The Federal Reserve announced on December 15th as scheduled its decision to raise interest rates by 50 basis points. In its statement, the Federal Reserve projected that by the end of 2023, there will be at least two more rate hikes totaling 75 basis points, bringing the rate to 5.1%, which is expected to decline to 4.1% by 2024. Concurrently, the U.S. economic growth is anticipated to be nearly stagnant.
Federal Reserve Chairman Powell stated after the release of the statement that it is premature to discuss rate cuts, as the current focus is on ensuring that the Federal Reserve's restrictive policy stance is sufficient to reduce the inflation rate to the 2% target.
This has led to increased concerns on Wall Street about the Federal Reserve's "hawkishness without end," which could once again collapse the financial markets. It also signals that the debt interest costs paid by U.S. Treasury bonds will become increasingly expensive. For the Vietnamese economic market, this indicates that the financing costs in dollars will become more expensive.
At this time, the Federal Reserve will subtly shift the risks of high inflation and debt costs to others, one of which will be to accelerate the process of harvesting the black hole in Vietnam's economy and financial debt market.
The sharp decline in Vietnam's financial market over the past few months further implies that the harvesting effect of this round of strong U.S. dollars on the Vietnamese market is intensifying, which could lead to a new financial shock for Vietnam—a broad repricing of bonds, stocks, and other financial instruments.
The financial team has noticed that in recent years, Vietnam's economy seems to have suddenly become an economic black hole in Asia, sparing no effort to absorb capital, debt, technology, manufacturing enterprises, and even talent from the United States and other related resources. However, in the vast changes of the global economy, the top predators gain the wealth of other nations, and the United States is such a "modern financial pirate."
This will become more evident against the backdrop of the Vietnamese central bank's response to the Federal Reserve's continued aggressive rate hikes, which have led to two consecutive emergency increases in the refinancing rate by 200 basis points to 6% since September this year, in an effort to control the rising inflation and financial turmoil in the country.
This indicates that Vietnam's debt repayment costs and the risks in the stock, bond, and foreign exchange markets are beginning to multiply, and it is very likely to be further harvested by this "modern financial pirate." The Vietnamese economic miracle may be reduced to its original state by the United States.
According to the latest data released by Vietnam's statistical department, as of December 10th, the total debt in Vietnam's banking system has increased by 11.46% compared to the end of 2021, and credit growth is expected to reach 18.16%, which is an increase of 3.14% from October.
As of November this year, Vietnam's total external debt amounted to approximately $189.3 billion, with external debt denominated mainly in U.S. dollars reaching 181% of the country's international reserve assets. Among this, the proportion of external debt in Vietnam's fiscal finances has reached 46%, and it continues to expand.According to data released by the State Bank of Vietnam, it appears that Vietnam no longer has sufficient foreign exchange reserves to defend the Vietnamese盾. Since October 1st, Vietnam has sold at least $55 billion in foreign reserves, which may reduce its reserve scale to less than $100 billion.
Because, with the accelerated devaluation of the US dollar's purchasing power leading to the rise in energy and other commodities, and the United States collecting seigniorage taxes in US dollars through exchange rate differences, Vietnam's international reserve assets may be quickly depleted, leading to some debt and exchange rate risk storms.
In this regard, FocusEconomics, a global economic analysis institution, said in an updated report published on December 14 that the core reason for Vietnam's financial vulnerability is falling into the trap of US dollar debt, and wants to use this to exchange interests with Wall Street groups.
This indicates that Vietnam's high economic growth in the past and economic miracles were achieved by accumulating risky loans and foreign debt to expand growth, all of which were accumulated by huge US dollar debts. In the process of the United States accelerating the harvest of Vietnam, it will intensify market fluctuations in Vietnam and squeeze out international investment.
We have noticed that since the beginning of 2022 to now, Vietnam's VN30 index, known as the internet celebrity stock market, has plummeted by 30%, among which bank stocks and real estate stocks have led the decline, becoming the worst-performing stock market in the world, forming a sharp contrast to the scene in 2021 when a large amount of US funds entered, driving Vietnam's stock index to continuously hit new highs.
According to data released by Refinitiv Eikon on December 12, since the Federal Reserve began raising interest rates in March this year, some sensitive international funds have withdrawn from the Vietnamese financial market in advance. So far, foreign investors have sold as much as 1460 trillion Vietnamese盾 in Vietnamese financial assets, which is almost 5.62 times that of the same period in 2021.
Fitch Ratings said on December 10 that against the backdrop of the rising possibility of a recession in the US economy, which may reduce the demand for Vietnamese goods, the current high inflation in the European and American markets is affecting Vietnam's domestic production activities and driving up Vietnam's inflation. This will be a major challenge for Vietnam's economy and financial markets. At the same time, the recent radical monetary tightening measures by the Vietnamese authorities have increased refinancing risks and threatened the debt and credit markets.
Subsequently, the research institution FocusEconomics said that Vietnam's economy experiences an economic crisis almost every 10 years. Although Vietnam has achieved an enviable economic growth trajectory since 2010, considering that Vietnam can no longer cope with the surge in US dollar borrowing costs, it is very likely to become a "sacrifice" that will be accelerated by the Federal Reserve's "longer and higher" continuous interest rate hikes and the recession in the US economy. The sustainability of Vietnam's economic model is not strong.
Because, Vietnam's backward infrastructure, US dollar reflux, corporate debt maturity, soaring financing costs, raw material and commodity supply chain dilemmas, and other unfavorable conditions may have a greater impact on Vietnam's economic growth pace and the financial market after inflation rises.At the same time, Vietnam's economy focuses solely on the quantity of investment without paying attention to the efficiency and quality of investment, leading the country into a dollar debt trap. The possibility of the Vietnamese economic miracle revealing its true colors becomes more apparent against the backdrop of the slow transformation of Vietnam's economic system, which is supported by low-end manufacturing with little added value, and where the majority of profits in factories are controlled by European and American capital.