On October 8, the U.S. Department of Labor announced that the number of new non-agricultural jobs in September was only 194,000, which was significantly lower than the 500,000 previously expected by the market. However, the domestic CPI index rose by more than 5% year-on-year for four consecutive months. Signs of stagflation are obvious.

The so-called stagflation refers to the simultaneous occurrence of high inflation and weak economic growth. This economic phenomenon has appeared many times in the history of the United States and has a strong destructive power to the economy. Each occurrence of stagflation will cause the US government to reflect on the rationality of past economic stimulus policies. The emergence of stagflation this time will inevitably prompt the US government to re-examine a number of past economic policies, including the quantitative easing policy implemented many times and the trade dispute initiated by the Trump administration against China.

Judging from the current situation, in the context of trade tensions with China, the United States hopes that through quantitative easing policies and other economic stimulus policies to achieve its domestic Sustainable economic recovery is unrealistic, and there are at least the following obvious problems:

First, the continuous implementation of the quantitative easing policy has weakened the resource allocation function of the financial system. The large-scale implementation of the quantitative easing policy can only solve the liquidity problem of the financial system in the short term and prevent the negative chain reaction caused by the depletion of liquidity. However, such short-term stimulus policies can easily trigger the “adverse selection problem” in the financial system. The market cannot distinguish which companies are experiencing temporary difficulties due to external shocks, and which are those companies that are in difficulties due to their irresponsible radical business behaviors. The package of liquidity injection prevents high-risk operating companies from being punished for their own misconduct, which leads to the failure of the price discovery mechanism of the financial system, damage to the resource allocation function, degradation of the financial system’s ability to serve the real economy, and a new round of The possibility of a financial crisis has increased.

Secondly, quantitative easing policies that deviate from economic fundamentals will lead to the accumulation of asset bubbles. Because the previous bursts of bubbles in the real estate and stock markets of different countries have brought about a relatively large negative impact on the economy, many central banks, including the Federal Reserve, have gradually taken the fluctuation of asset prices as one of their monetary policy considerations. one. However, in recent years, the Fed’s response to asset price fluctuations has shown an asymmetrical feature. That is, when asset prices fall, the Fed usually responds quickly to release liquidity, while when asset prices rise, the Fed is more willing to believe in asset prices. The rise is supported by the economic recovery, but it is reluctant to introduce liquidity tightening policies to deal with it. This asymmetrical asset price fluctuation response strategy is likely to cause the emergence of asset price bubbles and bring greater hidden dangers to economic growth.

Thirdly, the monetization of the fiscal deficit caused by the quantitative easing policy may turn into a Ponzi scheme. The United States has implemented quantitative easing policies many times since the subprime mortgage crisis occurred. The Fed’s substantial purchase of US Treasury bonds has prompted the continuous rise of US sovereign debt and has continuously hit the debt ceiling. Since the end of World War II, the U.S. debt ceiling has been raised more than 90 times. The Democratic and Republican parties of the United States have often argued over the debt ceiling, and even led to the temporary suspension of the government. However, the outside world generally believes that this kind of dispute is only a temporary game between the two parties for their own interests, and the debt ceiling will eventually be smoothly raised, and it will bring about the continuous expansion of the scale of the US fiscal deficit monetization.

However, the monetization of the US fiscal deficit is based on the status of the US dollar as the main international reserve currency. This status needs to be based on stronger economic strength, not unbreakable. As the second largest economy in the world, China plays an important role in the global supply chain system. If the United States continues to implement a decoupling policy against China in the trade field, its economy will also be damaged. The process of monetization of fiscal deficits promoted by quantitative easing may be Eventually evolved into a pure Ponzi scheme.

Most schools of economics agree that expansionary monetary policy will only lead to inflation in the long run. Is necessary. However, over-implemented quantitative easing policy itself will change market expectations, intensifying the game between economic entities and central bank policies, and the planned short-term quantitative easing has become a long-term quantitative easing that has repeatedly postponed its exit. Excessive money supply will damage the credibility of the central bank and make the short-term effects of monetary policy extremely limited.

Facts have proved that under the actual conditions of the deep integration of the global economy, the United States, as the largest economy, can hardly return to its economy through unilateral quantitative easing. A healthy track and a beggar-thy-neighbor policy only replaces short-term pain with delayed long-term pain. The industrial policy behind the monetary policy is the key to solving the problem.

From a pragmatic point of view, if the United States wants to get rid of the current economic stagflation dilemma, it must re-seek “re-linking” with China in the economic and trade field, and cancel its commodities with China. The additional tariffs have brought the global supply chain system back to normal, realizing a win-win cooperation between the two countries’ economies, and in turn will drive the recovery of the world economy. On this basis, the United States can steadily realize the normalization of monetary policy and withdraw from the excessively implemented quantitative easing policy. Otherwise, the Fed’s implementation of monetary policy tightening (Taper) without the support of the “re-linking” of the Sino-US economy is likely to lead to a recession in the US economy, and cause capital losses.The market bubble burst quickly. Therefore, under the current circumstances, the realistic path for the United States to deal with economic stagflation is to actively promote the “re-linking” of the Chinese and American economies, and use this to replace the gradual failure of quantitative easing policies.

(The author Zhou Yun is a PhD in Finance and works in the Teaching and Research Department of Shanghai National Accounting Institute)