The latest economic data showed that the number of first-time applications for unemployment benefits in the United States remained at a historical low last week, highlighting the continued strength of the U.S. labor market. As of the week ending September 30, the number of first-time applications for unemployment benefits in the United States increased by 2,000 to 207,000, lower than the 210,000 generally expected by economists. As of the week ending September 23, the number of continuing applications for unemployment benefits was also basically flat at 1.7 million.
While the small increase in jobless claims was broadly in line with Wall Street, it disappointed some investors who had hoped that weekly data would start to show a little bit of "breakdown" in the labor market, some weakness that would allow the Federal Reserve to reconsider raising interest rates.
The US dollar may enter a period of sustained depreciation, and the RMB and A-shares may enter a bull market. Judging from the trend of the RMB exchange rate entanglement structure, the RMB is about to strengthen.
The current U.S. bond interest rates and the strength of the U.S. dollar are at the end of their power, just like the dusk before sunset, the final splendor. The strong fiscal stimulus in the United States has been overdrafted and unsustainable. Even if the budget deficit next year remains at the currently planned high of 6.8%, because the proportion of interest expenses has increased significantly and even occupied most of the deficit space, the United States will turn to a substantial deficit next year. With the fiscal contraction, the economy will most likely experience a recession that exceeds market expectations, U.S. bond interest rates will also fall significantly, and the U.S. dollar will also enter a depreciation cycle that may last for several years.
After the 2008 financial crisis, the United States launched an unprecedented strong monetary stimulus. After the epidemic, it launched an unprecedented strong fiscal stimulus. In the eyes of some more traditional opponents, these policies have no moral integrity and bottom line. Even if we put aside emotional color and value orientation and evaluate these policies from a technical perspective, they are quite pioneering and experimental in nature, and there is no precedent in history, which also means that there is no precedent for their consequences.
Because the strong fiscal stimulus in the United States has been overdrawn and unsustainable, even if next year's budget deficit remains at the currently planned high of 6.8%, because the proportion of interest expenses has increased significantly and even occupied most of the deficit space, the United States will turn to real money next year. With the above-mentioned fiscal contraction, the economy will most likely experience a recession that exceeds market expectations, U.S. bond interest rates will also fall significantly, and the U.S. dollar will also enter a depreciation cycle that may last for several years.
Even if the US fiscal deficit remains at 6.8% next year, most of it will be used to pay interest, and the deficit used to support the real economy will drop significantly. In other words, from the perspective of supporting the real economy, the US real economy will face a significant fiscal tightening next year.
The interest burden of US Treasury bonds will be comparable to that of the 1980s. However, the Fed's huge balance sheet is facing a situation of huge losses, which has never happened before in history. Therefore, especially in the current predicament of the Fed, the necessity of a sharp interest rate cut is even greater. Only by cutting interest rates sharply and returning the interest rate curve to the normal state of near-ground and far-high can the soil for the Fed's huge losses be reversed.
The current round of dollar depreciation will continue, perhaps for several years, until the next major cycle of the US economy picks up.
McCarthy was removed from office because he abandoned his previous proposal to drastically cut fiscal spending and reached a compromise with the Biden administration, thus avoiding a government shutdown. This may herald an important turning point. The United States has also clearly realized that undisciplined, overdraft, and super-strong fiscal stimulus is unsustainable, and the forces opposing such policies have gained the upper hand.
If the financial markets also realize this, the panic selling of long-term U.S. Treasuries and the buying of U.S. dollar cash may be reversed ahead of schedule. Both U.S. Treasury yields and the U.S. dollar may peak ahead of schedule.
In the previous comparable history, Japan was the main economic competitor of the United States, the target of sanctions and suppression by the United States, the world's largest surplus country, and the country that was able to maintain a significantly lower interest rate than the US dollar due to its high surplus. After the US dollar peaked, Japan's currency and stock market both ushered in a super bull market. This round, it may be the RMB and A shares that enter a bull market.
