THE unwise ongoing tight monetary policies of the US Federal Reserve Bank have badly affected the regional as well as international economies around the globe. It has become a potential bomb to global economy causing high interest rates, high inflation, price hike, credit contraction, decline of investment in productive channels and last but not the least, slowdown of industrialization. It seems that the US politicians and policy-makers are merely wasting their time on smearing against China’s economy and projecting blessings of Bidenomics which is still not sustainable, tangible and visible because different international credit ratings mainly Fitch and Moody have already downgraded the US economy and banking sector.
Irony is that despite lingering risks in the US economy it is engaged in zero-sum geopolitical game, economic protectionism, unilateral imposition of socio-economic, trade, tech and punitive legal sanctions against China and other developing countries creating havoc and posing grave threat to the global economy. It seems that economic insanity still persists and most recently the US Federal Reserve officials have once again strongly indicated to follow a hawkish/aggressive monetary policy to control inflation through more interest rate hikes, thus moving toward an imminent acute economic crisis. It predicts that real estate industry, Start-ups, small banks, IT and medical health sectors would be in the line of fire in the days to come in the US.
Moreover, further tightening of monetary policy would generate compound effects in terms of more interest hikes, high inflation, price hike, substantial decline in consumer financing and outflow of funds from banks to other lucrative but uncertain markets creating financial fuss. Definitely, its unsettled and instable banking and financial sector and its economy as a whole would feel the heat and also represent a looming threat to the global economy. It is feared that due to the US inconsistent monetary policies and inappropriate fiscal management, many emerging and developing markets will witness capital outflows, higher energy costs, increase in poverty, unemployment, budgetary deficits and greater debt burden along with brain drain which is not omen for the quick global economic recovery.
On the other hand, despite the US and the West’s constant false and fake propaganda, the Chinese economy is outperforming all the regional as well as global economies and is expected to be the biggest contributor to global growth during 2023. Despite a slew of policies including the so-called Inflation Reduction Act (IRA) of 2022, the US economy is still not gearing up. The consumer price index (CPI) is still high, poverty is still increasing and unemployment is still a bitter social reality in the US vividly reflecting failure of its hawkish politicians’ rhetoric and policy-makers.
The Moody’s Analytics report clearly indicates that US consumers are continuing to suffer from higher prices due to which everyday goods and services cost $709 more per month for the US consumers compared to two years ago. Even most recently- conducted CBS News poll badly exposed so-called depth of US economy indicating huge dis-satisfaction and displeasure of the majority about economic stability and negative prospects of its sustainability in the future. The majority termed it struggling, sluggish and inconsistence. Therefore the majority of respondents rightly associated Bidenomics with high inflation and poor socio-economic development.
Most of the world’s prominent economists and strategists are of the view that the US economy is strong on papers but fragile in structural dimensions of growth. They rightly termed it as capital bubble which may be burst any time. It is feared that once the bubble bursts, economic and financial crises will erupt. The US has caused havoc around the world with unlimited monetary easing first and then aggressive monetary tightening recently, as well as its protectionist trade and investment policies. The World Bank’s recently-published report titled “Global Economic Prospects” is a wake-up call for the policy makers and leaders of the world reconfirming the US rapid rise in the interest rate posing a significant challenge. It rightly notes that the US rapid interest-rate increases are correlated with a higher likelihood of financial crises in EMDEs. Moreover, the more-hawkish-than-expected tone of the US FED meeting has already sparked concerns among markets with US stocks trending downward and the US dollar strengthening following the release of the minutes.
US interest rates hikes mean a stronger US dollar, which could mean capital outflows, higher energy prices and debt distresses for EMDEs, due to the prevalence of the US dollar in global trade and debt market. Therefore, US cannot avoid its responsibility from debt distress in many developing countries caused by the Fed’s interest rate hike and the strengthening of the US dollar. It is height of human wisdom imperfection calling the Chinese economy as a ticking time bomb by the US President Joe Biden. Many published reports of the World Bank and IMF strongly indicate structural depth, diversification, modernization, openness and qualitative industrialization capacity of its macro-economy surpassing all manipulated data.
Evidently, such rhetoric from US politicians and mainstream media outlets is politically motivated and is only used for domestic political consumption in the upcoming presidential election. Critical analysis reveals that President Biden intentionally tries to secure re-election amid record low approval ratings through his provoking statements and policies against China. In summary, the US FED continued tight monetary policies are creating spillover socio-economic, banking & financial, budgetary deficits, energy & food insecurity, paralyzing social fabrics and political instability around the globe.
Moreover, its political smearing against China and hawkish economic policies, punitive legal measures and numerous bans are creating havocs in the world economies. It seems that US FED unwise policies have put its economy on the “Time Bomb” which may be exploded any time if corrective measures, cooperative economic spirits and collaborative political consultations will not prevail in the US policy-making. Last minute political consensus about the US debt ceiling vividly reflects height of political immaturity and economic indecisiveness.
—The writer is Executive Director, Centre for South Asia & International Studies, Islamabad, regional expert China, BRI & CPEC & senior analyst, world affairs, Pakistan Observer.
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