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Economic Calamity: Dow Plunges 400 Points

It is quite evident that the U.S. economy is facing one problem after another.

It seems that inflation is under control, but Biden is again engaged in a "legal battle" with Congress.

Meanwhile, the International Monetary Fund (IMF) has accused the U.S. of economic divisiveness in its report, causing a global loss of 7% of GDP.

The U.S. may have to accept a further slowdown in economic growth in 2023, and even enter a recession.

01

Six months ago, the CPI reached its highest at 9.1%, and now it has finally dropped to 6.5%. It appears that the continuous interest rate hikes by the Federal Reserve seem to be having some effect.

However, although the year-on-year inflation data is declining, the Federal Reserve remains clear-headed. The Fed believes that inflation is far from reaching the target and still needs to maintain interest rate hikes and keep interest rates at a higher level.

From another perspective, the decline in year-on-year data is actually related to the fact that the inflation data base of the previous year has already significantly increased. The decline in CPI on a month-over-month basis is not significant, indicating that inflation has not truly come down.

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Therefore, the Federal Reserve will not stop raising interest rates. It may, as the market wishes, reduce the magnitude of interest rate hikes to 25 basis points in the future, but this means that the cycle of interest rate hikes will be significantly extended, which is not a good thing for the U.S. economy.

02At the same time, the United States is also facing another, even larger issue, which is the issue of exceeding the limit of U.S. debt.

The White House has pointed out that if the debt ceiling cannot be resolved smoothly, it will inevitably trigger an economic disaster.

For this reason, the White House has warned Congress that it must unconditionally raise the limit on U.S. debt, and Biden will not engage in any negotiations with Congress on debt issues.

It is clear that the White House's attitude is very tough.

Previously, the Treasury Department also notified Congress in a letter that the current U.S. debt is very close to the limit of 31.4 trillion, although there is still some temporary available quota, but at the latest by August of this year, the United States will completely exceed the limit, forming a substantial default.

At that time, events similar to the 2011 U.S. government shutdown will be replayed.

But no matter what, U.S. debt will become a major problem for the U.S. economy. If the U.S. Congress cannot approve a new limit, then the U.S. government will shut down. But if the U.S. Congress raises the limit of U.S. debt, it can be imagined that in the future, a large amount of U.S. debt will be issued again, which will be another disaster for the U.S. Treasury market.

Because now, global institutional investors, including central banks of various countries, have fully realized the risks of U.S. debt and are continuously selling. Under this situation, the United States still issues more Treasury bonds, and the future buyer market's ability to bear will be lower and lower.

03

The economic problems of the United States will inevitably be reflected in the stock market, so it seems unrealistic to expect a significant rebound in the U.S. stock market in 2023.Last night, the European stock markets that closed first mostly saw gains. Among them, France rose by 0.5%, and Germany increased by 0.35%.

However, the U.S. stocks that followed experienced a decline, leading to a continuous downward trend after the opening, with the lowest point reaching 33,860. Although there was a slight increase at the close, the market still fell by 390 points for the day.

This marks the beginning of a decline after four consecutive days of gains for the U.S. stock market.

Now, U.S. listed companies have entered the fourth quarter earnings announcement phase. From the financial data of various companies, we should be able to make a clearer judgment on the direction of the U.S. economy in 2023.

But overall, it has become inevitable that the U.S. economic growth rate will significantly slow down in 2023.

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