Debt is a disaster for individuals, and it is no different for an economy

Economist Gu Chaoming said: "If economic growth is to be achieved, the macro level means that the GDP must exceed the previous year, and the micro level means that someone must spend more than earn." With the help of credit, a person and a business have the opportunity to spend more than their income, so borrowing is a very important part of economic growth. ”

But the question is, why do people take on debt?

It depends on our confidence in the future.

If a business owner knows that the scale of his profits is limited by his production capacity, then he will definitely choose to borrow to increase production capacity and eventually expand his profits.

In addition, if there is a good business model or product innovation, such as smartphones and mobile Internet, then entrepreneurs and individuals will borrow at all costs, although they spend more, but also earn more, so the economy will grow.

This is the growth path of the most high-growth economies over the past few years, such as the United States and, of course, us.

But now, this growth path has hit a bottleneck.

In the past, the reason why we were willing to go into debt, such as spending half of our life savings to buy a house, or even risking 30 years of housing debt, was essentially because we believed that our future income would not only exceed our monthly mortgage, but also have spare time to help us pay the burden of raising children and supporting our old age.

According to this, a family "advances" a house with the income of the next 30 years, which to a large extent, promotes the rapid economic growth of the mainland.

The same is true for enterprises, in this era of mass entrepreneurship and innovation, investors look for good projects to invest, entrepreneurs find angel investors from all walks of life, they fulfill each other, help each other, bundle their respective interests together, and create batches of excellent Internet companies.

But today, borrowing is one of the paths that underpin economic growth, and borrowing is becoming increasingly untenable.

The root cause lies in two points.

First, individuals are no longer so optimistic about their expected income in the future, so we see that consumption downgrade has been put on the agenda again in recent years, major e-commerce platforms have taken saving money to the extreme, and major industries have also started price wars, which are behind consumers who are becoming more and more sensitive to prices.

Second, the profits of enterprises are no longer limited by the scale of limitations, which makes the enthusiasm of enterprises to borrow is no longer so strong, of course, what is more lacking is that a good business model or product innovation is no longer able to set off an investment boom like the mobile Internet, and there is no such a large-scale absorption of investors in the industry or project.

What's more, the debt we have had over the years may not have yielded as much of a return or return on investment as we thought, but now heavy debt has created a tighter cash flow, not just for businesses, but also for families and individuals.

When businesses and individuals begin to be burdened with heavy debt, the economy will naturally come under more pressure.

Just as economic growth depends on borrowing, a slowdown may also be a slowdown in which people are no longer willing to borrow, whether it's investing, buying a home, or starting a business.

Borrowing over the past few years has not brought the desired returns, which may be one of the factors.

Take real estate, for example.

Housing prices in mainland China have risen more than 20 times over the past 20 years, but strangely enough, property developers' profit margins are not high, and the debt faced by property developers today is even more staggering.

Vanke is a representative enterprise among domestic real estate developers, but its profit is less than 10%, and if you look at it by the standards of Internet companies, the profit margin of 10% is not even ranked among Internet companies.

What value does the house create?

Of course, the most fundamental is the residential value, and perhaps the investment value, but this is the added value of people's house, the expectation value, and the level of asset price often depends on how much people expect it.

Evergrande Country Garden Vanke, the debts are all trillions, if you count the residents' debts to buy houses, it is just a drop in the bucket.

From this point of view, the difference between the liabilities generated by the real estate industry and the actual benefits it brings is a big problem in itself.

However, in the past 20 years, the importance of the real estate industry is self-evident, and it is no exaggeration to say that real estate is the pillar of the mainland's economic growth.

But where does all this money go?

In addition to growth, we are also seeing a lot of chicken feathers left by debt.

Developers are using the money they make to build more homes than the population needs, which leads to the risk of oversupply of real estate, and the strength of house prices brings another magic of non-market logic.

The country's population is 1.4 billion, and according to the number of households, it is 500 million, but not these 500 million households will buy houses in the city, because the 200 million households living in the countryside have their own houses, so about 300 million households living in the city is the purchasing power limit of the mainland real estate market.

But the strange thing about this is that some family members are 50 years old, or even more than 50 years old, but still haven't paid off their mortgages.

Debt pressures, combined with the macroeconomic environment of slowing economic growth, make it easy to see why the trend of consumption downgrade in recent years has been so pronounced.

When individuals are not so optimistic about their future income expectations, the mortgage is not only a mortgage, but also a heavy pressure, and many people buy houses because they overestimate their strength.

The number of foreclosure houses, which has risen repeatedly, has well illustrated this point.

Last year alone, 800,000 houses were auctioned by the court, most of which were caused by defaults and interruptions, and the wave of defaults basically occurs during the slowdown in economic growth.

In addition, people with money are not without it, but they have chosen to be conservative rather than spending to stimulate economic growth.

The total bank deposits of mainland residents are as high as more than 130 trillion yuan, and there are 500 million households in the country, which means that the average household deposit is as high as 250,000 yuan, but how many families can actually save 250,000 yuan in the bank?

Most of the money is deposited in high-net-worth families, they have no debt pressure, but they are also very cautious, and the principal is not lost, so we see that the purchasing power of most residents is weighed down by mortgages, and the price of real estate is declining, so there is a wave of consumption downgrade.

But the problem of debt is not confined to the real estate sector, where household debt is the main problem.

Over the past few years, the mainland's economic growth model has relied on infrastructure to promote, and local urban investment has borrowed to build infrastructure, which has reduced logistics costs to a certain extent and laid the foundation for the e-commerce platform economy, but the saturation of infrastructure also means that the growth engine is weak.

In addition, infrastructure construction has also raised local debt.

The local debt is about 40 trillion yuan, and if you add the urban investment bonds, this figure is in the scale of 100 billion, which is also a very scary number, and local debt and real estate are closely related.

In the past, one of the main sources of income for the local government was to rely on land sales.

Now the income from land sales has dropped significantly, 3 trillion less than the peak in 2021, local revenue has decreased, and the total debt remains unchanged, so borrowing new to repay the old has become a last resort.

In addition, corporate debt has to be taken seriously.

According to the comprehensive report on the management of state-owned assets in 2022, the total assets of state-owned enterprises in the country in 2022 will be 340 trillion yuan, and the liabilities will be 220 trillion yuan, which also has certain risks.

The premise of borrowing, whether it is for enterprises or individuals, is always to believe that borrowing can bring greater returns, whether it is an individual buying a house, or an enterprise expanding its production scale.

However, if the borrowing does not bring the corresponding scale effect, or miscalculates the future situation, then the corresponding price will be paid for enterprises and individuals.

Stuck in lengthy interest bills and installment payments, this is the consequence that many families face today.

It is also a harbinger of Japan's lesson, a balance sheet recession.

When individuals and businesses are burdened by debt, they naturally have no intention of spending, and even use the profits they earn to pay off their debts, rather than continuing to borrow to invest or start a business.

In the long run, Japan has fallen into a long period of stagnation, and it is difficult to move forward.

And the only way to settle the debt is to sacrifice some profits or consumption to pay off the debt.

This is a historical legacy, and it is also the biggest problem to face in the future.

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.