Deflation Looms, Why No Bailout?
In recent months, many people have personally felt the economic situation.
The economic community has also finally rarely talked about "deflation".
Real estate practitioners can't sell houses, stock market investors have been losing money, and many people have started to question: why not save the market?
First, is it finally time to talk about deflation?
At the Shanghai Bund Financial Summit, the former central bank governor Yi Gang made a rare statement: China should now focus on resisting deflationary pressures.
Deflation, this word, has finally been mentioned.
In fact, he also said a sentence: Regarding inflation and deflation, China, the US, and Europe are in different cycles.
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During the YQ period, high inflation appeared in Europe and America, while China has been fighting deflationary pressures in the past five years.
Note, he said, in the past 5 years, we have mainly resisted deflationary pressures.
Looking back at his speech, in June 2021, he was still in the central bank, at that time the PPI year-on-year was as high as 8.8%, CPI year-on-year was 1.1%.
Also at the Bund Financial Summit, everyone was waiting for him to release a very loose monetary policy exit signal, but he mentioned a sentence: The pressure from inflation and deflation from all sides should not be taken lightly.
Everyone knows the pressure of inflation, because the data is there, but what is the pressure of deflation, everyone is very confused.
At that time, everyone did not delve into it, after all, there was no sign of the very loose monetary policy exiting, and it could still "continue to play music and dance".
Looking back now, Yi Gang's reminder is quite advanced, why can he see the deflationary pressure in advance?
1.
Long-term factors: Population aging will lead to an increase in residents' precautionary savings and a decrease in consumption tendency, thus having a restraining effect on inflation.
2.
Internal and external imbalance: We are the world's factory, and European and American countries are the world's market.
If exports are blocked, then our country's huge production capacity can only be digested internally, and the result is a price war, pulling prices down continuously.
3.
Internal factors: "Wage-deflation" spiral.
In recent years, enterprises have basically understood one thing, to survive, they must reduce costs, lay off employees, and improve efficiency.
Now in the whole society's various industries, which industry or enterprise does not have the pressure of salary reduction and layoffs?
This deflation spiral is very troublesome, because salary reduction and layoffs in turn lead to a decrease in demand, the deterioration of enterprise conditions, leading to further salary reduction and layoffs.
At present, these factors are not short-term factors, nor can they be reversed in the short term.
If the deflation trend continues, then domestic consumption may continue to decline, catering, tourism, retail, and even e-commerce and other industries facing end consumers will be impacted.
Second, the divergence between statistical deflation and perceived inflation.
The Bureau of Statistics announced the inflation data for August: 1.
The CPI in August rose 0.6% year-on-year, and the consensus expectation was a rise of 0.7%; the CPI in August rose 0.4% month-on-month, and the consensus expectation was a rise of 0.5%.
In a word, the CPI in August has been at a low level, hovering around 0, and lower than expected.
2.
The PPI in August fell 1.8% year-on-year, and the Reuters survey expected a decline of 1.4%, while the Bloomberg survey expected a decline of 1.5%; the PPI in August fell 0.7% month-on-month.
In a word, the PPI in August has been at a low level, has been in the negative territory, and lower than expected.
What does the trend of CPI and PPI express in terms of macroeconomic implications?
Insufficient demand.
This needs to be judged according to the situation, because insufficient demand and oversupply are two sides of the same coin.
However, based on the current situation, this belongs to insufficient demand.
Insufficient demand and oversupply will have two opposite policies.
For example, in 2016, we judged it as oversupply, so we implemented supply-side reform, reducing production and capacity.
But now the task is definitely not to reduce capacity, but to expand total demand and ensure employment.
For prices, the public has different feelings: it is said that deflation, but why are the actual prices so high?
This is what we said before, the temperature difference between statistical inflation and perceived inflation.
The data we see is the result of statistics, following certain statistical rules, such as being affected by the base and so on.
It reflects the results of economic operation and has an important reference for enterprises and policy choices.
Perceived inflation reflects individual feelings and will have a huge difference with the statistical results.
For example, the price of goods has doubled in the past two years, but this year the price of goods has dropped a little, which can be reflected in the statistical data and is regarded as deflation.
For the public, compared with the previous years, the price has not dropped at all, how can it be said to be deflation?
But in the economic community, in this situation, the issue of deflation can be discussed.
And this situation is quite troublesome.
In order to deal with this situation, policies need to be introduced to stimulate consumption, hoping to guide the price increase.
In addition, the range of inflation data indicators is very large, but the prices of goods that the public feels are different.
For example, in August, the prices of vegetables, fruits, pork and other food soared and were at a high level.
This kind of sub-item data is very consistent with the public's perceived inflation.
What is our view?
Inflation is only a matter of high and low, and there is no distinction between good and bad, but there is a way to achieve inflation.
Bad inflation is: 1.
Skipping the supply and demand relationship, directly and greatly increasing the price level.
For example, greatly increasing the prices of utilities such as water, electricity, and gas.
2.
Artificially creating supply shortages, leading to an increase in price levels.
For example, vegetables are already affected by the weather and have reduced production, and then exporting domestic vegetables abroad will definitely lead to an increase in prices.
Remember, inflation is only the result of economic operation, not the cause, and cannot be reversed.
Third, should we save the economy?
Now that houses can't be sold, the stock market has fallen to the 2700 platform, wages have decreased and delayed, and many people have started to complain: why not save the economy, why not save real estate?
This is a bit unrealistic.
In fact, we have been saving the economy over the years.
1.
The real estate policy stimulus is unprecedented.
The 5-year LPR rate has been continuously reduced from 4.85% in 2019, and is now reduced to 3.85%.
With the decline in policy interest rates, some areas' mortgage interest rates have been reduced to below 3%, at a historical low level.
Coupled with the current financial support, as long as you buy a house, the bank will not block your mortgage, and there is almost no threshold for mortgages.
There is also the down payment, the down payment ratio for the first house in the country has been reduced to 20%, and the second house has been reduced to 30%.
This kind of stimulus is also basically unprecedented.
So overall, the stimulus policy of the real estate market, or the city-saving policy, is unprecedented in strength, how can it be said that the city has not been saved?
2.
Monetary and fiscal policies have been stimulating economic growth.
Monetary policy, interest rate cuts, reserve requirement ratio cuts, and continuous injection of liquidity.
What we hear now is the scarcity of assets, and everyone is scrambling for long-term government bonds.
We have not seen a liquidity crisis.
What does this indicate?
Monetary policy has always been relatively loose.
Fiscal policy, in a broad sense, the deficit ratio has not been reduced.
And recently, several trillion yuan of special bonds for epidemic prevention and control, special bonds for water conservancy construction, and special bonds for ultra-long-term have been issued.
That is to say, the fiscal has also been stimulating, and has been saving the economy.
Just ask you, if you are asked to save, how do you save?
What cards can you play?
Gao Shanwen gave a speech saying, "Put all the central bank's balance sheet in".
In fact, it is also MMT, the central bank buys government bonds.
Is this really useful?
Europe and America and Japan were in a financial crisis, they first reduced the interest rate to zero, and then QE, or MMT.
They only have one concept, to release water, to release water to death.
But has the economy of Europe and America and Japan really improved because of this?
Has inflation risen?
No.
The desperate release of water at that time only saved the capital market.
The real economy is still not much different from before.
The event that really made Europe and America and Japan's inflation rise was the unprecedented fiscal stimulus.
For example, the United States has implemented a fiscal stimulus of 8.2 trillion US dollars in two years, and Japan has also introduced a fiscal stimulus plan of 78.9 trillion yen.
In a word, doing QE or MMT is just a technical means of monetary policy or fiscal policy.
The final effect still depends on the monetary policy and fiscal policy themselves.
If the real economy has no demand, you can't release water, and you will eventually fall into a liquidity trap.
If the project investment is not economical, you will only increase the debt burden if you continue to stimulate fiscally.
In short, if there is no demand, or if the transmission is not smooth, and you desperately release water, it will not only fail to stimulate economic growth, but the exchange rate may also have problems.
The last question, how should we save?
The current market discussion is basically dependent on the path, or the economic model of "investment-driven" (whether it is real estate investment or manufacturing investment) in the past.
At this stage, this model has actually failed, and many countries have fallen into the middle-income trap for this reason.
The most effective way to save the economy or the city is to greatly increase residents' income and stimulate residents' consumption.
Note that greatly increasing residents' income is the first, and stimulating residents' consumption is the second.
Only by truly transforming into a consumption-driven model can this situation be truly broken.
However, increasing residents' income is too difficult, and the biggest difficulty is not technical.