Domestic people enjoyed the week after the National Day holiday, and the data for the first three quarters were also released, with a year-on-year increase of 9.8%. The National Bureau of Statistics set the tone very calm: "The national economy continues to recover and develop, a

[Text/Observer Network Columnist Jin Zhong]

Domestic people enjoyed the week after the National Day holiday, and the data for the first three quarters were also released, with a year-on-year increase of 9.8%. The National Bureau of Statistics set the tone very calm: "The national economy continues to recover, and the main macro indicators are generally in a reasonable range." But at the same time, the US macroeconomic policy has reached a crossroads.

Feder Want " Binary Reduction "?

First talk about fiscal policy. Biden The administration's 1 trillion infrastructure investment bill and 3.5 trillion fiscal stimulus bill are currently being ill-fated within Congress. The Infrastructure Investment Act seems to be the most confident of passing, but in order to promote the 3.5 trillion fiscal stimulus bill that the faction is a part of, radicals must tie the infrastructure bill and the stimulus bill to vote; while moderates in the Democratic Party do not give in and firmly oppose the 3.5 trillion stimulus bill.

There is not much time left for the Democrats before the 2022 U.S. Congress midterm elections. The Biden administration needs to find a plan that is acceptable to both radicals and moderates as soon as possible to avoid embracing the 2022 congressional elections empty-handed.

Let’s talk about monetary policy . The Federal Reserve's recent interest meeting has clearly signaled that the loose monetary policy of is about to end gradually. The latest meeting minutes show that the Federal Reserve will finally take action starting in November.

Interpretation articles on the media are full of the Fed's upcoming "balance sheet reduction". I think this will give everyone a wrong impression of the Fed's policy: it seems that the Fed is about to adopt a tight monetary policy.

In fact, the Fed is still expanding its balance sheet at a rate of $120 billion per month. The Fed's overnight reverse repurchase operation has caused about 1.5 trillion US dollars to lie on the central bank books every day. At the latest interest meeting, the Federal Reserve only discussed the plan to stop the balance sheet expansion and did not have any substantial action.

Their next move will be to slow down the speed of balance sheet expansion, that is, to reduce the amount of US bond purchases every month; when the amount of bond purchases is reduced to 0, the Federal Reserve will enter the stage of stopping the balance sheet expansion. According to the latest Federal Reserve meeting minutes, this will be around May next year; after a while, the Federal Reserve will start hiking interest rates in ; and the real "balance sheet reduction", that is, the Federal Reserve sells bonds it bought in the market, and it is not known when it will start.

In fact, the current policy trend of the Federal Reserve is more "hawkish" than everyone expected at the beginning of the year. When the U.S. inflation first showed signs in the first half of the year, Fed officials and mainstream economists were still calmly telling everyone that inflation is just a temporary phenomenon and will pass in a few months.

At that time, I mentioned in the article that the Federal Reserve is too optimistic about the inflation outlook and will have to speed up the pace of transformation to a hawkish. This prediction has basically been fulfilled now. So the biggest question next step is whether the Fed reduces the scale and pace of bond purchases, whether it will end the balance sheet expansion earlier than the market expects in May next year, or end later than May.

As for international trade, U.S. Trade Representative Dai Qi just delivered a formal speech on Sino-US trade. In her speech, she insisted on retaining the high tariffs imposed by the Trump administration and negotiating the trade agreement reached during the Trump era, which can be seen as a bargaining chip for future Sino-US trade negotiations.

At the same time, she also expressed the need to open up the tariff exemption application process for US importers, which is obviously under pressure from domestic commercial capital. It is a substantial rescue measures that have to be taken in order to reduce the negative impact of tariffs.

Dai Qi (data photo)

Looking at these together, we can draw several conclusions:

First, the elites of the US government do not seem to think that the current spontaneous economic growth rate among the people is sustainable.

After the implementation of trillions of fiscal stimulus during the epidemic, after the deployment of vaccines and relaxation of personnel flow restrictions, the urge to increase public spending and print money to stimulate consumption is still uncontrollable.Of course, another important role in these two bills is to "bribe" voters to buy votes. The Democratic government hopes that large-scale spending can be exchanged for more seats for lawmakers in 2022 and strengthen its ruling position.

Second, the only obstacle to curbing the US policy of spending money printing is the risk of inflation. After the first round of inflation growth mainly based on the prices of durable goods such as automobiles and wood at the beginning of the year, cost expenses such as rent, electricity prices, gas and heating have begun a round of price increases. Supermarket food and daily necessities have also risen in prices in the past few weeks. The US inflation rate in September once again exceeded market expectations to 5.4%.

This rotating price increase is quite unfavorable to the outlook for inflation. Various difficulties and labor shortages in the supply chain have led to many goods being out of stock and service levels. These have been widely reported in the media recently, and many people who work and live in Europe and the United States have also experienced it personally.

The following figure is a historical change in inventory sales ratio of US retailers. It can be seen that the inventory sales ratio in the 2020 epidemic started with a brief surge in the ratio due to shutdowns, and then fell rapidly under fiscal stimulus policies. It has now approached its historical lowest level.

Inflation and commodity shortage have led to a decline in actual purchasing power of low- and middle-income earners. This is a serious political issue. It is a huge risk of shaking social stability in any country.

Recently poll conducted by the Democratic Party disclosed in the media in the past few days shows that many people are not grateful for the Biden administration's money distribution policy. Due to the spread of the epidemic, rising prices and shortage of stocks, many people's sense of happiness has dropped significantly, so they have strong doubts about Biden's governance capabilities.

is now the peak of holiday consumption in the West at the end of the year. The changes in the US price index in the next few months are not only a weather vane for predicting the Federal Reserve's monetary policy, but also the best signal to observe Biden's adjustment of fiscal and trade policies.

Third, the importance of tariffs in international trade is declining. The labor shortage caused by the repeated epidemic in the short term, the carbon limit policies derived from climate problems for a long time, and the negotiations on the world's lowest corporate tax will become the key battlefield for the future dominance of supply chains in industrial manufacturing in the world.

The short-term shutdown caused by the epidemic has a significant impact on international trade. The shortage of U.S. port workers and truck drivers has caused the loading and unloading time of U.S. port cargo ships doubled compared with the same period last year, while the shutdown caused by the Southeast Asian epidemic has caused the average daily number of freighters to stop and arrive at major local ports to drop by 20% to 30%.

In recent days, there have been news that many European and American companies have decided to resume work forcibly in Southeast Asia. How effective will the resumption of work under the threat of the epidemic be on the recovery of production capacity? Southeast Asia will provide us with a valuable data reference in the next few months.

The largest ports on the west coast of the United States, Los Angeles, and Long Island, , have just announced the start of loading and unloading operations of 24X7, which can probably increase the U.S. cargo throughput capacity by 6%. If these measures can be implemented smoothly, it is roughly estimated that in half a year, the bottlenecks in marine transportation in international trade will be greatly alleviated.

Longer-term changes in international trade and supply chains depend on changes in climate policies and global corporate tax policies.

Global corporate tax issue, we have discussed it less recently. The core of this problem is that under the promotion of the United States, the world's major economies have reached an agreement that the minimum corporate income tax of each country must not be less than 15%.

The current standard tax rate for corporate income tax in China is 25%, and some enterprises can enjoy a preferential tax rate of 15%. The current corporate income tax in the United States is 21%, so this agreement requires European low-tax countries such as Ireland to increase taxes, thereby curbing European and American multinational corporations from avoiding taxes through relocation. Global tax havens will slowly feel the pressure of this agreement, but the impact on China is not obvious yet.

and climate policy are much closer to us. I believe everyone has noticed the topic of power restrictions in recent weeks.

The crisis behind the issue of "carbon limit"

"carbon limit" is one of the important issues of the international community at present. Under this issue, major economies have restricted investment and development in traditional energy industries from all aspects.

Take the financial industry as an example. On the one hand, investment funds set up a large number of ESG investment products (responsible environmental, social and corporate governance funds) to market their own financial services. With the pursuit of funds, buying ESG investment products in the early stages has received generous returns, so this has attracted more funds to enter, forming a positive feedback cycle mechanism: more funds lead to better returns, and better returns lead to new funds coming to profit. On the other hand, financing support for the traditional energy industry has also declined significantly.

According to the report of Wall Street Journal , the total assets of private equity fund , which focuses on the traditional energy industry in the United States, have dropped from $90 billion in 2018 to $22 billion now. According to statistics, the funds raised by traditional energy industry in the United States reached US$50 billion in 2015, while the new funds raised so far this year are only US$2 billion. The $2 billion is still basically concentrated in the oil and gas industry, with almost no new money investing in the coal industry.

Inadequate investment in traditional energy, printing money in developed countries and rising energy demand brought about by the resumption of work and production in major economies has finally formed today's situation of soaring energy prices, which is also one of the reasons for the domestic forced power limit.

Similarly, it is precisely because of the high prices of traditional energy that the prices of new energy are more competitive in the market. Those funds subsequently invested in ESG financial product can get better investment returns guaranteed and tell the story.

From the perspective of macroeconomic competition, many people realize that If in developing countries wants to achieve industrial upgrading, it requires a large amount of cheap energy supply. However, on the one hand, the carbon limit policy restricts the supply of oil, gas and coal, causing a large number of developing countries to neither obtain sufficient traditional energy supply nor cheap energy prices. On the other hand, the " carbon tax " to be implemented has also weakened the price competitiveness of industrial products made by developing countries using traditional energy.

Therefore, for many developing countries, unless there are revolutionary breakthroughs in new energy technology, their path to industrialization will be more difficult.

This principle actually applies to a large number of middle- and low-income classes in developed countries. Originally, low- and middle-income people in developed countries with stagnant income growth could also enjoy low-priced imported goods to maintain quality of life. With the rising energy prices and the gradual decrease in producers of low-priced commodities, coupled with the previously mentioned inflation problem, the actual purchasing power of low- and middle-income earners faces the prospect of a continuous decline.

In order to keep this huge group socially stable, Western governments need to support greater public welfare expenditures through more debt, while more debts need to support more money printing machines from the central bank .

The United States has just postponed the maturity of the debt ceiling to early December this year. As a favorable weapon of the political struggle, the two parties in the United States will repeatedly use this weapon to attack each other in the next few years. But as long as the establishment controls the main seats in Congress, both parties will eventually compromise on continuing to raise the debt ceiling.

So the question returns to the second conclusion mentioned above, that is, in the policy environment of anti-globalization, carbon limit, government increase welfare expenditure and other policy environments that push up inflation, how long can the loose monetary policy of central banks in developed countries last? If a relatively tight monetary policy is adopted, how will the next economic crisis be detonated in an era of skyrocketing debt burdens?

What preparations should China make?

How China should respond to changes in these international policy trends deserves a more in-depth and comprehensive analysis. The space here is limited, so I can only make a few simple observations.

First of all, the window for this round of US dollar monetary easing policy has begun to slowly close. The country needs to be prepared to deal with the future "tight money" of external "money". Although the debt problem of Evergrande is difficult, the corresponding risks can still be resolved in China.The more troublesome question is whether the debt handling problems of other similar highly leveraged companies will accelerate the deterioration due to the risk fulfillment of Evergrande?

Therefore, People's Bank of China may need to pay special attention to the liquidity issues of the financial market in the fourth quarter. The central bank has a high probability that it will inject funds into the market on a large scale through monetary policy tool , which is also the consensus of many market participants.

is followed by the carbon limit negotiations held in the UK before the end of the year. The current bright card is that some Western developed countries will use this meeting to force China to make carbon limit commitments beyond their economic development stage, and some developing countries also hope to gain short-term benefits from China's carbon limit measures:

Although carbon limits will make the industrialization prospects of these developing countries even more slim, China's carbon limit measures in the short term will still help these countries strive for supply chains to transfer to them.

Finally, when we think about macroeconomic policy in 2022, we should fully consider the various difficulties faced by the country. Without other surprises, the contribution of this round of foreign trade dividends to economic growth may come to an end in 2022, the international political environment may become more complex, and the tightening of the external monetary environment and the risks of domestic inflation will be the most severe policy challenges faced by the People's Bank of China. In terms of domestic demand, a key issue is how to find new growth points and industrial layout directions outside industries such as real estate, medical care and education. The decision-makers must not only ensure the stable operation of the economy in the last quarter of this year, but also need to set the tone for next year's economic development strategy as soon as possible.

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