Chapter 2 Lecture 01 Hot Words in Finance and Economics

●No one speaks Chinese these days, everyone speaks CPI. ●You have to pay 50% more for breakfast, 50% more for lunch, and 50% more for dinner. ●Everyone thinks it will appreciate in value, so it will definitely appreciate in value. In 2007, the stock market reached record highs, property prices rose, and pork prices rose.People's attention to the economy has reached a new level. CPI, deposits, reserves, interest rate hikes, exchange rates... These economic words appear frequently in front of people.Do you understand these familiar and unfamiliar economic buzzwords? In 2007, what are the special meanings behind these economic hot words?

Hello, everyone here, everyone in front of the TV.Today we are going to talk about a topic that sounds very professional, but is actually closely related to your life, that is: what is wrong with our financial environment?You usually see a lot of nouns on TV: interest rate, exchange rate, monetary policy... and many people ask me what is deposit reserve, what does CPI mean, and what is interest. I went to the Wharton School of Business in the United States to study for a doctorate in 1983.The Federal Reserve Bank of the United States is the central bank of the United States. One day it suddenly announced that it would raise the bank's deposit reserve ratio.Do you know what questions many banks call the so-called central bank of the United States? "What is a deposit reserve?" So it is understandable that our audience in front of the TV does not understand these concepts.The so-called macro-control is basically carried out in two ways.The first is to raise interest rates, and the second is to raise the deposit reserve ratio.So what does interest rate mean?The interest rate that the central bank can control now is basically the deposit rate, that is, interest.For example, the current interest rate is 6%. That is to say, if we ordinary people save 100 yuan, we can get 6 yuan in interest a year.Multiply the interest rate by the principal, and you can get 6 yuan in interest.See what I mean, that's the difference between interest rate and interest.As a result of the central bank's continuous increase in interest rates, the deposit interest of our people will increase correspondingly. This is a good thing, and the current inflation is relatively serious.In the case of severe inflation, if the interest rate is not high, there will be negative interest rates, or negative interest rates.

So how do we measure inflation?This is called CPI, and CPI is English. Now I find that no one speaks Chinese, and everyone speaks CPI.What is CPI? CPI is Consumer Price Index, so you can understand why everyone speaks English, but Chinese is too long. How is CPI calculated?It is to make the prices of our chickens, ducks, fish, stationery and pencils... all consumer goods into an average in a certain sense, and this is the CPI. You don't need to know the entire calculation process of CPI.You just need to know that CPI is the price index of daily consumer goods.Usually when you buy mineral water, the average price of eating pork is the CPI. In November 2007, the CPI rose by 3%, that is to say, in that month, your daily spending increased by 3%.

But the CPI cannot reflect the real price situation. For example, for us ordinary people, the most important thing is the price of daily necessities, including the price of pork, chicken, duck, eggs, grain and oil.This is different from the price of TV sets and refrigerators.The prices of TV sets and refrigerators have risen, so we just don’t buy them. There is a bubble in housing prices, so if you can’t afford them, you don’t buy them. You just squeeze with your parents, or rent a house. The most important part of the CPI, and the one that is seriously underestimated, is the price of chicken, duck and fish - it leads to a sharp increase in the cost of your meals.I will give you a profile. In May 2007, the price of pork rose by 26%, and the price of eggs rose by 37%. That is to say, if you take a bite of meat, you will pay 26% more, and if you eat an extra bite of egg, you will pay 37% more.From May to August, the situation continued to deteriorate, with no sign of improvement. The cost of meals for each of our ordinary people increased by an average of 50%, that is to say, you have to pay 50% more for breakfast, and more for lunch. Pay 50% and pay 50% more for a dinner.

The 50% increase in food costs is not directly reflected in the CPI, why?Because CPI is the average of all the consumer goods you use, your 3% means that the growth of all consumer goods is 3%, but the really important indicators should be viewed individually, such as how much the price of pork rises, how much the price of chicken rises, and the price of grain and oil rises How many.Therefore, audiences and guests, please do not be misled by the CPI. This cannot reflect the increase in your daily living expenses. If you want to understand the increase in daily living expenses, you have to look at them one by one.

The current CPI growth rate is above 3%, which is already very high.Where is the reason for such high?This is largely due to the increase in the cost of our meals, which is one of the main reasons for the rise in CPI.In the case of increasing inflation, how can our Chinese government and the central bank curb inflation?The general approach is this, the reason why the price of pork and chicken is so expensive today is that we have too much money and the government has printed too much money.There are more banknotes, the demand increases, and the supply is limited, so the price rises. How does the central bank deal with inflation?It is through the so-called monetary policy, how to operate it?It takes back the excess money in your hands and tells you not to spend it.The money in the hands of every ordinary person is a potential demand. Everyone buys pencils, and the price of pencils rises; everyone buys mineral water, and the price of mineral water rises.then what should we do?It is best not to spend this money. For example, if you use this money to buy government bonds, the money will go to the government, or if you use this money to invest, anyway, just don’t spend it.If you don't spend money, prices won't rise.So how do you save money?The government uses monetary policy to regulate.Monetary policy is a very vague term, which includes several items.

The first is to raise interest rates.What are the benefits of raising interest rates?For us ordinary people, the benefit of raising interest rates is very clear, that is, the interest we deposit in banks has increased.Then, if you deposit money in the bank, you may not spend it.Great, you won't put pressure on prices if you don't spend. However, the more important role of raising interest rates is to curb corporate consumption.If I am a business leader, I borrow money from the bank.After I borrowed money, I went to buy raw materials and production equipment. Did I spend money again?After the money is spent, it is likely to increase the pressure on controlling prices.How can the government keep companies from spending money?Using monetary policy to raise interest rates makes it more expensive for companies to borrow money.In the past, the loan interest rate was 6%, but now the interest rate has changed to 10%, and I have to pay 10% more to borrow money, so I stopped borrowing.If you don't borrow, you won't buy raw materials for production, and you won't buy other products, so the inflationary pressure is reduced.Therefore, the interest rate is one of the means to control inflation.

The second is to increase the deposit reserve ratio.What is the deposit reserve ratio?This concept is important.If we have 100 yuan in deposits in the bank, he can only earn interest and make money by lending it to others.Banks also want to make money, how do banks make money?Make money through the interest rate difference, for example, the bank earns 2% interest through the interest rate difference.Banks cannot lend 100% of the money. If you save 100 yuan and the bank lends all of it, what if you go to the bank to withdraw money and the bank has no money for you?This will cause a financial crisis. Therefore, the central bank requires each bank to keep a certain deposit reserve.For example, the central bank requires you to maintain a 20% deposit reserve at all times.You use 80% of depositors' deposits for lending, and the remaining 20% ​​cannot be released, which will be very troublesome.If I withdraw money and you have no money, it will definitely not work.So if the deposit reserve ratio is 20%, that means 20% of the deposits are left in the bank for the drawer to withdraw cash.That is to say, if the bank has a deposit of 100 yuan, it can only lend 80 yuan, so the enterprise can only borrow 80 yuan to purchase raw materials for products.In this way, the inflationary pressure on the society is much smaller, because only 80 yuan is used to buy products.Therefore, the purpose of raising the deposit reserve ratio is to recover this excess deposit.

There is a third way, that is, the government issues public bonds.What are public debts for?Public bonds are issued by the government, which can get back the money of the common people, and you don't need to spend it.You don't put pressure on controlling prices if you don't spend money, which is what central banks do at the moment.Monetary policy includes interest rate policy, deposit reserve ratio policy and issuance of public bonds.This is a relatively rough analysis.From 2007 to 2008, I believe the above policy will not change. The question is whether such a policy will work.How does inflation come about?Does it have anything to do with this policy?Let me take pork as an example. Why did the price of pork rise?There are two reasons for the rise in pork prices, the first is swine fever, and the second is the rise in feed prices.Due to swine fever and rising feed prices, the market environment for raising pigs has deteriorated, so pig farmers stopped raising pigs and went to speculate in stocks and real estate.Due to insufficient supply, the price of pork has risen in an all-round way. Can this situation be alleviated through the so-called monetary policy?no.what to do?We must encourage pig farmers to raise pigs and increase supply to solve the problem of rising pork prices.This is why the central government recently encouraged everyone to raise pigs and chickens.For what purpose?It is to use the money flowing into the stock market and property market to suppress the rise in pork prices.

Monetary policy is not always useful, but for ordinary people, inflation and rising interest rates are basically two factors that cancel each other out.Generally speaking, the interest rate minus the inflation rate is the real rate of return on your deposit.If the inflation rate is 10% and the bank interest rate is 6%, it means that your money will depreciate at a rate of 4% every year.Do you understand me?If you keep this money at home, it will be even worse. Your savings will depreciate at an annual inflation rate of 10%, and you can save a little loss if you store it in the bank. You only lose 4%.

We often see negative interest rates in newspapers. What is negative interest rate means that the interest rate of 6% is less than the inflation rate of 10%. This is negative interest rate.What would you do with negative interest rates?You will naturally withdraw the money you have deposited in the bank to speculate in stocks and real estate, because as long as negative interest rates exist, your money in the bank will definitely be lost. Therefore, it is very normal for ordinary people in our country to speculate in stocks and real estate.Because in the current era of negative interest rates, there must be losses in savings, and it is possible to make money by speculating in stocks and real estate.Our stock and real estate speculation is very in line with economic theory. In the case of negative interest rates, this is the way you have to go.Of course, it is not certain whether stocks can make money.But the important thing is that you may make money by investing in stocks.Therefore, ordinary people will do it, otherwise it must be dry compensation. When will the interest rate be cut?When the economy is too cold to cut interest rates, the government hopes that you will borrow more money and spend more to invigorate the economy.Before 2004, especially in 2000, our economy was relatively depressed, and the central bank kept cutting interest rates to boost the economy.The economy is overheated now, so raising interest rates cannot control the overheated economic environment.Let me talk about a topic that the audience in front of the TV must really want to know, that is why people line up to buy gold. I also met several gold shop owners in Shenyang yesterday. They said that business has been very good recently, and the number of customers is several times that of usual.They are going to buy a mine.What mine?It is a mine that specializes in the production of gold.What are you going to do?The integration of upstream and downstream, the upstream ensures the production of gold, and the downstream is to sell it to you.Everyone queues up to buy gold, why?The reason is very simple. It is because of the negative interest rate phenomenon I mentioned earlier: there are banks that will definitely lose money, and there is no guarantee of making money if you enter the stock market. If you enter the real estate market, you may not have enough money to afford a house. Therefore, buying gold is a good way. And that's why the price of gold has soared recently.Not to mention gold, even Chinese artworks have been rising in price recently, including Puerh tea—the price of aged Puerh tea has been rising all the way, and Puerh tea is getting more expensive as it ages.So if you look around, the price of everything is going up, even the price of a painting or a cup of tea is going up, because everyone is looking for different investment channels.This is also the reason why everyone queues up to buy gold. Finally we talk about exchange rates.The exchange rate has been rising recently, and in 2007 the exchange rate rose by more than 5%.Let's do a simple arithmetic problem. If the price rises by 5% a year, how much will it increase in 5 years? 25%. 50% increase in 10 years.Of course, you can’t do this calculation, but here we use a simple method to calculate that the annual appreciation of 5% is incredible, and our currency will appreciate by half in 10 years.However, what impact does the appreciation of the exchange rate have on us ordinary people?Some guests at the scene asked me during the break, are exchange rates and interest rates a special monetary policy?In fact, the fluctuation of the exchange rate itself has little to do with us ordinary people, and the fluctuation of the exchange rate has more to do with the business operation. Exchange rate fluctuations have no direct impact on our lives, but have an indirect impact.The exchange rate rises, what will it hit the most?The rise of the exchange rate hits the export manufacturing industry, causing the profits of these companies to decline, thus affecting the lives of our common people.So what is the relationship between interest rates and exchange rates?The relationship between interest rates and exchange rates is not obvious in China, but it is more obvious in the United States, Europe, Japan and other countries.As soon as the interest rate rises, a large amount of international hot money flows into China. Why?You can earn more interest with RMB, so a lot of hot money poured into China to buy RMB.After buying RMB, the RMB exchange rate will rise, which is an inevitable result.What about rate cuts?When the hot money flows to the United States, the exchange rate will decrease, but unfortunately, because China has a large amount of foreign exchange reserves - more than 1.4 trillion yuan, any ordinary person knows that the appreciation of the renminbi is inevitable, which is also the constant inflow of international hotlines reason.Even if your interest rate does not rise, international hot money will still flow in.what is the reason?Too much foreign exchange has been accumulated, and the appreciation of the renminbi has become an inevitable result.What about interest rates?Hot money flows in faster, which is an inevitability between interest rates and exchange rates.But in China, rising interest rates have less of an impact on the exchange rate than in the US.what is the reason?Because China is still a foreign exchange control country. After I have finished speaking, if you have any questions about the current financial policy, I would like to give you an answer in the last few minutes.Ladies and gentlemen, please speak. Audience: Hello.You just said that everyone expects the RMB to appreciate. What do you think is the specific way for the RMB to appreciate?Because there are too many debates now, some people say that it can be achieved in one step, and some people say that it is an indirect appreciation. What do you think is the best solution? Lang Xianping: Very good, he asked a very professional question.RMB appreciation is unstoppable, is it a one-step process, or a slow appreciation?What a great question to ask.I can tell you that in our economics, a correct exchange rate cannot be calculated at all.In theory there is a reasonable exchange rate, but in practice it cannot be calculated at all.So it's not feasible to do it in one step.You don't know where the "position" is, and you don't know how much appreciation is the most appropriate, so "one step" is a layman's term, and the exchange rate does not have one step.Is it possible to appreciate slowly?Governments of various countries have different approaches, but the most frightening thing is: we have created expectations for the appreciation of the renminbi for everyone (including international speculators all over the world).Even if there is no condition for the RMB to appreciate, it will appreciate, because if you think it will appreciate, it will definitely appreciate.Therefore, the trend of the RMB depends not only on the trade surplus, but also on what?our expectations.I would like to ask all of you here, which one of you thinks that the RMB will depreciate?no.You all think that the renminbi will appreciate, so let me tell you, the renminbi will definitely appreciate.You all think so, and so do international speculators, so it is not a simple issue of RMB foreign exchange base point.I don’t know how to rise, unless you break expectations, how to break expectations, suddenly appreciate by 3%, then appreciate by 2%, and then depreciate by 1%... Only by constantly breaking through the expectations of appreciation and depreciation, other methods will not work. "I swear that the renminbi exchange rate will not appreciate", this will not work, the stabilization of the renminbi exchange rate cannot be made by swearing, only by breaking the expectation of appreciation. Audience: Just now you mentioned a point of view, that is, China's economy is overheated and overheated at the same time.Through the monetary policies you just introduced, I think that monetary policy can only solve one aspect of the problem, and it is impossible to coordinate both sides at the same time.So, I personally think, is this a systemic problem?In addition to monetary policy, there are a series of other policies, including the fairness and justice of law enforcement. Can you briefly talk about this. Lang Xianping: This is a very good question.We looked at the reports of various media in 2007, and they all said that our economy was overheated.Actually, this is wrong.Because the indicators we collect come from overheated sectors, simply put, the Chinese economy is both overheated and undercooled: sectors related to construction are overheated, while most other private enterprises are undercooled.This situation will make monetary policy ineffective, such as raising interest rates, the overheated sector will have no effect, and the overcooled sector will be hit further.They live off underground finance, borrowing money at 0.25% above official interest rates.The most frightening phenomenon is that once a blow is made to an overcooled sector of the economy, funds will flow from the overcooled sector to the overheated sector: the undercooled sector will be colder, and the overheated sector will be hotter.This has produced the phenomenon of macro-control in the morning and stock prices rising sharply in the afternoon. How to deal with it?This is a very complicated issue, and I don't want to talk about such a complicated issue in today's program.You have to use various methods, including implementing the fiscal policy just mentioned, supporting certain sectors, or the government orders your overheated sectors not to invest. This may be useful.Our monetary policy is not as good as an executive order - ordering construction to stop entirely.Do you know what will happen?It's just that the overheating department is gone.Anyway, there are many ways to encourage you to invest, to encourage you to export and so on.The current status quo of the entire country is very complicated and cannot be governed by a simple monetary policy. Audience: Professor Lang, hello.Let me ask, in the current situation, the renminbi continues to appreciate, what should ordinary people do?Apart from our stocks and real estate speculation, is there any better way? Lang Xianping: What should ordinary people do if the RMB continues to appreciate?The best way for you is to do nothing and get RMB naturally, so that you can make money.Take the Hong Kong dollar as an example, 100 Hong Kong dollars is exchanged for 106 yuan, which was still the case at the beginning of 2007.It's all upside down now.Renminbi has become very valuable now, so it is easy for you to exchange your Renminbi for Hong Kong dollars in Hong Kong, because the Renminbi keeps appreciating, and keeping your Renminbi to spend in Hong Kong will greatly increase your spending power.This is the exchange rate as an example, how ordinary people deal with it.In short, you can keep the RMB. You said it again, what about negative interest rates?That's even more complicated. You need to use RMB to buy more assets, including gold, Pu'er tea, buildings, etc.You use the growth in asset value to offset the loss from inflation, and that should be the way to go. Audience: Professor Lang, the 17th National Congress of the Communist Party of China put forward many new concepts and propositions. What impact will this have on the macro-control of our economy? Lang Xianping: I think there are several points at the 17th National Congress that deserve our attention. One is the "promotion of social fairness and justice" proposed in the work report, which is also a change in the central government's assessment indicators for local governments.If this requirement can be truly implemented, many problems of the Chinese economy that we mentioned earlier can be resolved.For the overheating department, the assessment should be based on fairness and justice. The report of the 17th National Congress of the Communist Party of China also concerned about the problems of ordinary people's housing, schooling, and medical treatment... With regard to the so-called exchange rate attitude, under international pressure, our government made a clear statement after the 17th National Congress of the Communist Party of China: the exchange rate should be in line with international standards and should appropriately and appropriately reflect market supply and demand.This "proper, moderate" is very important.Our company cannot bear the sharp appreciation of the RMB.I personally think that the RMB should not appreciate at all. We should use various methods to break the expectations of international speculators. This so-called trade surplus may not last forever.What if there is a trade deficit?Trade deficit, the exchange rate may still appreciate, why?Large inflows of international hot money are still possible.Therefore, our so-called international integration is just a conceptual issue. I think what the central bank should do is to break the expectations of international speculators.In a certain period of time, if we encounter a trade deficit, our RMB may still depreciate.It is not normal to depreciate and appreciate again.We want to maintain the stability of the RMB. As for housing policy, etc., the 17th National Congress of the Communist Party of China has clear regulations, and I am personally optimistic about this.Regarding macro-control, continuous macro-control is inevitable, and I am in favor of this kind of continuous macro-control, but at the end of this program, I would like to make an appeal: macro-control is possible, but macro-control must clearly recognize the principles of regulation. what is the goal.Macro-control is just a means, don't take the means as the end.I am worried that macro-control will not solve the bubble problem in the end. On the contrary, the rising interest rate will increase the financial risk of the whole society. This also requires continuous communication between the government and the people.That's what I do with this show.