First, financial alchemy is made out of nothing
From ancient times to the present, alchemists have been pursuing the mystery of turning stones into gold, but except for a few neurotics who claim success, this field has always been a blank space in the industry. The Great Depression of 1930 swept the globe, and governments were clanging with poverty. At this time, an English gentleman stood up and said that he had discovered the mystery of turning stones into gold, and that he could make things out of nothing, turning white paper into money. For this kind of statement, governments should only be another neurotic, and after listening to the opening statement, they habitually crossed it, and only one country understood and liked it. The gentleman who taught alchemy was called John. Maynard. Keynes, and the country that understands and likes it, is the United States. Later, the United States became the world hegemon, and Keynesianism became the mainstream economic policy of the Western world. In the 1970s, the U.S. economy took a sudden turn for the worse and almost didn't survive until 1984. Everything comes at a cost, so how can the invisible hand allow Keynes to flourish there? She quietly hides a bug in Keynes's alchemy that is the protagonist of our story today: the stagflation crisis.
Fast forward to 1974, when Nixon sat distraught in his White House office. As the helmsman of the beacon of capitalism, Nixon was in big trouble. He's probably the most unlucky president in U.S. history, not one of them. Just became president, before the start of the wave, the U.S. economy can not run. To deliver on his campaign promises, he had to expand government spending and scale up the printing of money. But when the plan got to the Fed, he touched a nose of ash. Federal Reserve Chairman and White House Economic Adviser Arthur A. Burns warns: We are at risk of stagflation! Burns's stagflation is not a mental retardation, it is a trap specially designed by the invisible hand against Keynes. This trap will drag all countries that take the Keynesian route into the abyss of economic stagnation and repeated inflation, reflecting that wages do not rise and prices soar. When I went to the wet market last year to sell pork, the boss would ask me whether it was full payment or installment, and as a result, this year's direct vegetables were more expensive than pork. Everyone said that in the past, we all had no money to eat meat, and now we all have no money, eat meat! The Internet can summarize a lot of backshoeers such as weather, epidemic, transportation, etc., but the truth is always only one! That's stagflation! To this day, stagflation is the thorniest of all economic problems.
The depression of each Kangbo cycle begins with a wave of stagflation! For example, the Great Depression of 1929 is like thunder to this day. So how did the depression come about? For example, a factory produces 100 pieces of clothing, and each piece sells for 1 yuan, which is 100 yuan. 20 yuan to buy raw materials from suppliers, 30 yuan to pay workers' wages, the remaining 50 yuan of profits to keep themselves. At this time, workers and suppliers have a combined consumption power of 50 yuan, and the factory also has 50 yuan of consumption power. Workers and suppliers can only buy 50 suits of clothing, but the factory itself does not need 50 sets of clothing. The question is, what about the extra clothes? Overcapacity will reduce production, and production reduction will lay off employees and reduce orders. Further reducing the purchasing power of workers and suppliers, factories continue to backlog clothing, creating a so-called product surplus. This vicious circle is deflation. Deflation in the end means that everyone has no money, no consumption, and the economy enters a depression. The invisible hand watched the scrambling government for a long time, quietly waiting for war and collapse to appear, sending humanity back to the Malthusian Trap, and was humanity willing to be bound by the invisible hand again?
At this time, Keynes proposed that the government come forward, print 100 yuan out, and hire workers to dig a pit in the middle of the road. Then the workers earn $90 in wages, and the government takes $10 in taxes. Then the workers spend another 90 to buy clothes, the tailor earns 80 yuan, the government takes another 10 yuan in taxes, the tailor spends money to buy cloth, the cloth merchant spends money to buy cotton, the cotton farmer spends money to buy seeds, fertilizer, pay rent, and so on, and so on, and finally the 100 yuan is returned to the government through the consumption tax, value-added tax, and income tax in all aspects. Then the government spends another 100 yuan to fill in the pit, the economy recycles it again, and the 100 yuan is returned to the government. In the end, the government did not pay anything, and there was still so much money in circulation in the market, but the problem was solved, which was Keynesian alchemy. Under the epidemic last year, the US stock market was circuit-cut for four consecutive times, and the Us government issued a large number of treasury bonds for global financing on the one hand, and the Federal Reserve announced unlimited easing to provide ammunition for the purchase of treasury bonds. Not only the national debt, but also the Corporate Debt and the Junk Debt Fed will all collect them as ordered. What is the market most afraid of? It is the stock market crash that has nothing to lose, but the attitude of the Federal Reserve makes everyone feel that they have earned their own, and the losses are all the government, and when will they stay longer at this time? So a brain killed back to the stock market to read the bottom, and the market was saved in this way. Take Keynesianism against deflation, and use it all to say.
So what is the invisible hand doing at this time? She is cultivating user habits and market consensus! Former Fed Chairman Ben Bernanke studied depressions all his life, and the last lesson was to release water, and the sooner the better! Therefore, once the economy is down, many governments immediately print money and borrow money, and user habits have been cultivated very well for decades. And the market side has also formed a consensus, as long as the economy stagnates, the government will borrow money to print money, as long as the government borrows money to print money, I have money to speculate in houses and stocks. At this time, the government spent money to cut a pit in the middle of the road, but after the workers took the money, the invisible hand appeared. She gently seduces workers, suppresses desire, prolongs enjoyment, does not rush to consume, and invests the money and you will earn more. So the workers did not go to buy clothes, but went to buy stocks and houses. Financialized real estate can cause a lot of problems, the main ones being in two places:
The first is the inefficiency of the financial leverage cycle.
How to understand it? It is the real estate printing machine, the self-circulation. Printing money → house prices rise → higher collateral assets can print more money → house prices rise even more... But the problem is that this banknote is not printed in white, it is supported by debt, and the more you go, the greater the risk of debt. A house, originally only worth 100w, overvalued it, said 300w, overestimated 200w where did it come from? It can only be carried by the debts of the workers, but the funds lent by the debts of the workers have flowed to the real estate, further pushing up the valuation of the house, which in turn requires higher debts to carry... This is called financial leverage invalidation – higher debt, more tired workers, but not used in the right place.
It is to push up the cost of survival of young people, force them to have low desires, worsen the demographic structure, and damage the foundation of the national economy. But these were all long, long days later, when workers only knew that by buying stocks and houses, they would be financially free. As a result, money flowed into the stock market and the real estate market, and the tailors, cloth merchants, and cotton farmers behind did not get the money to consume, and the government could not recover the money through the taxation of various links. The economy has not recovered, but there are more and more banknotes on the market, and the inflation generated by this period of economic stagnation is stagflation! The economy departed from Keynes's orbit and shifted to the orbit of the invisible hand. Stagflation developed to the end, and in addition to pushing up asset bubbles and increasing financial risks, it could no longer stimulate the growth of any entity. At this time, employment and inflation have become a seesaw relationship, and if inflation is to be managed, it is necessary to tighten the currency, which will inevitably lead to the bankruptcy of small businesses and unemployment. If jobs are to be maintained, it is necessary to continue to loosen the currency and implement sustainable water releases so that the economy at least looks good. For the president of the United States, the employment rate is the root of life, is the foundation of the government, once the unemployment rate is high and the price soars, everyone can't take the next meal, don't say that they are re-elected, even the midterm elections may not be able to survive. Therefore, few presidents in the history of the United States dare to use contraction to deal with stagflation, and in the American political environment, stagflation is almost insoluble. Not because the Fed can't do it, but because the election doesn't allow it. So 11 out of 10 U.S. presidents will choose to keep their votes by keeping jobs. But if you want to maintain employment, you must have more investment and looser liquidity. Under the arrangement of the invisible hand, more investment and looser liquidity mean higher prices and more flooded asset bubbles. The final result is a currency collapse, soaring prices, and shortages of goods, resulting in a disaster for people's livelihood. So stagflation has been tricky for successive U.S. presidents, and both jobs and inflation are hard to solve. The invisible hand mercilessly mocked Keynes: "No matter how perfect the economic model is, it cannot withstand the president's selfish desire to seek re-election."
Second, the stagflation crisis or the mental disability crisis
After World War II, the US economy entered the most magnificent 20 years, successive US presidents played Keynesianism out of the flower, government expenditure, fixed investment, international organizations, the United States and the Soviet Hegemony, global assistance, large-scale infrastructure, spending projects came out one after another. Truman, Eisenhower, Kennedy, and Johnson after Roosevelt were emotionless money throwing machines. After the 1970s, the United States began to lose its strength. On the one hand, he fought the Cold War with the Soviet Union, and at the same time, he fought with Vietnam. The Cold War has a small follower waiting to pass on the help, and the hot war is a bottomless pit of gold. At this time, the most unkind thing was Japan, which began to build a country of heavy industry after eating the dividends of the Korean War on the front foot, and concentrated on supporting a large number of industries with both capital and technology, and digging the corners of the Americans in the international market. Spending is getting bigger and less, and the U.S. treasury is stuck in sustainability. Kennedy and Johnson, in response to the recession, ran wild on keynesian paths, pursuing expansionary monetary and fiscal policies, and by January 1969 there were signs of stagflation. Nixon struggled to succeed in his campaign, thinking that he had won the presidency, only to find out after taking office that it was a mess, which became the cause of the watergate incident later, but that was another story. In order to seek re-election, he can only choose to continue to relax, praying that the problem can be dragged out until the next term. The result is that the stock of money is growing by more than 12% and the dollar is rapidly depreciating. Describing the US economy at that time cannot be said to be bad, it can only be said to be an economic crisis! In order to sustainably empty glove white wolf, Nixon terminated the Breton Senri system in 1971, changing the dollar from a gold standard currency to a credit currency. The dollar then eased for years, and by 1973, U.S. eggs were up 49 percent and meat was up 25 percent overall. In 1974, U.S. GDP fell by 0.5 percent, but inflation was as high as 12 percent and unemployment was as high as 9 percent. In the end, Nixon could not stand up, for the sake of support, desperate to take risks, and finally the Watergate incident broke out, very undignified down. Vice President Ford saw through the conspiracy of the invisible hand and pretended to be a caretaker government with no campaign baggage. After taking over, one side ordered too tight a life, and the other side tightened the currency, completely releasing employment, and at one point reducing inflation to 4%. Because unemployment remains high, Ford is a dog in the election, and the defeat is a matter of course. The successor, Carter, was a decent man, and the decent man wanted votes and word of mouth, so he embarked on the path of Keynes to frantically expand the currency, so that the growth rate of the currency stock returned to more than 12%. The invisible hand smiled happily: Seeing him rise up a tall building, I still have to see his building collapse again! With the blessing of the banknote capacity of the United States, the average annual GDP growth rate is more than 5%. Until the outbreak of the Iran-Iraq War in 1979, Iran and Iraq bombed each other's oil fields, and the second oil crisis broke out! Then the US inflation rate soared to an unprecedented 15%, almost giving the US a fatal blow! From nixon's time, the invisible hand was torturing the U.S. economy with stagflation, and by the Carter era, U.S. companies, bank bankruptcies, and unemployment rates were all on record after World War II. With 3 presidents, the average GDP growth rate of the United States is 2.9%, but the average inflation is 10.46%, the unemployment rate is 10.8%, and the United States has reached the most dangerous moment. At that time, the sworn enemy of the Soviet Union was mixed up, and the Soviet Union and the European and American economies were insulated, and it did not matter whether it was depressed, deflationary or stagflation, and it had nothing to do with it. At the same time, the Soviet Union is still an oil-producing country, and the oil crisis, on the contrary, makes it earn a lot of money, creating a general pattern of soviet attack and defense. During this period, the United States has spared no effort to deal with stagflation, but Nixon, Ford and Carter have been jumping left and right between easing and contraction in order to be re-elected. Although the country needs the future, the president needs the votes in front of him, so the repeated monetary policy has intensified inflation expectations. In the eyes of the market, don't you mean to fall? But it went up again, and everyone who gambled lost, so it went up forever! This continued until 1981, when the United States finally ushered in two promises of destiny who would work together to save America from stagflation over the next four years.
The cycle of a strong man's broken wrist
The first man was named Reagan, and everyone knew it well, the 40th president of the United States, the achiever of the establishment of diplomatic relations between China and the United States. There is an old Chinese saying that there must be faithfulness in the ten chambers, and Reagan is such an outlier among the presidents of the United States. At the beginning of his presidency, he knew what kind of mess he was facing, but he still had no hesitation in running for office, and he was determined not to be re-elected, and he was also determined to solve the problem of stagflation. With such determination, he found a second man, Paul. Volcker. Paul. Born in 1927, Volcker was an accomplished essayist from an early age, graduating from Princeton University. He has served as Assistant Deputy Secretary of the Treasury, Vice President of Chase Manhattan Bank, Deputy Secretary of the Treasury, and President of the Federal Reserve Regional Bank of New York. In 1979, he became Chairman of the Federal Reserve. Paul. Volcker was not impressed with Keynes's set, he was a numismatic believer. After taking office, his policy is the same as 2: First, a sharp interest rate hike! Second, strictly control the money supply! At that time, the market consensus in the United States had been cultivated by the invisible hand for more than a decade, and everyone did not believe that he could continue to shrink the currency. So the first few rounds of interest rate hikes didn't bring inflation down. Volcker was also very tough, raising rates to 21% in one go. To convey a clear signal to the market, no matter how high the interest rate, no matter how expensive, Benvo will also work to the end. In 1981, the U.S. economy was extremely tight and car sales fell to their lowest point in 20 years. Manufacturers and farmers complained. The media cover angrily published a "wanted warrant" against Volcker and his Fed colleagues, accusing them of "premeditated and cold-blooded murder of millions of small businesses" and "hijacking the American Dream of property owners." Many unemployed workers and bankrupt small businesses wander around the Fed door every day, seeking deeper physical exchanges with Volcker. At the critical moment, Reagan stood up to help Volker break the siege, publicly stated that the general direction was set by me, that I let Volcker do it, and that the next president, Lao Tzu, would not interfere in the Fed's decision-making. The effect was immediate, everyone was talking to Volcker, and Reagan himself was shot directly.
But Volcker's monetary policy persisted! By 1983, U.S. inflation had fallen to 3.2 percent, and by 1986, after Reagan left office, it had fallen to 1.9 percent. The GDP growth rate of the United States also reached 4.5% in 1983 and 7.2% in 1984, and the US economy began a 20-year era of low inflation and high growth, laying the foundation for successfully consuming the Soviet Union and winning the Cold War victory. The reason why stasis is difficult is that employment and easing must choose between one or the other, and there is no way to have the best of both worlds. In the era of credit money, the most important asset is confidence, if everyone has confidence in the house, they will go crazy to speculate; if they lose confidence in money, they will abandon money and seek all other so-called physical assets that can resist inflation. The key to managing stagflation lies in restoring confidence in the currency with unquestionable determination, even if the asset bubble bursts, even if the Great Depression occurs, even if unemployment is high. The invisible hand bet is that the president of the United States cannot give up his support rate and give up loose monetary policy for the sake of long-term interests. But she did not expect that in the evil capitalist society of the United States, there would really be people like Reagan and Volcker, so she failed again. What is Volcker Moment? It is a time to tighten financial leverage, reverse market expectations, and restore monetary credit at any cost.
But the invisible hand is not upset, and it is not surprising that the economic depression will follow the pace of the Compo cycle, never losing the contract once in 60 years, stagflation is often there, but Reagan and Volcker are not. As long as governments are still using credit money, as long as human nature is still selfish, she has a chance. In the outbreak of the epidemic in 2020, all countries should have worked together and rationally applied the law to successfully survive the crisis at the least cost, but for the sake of campaign needs, the president naturally chose to refuse. He attempted to prolong the U.S. economy through trade protection and global blood sucking, in a vain attempt to dump the depression phase of the Boom cycle directly to other countries, or postpone it for a few years until he was re-elected. Looking back at China, we have made up our minds to abandon short-term goals in order to decouple the economy from real estate, allow real estate debt to default, and crack market expectations of a perpetual rise in house prices. From either perspective, Volcker's policy is the only right solution to today's economic problems, and nothing else. In fact, in the past few decades, we have also accumulated a lot of successful experience in controlling stagflation. For example, in 1988, the "price barrier" was introduced; in 1993-94, policymakers also used very tough austerity measures to clear the bubble. Especially the wave of layoffs in the second half of the 90s. The measure of the high-level hero to break his wrist prepared the space for the successful response to the impact of the Asian financial turmoil. It is precisely because of this that we have taken over the international capital that has escaped from Japan, South Korea and Southeast Asia, undertaken industrial transfer, and laid the foundation for the subsequent explosive growth. So whether it is the experience of the United States or our own experience in exploration, we are told that tightening the currency and reversing market expectations may face short-term pains, but the macro economy will also be healthier because of the clear risks, optimized the structure, and thus start a new growth cycle.
Finally, the girl who cut the video said: It turns out that the Americans have done so many things, they just don't want to make a staff.