In the past two years, due to the Federal Reserve's continuous interest rate hikes, the US dollar has surged, causing various currencies to depreciate to varying degrees, especially the euro and the yen.

Comparatively speaking, the Chinese yuan has remained relatively strong.

However, in June of this year, due to the "unconventional operations" of the US Congress and the Treasury Department, the yuan's exchange rate against the US dollar plummeted by 1900 points.

Wasn't the US debt crisis resolved?

Why is the yuan still falling?

This is a game of financial chess.

Despite the United States' inconsistent approach and despite China's strengthened cooperation with other countries, there are no permanently solid alliances in the face of interests.

Since January of this year, Congress and Treasury Secretary Yellen have been warning the market about the risk of US debt default.

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However, due to Yellen's unconventional fiscal measures at the time, she managed to squeeze out hundreds of billions of dollars in emergency cash flow, preventing the bomb from detonating.

This bomb was held off until May.

The Democratic Party represented by Biden and the Republican Party represented by McCarthy engaged in extreme tug-of-war, breaking market expectations time and again, until they reached an agreement to lift the debt ceiling on June 5th.

The two parties played games for political leverage, harming a series of financial markets such as the US stock market and the banking industry.

The delay day by day led to increasing risks day by day.

Now that the debt ceiling has been lifted, and the bad news is out, the market should improve, right?

In fact, this is just the beginning.

The second step after lifting the debt ceiling is to expand fiscal policy.

On June 5th, the Congress's expenditure balance was only 28 billion.

According to Treasury Secretary Yellen, to maintain the normal expenditure of the White House, the fiscal balance needs to be expanded to 500 billion in June, and debt issuance will exceed 1.1 trillion by the end of the year.

Where will this money come from?

It can only be drained from the market liquidity.

The Federal Reserve is in a dilemma, whether to choose a hard economic landing or a major outbreak of inflation?

There are only two ways to expand fiscal policy: one is to print money, and the other is to issue debt.

In terms of printing money, during the pandemic, Powell flooded the market with 4.6 trillion dollars in new currency, more than all his predecessors combined.

So Americans had an easy time during the pandemic.

Releasing a huge amount of money into the market inevitably leads to inflation, which led to the highest inflation rate in the United States reaching 9.1% last year, setting a 40-year record, while it has been maintained at around 2% in the past.

The Federal Reserve's purpose is to resist inflation, and now, in order to suppress inflation, Powell has to quickly raise interest rates and withdraw dollars from the market.

The Federal Reserve has been "walking on a tightrope" in terms of policy since the beginning of this year.

If the interest rate hike is too aggressive, it will lead to a banking crisis, and the US economy will fall into recession.

If it does not raise interest rates, it will lead to the devaluation of the dollar and severe inflation.

The Federal Reserve has been on the edge of wanting to raise rates but not daring to do so in the first half of the year.

Any misstep could lead to disaster.

Therefore, the Federal Reserve can only rely on various consumption indicators and labor data to decide whether to raise rates or not.

In fact, whether to raise or not, they don't know.

As a policy institution, the Federal Reserve has been hijacked by data and has lost its initiative.

Whether to raise or not depends on the last moment before the meeting.

Now, if the fiscal policy is expanded by printing money, not only will the efforts of the Federal Reserve in the past year and a half be wasted, but inflation will also rebound viciously, the dollar will devalue, and its credit status will decline.

This move should not be used unless absolutely necessary.

So only issuing debt is left.

As long as the United States can still pay the interest, it can issue debt to the market to borrow money, and the US debt interest rate will rise again.

The 14 Asian countries bypass the yuan?

Many countries urgently take a stand last month, countries still sent representatives to visit China, and this month US debt has become fragrant again.

In fact, the biggest underwriter of US debt every time is the Federal Reserve itself, which can buy 80% of US debt, equivalent to robbing Peter to pay Paul.

But it can't eat it all after all, after all, there are still interest and capital costs.

So the remaining 20% is the share of overseas countries and institutional investors.

Such stable and high-interest US debt, buying it makes money, which country is not envious.

The yuan plummeted by 1900 points, which also confirmed this point.

The sharp devaluation of the yuan will not only cause losses to export companies but will also affect the strength of overseas capital investment in China.

Capital outflow, China's financial market is not very optimistic.

Under the fluctuation of the yuan exchange rate, Iran organized a meeting of 14 Asian countries.

The sharp devaluation of the yuan has caused losses to other countries, which affects their confidence in the yuan.

They prefer to seek a more stable economy.

On the other hand, many countries have very close trade with China, and they dare not abandon the yuan for the time being.

Although the meeting did not make a clear statement at this time, it can be seen that these countries are very worried about the yuan.

Some countries even proposed at the meeting that they hope the yuan exchange rate will return to stability.

This meeting seems to be the Asian countries pressuring China.

As a major country's responsibility, it is necessary to stabilize its own economy and repair its own moat.

China needs to carry out a market-oriented reform quickly, allowing the exchange rate to return to the market mechanism.

The current economic factors are very complex, and China needs to reshape the confidence of various countries in the yuan.

Otherwise, once these countries bypass the yuan transaction, China's efforts over the years will be wasted, and the old Americans will once again cut the leeks of the Asian people without any effort.