- 2018-10-08
World's trouble
The financial crisis has broken out for ten years. Has mankind tame the financial crisis? Is the world economy more stable? What did the Chinese economy learn from it? Where will the next financial crisis break out?
Long-term stagnation hypothesis
Former U.S. Treasury Secretary Lauren Summers is a representative of the pessimists. He first proposed the possibility of "long-term stagnation" at the end of 2013, and formally proposed the "long-term stagnation hypothesis" in 2015. The long-term imbalance between developed and emerging markets has led to a global savings surplus. Summers believes that the structural rise in savings has depressed interest rates. Moreover, as long as the real natural interest rate is lower than zero, the long-term stagnation will continue on a global scale. This is also a direct conclusion of the classic Solow growth model.
In fact, the downward trend of interest rates is not a new phenomenon after the crisis. In a longer historical period, this trend has started in the late 1980s and early 1990s, and it is only a continuation of this trend after 2008. Since the financial crisis, developed countries led by the United States have successively launched liquidity championships that have exacerbated this situation. In order to stimulate investment, unconventional monetary policy adopts expected guidance to convey to the market the policy of maintaining low interest rates for a long time. On the other hand, by purchasing long-term assets, it directly reduces long-term interest rates, risk premiums and term spreads. The main mechanism of quantitative easing to stimulate economic growth is to encourage participants in economic activities to take more risks. For consumers, low interest rates increase asset prices, creating a wealth effect and stimulating consumer spending. On the other hand, reducing risk spreads and maturity spreads can also motivate companies to engage in more long-term investments.
However, the actual result of quantitative easing is the inversion of interest rates and the shortage of safe assets, which has caused the economy to fall into a stubborn liquidity trap. At the same time, it has also produced a wide range of spillover effects, leading to violent fluctuations in the exchange rate and capital markets of emerging market economies. Investors should have personal experience. Therefore, the original monetary policy aimed at guiding funds into the real economy to expand domestic demand (consumer demand) has contributed to the rise in risk appetite and large-scale cross-border flows of funds, leading to the strange phenomenon of “three highs and one low”. That is, the historical high of global central bank balance sheets, historical highs of debt and leverage, and historical highs of risky asset prices (such as the US housing and stock markets have set new records). At the same time, the implied volatility and actual volatility of VIX are both historical New low. This is like a "three-high" crowd with an unusually peaceful mind, who always feels a bit abnormal.
Aside from finance, there are also hidden worries at the entity level. From the perspective of the production function, the decline in the rate of return on capital has become a consensus, and the slowdown in population growth is a difficult problem globally. Another factor that is rarely mentioned is that the increase in the female labor force participation rate has also come to an end, and it has greatly eased the plight of the United States and other developed countries since the 1970s. At the same time, China, which has made important contributions to world economic growth in the past 30 years, has also ushered in a new historical stage of industrial transformation and upgrading and economic growth shifting. The long-term factor that is hardest to predict is technological progress. The key is whether quantitative changes can cause qualitative changes and exert the agglomeration and explosive effects of innovation.
This chaotic world will never lack reasons for pessimism. However, judging from the current status of the global economic recovery, the balance of history seems to be tilting towards optimists.
Super debt cycle
Contrary to Summers, Rogoff, the former chief economist of the IMF, is relatively more optimistic. He put forward the hypothesis of the "super debt cycle" to explain the phenomenon of low interest rates and low growth in the post-crisis era. He believes that the post-crisis "new normal" of low growth, low interest rates and low growth is just one stage in the super debt cycle. When future deleveraging comes to an end, borrowing difficulties will be eased, and the dynamics of the economy will also recover.
Rogoff and Reinhardt believe that this crisis has many similarities with previous crises based on the empirical evidence of various crises in history. Of course, this crisis also has its special features. The reason why the pace of recovery is so difficult is largely related to improper policy operation. The competitive quantitative easing monetary policy has caused an oversupply of funds. In addition, changes in the regulatory environment have also restricted the borrowing capacity of riskier and smaller borrowers, and credit demand has been suppressed. These are all reasons for low interest rates. At the same time, quantitative easing is achieved through the central bank's purchase of assets, which has caused the global central bank's balance sheet to rapidly expand. The assets of the central bank correspond to the liabilities of the real sector (including the government) and commercial banks. The accumulation of debt will inevitably drag down demand and make economic recovery weak. Rogoff believes that non-traditional solutions should be boldly adopted to alleviate debt pressure, such as debt relief, debt restructuring, and raising inflation targets. It is precisely under the resonance of various measures that the global economy has recovered steadily, and the debt problem has also been effectively alleviated.
The ultimate means of dealing with debt problems is economic growth, that is, the improvement of corporate profits and the increase in residents' compensation. And loose monetary policy is always accompanied by the accumulation of debt, because the essence of money is debt. Therefore, the introduction of unconventional monetary policy is inevitable, and it is only a matter of time choice.
Looking at today, ten years later, the task of relying solely on monetary policy to lead the global recovery has basically failed. The Fed issued a signal to reduce the scale of quantitative easing as early as 2013, and finally officially withdrew in October 2014. After more than a year, the Fed withdrew from the zero interest rate policy on December 17, 2015, announced a 25 basis point increase in interest rates, and kept the federal funds rate within the range of 0.25%-0.5%. Two years later, in 2017, the Federal Reserve announced that it would reduce its balance sheet since October. So far, the Fed has raised interest rates 5 times. The most recent one was on December 1, 2017. The upper limit of the federal funds rate has reached 1.5%. According to Yellen's plan, the federal funds rate will be adjusted to 3%, so there will be a 150 basis point increase in the next two years. On average, interest rates will be raised three times a year. The Global Liquidity Championship has officially come to an end, and the liquidity turning point has arrived. And 2017 is the first year of the turning point of liquidity. In the context of better-than-expected non-agricultural data in the United States and better-than-expected economic recovery in Europe and Japan, the US stock market repeated its "Black Monday" on February 5. The three major stock indexes fell by about 4% in a single day, among which the Dow Jones Index hit 2011 The biggest one-day drop since the middle of the year, coupled with the 10-year U.S. Treasury yield has penetrated the decline corridor of the past 10 years, historical experience shows that this situation is often accompanied by some form of crisis. Panic spread to Europe and Asia, and A shares were not spared. The main reason for this decline when the fundamentals are better than expected is that there may be an unexpected liquidity contraction.
Although the Eurozone and Japan have not followed the Fed's interest rate hike and balance sheet reduction, as the prospects for economic recovery become clearer, the European Central Bank and the Bank of Japan may take corresponding measures in the foreseeable short term. After all, unconventional monetary policy is only a stopgap measure to deal with the crisis, and it is not sustainable in the long run. Moreover, the balance sheet structure of the European Central Bank and the Bank of Japan has been seriously out of balance. Take the Bank of Japan as an example. As of the end of 2016, the total amount of Japanese government bonds held by the Bank of Japan reached 350 trillion yen, accounting for 36.7% of the total Japanese government bond market. At the same time, the share of exchange funds held by the Bank of Japan is as high as 55.2%. Therefore, Japan's quantitative easing has also reached a bottleneck period.
Quantitative easing can help the economy not to continue to sink, but to lead the economy to a full recovery, it is still necessary to find reasons from the real economy. Trump's tax cut plan is a coordinate, which indicates that monetary policy is shifting to fiscal policy, and the ultimate goal of fiscal policy is still to expand domestic demand. This is the consensus of Summers and Rogoff. In the Trump tax reduction plan, there are three main targets. The first is to reduce personal income tax to boost personal consumption demand, the second is to reduce the burden on enterprises and promote private sector investment, and the third is to reduce the profits repatriated by overseas companies. Taxes to guide the return of funds. The advantage of fiscal policy lies in guiding, rather than a game of “grab the bench”, which can avoid the spillover effect of liquidity, and once demand rises, the problems of low interest rates, low growth and deflation can be alleviated. The key question is whether the desired effect can be achieved.
At the same time, the innovation of new technologies, new models and new products has not stopped, new organizations and new business formats are constantly iterating, and the supply of new systems is constantly being explored. According to Schumpeter’s theory of innovation, the so-called innovation is to “establish a new production function”, that is, to “recombinate production factors”, and to combine a “new combination” of production factors and production conditions that has never been seen before. Introduce it into the production system to achieve a "new combination" of production factors or production conditions. Mankind has entered the 21st century. Driven by information technology, the formation of a knowledge society and its impact on innovation have been further recognized. Innovation is considered to be a complex emerging phenomenon under the interactive and complex interaction of various innovation subjects and elements. The product of the co-evolution of the innovation double helix structure of technological progress and application innovation, and the people-oriented innovation 2.0 model that focuses on value realization and user participation has also become the exploration and practice of a new understanding of innovation in the new century. At the same time, innovation will also penetrate into capital and labor factors, greatly improving the output efficiency of human capital and material capital.
Back in China, the voice of bad-mouthing China has never stopped. But the rapid growth that has continued for more than 30 years proves that China must have done something right. The words of each family have reasonable elements. The advantage of latecomers has been achieved in the past 30 years, but the prominence of disadvantages of latecomers is also destined to fight a tough battle for reform in the future. The 19th National Congress of the Communist Party of China put forward the historical judgment that China has entered a new era. The construction of a modern economic system has become the top-level design framework for a period of time in the future, which requires the upgrading of development concepts and models. In the development logic of China in the new era, the author believes that the demand side is globalization 4.0 and urbanization 2.0, and the representative paths are the One Belt One Road and deep urbanization (ie, urban cluster strategy). The supply side is industrialization 4.0 and informatization 2.0, which promote structural reforms on the supply side, driven by R&D, mergers and acquisitions, and innovation; a distribution side must be added, that is, common prosperity and precise poverty alleviation, as well as income through the reform of factor prices and fiscal and taxation systems. Redistribute and optimize resource allocation.