Brazilian scholar: "Super Privilege" in the United States, the whole world pays for it

Guide

Since the establishment of the Bretton Forest System, the US dollar has become the pillar of the world economy, and it has also given US hegemony in the world financial system. The decision of the US government's mistakes not only affects itself, but also has an spillover effect on other countries, especially the Latin American countries near the United States, which are facing capital outflow and debt repayment cost pressure. The uncertainty of geopolitics and the irresponsible unilateral action of the US government are becoming an important factor that affects the stability of global economic stability.

The world's political and economic pattern today is unstable and challenges everywhere. We need to pay attention to the role of the United States in the international currency and financial system, and its impact on other countries. Some unilateral decisions in the United States have led to problems such as inflation, shortage of energy supply, economic stagnation, and high unemployment rates in many countries.

Since the establishment of the Bretton Forest system in 1944, the US dollar has become the pillar of the world economy, and the United States has obtained a "super privilege" in the world financial system. From 1944 to 1971, each ounce of gold fixedly fixedly exchanged for $ 35, and the currency exchange rate of other countries was fixed. In 1971, the fixed exchange rate system was canceled, and the privilege of the US dollar was further strengthened. Since then, the issuance of the US dollar has gradually lost control. At present, the price of gold per ounce is around $ 1700. Other countries must rely on hard work to create a value of $ 100, and the US government only needs to enter a number on the exchange rate table to determine the true value of $ 100. However, as the preferred reserve currency, although the US dollar has depreciated sharply in the past 50 years, its demand is still high.

How powerful is this "privilege" in the United States? We need to consider such a fact: from 2008 to 2014, the US government issued $ 4.2 trillion through quantitative easing policy. Since the US dollar is a international currency, this has led to the appreciation of several people with some currencies. Among them, the currency of the commodity exporter, such as Brazil,; although the United States has experienced the bankruptcy and subprime crisis of the Lehman brothers, but the United States In the subsequent recovery process, it improved its own industrial competitiveness.

The privileges of the United States have also reached to the Belgian Bank of China Financial Telecommunications Association (SWIFT) management system, which focuses on the world's most important financial information flow. This privilege is becoming a weapon for the US and European sanctions against Russia, Iran, Venezuela, and North Korea. And other countries cannot be traded by sanctions, otherwise their own assets may be unilaterally frozen, that is, their legitimate rights are actually deprived and sovereignty has been infringed.

On July 28, the second quarter of 2022 GDP announced by the United States decreased by 0.9%year -on -year, which was very different from the previous prediction of the financial market. In addition, the GDP in the first quarter has fallen by 1.6%, and the United States has actually entered a period of technological recession. It must be pointed out that the US economic recession has not yet reflected the sharp rise in interest rates, which may further exacerbate the decline in GDP in the next few quarters.

The US economic recession and recent Federal Reserve ’s interest rate hikes have caused concerns about global economic prospects: due to liquidity contraction and decline in international trade flow, economic recession will spread. It is worth noting that in the market economy, the economic crisis is commonplace. The higher the national economic integration, the more significant the impact of the crisis. In any case, it is reasonable for people to blame the government. After all, the government can foresee this periodic economic problem, but it still allows it to occur, and even the wrong economic policy has intensified the problem. For example, the reason why the financial crisis broke out in 2008 was because the US government's regulatory policies for the financial and mortgage industry were relatively loose; now, the inflation problem behind rising interest rates is largely caused by the wrong behavior of the US government itself. For example, tariffs are imposed on Chinese -produced goods, restrictions on selling semiconductor chips to Chinese companies, and various sanctions on Russia, etc., these measures have adversely affected the US economy itself.

As from 1979 to 1981, the Federal Reserve's interest rate hikes under the leadership of the then chairman Paul Walker, unilateral measures taken by the United States at present may have a negative impact on the world economy. Especially for Latin America countries that have faced heavy debt, stagnation and recession challenges, if this happens in the next few months, it will bring a catastrophic blow. There is an old saying in Latin America: "Poor Latin America is too far from God and too close to the United States." This is because the United States' political, economic, military, and cultural influence is too strong. From an economic perspective, a little wind blowing in the US economy will directly affect neighboring countries through trade flow, investment, exchange rates, domestic debt financing, and immigration activities on the US -Mexico border.

Take Brazil, for example, the US economic recession mainly affects Brazil through financial channels. Public debt financing and securities transaction investment in Brazil depends to a large extent on the flow of major US investment funds. Interest rates have increased the cost of financing and debt exhibition, and forced the Brazilian central bank to increase domestic interest rates. Capital escape weakened economic security, worsened the stock market indicators, and the depreciation of the currency caused further pressure on domestic prices. As a result, investment in Brazil is expected to decrease further, and the state is facing greater risks, and economic and social conditions will further deteriorate.

From a business perspective, the world economic recession is expected to reduce the prices of large commodities such as oil, iron ore, soybean and animal protein, but the influence will be much smaller than when the economic recession from 1980-1982. Unlike at the time, China has now become Brazil's largest trading partner. At the same time, the vitality of China's economy has also had a strong impact on other Asian markets. At present, Asia is the main destination of Brazil. In the economic crisis from 2008 to 2012, this trend has emerged. At that time, the demand for the United States and the European Union had declined significantly, and China became the main engine of the world economy. Finally, it should be pointed out that because Brazil's trade surplus to China is large, its international revenue and expenditure is still favorable. At the same time, the reserves accumulated from Brazil from 2008 to 2015 created liquidity buffer for the final capital outflow. At present, Brazilian foreign exchange reserves have exceeded $ 350 billion. But despite this, we still cannot take it lightly. This is because whether it is Brazil or a world economy, its stability depends not only on economic variables, geopolitics uncertainty and unilateral actions of the US government have become increasingly prominent instability factor.

The original title of this article is "Costs of Exorbitant Privilege"

Intern Yin Kangjun and Zhang Miaoyao also contributed

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