To stimulate the economy, is 1 trillion enough?

Stimulus stimulus, stimulus or stimulus.

If the market is not stimulated, people will not see the good, if not, pessimism may continue to spread, and further ferment, the most direct consequence, is the stock market falling endlessly.

A-shares have fallen sharply for four consecutive days, with the Shanghai Composite Index falling below 3,000 points on Monday, approaching 2,900 points, and the stock market is tumbling endlessly, with negative market sentiment, which will affect the quality of the real economy, especially real estate.

Therefore, the main force at present is to stimulate the market and introduce favorable measures.

However, before, whether it was real estate or the stock market, a large wave of stimulus measures had been introduced, but the effect was very weak; Taking real estate as an example, the purchase and sale restrictions have been cancelled, which is infinitely close to the stimulus of the property market in 2008, but the effect is still very small.

The same is true for the stock market, in the face of a series of major benefits such as stamp duty reduction and restriction on shareholder reduction, the fragile market sentiment seems to be like a thin paper, and any wind and grass may lead to a sharp drop in the stock market.

At this time, a more stimulus measure is often needed to boost market sentiment.

In the recent September, northbound outflows amounted to $75 billion, the largest monthly outflow since 2016, and the main reasons for the sharp volatility in the domestic stock market were the lack of investor confidence and the impact of the Federal Reserve's continued tightening of interest rates on the mainland market.

It is said that the interest rate on U.S. Treasury bonds has reached 5%, which has a very strong "guiding effect" on capital outflows, and if we want to retain investors, we must convince investors that A-shares can make money, not just lose money.

But the stimulus measures are actually following the diminishing marginal returns, when a market prosperity is low, investors generally lack confidence, the stimulus must be bigger and bigger, the lower the market confidence, the greater the stimulus must be, and with the continuous extension of the timeline, the introduction of stimulus policies, the benefits will also be diminishing.

In such a situation, there is an urgent need for a "king bomb", a huge benefit, so that the market can buy it.

According to media reports, the Ministry of Finance will issue an additional 1 trillion yuan of 2023 treasury bonds in the fourth quarter of this year, all of which will be arranged to local governments through transfer payments, "focusing on supporting post-disaster recovery and reconstruction and making up for the shortcomings of disaster prevention, mitigation and relief".

As a result, the national fiscal deficit will increase from 3.88 trillion yuan to 4.88 trillion yuan, and the deficit ratio is expected to increase from 3 percent to about 3.8 percent.

According to reports, all the trillions of treasury bonds issued this time will be arranged to the local government through transfer payments, and it is planned to arrange the use of 500 billion yuan this year and 500 billion yuan to be carried forward to next year.

According to a report by the Ministry of Finance, the funds will be used in eight major areas: post-disaster recovery and reconstruction, key flood control, improvement of natural disaster emergency response capabilities, and other key flood prevention projects.

Why do we need to issue trillions of special government bonds?

According to the Ministry of Finance, the difference between revenue and expenditure of the national general public budget in the first nine months of this year was about -3.11 trillion, which means that expenditure is greater than revenue.

Combined with the imbalances in revenue and expenditure caused by the past three years, the fiscal pressure is not insignificant, especially for many places.

This is also the fourth time that the mainland has issued new special treasury bonds. The previous three times were in 1998, when the capital of the four major state-owned commercial banks was replenished (270 billion yuan), in 2007, when CIC was established to operate foreign exchange reserves (1.55 trillion yuan), and in 2020, when the new crown shock was met (1 trillion yuan).

In addition, in 2017 and 2022, 600 billion and 750 billion yuan of special government bonds were issued, respectively, but this is a maturity renewal of the 2007 special government bonds, and there is no new fiscal deficit.

On October 24, the Shanghai Composite Index closed up 0.74% and the CSI 300 closed up 0.37%, reflecting the market's expectations for special treasury bonds to a certain extent.

There is no doubt that this trillion treasury bonds can solve some of the problems of market confidence today.

Considering that the economic growth rate accelerated in the third quarter, and the economic data in September exceeded expectations, this also means that the economic stimulus introduced at this time tends to have the highest marginal returns, because the market has improved, and at this time, the fire can ignite on its own.

In the first nine months of this year, the national general public budget revenue was 16.6713 trillion yuan, an increase of 8.9 percent year-on-year, which was lower than the 10 percent growth rate in the previous eight months.

In addition, the year-on-year decline in fiscal revenue continued, albeit at a smaller rate of decline to 1.3% from 4.6% in the previous eight months, while fiscal spending continued to increase, with a narrowing growth rate of 5.2% from 7.2% in the previous month.

The decline in fiscal revenue may be partly due to the recession in real estate, which has affected fiscal revenue, and partly because the consumption tax fell by 4.9% year-on-year, corporate income tax fell by 7.4% year-on-year, and personal income tax fell by 0.4% year-on-year.

In terms of trade, value-added tax and consumption tax on imported goods both fell by 7.3% and 12.1% year-on-year, and export tax rebates increased by 4.6% year-on-year.

The only significant increase was in value-added tax, which increased by 60.3% year-on-year, and the statistics bureau explained that this data increased significantly because of the large number of tax refunds in the same period last year and the low base.

The problem now also lies in the problem between local revenues and budget deficits, which has led to the fact that even if many localities want to stimulate the economy, they have insufficient budgets and it is difficult for them to cook without rice.

In terms of deficits, this year's limit is set to no more than 3% of GDP, which also leads to huge difficulties in terms of budgets.

Half of the new trillion yuan treasury bonds will be used for water conservancy and flood control projects this year, and the rest will be used for post-disaster reconstruction and high-standard farmland construction.

But no matter what, trillions of funds can still leverage some leverage.

On the other hand, since the marginal returns of real estate and infrastructure are already low, they can play a good advantage when used for post-disaster reconstruction and water conservancy and flood control.

Counting up, there have been a total of four new treasury bonds in history, each time it was accurate to the details, and how the market will react to the issuance of trillions of treasury bonds this time, we may need to let the bullets fly for a while.

In any case, the only thing that can be said for sure in the current market is that it needs some stimulus, and boosting market confidence itself is more important than stimulus.

end.

Author: Luo sir, the workplace reference of the new youth. Concerned about the logic behind the development of things, optimistic pessimists. Follow me and grind the knowledge to you.