In an August 2 article in China Daily, Liang Yabin, who is a professor at the Institute for International Strategic Studies, the Party School of the CPC Central Committee, noted that the U.S. Federal Reserve has launched interest rate hikes that are “the most aggressive since the 1980s and will have a huge impact on the U.S. and world economies.” These actions “will lead to a massive reduction in global dollar liquidity,” and “the interest rate hikes and balance sheet reduction will raise the specter of an economic crisis in the U.S. The immediate cause of the U.S.’s subprime crisis in 2007 was the huge bubble created by a long period of low interest rates that was punctured by a sudden increase in interest rates.”
The article also observed that the interest rate increases are causing a crisis in developing sector countries, in particular. “Most non-dollar countries will be in a dilemma, because if they don’t follow the U.S. in raising their interest rates, their currencies will likely depreciate and they could even see an inverted interest rate gap against the dollar, which would increase the risk of capital outflow from their economies and jeopardize their international payment structure.”
An Aug. 1 editorial in China Daily took up the same issue. “What is certain is the negative spillover effects caused by the Fed’s moves are building up for the rest of the world. That means the U.S. is taking advantage of the dollar’s status as international currency to diffuse its inflation worldwide, and put headstalls on the world to pull the recovery of the U.S. economy.… The moves will prompt the outflow of capital from other countries, particularly the emerging market economies as well as those with high debts and leverage levels, sapping the foundation of their already unstable recovery.”
The editorial concluded: “Washington should realize that its monetary policy cannot resolve the root cause of the inflation in the U.S., which is not only the result of its excessive issuance of currency but also the geopolitical tensions and its decoupling efforts targeting China.” (http://www.chinadaily.com.cn/a/202208/01/WS62e7d959a310fd2b29e6f978.html )
