Chapter 30 how do we get through this crisis

In May 2009, many data and indicators released by the media made the possibility of economic recovery confusing.Various parties have outlined different pictures for the trend of China and the global economy.In the chaos of data and charts, how should we grasp the trend of China and the global economy? ◎Reporter: According to the historical experience of the Great Depression in the 1920s and 1930s, the world economy usually goes from prosperity to recession in a short period of time; however, it often takes a long time to end the recession and achieve recovery.How do you judge the prospects for the US economic recovery?

Chen Zhiwu: Judging from the data and signs, the US economy is still in crisis, but the outlook is not as pessimistic as before.The recently announced results of the "Bank Stress Test" show that people's worries about the US financial system and economic problems have been overdone in the past six months. Although from a logical point of view, in order to increase everyone's confidence, the US government is suspected of whitewashing the assessment results; but in fact, since March this year, all financial markets have rebounded to a large extent: the stock market has rebounded by about 30% , The corporate bond market, local government bond market, housing mortgage loan derivative securities market, CDS and other markets all rebounded sharply.U.S. consumer confidence has also improved considerably, recovering nearly 50% from March to April.The judgment of these data shows that the entrepreneurial spirit of "falling down and getting up" that has lasted for centuries in American society has not disappeared because of this crisis. Just like in previous crises, this kind of "survive" The spirit of that is and will be to bring America out of crisis.

From the perspective of consumption, although the US financial industry has been greatly impacted, so far, the lives of Americans have not undergone fundamental changes.This has a lot to do with the social security system established in the United States in the 1930s.Although this crisis has a great impact and many people's wealth has shrunk, a large part of this wealth belongs to the future. For example, some people's pension may shrink by half, but it will take at least ten or twenty years. Years, they will use the money.With the basic guarantee of life, the loss of wealth will not immediately have a substantial impact on people's consumption and life, so Americans' consumption, risk-taking and entrepreneurial spirit have revived, and they will return to their previous status in the near future .By the third and fourth quarters of this year, after the crisis bottoms out in the United States, the speed of economic recovery in the United States will be much faster than Krugman predicted.

◎Reporter: After the financial crisis, the U.S. auto industry and other real economies were also hit hard, which aggravated people's concerns about the penetration of the financial crisis into the real economy. How do you view this issue? Chen Zhiwu: The problem of the US auto industry is a partial problem.Whether there is this financial crisis or not, the American auto industry will not last long.A general impression is that China's manufacturing industry is at a high level, and most products can be manufactured in China.The automobile manufacturing industry has a history of more than 100 years, and its technology is relatively mature, enabling many developing countries to catch up quickly.

Compared with China's cheap labor costs, GM, Ford, and Chrysler's workers are very expensive. How can they compete with China's Zhejiang and Shandong auto manufacturers?As a sunset industry in the United States, American auto manufacturing has been squeezed by Japanese and Korean auto companies in recent years, and now it is being seized by Chinese and Indian auto companies.This is a problem faced by the US auto industry itself, but the acceleration of the financial crisis has revealed its crisis, which does not indicate the seriousness of the financial crisis.The Obama administration spent so much taxpayer money to save GM, Chrysler and other companies, which is tantamount to using the interests of American taxpayers to subsidize the workers in the Detroit auto industry. This is a very unfair transfer payment. Car companies that should be eliminated should be raised.Detroit's problem is more a problem of American politics than a systemic economic crisis.

◎Reporter: What do you think of the series of economic stimulus policies introduced by the US government? Will they bury the hidden danger of inflation in the future? Chen Zhiwu: It may bring serious hidden dangers.Now, China is already worried about the pressure of dollar depreciation. Next, the US government will issue additional treasury bonds, and the pressure of dollar depreciation and inflation will increase accordingly.At present, it seems that the US government has not learned a lesson from this crisis, and the problem of moral hazard will become prominent.Looking back at the history of the United States, we found that: Compared with the financial crises in 1907 and 1929, the impact of this financial crisis on the United States is not so serious, but its global influence is much greater than before , This is because financial globalization spreads the crisis to countries all over the world.

I don't support the aggressive rescue policies implemented by Obama. These measures have quickly taken away the opportunities that many people should have learned from the financial and economic crisis.The government's rescue of the market has prevented a very important principle of the market economy from being brought into play. This principle is to force people to correct irrational behavior through frustration.However, the government's aggressive rescue actions have greatly shortened the time for the financial crisis to impact American society, and people have not learned what they should have learned.Once the economy starts to show signs of recovery, many people's consumption and economic decision-making behavior will be similar to before.After the crisis in the 1930s, a generation in American society has become thrifty and frugal, more conservative in economic decision-making, and more afraid of taking risks; after this crisis, the behavior of Americans will not change much.

◎Reporter: Some people compared the bailout measures implemented by the Obama administration with Roosevelt's New Deal, and pointed out that Roosevelt's New Deal did not save the United States, but World War II saved the United States. What do you think? Chen Zhiwu: Roosevelt's New Deal included many contents, some of which were different from simple government intervention in the economy.For example, the new legislation for the securities industry and social security legislation are all based on the basic support framework established for the entire market economy, which is different from the connotation of Roosevelt's New Deal in the sense of "Keynesianism".These policies are beneficial to the development of the free market economy itself.With a social security system, the market can be freer, and even if free behavior has serious consequences in some cases, society can also be guaranteed by a safety net.

Another part of Roosevelt's New Deal was to build bridges and highways, etc. These measures promoted the employment of American society at that time and the future economic growth.After Roosevelt's New Deal, many highways were built in the United States, which also made it very difficult for the Obama administration to repeat Roosevelt's New Deal in the true sense.From Roosevelt's New Deal to the 1950s, the United States has built many highways and airports, and these facilities are still functioning well. If these airports and highways are demolished and rebuilt, American taxpayers will not agree.Therefore, Obama's economic stimulus package does not include much investment in infrastructure such as building highways, railways and airports.

◎Reporter: With regard to the quantitative easing monetary policy implemented by the Federal Reserve, people are worried about a situation like the "Japanese trap" in the 1990s, that is, the interest rate gradually tends to zero, and the expansionary monetary policy will eventually fail.How much room do you think there is for US monetary policy to operate? Chen Zhiwu: The structure of the U.S. financial system is different from that of Japan. Japan is still dominated by banks, while the U.S. financial system has far surpassed the era when banks were the main body. Now the U.S. interbank benchmark interest rate is close to zero, similar to that in Japan, but the inflation rate has reached about 2%, which means that the real interest rate is about -2%.This state will be maintained for several months, because the credit amplification function of banks and other financial institutions is still suppressed.Banks are not lending as much, not because they are unwilling to lend, but because businesses are afraid to borrow due to concerns about the future.But as soon as economic confidence returns, the propensity of businesses to lend will rise, as will the propensity of banks and other financial firms to extend credit.In this way, the room for the Fed's monetary policy tools will gradually increase.

Regarding Japan's experience in the 1990s, people have a blind spot, that is, the real rise of China's manufacturing industry challenged the manufacturing-based Japanese economy.People always think that the recession that Japan experienced in the 1990s was caused by its monetary policy, and that the United States will repeat Japan's experience in the future.But in fact, after the reform of Chinese enterprises in the 1980s and 1990s, they have become a threat to many Japanese manufacturing industries, and Japan's export market is being replaced by China.At the same time, the economic models and structures of China and Japan are too similar, and the advantages of China's large population and low labor costs made Japan's recovery in the 1990s very difficult. In addition, Japan's economic transformation ability is not as good as that of the United States. entered a long recession. So, I don't think the US will repeat Japan's experience in the 1990s, but if China does not undergo economic transformation, it is possible to repeat Japan's experience to some extent. ◎Reporter: After the crisis, there have been many accusations against the excessive financialization and leverage of the US economy. Do you think this crisis will fundamentally change the situation in the US financial market? Chen Zhiwu: There will definitely be some impact. The banking and financial industries will be subject to more regulation in the future.However, in terms of bank leverage ratios, the leverage ratios of European banks are much higher than those of U.S. banks. The published data is about 30 times, and now it has dropped to more than ten times, and the degree of deleveraging has reached two-thirds.After the financial crisis has eased, the leverage ratio of the US banking industry may recover some, but it may not return to the original level.On the other hand, many people who leave Wall Street start their own companies, and the number of financial companies will increase.Once the financial market stabilizes, the leverage ratio of financial institutions such as hedge funds and private equity funds will quickly rise and even return to the original level. The structure of the US financial market will not change much, which is mainly determined by the demand side.After the deepening of financial development, transaction risks and default risks are getting higher and higher, and regulators will also re-establish some rules to regulate the behavior of financial market players.The reason why the previous financial crises in the United States not only did not stop financial development, but continued to deepen it, is that financial demand persists, and with changes in economic structure and income, people's dependence on the financial securities market has been strengthened.This time is no exception.As long as people need to allocate income or risk across time and space, the need for financial transactions has always been there.There are so many financial derivative products in the market, not because financial practitioners are just playing around, but because there is a real demand.The idea that all derivatives markets except the basic securities market are bubbles and unnecessary to exist is a manifestation of ignorance of the financial market. For example, why is the supply of housing mortgage loans and credit funds in the United States so large and the interest rates so low?This is of course inseparable from the degree of development of the derivative securities market.Derivative securities markets allow different market participants to reconfigure risk and return structures according to their own preferences.By dispersing risks through derivatives transactions, banks and various financial institutions can take more risks, so they can provide more funds and have a stronger ability to bear risks, so they require a lower rate of return.Many people will say, isn't it an increase in transaction risk?Yes, but it's just a question of how to do it better, not to negate financial deepening.This principle is like electric shock will kill people but still have to use electricity. ◎Reporter: The crisis has made Chinese banks rank among the top of the global banking rankings.What is the future development prospect of China's banking industry?What are the key points of banking and financial system reform? Chen Zhiwu: I think that for a long time to come, China's financial industry will still be dominated by banks.In the past few years, Chinese companies have listed in Hong Kong and the United States, which makes people see that the capitalization capabilities provided by the American-style capital market are very different from those provided by banks. And entrepreneurs provide the means to realize future expected income.After seeing the benefits of the development of the capital market, China's A-share and H-share markets will have a lot of room for development, the fund management industry will also develop further, and the financial system with banks as the main body will also undergo some changes.Of course, this change is gradual and will take time. In comparison, Chinese banks have not been hit too hard by the financial crisis, leading many to draw the wrong conclusion that strict regulation is the only way for banks to survive.In fact, China's banking industry has always been too regulated, while the US banking industry is at the other extreme.For China, it is necessary to further open up the space for financial innovation in the future, so as to change the current business model of China's banking system.At present, more than 90% of the income of some major domestic commercial banks comes from interest rate spreads. This interest rate difference is given to them by the central bank, which does not mean that the banks have strong operating capabilities.For American banks, the ratio of deposit and loan spreads to total income is less than 10%.Therefore, China's banking industry still has a long road to reform. ◎Reporter: The divergence of judgments on China's future economic situation mainly stems from inconsistent judgments on the external economic environment. The economic crisis has made people worry that the external driving force for China's economic growth is fading. So, where will the main driving force for China's economic development come from in the future? Chen Zhiwu: These concerns are very reasonable.For China, so many foreign exchange reserves and investments are in the United States, especially in March when the Federal Reserve purchased so many government bonds and other types of bonds. From an economic point of view, if a government issues At the same time, the central bank purchases these bonds. This operation process is completely printing money, allowing countries including China to take risks for the monetary and financial policies of the United States.Therefore, China's response in March was very strong and deserved. The growth of domestic demand is of course an important way to supplement the shortage of external demand, but from the perspective of China's system, as long as the Chinese economy is still dominated by state-owned enterprises and state-owned assets, economic growth will still be driven by manufacturing, industrial infrastructure and investment .Domestic demand can continue to rise in the short term, but ultimately it is impossible to replace exports as the long-term driving force for China's economic growth.Moreover, I think that the subsequent recovery of the US economy will soon provide new demand space for China's exports.The direction of the US economy may be an important indicator for judging the timing and speed of China's economic recovery. A fact that people are very familiar with is that China's savings rate is very high, but it is not actually the private savings rate that is high.The private savings rate in China is similar to that of other Southeast Asian countries, and the growth of the savings rate in recent years has mainly come from government and corporate savings.In particular, the savings of state-owned enterprises have grown rapidly in recent years. This is because the vast majority of state-owned enterprises do not pay dividends or hand over their profits. They keep the money they earn for investment, and the funds other than investment are deposited in banks.Most of the investments made by these enterprises are industrial projects, which bring continuous growth in production capacity. From the perspective of income distribution, the income brought by the appreciation of corporate property rights and assets has not flowed to the private sector.The further deterioration of the income and wealth gap between state-owned enterprises and the private sector will bring about many negative effects.In my country's economic structure, the appreciation of national assets and the asset income of state-owned enterprises will not be reflected in the consumption and investment budgets of ordinary households.This is an important reason for the limited potential growth of China's domestic demand for a long time. Therefore, although the current export-driven model has almost come to an end, institutional arrangements determine that China will still rely on exports in the future.Moreover, after the United States adopts these economic stimulus measures, China's manufacturing industry may also benefit relatively quickly.From March to April, the confidence index of American consumers has increased by 50%, which is a very important and positive change for China's export industry.If the rising trend of consumer confidence continues for a few more months, the orders of Chinese export companies will also increase accordingly.But if we give up the reform and continue the export-dependent economic model, the loss outweighs the gain.This financial crisis should make more people realize that this model is not sustainable.Therefore, policy makers need to focus on fundamental institutional and structural reforms while implementing stimulus packages. ◎Reporter: The crisis has made many people doubt the free market system in the United States and think that government regulation is a better model. How do you comment? Chen Zhiwu: Now the crisis is not completely over. Many people are discussing the rise of the new Keynesianism, the US entering socialism, and the end of the market system.In fact, this kind of speech has already appeared in the 1930s and 1940s, and it is even more challenging than it is now. In the 1930s and 1940s, the Soviet Union and the United States engaged in competition. On the one hand, there was the Great Depression in Western capitalist countries, and on the other hand, the Soviet Union’s high-speed economic growth. The challenging remarks on the market economy became more convincing, so that since then , many countries are scrambling to develop socialism and the state-owned economy; but in the 1970s, due to the loss of state-owned enterprises, many countries experienced financial crises; in the 1980s, almost all countries carried out privatization reforms, reversed A series of collectivization and state-owned economic development measures since World War II. Marketization and privatization reforms have lasted for about 30 years.What I didn't expect now is that people's memory is so short, and such a crisis has brought people back into the thinking before and after World War II.In particular, many people oppose the market-oriented system that China is promoting based on this, and believe that the economic model controlled by the government is better.In my opinion, China's rapid economic growth in the past 30 years is precisely the result of market-oriented reforms.In the past three decades, China itself has made great strides towards the market, and the government has tried its best to hand over economic affairs to the market.The process of marketization is a fundamental reason and driving force for China's growth in the past 30 years.Since China's economic rise relies on market-oriented reforms, why do we say that the market is not working and the government should intervene more?Are we going to reverse the economic growth of the past 30 years?This just shows that these people do not understand China's economic growth in the past 30 years.The market-oriented reform and globalization and opening up have brought about such great changes and rapid growth in China that many people do not understand the reasons behind it, and they can still enjoy the benefits of a market economy.