Chapter 4 Chapter 1 Big talk about finance: Is the Chinese economy a Ponzi scheme?

The issue of foreign exchange involves many cores of the Chinese and American economies. The formation process of China's huge foreign exchange reserves of 2.4 trillion US dollars and the way the government uses them all imply the operating essence of "China and the United States". The logic of poverty is even more brilliant. If China wants to surpass the United States, it must have a new strategic thinking on the issue of exchange rate and foreign exchange reserves. However, we don’t need to discuss it in depth here. We still need to popularize common sense about foreign exchange.

Whether it is ordinary people or economists in China, the remarks on foreign exchange reserves are really horrible. So far, I have not found a good one that is right.Therefore, I have no choice but to talk about this issue in a simple way for everyone. First of all, we must figure out what foreign exchange is. There are 15 people in the old Wang family. The old Wang family compound is an independent kingdom. Only RMB is allowed to circulate in the compound. When they leave the compound, they all need to use US dollars to shop. Therefore, the old Wang family needs to reserve US dollars to meet the needs of the fifteen people. Enough needs outside the hospital—everyone needs to exchange RMB into US dollars before shopping outside the hospital. The Wang family stipulates that 680 RMB can be exchanged for 100 US dollars.

The eldest daughter of the Wang family went to the city to sell vegetables, and it cost 10 US dollars to go back and forth by car.She needs to take out 68 yuan to Pharaoh's for 10 yuan, otherwise the driver will not let you get in the car.She sold the vegetables and got 110 dollars (it cost 10 dollars to go home by car, leaving 100 dollars left), and she had to hand it over to Lao Wang when she got home.As for Lao Wang, just print 680 yuan for her.In this way, the GDP of Lao Wang’s family increased by 680-68=612 yuan, and at the same time, Lao Wang’s foreign exchange reserves increased by 100 U.S. dollars.

Where did Pharaoh put the 100 dollars?Put it in a hole in the wall?Even if there are no mice in the house, it will not work.The dollar is depreciating every day.So, put it in the Bank of America to earn some interest, ah, no, it is better to buy some U.S. treasury bonds to preserve their value.What is the use of this $100 foreign exchange reserve?Yes, I have. 1) The little grandson wants to eat McDonald's, but they don't accept RMB.The little grandson's father has to exchange 680 yuan for 100 dollars with me.In the same way, the eldest daughter's daughter has to do the same when she wants to buy socks in Xidan Mall. 2) Next month, the second daughter will go to the city to sell vegetables, and she also needs 10 dollars for a ride.As for Lao Wang, he is a Grandetian character: the grandson is not allowed to eat McDonald's, and the granddaughter is not allowed to wear new socks.Foreign exchange should be reserved for the daughters to go to the city to sell vegetables.After one year, the daughters went to the city to sell vegetables 100 times, and the foreign exchange reserves of the old Wang family increased by 10,000 US dollars. In another ten years, the old Wang family accumulated a "huge" foreign exchange reserve of 100,000 US dollars. (This story is adapted from the article "Talking about U.S. dollar foreign exchange reserves in simple terms with patriotic scholars" by Kaidi netizen "Liu Xingyu").

Now we understand what China's foreign exchange reserves are. The US dollars earned by Chinese companies from exporting goods cannot be circulated in the country, so they can only be exchanged into RMB in the bank. Where can the bank get the RMB for it? Print it.Every time the bank receives a sum of US dollars, it will print the equivalent amount of RMB and return it to the person concerned.Therefore, the foreign exchange reserve itself is not wealth, and the wealth it represents has already been printed into RMB in the hands of domestic parties. So what is the use of foreign exchange?

It is just that when someone in the country wants to import or go shopping abroad, people can exchange it for US dollars. That is to say, foreign exchange reserves are a kind of preparation for domestic people who need to use US dollars.Now the question is, with so much foreign exchange reserved, people who exchange RMB for dollars on weekdays only consume a small part of it. Can the remaining so many dollars idle in the bank be used for something?Yes, you can invest overseas and let it appreciate.Can I invest in anything?Of course not, you can only invest in projects with high liquidity, that is, projects that can be sold at any time. Otherwise, once the number of people who come to exchange dollars in China suddenly increases, what will you give them.At the same time, you can't buy risky investment products. For the same reason, if you lose money, what will you use to meet domestic exchange needs.

As a result, U.S. Treasury bonds are undoubtedly the best choice, with high liquidity and low risk. Once you understand what foreign exchange is, you can get rid of some misunderstandings. Here are two common misunderstandings, and others can be bypassed: Myth 1: Foreign exchange reserves are depreciating. This misconception is the most common, and it seems all too plausible.Because the US dollar has been depreciating against the renminbi, our US dollar foreign exchange reserves have also depreciated, isn't it? Of course it is wrong. Foreign exchange is a preparation for buying foreign goods, and the wealth it represents has been printed in RMB and distributed to Chinese people, so naturally it cannot be judged whether it has depreciated based on the amount of RMB it can exchange.You can’t say that the 2 trillion U.S. dollars in foreign exchange can be exchanged for 16 trillion yuan a few years ago, but now it can only be exchanged for 15 trillion yuan, which means it has depreciated. There is no relationship between this.Whether foreign exchange depreciates can only be seen if its external purchasing power is reduced.The evaluation of the purchasing power of international currency should take into account both the international bulk commodity market price and the price level of the currency's home country.

In the past two years, foreign commodity trading markets have gradually returned to the historical mid-level after a round of surges. Due to the global economic downturn, the probability of a sharp rise in prices in the short term is not high. The United States has always been at a low inflation level, and the inflation rates of other major international reserve currency countries (such as the euro zone countries, Japan, etc.) are also basically at a low position. Therefore, the inflation rates of these international inflation areas are not high, that is, He said that the external purchasing power of foreign exchange reserves has not been weakened, and foreign exchange reserves have not depreciated.From the inside, the central bank has collected the profits and losses of the currency mismatch of the domestic economy and managed the external purchasing power. The external appreciation of the renminbi only means that the exchange cost of the import sector has decreased, or the income of exporters from foreign exchange sales has decreased, and the profits and losses are kept internally. .In terms of the evaluation of external purchasing power, the overall national wealth has not decreased.

Misunderstanding 2: Giving huge extra remittances to the people to stimulate domestic demand. Obviously, this is a low-level misunderstanding of the meaning of foreign exchange reserves. Some famous economists proposed the absurd idea of ​​directly distributing foreign exchange reserves to the people. We already know that the wealth represented by foreign exchange has been converted into RMB to form domestic wealth and purchasing power.In the hands of the central bank, foreign exchange reserves are the provision for payment of imports or debt repayment, in case domestic entities need it externally.If the central bank distributes foreign exchange directly to the common people to stimulate the domestic market, the common people still have to exchange the US dollar for foreign exchange into RMB for purchases. This is different from the central bank directly printing RMB and distributing it to the common people. It just increases the currency in circulation for no reason. The final result can only be inflation. There will be no change in anyone's domestic real purchasing power, nor will there be any change in domestic demand.What if people use the allocated foreign exchange to import foreign goods?This is directly replacing internal consumption with foreign goods, and domestic demand does not increase. For example, if A directly buys a foreign notebook with the allocated US$1,000, he will directly squeeze out the sales of a domestic notebook, and domestic demand will not increase. .

This is a bizarre story about his cousin (hereafter referred to as Zhang San) by a professor who taught logic when I was in school. Zhang San only has an elementary school education, and he is a countryman in a certain place in Inner Mongolia, but he is a genius fool, because he went to the northeast of the birthplace of fooling on a whim. One day at the beginning of 1998, penniless, he came to a medium-sized city in Northeast China, and talked with the local government about setting up a breeding farm as an investor.Somehow, the government believed it, allocated a piece of land for him, and provided him with a loan to help him build a factory.What are you raising?I can't remember clearly, but it seems to be raising civet cats.

Zhang San claims that the stuff bred by his team has quite high medicinal value, and as long as it is bred, it will be sold well. The most attractive thing is that his company is responsible for recycling all civet cats.Once you buy this thing, you need to buy two, one male and one female. After you buy it back, you will raise the mated cubs. The company will be responsible for the original price (the price of the pair of civet cats that were initially sold) to recycle all the cubs born.And a pair of civet cats bought at the beginning of the year can give birth to four cubs by the end of the year. This shows that it is a business with a steady profit and an annual profit of 400% for the common people in the breeding. At the beginning, people were skeptical, so he first signed a repurchase contract, that is, as long as you raise it, I will definitely recycle it at a high price.In this way, a small number of people bought some cubs with the attitude of giving it a try and went home to raise them.A few months later, they matured and mated and gave birth to four civet cats. Zhang San bought them back according to the contract, so the farmers all made money.After they have tasted the sweetness, of course they will expand the scale of farming and want to make more money. At the same time, the people around them are also motivated to join the ranks of farmers. So the snowball got bigger and bigger. By the beginning of 1999, nearly a thousand families in the whole city, including the suburbs, were raising this thing, and the cumulative amount of buying cubs reached more than 3 million yuan. You should have seen the clues. Yes, the civet cats recovered by Zhang San were actually sold to the next wave of breeders, not to pharmaceutical factories at all.As long as the next wave of feeders greatly exceeds the previous wave, then this snowball can keep rolling, when will it end?It's the end until no one picks up the offer. By the beginning of 2000, after selling all the cubs recovered at the end of the previous year, Zhang San was already sitting on tens of millions of assets. In this year, Zhang San was elected as a representative of the city's people's congress because Zhang San's breeding farm and the national breeding industry greatly promoted the local economic development and brought considerable tax revenue. He has won the trust of the people in him, so that some leaders who were kept in the dark also joined the ranks of "guaranteed profits without compensation". At the beginning of 2001, Zhang San sold the recovered cubs and earned nearly 100 million yuan. According to the terms of the contract, by the end of this year, Zhang San's company will have to pay hundreds of millions of yuan to buy back the mature newborn cubs.But the farmers can't wait for this day, because Zhang San estimates that the number of farmers has reached the limit of the city, and there will be no more people in the next wave. The snowball will roll down, unless the scope is expanded to the whole city. The province and even the whole country, but he can't do this.So in the middle of the year, he declared the company bankrupt and fled.Of course he ended up in jail. Let's continue to write this story. If Zhang San can gradually expand this "breeding industry" to the whole country, what kind of process and result will it be like.Then his aquaculture industry has become China's stock market.Wave after wave of follow-up started a big bull market until the last batch of takers collapsed. Those before the last batch did make money, and the money they made was the money that the last batch lost. In essence, the small value of a stock is its earnings per share. For example, 50 cents per year, how much money do you have to save in the bank to get 50 cents in interest? If it is 100 yuan, then the price of this stock It is 100 yuan.You will question, I spent 100 yuan to buy something worth only 50 cents, I am stupid. But wait, the stock is transferable, so don't worry if you can always find the next buyer.It sounds reasonable, but it doesn’t stand up to scrutiny. Isn’t it easy to pay 50 cents a year? I’ll give you a piece of waste paper and say that this piece of paper generates 50 cents in revenue every year, and the price is 100 yuan. Would you like to pay 50 cents a year? Buy?In fact, I don't need to run any business at all, and I can just give you a few cents from the white paper sold every year.That's right, the stock market is very similar to Zhang San's scam. The stock market is Zhang San's civet cat. Zhang San is guilty of fraud, so the stock market is a simple deception in good faith. The stock is the same as Zhang San’s civet cat, which has no value in itself. It has value only because someone later takes over the order. Like the civet cat, when no one takes the order in the end, it reveals its worthless true colors. This is also a true story.The story happened in the middle and late 1990s. At that time, it was very popular to set up aristocratic schools, starting from Guangdong and Hainan, and later extended to major cities, including Beijing. At that time, Li Si was a big fool who opened a leather bag company in Hainan. Being "talented and intelligent", he quickly understood the secrets of aristocratic schools, so he was going to "make a vote", and he chose to go to Beijing. As soon as he arrived in Beijing, he rented an Audi A4 and went directly to Jingshan Middle School to talk to the principal at the time about "cooperative education".The principal saw that this person was dressed in noble fashion and had such a luxurious car, so he hit it off immediately. To be honest, many businessmen had approached him for cooperation before this, but they were all much less stylish than this Li Si, and looked down upon him. Now Li Si took the golden signboard of the cooperative education contract with Jingshan Middle School, and easily fooled a person into investing, and he was willing to pay 2 million yuan.Li Si continued to fool the next investor, saying that I have 2 million yuan, and with the cooperation of Jingshan Middle School, we will run a noble school together. In this way, nearly 10 million yuan was fooled, and with this money, he could fool the land given by the government, and soon got a piece of land.The construction of the school will start immediately, and the enrollment will start at the same time. His school only has a high school with three grades. The method of enrollment is that each student pays 500,000 yuan, and all will be returned to you after three years.If the interest is not considered, it is equivalent to going to school for free, and the source of students will be settled quickly. Moreover, because Li Si had abundant funds, the contract of Jingshan Middle School, and the land given by the government, it was extremely reliable, so every applicant obediently paid the tuition in advance when signing up.With these registration fees and the previous 10 million yuan, the school was quickly built at the speed of Shenzhen.The principal, teachers, local government officials, and parents of the first batch of students from Jingshan Middle School came to take a look. It was really high-end, and the stair handrails were all made of stainless steel, which was rare in those days. Next, Li Si, who was empty-handed and white wolf, started a simple game: Every year, he only needs to refund the tuition fees paid by the newly recruited senior one students to the graduated senior senior students. As long as new students can be recruited every year, then Li Si He will always hold the tuition fees of the two-year students in his hand, which is hundreds of millions of dollars. He can use this money for whatever he wants. That's right, Li Si's aristocratic school is the same as a modern bank, and so is the bank. The money deposited by new customers pays the money that old customers have to withdraw. The bank is more powerful than Li Si in that people who deposit money do not At some point, all the money will be withdrawn.What could go wrong? For Li Si, not being able to recruit new students was his doom, because he had to pay half of the tuition fees for the two sessions to the graduates. If he could not recruit new students for two consecutive years, Li Si went bankrupt. For the bank, when bad debts and bad debts accumulate to a certain extent due to poor management, it cannot meet the daily withdrawal needs, and it goes bankrupt. Li Si knew that this game was very dangerous, so after a few years of playing, he took a sum of money and left, transferring the school to someone else. I also need to introduce a very important vocabulary to everyone: Ponzi scheme. I believe that readers who are familiar with this word have already realized that the example of Zhang San raising civet cats I mentioned earlier is actually a typical Ponzi scheme. It is not known if the theory is applied. What is a Ponzi scheme? It refers to using the money of the later "investors" to give returns to the previous "investors". The "Ponzi scheme" originated from an Italian named Charles Ponzi (Charles Ponzi, 1878-1949). He immigrated to the United States in 1903 and worked in various jobs including painters, but he wanted to Make a fortune.He found that the fastest way to make money was finance. One day in 1919, he suddenly came up with an inspiration and designed an investment plan, which he came to Boston to sell to the public.He claimed that he could make money by buying some kind of postal notes in Europe and selling them to the United States.Due to factors such as policies and exchange rates between countries, many economic behaviors are generally not easy for ordinary people to understand.On the one hand, Ponzi made financial mysteries, and on the other hand, he set up a huge bait. He declared that all investments can get a 50% return within 45 days. Moreover, he also gave people the evidence of "seeing is believing": the first batch of "investors" did get the returns promised by Ponzi within the specified time. As a result, a large number of subsequent "investors" followed up.In a year or so, almost 40,000 Boston citizens became investors in Ponzi's money-making plan like fools, and most of them were poor people with dreams of getting rich. Ponzi received a total of about 15 million US dollars in small sums Investment, the average "investment" of several hundred dollars per person.At that time, Ponzi was called by some ignorant Americans as one of the three greatest Italians who were as famous as Columbus and Marconi (the inventor of radio), because he "discovered money" like Columbus discovered the New World. Ponzi lived in a villa with 20 rooms, bought more than 100 expensive suits with special leather shoes, owned dozens of gold-studded walking sticks, and bought countless expensive jewelry for his lover. His pipes are studded with diamonds.Of course, as Zhang San’s patriarch, Pang Qi also enjoyed the same tragic ending as Zhang San—this is an inevitable result. If you want the Ponzi scheme to not be shattered, the only way is that the offline can grow to an infinite number. This is obviously impossible. In August 1920 the game came to an end and Ponzi went bankrupt.Ponzi was sentenced to five years in prison. After he was released from prison, he did several similar activities, so he spent a longer time in prison. Deported back to Italy in 1934, he even tried to deceive Mussolini, but unfortunately he failed. Ponzi died in a charity hall in Brazil in 1949.The inventor of this "Ponzi scheme" died penniless. Since Ponzi, in less than 100 years, various "Ponzi schemes" have sprung up all over the world. With the process of China's reform and opening up, the "Ponzi scheme" with a new look has also entered China in large numbers. In the 1980s, a kind of "rat society" appeared in southern my country, which was a replica of the "Ponzi scheme".The more well-known improved version of the "Ponzi scheme" is a variety of pyramid schemes.Most of the illegal fund-raising cases in China are reappearances of "Ponzi schemes".Some Chinese business miracles that suddenly became rich, such as Wu Ying, a 26-year-old rich woman from Zhejiang who was debunked not long ago, also used the "Ponzi scheme" to make their fortunes. The Yilishen incident in 2007 was also a similar scam, using newly added money to buy equipment and ant species to pay previous investors.Others such as Wanli Afforestation are actually an updated version of this "ancient" scam, except that the 45-day payback period of the "Ponzi scheme" has been changed to 8 years by Wanli Afforestation. Others, such as promoting the cultivation of some strange agricultural products or breeding products to farmers, and then promising to pay back at high prices, are all such scams. Well, now comes the question, since I said earlier that Zhang San’s breeding business is actually the same as the stock market, does this mean that our stock market is also a Ponzi scheme? Yes, it can be said from the operating mechanism of the two.But there are two fundamental differences between it and the general Ponzi scheme. The first point I have mentioned before is that the stock market is driven by the power of the state and the call of the company's reputation. Its offline can develop greatly and can be expanded. to a country or even the whole world; the second difference is that after the general Ponzi scheme bursts, it ends, and the fortunes of the last batch of receivers are wiped out, while after the stock market bubble bursts, although the wealth of the last batch of participants is also wiped out, but But the stock market will not end here, it will continue to open, which means that as long as the next batch of stockholders save enough money, the stock price can be raised again, that is to say, those stockholders who are trapped have a chance to unwind. So give the stock market the most precise definition: it is a sustainable, never-ending Ponzi scheme.It will not perish unless one day governments around the world agree to abolish the stock market. Recently we heard a more sensational statement. A buddy in the United States said that China's economic growth is actually a Ponzi scheme.The person who said this was Victor, an expert on China issues at Northwestern University in the United States.Its original words are that the Chinese economy is "a Ponzi scheme, dominated by China's central bank, and it can print money." (See the article "China's Bubble" in the December issue of the authoritative American financial magazine "Forbes") What is the basis for such a statement? The article "China's Bubble" mainly talks about two points: The first is the real estate bubble in China. Due to the unlimited lending by the central bank, a large amount of credit funds entered the property market, and houses were fired at sky-high prices, making houses a "financial product" rather than a residence.Speculation has led to rising housing prices, causing people to panic buy houses and become poor takers.Now people spend 20,000 yuan to buy a house that was originally worth 5,000 yuan per square meter. The house has become an intermediary in a Ponzi scheme.The inflated housing price is not the value of the house itself, but the price that has been inflated due to the continuous acquisition of properties. Once the wealth of the people is exhausted in the future, and there are no more acquisitions, the property market will collapse.The reason why the Ponzi scheme in the real estate market is that the Chinese economy is also a Ponzi scheme is that real estate accounts for a considerable proportion of China's GDP, especially in big cities like Beijing, where its proportion has always been higher than 50%. If the real estate market is really a Ponzi scheme, then the Chinese economy also has elements of a Ponzi scheme, that is, a large proportion of GDP is actually worthless housing prices that are about to shrink sharply in an instant. The second is China's stock market, the reason is the same, and credit funds have inflated the stock price.So, does this argument hold water?Will the Chinese economy really become a Ponzi scheme?This is the question to be addressed later in the book. I will tell you that the Chinese economy is not a Ponzi scheme, the US economy and the dollar itself are the real Ponzi scheme. Simply put, China is the country that produces the most material products in the world, how could it be a Ponzi scheme?The essence of the Ponzi scheme is only the transfer of money but not the production of wealth; while the United States is precisely borrowing money for consumption (in fact, it is printing money for shopping), and at the same time they do not produce most of the material products, their economy is a Ponzi scheme , their dollar is a kind of Ponzi scheme. The value of the dollar has no match for the real wealth in the country. The explanation of its value can only be like a song: love because of love.It is because all the countries in the world have become stupid. All countries accept the waste paper from the United States, and are willing to let this waste paper have value to buy things. The U.S. is a shell economy, empty shell dollars, not engaged in production but reaping huge profits. They are a huge beneficiary of a global Ponzi scheme, which is one of the foundations of their prosperity. Through the above three examples, we have the most intuitive understanding of finance. It is virtual and empty. Finance is void. It has no value in itself, and it does not directly create any value by itself (it can provide financial services for enterprises. And indirectly promote the value creation of enterprises).With such a basic understanding of the nature of finance, we can make the following useful judgments: 1. Finance is a game of taking over the baton. Since it is worthless in itself, it will only reflect the market price in the process of taking over the baton.The specific meaning of this has been clearly explained in the case of Zhang San breeding civet cats above. The civet cat itself is worthless. The rod cannot be stopped and must be dynamic.Stocks and banks are no different.When analyzing the real estate bubble later in this book, it will be pointed out that houses are often dissimilated into financial products, losing their original purpose: living, and becoming an intermediary in the financial succession game. Buying a house is no longer for living, but for playing. This kind of baton game. 2. All financial bubbles are bound to burst.Because it is empty, relying on the successors to maintain a false market price, think about it with your heels, you know that there cannot be an infinite number of successors, once there are no successors, the bubble will collapse.This is true of the stock market and the "financialized" property market. 3. Finance can make a country rich without labor.The reason is very simple. On the one hand, finance itself is empty and worthless, and financial products do not require labor to produce; on the other hand, it has a market price that can expand infinitely. Once finance crosses borders, it can be exchanged The real wealth of other countries.Void things are exchanged for a large amount of actual wealth, which means that the country that exports financial products has obtained wealth out of thin air, and its citizens can live in big houses, drive cars, and have inexhaustible daily necessities without working.The United States in reality is such a country. As for how it realizes this empty-glove white-wolf game, it must be analyzed later. Among them, foreign exchange, the stock market, and banks serve as the most important tools. 4. For a country that cannot use finance to exploit other countries, half of its finance is fussy and useless.The reason for saying half is because banks and the stock market more or less have the function of financing the real economy; but the other half of the situation is blowing bubbles, which does not create wealth but leads to an unfair large-scale transfer of wealth. When it is not sound, finance becomes a tool for the rich and powerful to sweep away the wealth of the common people; in any case, it becomes a super cash machine for international speculators, such as Hong Kong, even if it has a sound legal system, it has become a cash machine for European and American financial giants , Look at how many dollars the central government gave Hong Kong to fill the shortfall during the Asian financial crisis in 1998.