Cesar smiled and continued, "Boss, I know what you are talking about. At that time, inflation in the United States was very serious. Otherwise, Paul Volcker, then chairman of the Federal Reserve, would not have urgently raised the official interest rate three times in a row and implemented a tight monetary policy when he first took office."
Yang Jing smiled and nodded, saying, "This is a typical case of treating the foot when it hurts and the head when it hurts. Paul Volcker's continuous increase in official interest rates has indeed curbed inflation, but it has also triggered a series of unfavorable situations. Because the official interest rate in the United States has increased, a large amount of foreign capital has flowed into the United States, directly causing the dollar to appreciate by 60% in just five years! The dollar has appreciated so quickly, and a direct result is that the US government has a large fiscal deficit and the trade deficit has further expanded."
"So, a country's economy cannot be treated piecemeal, but needs to be considered comprehensively. The Carter and Reagan administrations did so recklessly, and the end result was the current situation where it is difficult to back down."
"What's even more ridiculous is that the Reagan administration, which has just been re-elected, doesn't seem to care about the current situation at all. On the contrary, President Reagan, who has been successfully re-elected, is adding fuel to the fire. As far as I know, the comprehensive tax reduction policy that Mr. Reagan has been carefully planning is about to be implemented, and the plan to increase US military spending has been approved by the US Congress, and US defense orders have soared. What will this cause? It's very simple. Once the tax reduction policy is approved by Congress, then under the dual stimulation of tax reduction and national defense construction, the US economy, which was originally in a low-growth state, will soon enter a high-growth channel."
"With a huge fiscal deficit and a high dollar, it would be inappropriate and even an irreconcilable contradiction for the domestic economy to overheat."
Mike Aller also interjected, "Yes, on the one hand, the trade deficit is inevitably growing due to the strength of the dollar, and on the other hand, there is an overcapacity in the U.S. domestic production capacity. If the Reagan administration does not change, this irreconcilable contradiction will completely erupt, and it will plunge the United States and the entire world into a disaster!" As a senior accountant, Mike Aller has a relatively thorough understanding of the macroeconomics.
Yang Jing smiled and gave Mike Aller a thumbs up to show his appreciation.
In fact, what Yang Jing just said is just one fundamental reason. Once the Reagan administration's tax cut policy + plan to increase US military spending is fully implemented, a huge speculative crisis will immediately loom over the United States.
After World War II, the world economy gradually moved towards integration. The closed-door policy could no longer adapt to the ever-changing economic development. The global economy has entered a situation where one move affects the whole body.
As the most powerful economy in the world, the United States has always been a weathervane for the world economy. Once the Reagan administration's tax cuts and increased military spending are fully implemented, it can be expected that the exchange rate of the US dollar against other major currencies in the world will continue to rise in all aspects in the major foreign exchange markets in New York, Tokyo and Europe; on Wall Street, the US stock market will also surge upward like a bull that has been holding back. The US economy will immediately show a prosperous outlook, and the US economic prospects will also seem bright.
However, while the US economy was flourishing, the situation in other parts of the world was not good. Socialist countries such as the Soviet Union were basically in a self-circulating state, while developed countries such as Japan and Western Europe were in a general state. Developing countries in Latin America and East Asia began to grow rapidly, but many domestic unstable factors needed to be improved. The war in Cambodia and the change of regimes in South America discouraged many foreign investors.
At a time when global investment opportunities were unclear, the U.S. economy suddenly looked promising, which naturally led many foreign investors to quickly mobilize funds and flock to the U.S. market.
In the words of Soros, a famous financial speculator in later generations, if financial investment is overly active, market speculation factors will increase, financial "bubbles" will gradually increase, and the market's fragility and danger will naturally increase with the further active investment. Once the "bubble" is formed, it will naturally burst one day. At that time, the collapse of the financial market is inevitable, and our opportunity to make a lot of money will follow.
Soros was able to dominate the global financial speculation market in later generations, so his vision was naturally extraordinary. Since he saw that the US economy was actually in a dangerous process, he naturally would not give up such a good opportunity.
Before preparing for this investment, Yang Jing looked up a lot of information, among which Soros had a very detailed explanation of the speculative process of the depreciation of the US dollar and the appreciation of the Japanese yen.
At that time, Soros made a sharp assessment of Reagan's economic policy from the perspective of financial investment. Soros clearly pointed out that this was a policy "worthy of consideration". It is undeniable that this policy stimulated the US economy, but the degree of stimulation was too great, and the US economy might have the opposite effect. Soros named this economic development situation caused by this well-intentioned but potentially bad economic policy the "Reagan Great Cycle".
The "big cycle" is caused by stimulating economic growth, but the influx of foreign capital into the US financial market will cause the US economy as a whole to rapidly increase its foreign borrowing and debt. At this time, if foreign capital continues to flow in, the overall cost of US foreign borrowing and debt will increase. At the same time, the cost of new foreign capital entering the US financial market will be relatively reduced. When the debt is close to the cost or even exceeds the cost of foreign capital, some inconspicuous factors will burst the financial "bubble" that has already appeared at any time.
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