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Historically, the global economy has never achieved a recovery in a non-war situation. Therefore, when various negative signs appear, no matter whether it is in the judgment of risk or response, there is no precedent to follow, and whether the risk is lifted is also unknown. It is for this reason that when the end of the US fiscal cliff comes to an end, people talk about it. Will the fiscal cliff really kidnap the global economy?
How many suspensions are there on the fiscal cliff?
The so-called fiscal cliff refers to the superposition effect of the tax preferential policies that expired at the end of 2012 in the United States and the fiscal deficit reduction policy that was automatically effective from January 1, 2013. Tax incentives, including workers' payroll tax cuts, capital appreciation, and dividends and tax incentives; automatic fiscal deficit reduction is based on the agreement reached by the US Democratic and Republican parties around the debt ceiling negotiations in the summer of 2011. In the case of agreement, the fiscal deficit reduction mechanism will be automatically launched in 2013, and it is expected that the federal government spending will be reduced by 1.2 trillion US dollars in 10 years.
How can these two events be superimposed as global economic risks? Government spending and household spending together constitute the US's spending power – and it also constitutes a market capacity for global goods, including China's manufacturing. In the United States, government spending is “legal government spendingâ€. Unless the two parties in the Congress reach a new arrangement on the debt ceiling, the US federal government's fiscal deficit in fiscal year 2013 needs to be reduced by $607 billion, equivalent to 4% of GDP.
The impact of household expenses is more obvious. The US think tank estimates that if the US Congress does not amend the relevant laws, the millionaires will pay more than $136,000 in 2013, and those with incomes of $100,000-200,000 will pay more than $2,000. This is also the Obama’s Twitter White House account. The reason for signing the name "MY2K" is that he believes that this is an untouchable group.
The biggest blow comes from the increase in personal income tax rates. The maximum tax rate on personal income tax will rise from 35% to 39.6%, which means that the tax rate for small businesses that provide 70% of jobs in the US will increase by 13%. It is generally believed that if the tax cut cannot be extended, it will lead to a contraction of 0.5% in the US economy in 2013, which means that it will re-enter the recession. The current 7.7% unemployment rate will also rise above 9%.
The key is how much the fiscal cliff is conductive. On the surface, it is indeed possible to affect the global economy. The date of the US fiscal cliff comes at a time when its weight in the global economy is increasing. The remarkable feature of the global economy in 2012 is that the European economy is still sinking into the debt quagmire, and even the three economic break zones of Northern Europe, southern Europe and the United Kingdom are emerging. Despite the near-desperate summer, the European debt crisis suddenly seemed to come to an abrupt end due to the emergence of the European Central Bank President Draghi effect, but no one knows when it will continue to erupt. At the same time, the performance of the "BRIC countries" is much bleak compared to previous years. Including China, it has been undergoing economic downturn throughout the year.
Among the major economies in the world, only the United States has shown a more stable recovery. In 2012, the energy independence effect of the US “shale gas revolution†began to appear, and the constraints of upstream economic development gradually weakened. At the same time, non-agricultural jobs, durable goods orders, Philadelphia Fed manufacturing index, existing home sales, etc. The indicators have improved at the end of the year. The recovery of the US economy has made it a leader in global trade. Many insiders regard the United States as the only growth engine for the global economy in 2012. The shrinking of American consumption is indeed transmitted to the world.
This is the main cause of global attention to the fiscal cliff. Since November 12th after the end of the general election, Obama has been the party and the consultation of the Speaker of the House of Representatives, Bona, has been ongoing. In the rounds of the game, the closest version of the deal was Bona’s “PLAN Bâ€: Bona tried to extend all tax cuts to all Americans in the House of Representatives, except for the rich who earned more than $1 million a year. In the plan of measures, Obama cut spending on health care and other aspects. However, this plan was neither approved by the White House nor obstructed by the Republican conservatives. If the two parties are not approaching quickly after the Christmas holiday and less than a week after New Year's Day, the fiscal cliff will seem to fall. But does this prospect really mean disaster?
"The rich tax" is the appearance of the dispute
According to the example of the two parties' raising of the debt ceiling in 2011, it has become a model to adhere to the party's position in the early stage - causing market turmoil - to quickly reach an agreement. This model may still be replicated in the game of the fiscal cliff. In fact, even if you don't reach an agreement on New Year's Day, it doesn't mean that the disaster will come quickly—a strong reaction may be in the market, but not in the real economy.
The reason is that the game between the Democratic and Republican parties on the fiscal cliff is based on whether or not to raise taxes on the rich, just like the "left and right" dispute, but in fact the two parties do not have such a big difference in position. This can also be reflected in the "PLAN B" version of Bona. The real game point of the two parties is that Obama wants to gain autonomy to raise the debt ceiling, while the Republican Party must master this power and wait for an opportunity to make adjustments to Obama's proud health reform bill.
At present, despite the close to the debt ceiling, the Obama administration can still control about $66 billion, barely maintaining it until February-March 2013. Even if the two parties reached a temporary agreement on the fiscal cliff before this, the game will not end.
The danger of the fiscal cliff is based in part on the theoretical perception that the government spends less and affects the economy. But in fact, this is a typical theory of Keynesianism. Whether it applies to the current US economy is not known. In fact, in 2011, the Obama administration’s discretionary spending had fallen to its lowest level since President Eisenhower’s. However, the US economy has not only failed, but has actually recovered.
The bigger question is, what will happen to the upper limit of the debt of the main purpose of the bipartisan game? The answer provided by history is: from the 1993 to 1997 Clinton era, the debt ceiling increased by 4 times, a total increase of 1.8 trillion US dollars; in the Bush era, the debt ceiling increased by 7 times, a total increase of 5.37 trillion US dollars; Obama is only in the first During a term of office, the debt ceiling increased by 6 times, a total increase of 5.08 trillion US dollars. Unless it is concluded that raising the debt ceiling is intrinsically linked to the financial crisis, it is impossible to draw conclusions about the risk of raising the debt ceiling. This game is more like a political struggle than an economy.
Of course, the debt ceiling game is endless, which may trigger the government to close. Another data provided by history is that since the Reagan era in 1981, the political deadlock caused by the budget between the White House and Congress has led to five government closures. However, there is no reversal effect.
The impact of a country’s policy on the world is more manifested through currency, especially in countries such as the United States that have the privilege of “dollar coinage taxâ€. Through the formulation of monetary policy, it has become common to affect the flow of dollars, commodity prices and the issuance of base currencies in other countries. This is more permeable than its fiscal policy – ​​whether it is a fiscal cliff or a debt ceiling game, the external impact is likely to be unimaginable. The economy will still act on its own.
Impact on China at the policy level
Of course, the impact of the fiscal cliff is not as big as it seems, and it does not mean that it has no impact on China. The impact may come from two aspects: First, if there is no new arrangement for the debt ceiling, the automatic deficit reduction plan will be launched, and the US government's overseas operations, including military forces, will be affected. The process of US withdrawal from the Middle East oil-producing region may accelerate, affecting China's energy-sourced regions. Second, because the Fed is responsible for the function of the US economic firewall, if the US domestic economy is indeed repeated due to the fiscal cliff, the Fed is bound to stand up. The impact of its policy direction on China will be the most direct.
In fact, despite the last meeting of interest rates in 2012, Federal Reserve Chairman Ben Bernanke said that it is impossible to completely prevent the financial cliff from reaching the loss caused by the agreement. But in fact, the Fed has prepared ammunition, that is, QE4 (fourth quantitative easing) is implemented indefinitely.
QE4 buys $40 billion in MBS per month and buys $45 billion in long-term bonds over four years. This means releasing $85 billion in liquidity to the market every month. If the fiscal cliff falls, the total tax reduction for the year of 2013 will be 600 billion US dollars. QE4 can fully hedge this amount. Bernanke also set the trigger condition for QE4 to stop: the unemployment rate dropped to 6.5% and the inflation rate was not higher than 2.5%. Obviously, if the US economy is in such a virtuous circle, the risk of fiscal cliffs will be eliminated.
Therefore, for China, QE4 is more worthy of attention than the fiscal cliff. QE4 may lead to a weakening of the US dollar for a long time. This means that the real exchange rate of the RMB against the US dollar will be stronger. Due to the exchange rate, the export environment created by China will be difficult to improve. In addition, the weak dollar may push hot money into China in various names, while pushing up commodity prices. For China, which has to grow steadily and prevent inflation, this means a dilemma in policy formulation and a narrow space for operations. In this case, the risk of stimulating economic growth with monetary policy will be greatly enhanced.
In essence, the US fiscal cliff and its firewall QE are actually damaging the growth of the Chinese economy. There is no shortcut to alleviating the impact of the fiscal cliff and QE. Only economic growth policies, especially fiscal and taxation policies, are optimized. In this sense, the US fiscal cliff is a test of China's economic policy.
US fiscal cliff: a problem for China?
Abstract Throughout 2012, the world seemed to be traversed by two financial suspense. At the beginning of the year, it was the European debt crisis – no one knows whether the euro zone will be able to maintain its territory in 2012, and whether the euro will disintegrate or fall into the northern European common currency. At the end of the year, it is the US fiscal cliff...
Throughout 2012, the world seemed to be through two financial suspense. At the beginning of the year, it was the European debt crisis – no one knows whether the euro zone will be able to maintain its territory in 2012, and whether the euro will disintegrate or fall into the northern European common currency. At the end of the year, it is the US fiscal cliff. No one knows what this crisis means for the US and the global economy. How to solve it, or even know if it is a real crisis.