Economic upward stage: monetary policy easing and technological development have brought about an increase in productivity and sufficient demand for goods and services, the profitability of various sectors is good, enterprises expand production capacity, residents' income increases, willing to consume and purchase assets in advance, government tax revenue increases, banks and non-bank lending institutions are willing to lend, the economy is improving, asset prices are rising, all sectors have strong confidence, good reputation, income growth is greater than debt growth, while asset price increases and income increases strengthen the expectation that the economy will continue to rise according to the current situation. But this is unrealistic wishful thinking. The rise in income and asset prices has increased the value of collateral and borrowing capacity, coupled with the loose monetary environment has caused the continuous increase in leverage, until the production capacity reaches the limit state, excess, the economy is overheated, the government found that the bubble in some areas is too large, began to tighten monetary policy and fiscal policy, recover liquidity, the higher the leverage ratio, the more sensitive to monetary policy, asset prices begin to fall, the value of collateral declines, assets purchased with high leverage are sold off, income, investment, and expenditure decline, and credibility is frustrated. Banks and asset holders have reversed their expectations for economic growth, reduced loans or even withdrawn loans in order to protect themselves, aggravated the large-scale selling of assets in the market for cash to repay loans, liquidity has become more and more tight, debt is increasing, income is decreasing, and the economy is shrinking. A large number of individuals, businesses and governments face economic hardship.
The United States: Has the ability to print money to dilute existing debt and pass on the cost of debt to the world, because the dollar is bound to oil, the dollar is also the world's reserve currency, the currency of international trade settlement, the most important safe-haven currency, strong economic strength and many military bases in the world to defend the hegemony of the dollar. So far, the debt ceiling can be raised as long as the law allows, and the probability of debt default is basically zero.
Foreign-currency-denominated (including dollar) countries: Countries whose debts drive economic growth with large amounts of foreign capital do not have the ability to print money to dilute the pass-through of debt. (U.S. creditors basically only receive US dollars or gold) The US dollar's continued interest rate hike or balance sheet reduction will make the US dollar appreciate and return to the United States, the local currency depreciates, and at the same time the attractiveness of the US dollar increases, and a large number of US dollar capital withdraws back to the United States. Increased depreciation of the local currency has increased the cost of dollar-denominated debt, and foreign exchange reserves and debt servicing capacity have been insufficient. Asset prices plummeted, credit lines and the value of loan collateral were damaged, and asset owners continued to sell assets for cash in a panic. Short-term loan interest rates continue to rise, and financing for residents and enterprises is difficult and expensive. Inflation continues to worsen. Even so, financial institutions such as banks will hesitate to lend, or even draw loans. Social and political conflicts have arisen between governments, enterprises and residents due to economic stagnation or recession, and even massive unemployment, reduced social welfare, severe inflation, and sluggish economic growth rates. When inflation is uncontrollable, it eventually leads to the bankruptcy of the country, and the people live in dire straits for a long time. The worst-case scenario is like Zimbabwe and Venezuela, where the vast majority of people have a currency value of zero. Use the barter of primitive society to obtain the necessities of life.
Both booms and recessions are self-reinforcing processes.
Currency and debt must correspond to the corresponding assets to maintain their monetary value. China has a vast territory and strong infrastructure capacity and sufficient population size, and the infrastructure was relatively insufficient in the early years, so the large-scale decline in external demand triggered by the subprime mortgage crisis in 0708 was replaced by 4 trillion yuan of infrastructure investment by the main body of issuing government bonds, forming a large number of infrastructure assets, while increasing the debt ratio, resulting in a certain degree of overinvestment, repeated investment, and debt problems. Many infrastructures are public welfare public service facilities, the overall return on assets is extremely low, the economic benefits are not good, but there are relatively good social benefits. The interconnection of facilities increases population and economic connectivity.
The economy has cycles, everything has laws, and everything has an end.
