prevent the dollar from fleeing too quickly. Powell also stated in a press conference on September 19th that there is currently no roadmap for rate cuts, and whether or not there will be further cuts, and by how much, will depend on economic data, and there might even be a pause in rate cuts.

Secondly, on September 19th, Powell also emphasized that the Federal Reserve will continue to shrink its balance sheet. In fact, the 50 basis point rate cut is not important at all; it is merely the beginning of the dollar's rate-cutting cycle. The Federal Reserve continuing to shrink its balance sheet is the key information that should be focused on. What does shrinking the balance sheet mean? If lowering interest rates is a monetary tightening policy, then shrinking the balance sheet is equivalent to directly withdrawing base money from the market, which is an even more severe tightening policy and has a more significant impact on liquidity.

So, you ask, has the Federal Reserve started to flood the market with liquidity? Not at all! If they were to reduce the dollar interest rate to 2% and re-enter an expansionary cycle, that would be considered a significant flood of liquidity.

Thirdly, there is still an interest rate differential between the dollar and the world's major currencies, and the differential with the Chinese yuan is even over 3%. The danger has not yet passed.So, the Federal Reserve merely made a gesture by cutting interest rates by 50 basis points; they haven't truly started to flood the market with liquidity, which means they haven't surrendered yet and still want to continue struggling.

Some people say that once the dollar begins to lower interest rates, Americans will lose so much that they won't even have underwear left. Is this really the case?

We've discussed so much before, which actually indicates that the Federal Reserve has won at least one thing: holding the world's most powerful currency, they still have the initiative in lowering interest rates and flooding the market with dollars, while all other currencies in the world are passive, including the renminbi.

Yesterday, the central bank announced a series of new policies, but did not lower the LPR benchmark interest rate. Why is that?

This precisely illustrates that the central bank is still relatively cautious at present, not fully opening the floodgates to let liquidity flow freely, but rather adopting a more prudent and controllable targeted approach to inject liquidity into areas of the economy that are urgently in need.

Everyone knows a fundamental fact: the dollar remains the world's most powerful currency. Therefore, the world's battle with the dollar is a protracted war, and we are no different.

Now, a new war has begun, and we need to seize the initiative step by step.