Chapter 2 The first section of the former "10,000 households" is 2.55 million today

Inflation is a growing concern in recent years.This phenomenon stubbornly breaks into our lives, making people feel nervous and feeling that there is no way out. No one doesn't want to deal with inflation, but find it more and more difficult, and the options are getting smaller and smaller. What can help us make the best decisions is the understanding and grasp of future trends.Only when the trend is clear, can people know where they are and find a way to deal with it calmly. The path is not complicated. What we have to do is to understand the phenomena and details that have been ignored one after another, and find the source of the problem step by step.And the answer is included in this process: How did inflation happen?In addition to the known reasons, what are the deep reasons behind it...

Yes, these seemingly ordinary questions, if you walk in, you will find a surprising world.This world lurks in the depths, connecting all economic phenomena, financial phenomena, international relations, etc., like a perfectly constructed palace. Only when you walk in will you know that the world today is like this, and the problems we face are like that.When the mysteries are solved one by one, the world suddenly becomes transparent and clear in front of you.You bend over to look at the world, or pity or sadness or joy or excitement... Yes, economics is not mysterious, let us solve the mysteries bit by bit.

People have always been deeply touched by the decline in the purchasing power of money and the rise in prices.But what exactly is happening to currencies? It should be said that the proliferation of global currencies has reached an incredible level.On a global scale, most countries have varying degrees of currency over-issuance problems. On February 28, 2011, Xiang Songzuo, director and deputy director of the International Monetary Institute of Renmin University of China, wrote an article pointing out that since the 1970s, the global base currency or international reserve currency has surged from 38 billion US dollars to more than 9 trillion US dollars today. , the growth rate exceeds 200 times, while the real economic growth is less than 5 times.The flood of global currency or liquidity is the deadliest disease in today's world finance and economy. ①

It is a rule that if the currency is overissued, the purchasing power will inevitably decline. Some experts estimated that from January 1990 to December 2009, the monthly average of my country's consumer price index (CPI) was 4.81%.If you had 1 million yuan at the beginning of the reform and opening up in 1978, it is only worth 150,000 yuan that year. ② In fact, if the purchasing power of money is compared with the prices of daily consumer goods, the actual depreciation of 1 million yuan in 1978 was more than 850,000 yuan.One of the simplest comparisons is, which one has more purchasing power, compared with the millionaire households in the 1980s?

Zhong Wei, an academic member of the China Finance 40 Forum and a professor at the Financial Research Center of Beijing Normal University, once selected four time points in 1981, 1991, 2001 and 2007 from the two methods of per capita household income and per capita savings of residents. Calculate the change of wealth of "10,000 households".From the perspective of per capita savings of residents, the total savings of residents at the above four time points were 52.3 billion yuan, 920 billion yuan, 7.4 trillion yuan and 17.3 trillion yuan respectively. After considering population changes, the per capita savings were 52 yuan, 800 yuan, and 5900 yuan. and 13,000 yuan.Calculated in this way, the "10,000 yuan wealth" in 1981 was equivalent to 200 times the per capita savings at that time, which is almost 2.55 million yuan now.The conclusion is obvious: over the past 30 years, money itself has indeed become "worthless" over time! ③

In the torrent of excessive currency development, China has also grown into a world giant. In order to allow readers to understand the relevant data, here is a brief introduction to currency common sense. According to the requirements of the International Monetary Fund (IMF), my country's money supply at this stage is divided into the following three levels: M0 = cash in circulation, which is what we usually call cash. M1 (money volume in the narrow sense) = M0 + current deposit M2 (broad money volume) = M1 + time deposits + savings deposits + other deposits + security deposits from clients of securities companies. ④

The broad definition of money accepted by most economists is Milton Friedman's definition of money, that is, money refers to the currency held by the public plus all the deposits of the public in commercial banks.Friedman's definition of money is generally represented by the symbol M2, sometimes also called broad money. ⑤ People usually use the ratio of broad money supply/gross domestic product (M2/GDP) to illustrate the quantitative proportional relationship between money and the real economy, reflecting the degree of financial deepening of an economy.Promoting the maintenance of M2/GDP at a relatively reasonable ratio is of great significance to the healthy development of an economy.Generally speaking, the larger the M2/GDP, the more serious the currency overgrowth.

So, what is my country's broad money supply M2? According to the "China Economic Weekly" report on November 2, 2010: The ratio between China's broad money supply (M2) and GDP is increasing.By the end of 2009, China's total GDP was 33.54 trillion yuan, 92 times that of 1978.In the same period, M2 increased 705 times from 1978 to the end of 2009, reaching 60.62 trillion yuan.As of the end of September 2010, the balance of M2 was 42.774 trillion yuan more than GDP. Wu Xiaoling, deputy director of the Finance and Economics Committee of the National People's Congress, said that the central bank had the problem of excessive currency issuance for quite some time in the past, especially in 2009, when it adopted an "extremely loose" monetary policy in response to the financial crisis.

Zhou Xiaochuan, governor of the People's Bank of China, also admitted frankly in an interview with a reporter from Xinhua News Agency: "During the fight against the crisis, both fiscal and monetary policies were expansionary. The country intentionally expanded the money supply. Targeted measures have helped the Chinese economy to achieve a rapid stabilization and recovery. If this is not done, the economy will definitely experience a serious decline." In order to better explain this problem, we might as well compare the M2 of China and the United States: In 1990, China's M2 balance was 1.53 trillion yuan. By the end of 2010, it had reached 72.58 trillion yuan. In 20 years, M2 has increased by 46.44 times.

In the United States, M2 in 1990 was 3.28 trillion U.S. dollars, and it was 8.848 trillion U.S. dollars at the end of 2010. In the past 20 years, M2 has increased by 1.69 times. If we only look at the money supply in a broad sense, China's money supply has clearly far exceeded that of the United States.Of course, the growth rate of China's money supply is faster than that of the United States. This is due to the lower base of China's monetization degree. up. ⑥ Wu Xiaoling said bluntly: "In the past 30 years, we have promoted the rapid economic development with an excess money supply."

Inflation is coming! The consequences of over-issued currency are very intuitive, that is, the decline in the purchasing power of currency and the rise in prices. In fact, for this point, the public has all felt pain.If you go to the vegetable market casually, you will feel the rapid rise in food prices, which is so worrying.Because in a short period of time, the prices of mung beans, garlic and some vegetables have doubled. Even so, domestic grain prices are still suppressed—the grain prices in foreign countries are higher than domestic prices, and some varieties are 1~2 times higher than domestic prices, or even more.This means that China's food price growth momentum is still strong. The increase in domestic food prices, vegetable prices, and edible oil prices is the inevitable result of the combined efforts of internal and external factors. Especially under the pressure of domestic and foreign price differences, the era of low food prices has passed. If you hope that prices will return to the past after a period of time, then the relentless passage of time may bring about an even more ruthless result.The depreciation trend of currency will tenaciously continue, and those who finally awaken will only suffer pain and helplessness in the passing of wealth. Currency depreciation, the price of resource goods will inevitably rise, and this rise is not only reflected in the commodity field. You may wish to compare the trend of China's A-shares from the end of 2005 to the end of 2007, from the end of 2008 to July 2009, and from June to mid-November 2010. All of them are based on gold and other precious metals, rare earth and other rare non-ferrous metals and coal. The cornerstone is the strengthening of the price of resource products represented by traditional energy (including technical processing related varieties that enhance the value of resources).Is this mere accident? It can only be said that between the real economy and the virtual economy, a certain "tacit agreement" has been reached in terms of resource trends. The principle of water dripping through a stone and a rope sawing a piece of wood is very direct and clear in terms of inflation.Inflation has always quietly evolved from quantitative change to qualitative change. The inflation we are experiencing now is still nothing compared to the hyperinflation that has occurred in history. After World War I, Germany experienced hyperinflation, sometimes exceeding 1,000%. At the end of the inflationary period in 1923, the price level was 30 billion times higher than it was two years earlier.Surprising amounts of currency are required to buy even the most basic items, with a cartload of cash required to buy a slice of bread.The currency depreciated so rapidly that workers were paid several times a day and had to rush home to spend the money they received before it became worthless.No one wanted to hold money, transactions through money dwindled, and barter reemerged and flourished. ⑦ An old German report made us clearly feel the absurdity of that era: a housewife filled a trolley full of money (only enough to buy a little food) to buy some food, and a thief took advantage of her inattention and took the cart full of money. He fell to the ground, pushed the car and ran quickly.Cars are much more valuable than money, much more stable and reliable! After World War II, when hyperinflation occurred in Hungary, the currency in circulation increased by an average of more than 12,000% per month. This situation lasted for a year, and the price increased even more, with a monthly increase of nearly 20,000%. ⑧ You might find these examples extreme, given that they occurred during times of social unrest.However, it is worth noting that the depreciation of many currencies is not caused by social turmoil. To be precise, it is more caused by excessive currency depreciation and systemic hidden dangers in the monetary system that have caused social turmoil.Many hidden dangers of rapid currency depreciation have been buried before social unrest, but people are unaware of it.When the sense of crisis becomes a mass reaction, the real purchasing power of the currency will suddenly appear, just like a beautiful painted skin peeling off in an instant to reveal a hideous face, which makes people caught off guard. In other words, what people feel is the sudden depreciation of banknotes. In fact, the oversupply of currency has already begun to correspond to the sharply shrinking purchasing power, which is only temporarily covered up. During the Soviet Union, 1 ruble was exchanged for more than 2 dollars, but after the disintegration, it became 40,000 rubles to 1 dollar (the ruble here refers to the old ruble).Although this change seems to be completed in an instant on the surface, it has actually been cast long ago. In the middle of the 19th century, a member of Parliament named Graydon in Britain said: "There are more people who are deceived in studying the nature of currency than those who are deceived in love." Why is currency so deceptive? We need to start with some basic common sense to explain this issue more clearly. According to Marx, the physical object is the earliest currency.In China, livestock currency is the earliest physical currency. My biggest feeling from studying historical materials is that the most important feature of currency from its initial generation is that it is practical and "not easy to obtain in large quantities". ⑨ This is the basis on which the currency function must rely on in the long history of mankind.Once the commodity used as currency is excessive, it will lose its currency function and be abandoned. A currency must be "not readily available in large quantities" in order to ensure that its credibility is not diminished and that its purchasing power is not diminished.This feature runs through the entire history of currency before the advent of paper money - after paper money, the government controls the right to issue currency, and through power makes money still "not easy to obtain in large quantities" for people in society. In the era of metal currency, the phenomenon of "free casting" appeared because the coinage value was consistent with the value of the metal it contained.For example, in the pre-capitalist West, citizens have the right to send currency metals determined by decree to the country’s mint to be cast into coins, and the mint mints on behalf of citizens, either without charging fees, or charging a very low cost of smelting and making; Citizens also have the right to melt coins, but private casting is strictly prohibited. ⑩ Since the value of the coinage is consistent with the value of the metal it contains, there is little possibility for the government to create inflation, and there is even a problem of insufficient motivation for the government to mint coins. In the age of metal money, governments are often very "painful".Since the beginning of the 19th century in the Qing Dynasty, due to the increasing smuggling of opium and the outflow of silver, a shortage of silver began to appear in the country and the price of silver rose.The Qing government calculated the cost of minting money based on silver, and the rise in the price of silver would inevitably increase the cost of minting money.The high price of silver and the cheapness of money caused an unbearable loss of money to the government's finances. According to historical records, during the reign of Emperor Yongzheng, a quarter of a coin was minted, and only Baoquan and Baoyuan Erjing Bureaus lost 300,000 taels of silver every year.The market price of money-making deviates from its value seriously, which also led to the problem of a large number of private sales of money-making and copper, which made the supply of money-making in the circulation field seriously insufficient, and "the circulation is decreasing". Therefore, in the memorials at that time, it was repeatedly mentioned And "money shortage" problem. The characteristics of metals actually make the government in this currency era lose the motivation to mint money at certain stages, and a "money shortage" appears. How far away this phenomenon seems in today's era of paper money flying all over the sky! The tools and technology for mining precious metals are backward, and the production quantity of precious metals is relatively stable, which limits the opportunities for the authorities to issue currency at will for profit.However, rulers eventually found simple ways to devalue currency: one was to make metal coins contain less metal than the value it represented; the other was to add other base metals to the coinage, causing the currency to "color" Decrease while the value of the currency remains unchanged.As the absolute leader of currency issuance, the government is not short of wisdom in this regard. How did the Qing government solve the "money shortage" problem? The way is to mint big money. In March 1853, the Qing government approved the minting of large coins whose face value was much higher than their actual value.For example, when the cost is deducted, the net profit is about 919 yuan, which is 11.3 times the cost.These measures are actually the implementation of inflationary policies, plundering the wealth of the people in disguise, and alleviating the financial crisis.The result of the slump in money prices was the soaring prices. In the ten years of Xianfeng, the prices of tea rose 5 times and pork rose 6 times compared with those before the issuance of big money and banknotes.In the summer and autumn of the following year, prices soared again. There are similar examples abroad. Adam Smith wrote: I believe that all the princes of the world are greedy and unjust.They deceived their subjects by successively reducing the true weight of the metal which the money originally contained.In the late period of the Roman Republic, Roman Aspen was reduced to 1/24 of its original price, and its content was called 1 pound, which was actually only half an ounce; England’s pound and pence are now worth about 1/3 of the original value; The penny is about 1/36 of the original; the French pound and pence are about 1/56 of the original.By these means princes and states were able to apparently pay their debts, and perform contracts of every kind, by relatively small sums of silver.In fact, the creditors of the government are thus deprived of some of their due rights. What's even more outrageous is that by the time of Claudius II in 268 AD, the silver content of Roman silver coins had dropped to 0.02%.To be precise, it should be called silver-plated silver coins.From 138 to 301 AD, Rome experienced severe inflation. The price of wheat, the most important commodity at that time, increased by 200 times!This directly led to the decline and fall of the Roman Empire. Obviously, even in the era of metal currency, rulers continued to manipulate the quality and price of metal in order to reduce the gold content of currency and create inflation to collect money. The impulse of the rulers of past dynasties at home and abroad to issue currency indiscriminately, after all, is still limited in the era of metal currency.No matter how cheap the metal is, it still costs something to produce it under reduced fineness, and this cost is a limit on the quantity of money.And the quantity of paper money can grow infinitely at negligible cost, all that is required is to print larger numbers on the same sheet of paper. The low-cost method of printing a few more "0"s on paper can achieve the purpose of plundering people's wealth, which is exactly the evil result that paper money brings to us. Hayek, a Nobel laureate in economics, said: "The history of coinage is almost a history of constant depreciation, or a history of ever-increasing metal content in coinage, and therefore rising prices for all commodities...and these inflations are usually It's all made by the government, and the government benefits from it...Finally, paper money gives the government a much cheaper way of defrauding the people." Although the issuance of currency is often put on the high-sounding cloak of saving the crisis, in fact, the excessive issuance of currency not only cannot save the crisis, but has caused more problems.Former Federal Reserve Chairman Alan Greenspan admitted: "If there is any monetary policy that has proven effective over the past 20 years, it is that the long-term damage to the economy caused by inflation will exceed the short-term pull effect on the economy." So, why is the currency spam getting worse?Where is the impetus behind this phenomenon? Hayek believes that since the government monopolizes the issuance of money, there must be an impulse to issue money indiscriminately.Excessive currency will disrupt the normal market economy price system and cause economic cycle fluctuations.The fundamental solution to this cycle is to break the currency monopoly of the government, allow private institutions to issue currencies, and let currencies compete like ordinary commodities. In the end, one or several currencies with the most stable currency value will survive and become the mainstay of the daily economy. common currency.The currency in a competitive environment is facing the crisis of being eliminated at any time, so the stability of the currency value will be the first goal, the neutrality of the currency will be realized, the economy will no longer be affected by the external impact of the currency, and periodic fluctuations will always become history . What an idealized state it seems!However, in history, this idealized state did exist. Before the large-scale industrialization of the United States, the U.S. dollar backed by the government was only one of as many as 8,000 currencies issued by states, banks, companies, merchants and mining companies in the United States at that time. It was not until 1863 that the U.S. government mandated the standardization of currency. In 1871, Japan's Meiji Restoration made the yen a unified currency in Japan; the unification of the German mark in Germany took place in 1873.These chronologies at least show that monetary unification is not a common law since ancient times, and has not withstood the test of long-term history. American investor William Baker also believes that if there is competition in currency issuance, the subprime mortgage crisis may be avoided."Long before the 2008 financial crisis, if more banks, such as National Financial Services, had been allowed to issue paper money to compete with other banks and make regular redemptions through clearing banks, it would have been discovered in a more timely manner than today," he noted. question." At present, in the era of electronic money, some "forms" of money have indeed begun to appear.At present, a large number of transactions have been concluded through the medium of virtual electronic currency.Our credit cards, various VIP consumption cards, and airline mileage points can all partially function as currencies. Various currencies have various backings, and they have all challenged the state monopoly of currencies to varying degrees.We live in this world, I am afraid it is difficult to judge the advantages and disadvantages of so many currencies or currency forms, but the market will eventually tell us the answer.Commodities or currencies that can survive in a competitive environment are good. Of course, as far as the status quo is concerned, there is no and it is impossible for the government of a country to accept the theory of denationalization of currency, and people can only helplessly accept the reality of currency devaluation. A direct result of this is a massive excess of money. Notes: ① Xiang Songzuo.The roots and consequences of the Federal Reserve's quantitative easing monetary policy. ② 33 years ago, 1 million is now only worth 150,000. Recover the 850,000 stolen by inflation. Guangzhou Daily, 2010-9-17 ③Zhong Wei.The process of monetization should be reflected.China Economic Information, 2009 (17) ④Huang Da.Finance. Renmin University of China Press, 2004 ⑤ (plus) Jagdish Handa.monetary economics.Translated by Guo Qingwang, Liu Xiaolu, and Chen Weidong.Renmin University of China Press, 2005 ⑥ Factors such as M3 are not considered here, because the financial and securities markets in the United States are developed, and its M3 is larger.Regrettably, the Federal Reserve no longer publishes its M3 data since March 2006, and in February 2006, the M3 of the United States was 1.53 times that of M2.M1 used by the Federal Reserve includes cash in circulation, demand deposits (non-interest checking account deposits) and traveler's checks. M2 is based on M1 plus money market deposit accounts, money market mutual funds (non-institutional) and others Assets with strong liquidity, such as small time deposits below US$100,000, savings deposits, overnight repurchase agreements, and US dollars deposited overnight in European non-US banks. M3 is based on M2 plus some illiquid assets, such as large time deposits of USD 100,000 or more, money market mutual funds (institutions), medium and long-term repurchase agreements, and medium and long-term deposits in European African countries. U.S. dollars from Bank of America, etc. ⑦ (US) Milton Friedman.The Curse of Currency--A Fragment of Currency History.Translated by An Jia.Commercial Press, 2006 This passage was also quoted in "Money and Banking" published by Tsinghua University Press.When I first saw this text, I wondered if the author made a mistake, because 30 billion times is too big!Later, I checked other relevant materials. Although the data were different, they were basically expressed in billions of times, which showed that the inflation at that time was indeed very serious. ⑧Frederick S. Mishkin. Monetary Finance. Translated by Liu Yi and others. Sixth Edition. Renmin University of China Press, 2005 ⑨Zhang Youzhi. General Theory of China's Real Currency. China Finance and Economics Publishing House, 2009 ⑩Huang Da. Finance. Renmin University of China Press, 2004