Recently, many people have noticed that the central bank has announced that it will start buying government bonds, and the price of raw materials seems to be rising?
Most people see the appearances, and some people wonder, is there any connection between these phenomena?
A few people see the essence that the Great Inflation is likely to come.
Maybe looking back in 10 years, this year could be the starting point of big inflation.
Why do you assert this?
In the past, the issuance of RMB was strictly limited by foreign exchange, the so-called "foreign exchange as an anchor" issuance model.
Over time, however, this model has gradually shifted to a "land-collateralized" model of banknote issuance.
Under this model, both individuals and businesses can obtain a large number of loans as long as they own land as collateral, thus driving liquidity in the market.
The first pot of gold for many entrepreneurs is obtained by speculating on land.
But now, with a major shift in the supply and demand of real estate in mainland China, people's expectations for a rising property market have also reversed.
In the past, many people thought that housing prices would rise forever, but now, more and more people are worried that domestic housing prices will repeat the mistakes of Japan, and Japan's real estate bubble has been falling for more than 20 years after bursting at its high.
As people's expectations for the future of the property market turn from rising to falling, the enthusiasm to buy a house will also drop significantly.
Even if mortgage rates fall, it won't be enough to motivate people to buy homes, because the incentives from lower interest rates may not be enough to offset future declines.
Against this backdrop, the central bank's decision to purchase government bonds is particularly important.
This means that the central bank has directly injected new liquidity into the market, and it also indicates a new trend in the mainland's monetary policy.
Now the whole is in a very embarrassing state.
From the perspective of ordinary people, now their pockets are empty, and if they can not buy a house, they will not buy a house, and if they can not take out a loan, they will not take out a loan, and even their daily consumption will be compressed.
The foundation of all economic activities is the consumption of ordinary people.
All products can only be considered to complete the closed loop when they are consumed, whether they are exported or sold domestically, someone has to consume anyway, and the consumption of the people cannot go up, and economic activities will not be active.
Investment drives the economy, but investment increases the debt side, and if there is no output, it will be difficult to recover the investment in the end.
It has the greatest impact on private enterprises, and if the people don't spend money, their business will not be good.
In the past two years, the new energy has been in full swing, the total turnover is very high, but the profit is not much, and most of them are losing money and counting on government subsidies.
The previous strategy of the state was to cut interest rates, which were used to put loans on the market.
For example, in 2021, in order to relieve enterprises in difficulty during the epidemic, the state began to issue business loans, and then many of these business loans went into real estate.
In the past two years, many people have not dared to take out loans, those with qualifications dare not take out loans, and those without qualifications have not been able to borrow if they want to.
From the perspective of local governments, it is even more difficult, with the exception of five provinces and two cities, many localities have almost no fiscal surpluses.
This situation is like a family's annual income is not enough to support its expenses, and it is also burdened with a heavy burden of housing and car loans.
In this case, most people will be dependent on their parents.
For local governments, their "parents" are the central government.
However, the "parents" may not have any money left in their hands, after all, the family is big and the expenses are very large.
Until then, the government's response has usually started with transfers, similar to how parents let wealthy children subsidize poorer children.
What if there is no money in rich places? If this approach does not meet demand, the government issues government bonds.
Treasury bonds are actually IOUs issued by the government to the public, and after the public buys them, the government will repay them with interest at maturity.
Since there is no new money added in this process, only money is transferred from the public to the government, it will not lead to inflation.
But there is also a problem with this approach, that is, the government borrows money from ordinary people, which leads to less money in the hands of ordinary people, which in turn may reduce spending power.
This is also why the stock market tends to be negatively affected every time the state issues government bonds on a large scale, and the state draws liquidity from the market, causing turmoil in the financial markets.
The situation is completely different now.
However, the situation changed when the central bank started buying government bonds.
The Treasury issues Treasury bonds, and the central bank prints money to buy these Treasury bonds, so that the government's money is increased and can be used for various expenditures. At the same time, it also increases the money supply in the market, as the newly printed money from the central bank goes directly into circulation.
You can imagine "printing money with your left hand and printing an IOU with your right hand", and then using the borrowed money for infrastructure projects, for daily operations, etc.
This will lead to an ever-increasing supply of money in the market.
Has the source enterprise found a strange phenomenon?
The demand in the market has not increased significantly, why is the price of raw materials increasing?
Quite simply, because there is more "money" in the market, the basic raw materials will be "expensive".
For example, if the price of oil in the Middle East rises, the cost of chemical companies will rise. There is more money flowing in the market, and many people have needs for value preservation, hedging, daily hedging, etc., and some life-related raw materials are "quietly rising in price".
Historically, Japan has had a similar operation, in which the government sells government bonds, the central bank buys government bonds, and after buying them, the government uses the borrowed money to give priority to bailing out those large enterprises.
Instead of expanding production, these companies paid back the money they owed and did not expand their industries or increase their employees, leading to a decade-long "balance sheet recession" in Japan's history.
In the past few years, the United States gave money to the whole people, and the United States gave the money directly to the people, allowing the people to choose what they needed to buy. The common people also have money, which can prevent the people from cutting off supplies on a large scale and maintain economic stability.
This plan sounds great, but what if people get the money, don't spend it, and save it all?
At that time, the economy will not be saved, the enterprises will not get the money, and the government's rescue ammunition will be exhausted.
As everyone knows, the U.S. government chose to send money to the people, because there is a lot of money in the market, and the professional saying is that there is abundant liquidity, and the U.S. stock market continues to hit record highs.
When people had money, they went to speculate in stocks and buy bitcoin, and during that time, cryptocurrencies also ushered in a big explosion.
There are some interviews on the Internet about daily wages in the United States, and everyone's wages in the United States have basically increased by more than 30% in the past two years, and many industries are about to double.
Of course, the inevitable result of rising wages is inflation.
So the next crucial question is, how to learn from history to face the challenges of the present?
What will our government do with the money it lends directly from the central bank?
If the money is directly given to the enterprise and continues to maintain production capacity, there is a high probability that it will continue the Japanese route, because the current problem of the enterprise is not the lack of money, but the inability to sell goods, the lack of purchasing power of the people, and the enthusiasm of everyone to buy things is not good, resulting in difficulties in business operation.
If the government gives money to the people, this involves another question, do the people choose to save the money? Or spend it?
The whole is full of uncertainty, and people may not spend their money but save it like the Americans.
China's great cause is huge, and it is difficult to reconcile everyone's mouths, and many people actually do not agree with the operation of sending money, and even think that sending money is equivalent to not sending money.
There are also many people who feel that giving money to the poor will make the rich richer, so they can't give it.
Whether it is issued to enterprises, to the people, or to repay debts, as long as the constraints on currency issuance become treasury bonds, it is not obvious in the short term, and in the long run, the increase in currency will definitely be getting bigger and bigger.
Because the current currency is not the equivalent of gold, but a symbol of forced circulation.
From a long-term perspective, inflation seems to be an inevitable trend.
As the money supply in the market continues to grow, its cumulative effect will eventually exceed the total amount of goods and services, forming a potential "monetary dammed lake".
The accumulation of this trend will one day surge like a flood. In fact, the continent's current broad money supply (M2) has significantly exceeded its gross domestic product (GDP).
Japan has been effective in curbing inflation for a long time, mainly due to China's strong production capacity, which has effectively diluted the increase in Japan's money supply with abundant goods. In addition, the Japanese people's consumption habits tend to be conservative, which is also one of the factors that have brought inflation under control.
However, the continued policy of increasing monetary issuance will eventually lead to the release of inflationary pressures, as the recent sharp depreciation of the Japanese currency has shown, and their long-sought inflation target has finally arrived.
Therefore, from a long-term perspective, the mainland will also face the challenge of inflation.
The essence of inflation lies in the monetary phenomenon, and when the money supply continues to grow, inflation is only a matter of time. This is the basic common sense of economics, and it is also a widely accepted view.
In the face of inflation, many people may wonder how to maintain the value of their assets. In the world of investing, generally speaking, an item or asset tends to hold its value in an inflationary cycle if it meets the following two conditions:
popular in general, especially among the wealthy classes;
It is difficult to increase production and is scarce.
We need to recognise that deposit rates are already below the inflation target, which means that the real purchasing power of savings is declining.
People don't have to worry too much about the potential impact of inflation. The important thing is to keep a clear head and look at market changes rationally.
Inflation is not a beast, what is really scary is investing blindly out of fear. Successful investments often stem from a well-thought-out and sound strategy, rather than impulse and greed.
For the average individual, staying at work and being productive is the best way to cope with inflation.
After all, no matter how inflation changes, the fruits of our labor will eventually translate into income, thus safeguarding our quality of life.
As long as hyperinflation does not occur and normal production and life order is maintained, we will be able to smoothly overcome this challenge.
To look forward, the future is bound to be bright, and the road is bound to be tortuous.
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Editor-in-Chief: Dong Ge
Editor: Wu Yu
Proofreading: Europe and the United States