Recently, the situation in the A-share market has been somewhat unfavorable, and many investors feel somewhat disheartened. Some say it's because of the news last weekend about resuming IPOs, but in fact, the scale of those IPOs is not large enough to cause such a big fluctuation.

The current stock market situation can be seen as a microcosm of the financial war between China and the United States. The stock market is extremely important to a country's economy, so the U.S. stock market must not collapse. Look, the large American companies, such as Nvidia, Microsoft, Apple, Alphabet (Google), Amazon, and Meta (Facebook), their market capitalizations have all exceeded a trillion dollars. The U.S. capital market relies on the rise in stock prices of these large companies to attract money from all over the world to flow into the United States.

But this is just the surface. What really determines the outcome is the bond market. If the bond market is stabilized, the stock market will naturally follow suit. In recent years, European and American countries have been attacking our local debt more than the stock market. Because the stock market is already at a low position, the country can buy some to pull it up, and it is not easy to have big problems. But the problem of local debt is big, and it is not a simple matter of investing tens of billions to solve.

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Speaking of the problem of local debt, it can actually be traced back to the policy of monetary resettlement of shantytowns in 2015, when local debt began to increase significantly. Since then, the problem of local debt has been out of control.

For example, 2018 was a painful year for many stock investors because the macroeconomy began to deleverage that year, and the stock market fell for a whole year. Later, the epidemic came, making the problem of local debt more difficult to solve.

Let's take a look at the specific numbers: In 2018, the total scale of local debt was 18.39 trillion yuan, with an average maturity of 4.4 years and an average interest rate of 3.51%. By 2023, the total scale of local debt had increased to 40.74 trillion yuan, the average term was extended to 9.1 years, and the average interest rate dropped to 3.27%. From these figures, it can be seen that we are indeed working hard to solve the problem of local debt.

However, as Confucius said in the Analects: "Do not speak of what has been accomplished, do not advise on what has been done, and do not blame the past." What we need to do now is to find a way to solve the problem, rather than being entangled in the past.

To solve the problem of local debt, in the long run, the key is the reform of the financial and tax system. We must change the way of increasing local income by selling land in the past.In the short term, this issue is quite tricky. Take 2018 as an example, local debt at that time reached 18.39 trillion, and the average maturity was only 4.4 years, which brought tremendous repayment pressure to local governments.

There are two main strategies to solve this: one is to extend the repayment period, and the other is to reduce the interest rate.

Smart people will adapt to the situation and turn disadvantages into advantages. Although the United States insists on not cutting interest rates, which has put us under great pressure, it has also forced a lot of capital to flow into the local debt market, thereby alleviating the pressure of local debt. Now, even with low interest rates, there are still many funds willing to buy local debt. For example, in January of this year, Henan issued two local debts with an interest rate of only 2.62%, but the bidding multiples reached 17 times and 18 times, while in 2018, the interest rate of Henan's local debt was as high as 3.9%, and the bidding multiples were only 13 times.

Through such a round of operations, by converting short-term debt into long-term debt and high-interest debt into low-interest debt, the pressure of local debt has been significantly reduced.

As a result, Western media have started to shift their focus to A-shares and overcapacity. But our biggest problem is local debt, while the United States' biggest problem is U.S. Treasury debt.

For example, in 2018, the U.S. federal government's revenue was 3.33 trillion U.S. dollars, military expenditure was 643 billion, and debt interest was 523 billion. By 2023, revenue had risen to 4.44 trillion U.S. dollars, military expenditure increased to 857.9 billion, and debt interest soared to 879 billion. In five years, the U.S. government's interest expenditure increased from 15.7% to 19.8% of fiscal revenue, becoming the third-largest item of expenditure, even surpassing military expenditure.

It is expected that by 2024, the interest expenditure of U.S. debt will break through the 1 trillion U.S. dollar mark, accounting for more than 20% of government expenditure. Imagine, if a person has to take out one-fifth of their monthly income to pay interest, what would that be like?

At the same time, the United States' strategy in the bond market is completely opposite; they are converting long-term debt into short-term debt and low-interest debt into high-interest loans. This reflects the market's distrust of the United States' long-term debt repayment ability, and everyone is unwilling to invest in long-term bonds, only willing to make short-term transitions.

Now, the 4.5% interest rate 10-year U.S. Treasury bonds issued by the United States are almost unsold, and they have to change to issue 5.5% interest rate 2-year U.S. Treasury bonds to have a market. This is the current predicament of the U.S. Treasury Department.

Finally, the U.S. debt problem seems to be unsolvable. Whether it is the Democratic Party or the Republican Party, they have no intention of truly solving this problem because the cost is too high. They just hope that there will be no problems during their term of office, and the problem will be left to the next term to solve.Back and forth, the U.S. national debt issue may never be resolved. Now, what they can do is probably only default on the debt. That's why you'll hear some legislators propose confiscating the U.S. debt held by China.

It can be seen that the U.S. debt has fallen into a vicious cycle. In the future, not only may the principal not be repaid, but even the interest may be unable to be paid. Apart from defaulting on the debt, the U.S. really has no other choice. This is also why some legislators propose confiscating the U.S. debt held by China.

In contrast, China, in dealing with local debt, although also facing considerable challenges, has taken practical measures. By converting short-term debt into long-term debt and high-interest debt into low-interest debt, we have gradually eased the pressure of local debt.

Solving the local debt problem is not only a short-term financial operation but also a long-term structural adjustment. And the U.S. debt issue, if it continues to be delayed like this, will become increasingly difficult to resolve.

Why is U.S. debt so important?

The daily expenses of the U.S. government mainly rely on national debt. If there is a problem with U.S. debt, the cash flow of the U.S. government will be cut off, and military spending will be gone. At that time, will the U.S. military be in chaos? If social security and medical insurance cannot be paid, will the American people make trouble?

If U.S. debt really collapses, the entire U.S. financial system will follow suit, and social order will be completely disrupted. It can be said that the time left for the U.S. is not much.

In the past, the U.S. deceived us into implementing a loose monetary policy, making the local debt problem more and more severe. Now they still want to guide public opinion through some investment banks and economists to let China's money flow out. Those days are over. Let's think about it, how many of those economists who were very active before are now marginalized? Especially those economists who advocated for giving money to the people, learning from the U.S. to implement quantitative easing policies, and relaxing supervision, they have become the focus of attacks in recent years.

Externally, we need to quickly promote policies and increase efforts; internally, financial reforms should be solidly promoted to solve the local debt problem, carry out tax and financial system reforms, make the financial system safer, guide social funds to the field of science and technology, and avoid violent fluctuations in the financial system.

The financial battle between China and the U.S. is in the bond market. Our local debt will not explode, but the U.S. national debt bomb is getting bigger and bigger.In the second half of the year, we may initiate a series of aggressive actions. For instance, we could massively purchase gold, driving up the price of crude oil, and disrupting the commodity market priced in US dollars; we might also sell off US Treasury bonds, allowing the yield on these bonds to continue to rise; furthermore, we could engage in bilateral settlement in RMB with other countries, compressing the space for the US dollar in the global settlement and reserve system.

The United States has been on the offensive in the financial system for many years, with little room left for fiscal and monetary policies. Now, it is time for us to counterattack. Once we make a move, it will be a multi-level, continuous series of actions; we will either stay still or, once we act, it will be decisive.