Chapter 3 Section 2 The Sponge Absorbing Over-issued Currency

It is impossible to truly understand the trend of China's property market and stock market if one does not understand the issue of over-issuance and absorption of currency.It can be said that both major trends are closely related to currency. If money is water, then the sponge is like where the money belongs.The super-issued currency must have a proper attribution to absorb it in order to seek a certain balance, otherwise, it may be flooded in some ways.One of the most intuitive phenomena is: when the sponge cannot absorb excess water, it will overflow, and the currency will enter the track of depreciation.

This point does not vary greatly by region or country. 00 Raging Currency Finds "Sponge" Since 1997, the growth rate of global base money (global liquidity) has far exceeded the growth rate of global production. After 2002, the growth rate of global currency continued to rise, continuously higher than 10%, and even reached nearly 25%, but the growth rate of world GDP has been between 2% and 5%, and the gap between the two is getting wider... ...Huge amounts of monetary funds are bound to hunt for profit targets in every corner of the world.From the burst American new economic bubble, Internet bubble, stock market bubble, to the real estate bubble, from speculating on world oil to speculating on world gold, precious metals and even forest resources, the global surplus funds are constantly looking for opportunities around the world, resulting in various speculations. A strange phenomenon in the price trend of commodities has never appeared in history.

Moreover, this situation cannot be fundamentally resolved. British scholar Hillel Tickyan believes that today there is a large amount of excess capital that cannot find profitable investment places, which leads to asset price inflation and various financial bubbles.The capitalist system is already in crisis, so it needs a new strategy to overcome it, which has not yet been found. All the countries in the world that have overissued currencies are desperately trying to find a way out for their currencies—only by absorbing these currencies can they avoid the flames of inflation and ignite the uncontrollable anger of the people.The United States' establishment of a strong US dollar, the path of monetization, securitization, and bondization, as well as the expansion of the financial derivatives market, have found a sufficient sponge for the US dollar.Otherwise, years of low inflation in the United States would have long been replaced by hyperinflation.

After the currency is over-issued, it is the question of how to absorb it-this kind of thinking runs through the entire process of the currency trend.When North Korea and South Korea are sharpening their knives, I have repeatedly issued articles to emphasize that the real target is not North Korea and South Korea but the Middle East. One of the bases is the absorption of US dollars in oil price transactions under the "petrodollar" system. Of course, when the currency is overissued to a certain extent and the market is unable to absorb it, a crisis will be detonated, causing a large amount of currency to evaporate along with the shrinking of wealth in the crisis.If you know this, it is not difficult to understand the outbreak of the subprime mortgage crisis, and it is not difficult to understand the root of the Chinese stock market's surge from 2005 to October 2007 and the subsequent drop from more than 6,100 points to more than 1,600 points.

To be more specific, how would the United States resolve the crisis without the evaporation of the bubbles amplified by the subprime mortgage crisis in financial derivatives?Once these huge funds entrenched in the virtual economy pour into the real economy, any real economy will be burned by inflation!Therefore, the subprime mortgage crisis is not without benefits to the United States, not to mention it has helped the United States to accumulate a large number of housing units.These houses are also great wealth. They are built with money from all over the world, but they have nothing to do with the investors who bought the subordinated bonds, because the subordinated bonds correspond to no real estate.

After understanding this point, it is not difficult to understand why few of the Wall Street speculators who initiated the subprime mortgage crisis went to jail. Furthermore, if there is no subprime mortgage crisis that evaporates a large amount of funds parasitic in financial derivatives, there will be no continuous quantitative easing monetary policy by the Federal Reserve; if there is no tragic decline in the Chinese stock market and real estate adjustments that began at the end of 2007 , There will be no huge rescue plan in China. Once you understand this secret, you will understand many things.

From the over-issuance of currency to absorption to evaporation, this neglected route dominates the capital market trends and economic trends in many countries. China is no exception. Since December 2009, China has regulated real estate, and almost at the same time, food prices began to rise rapidly. Some varieties, such as mung beans and garlic, more than doubled in a short period of time. In addition to changes in supply and demand, this round of price increases for agricultural products is also due to the "mischief" of currency flows.After all, money has to find a place to go. When real estate is regulated, money will no longer flow into real estate in large quantities out of hedging considerations, but must flow to other areas-wherever it flows, prices will skyrocket.

In fact, in addition to agricultural products, some less-obsessed areas are also undergoing "rapid" changes. On January 4, 2011, Xinhua News Agency summarized the "Top Ten Domestic Cultural News in 2010", among which "Chinese Painting and Calligraphy Auctions Reach Sky-high Prices" ranked second: In 2010, the Chinese art investment market was unprecedentedly prosperous, Auctions of Chinese paintings and calligraphy hit sky-high prices. On June 3, 2010, the world record for the auction price of Chinese artworks was born in China for the first time - "Di Zhu Ming" written by Huang Tingjian of the Northern Song Dynasty was sold at the Poly Spring Auction with a total price of 436.8 million yuan.Auctions of masterpieces of modern calligraphy and painting also broke records. Among them, Zhang Daqian's "Love Trace Lake", Li Keran's "Long March", and Xu Beihong's "Baren Drawing Water" reached 100.8 million yuan, 107.5 million yuan and 171 million yuan respectively .Public opinion pointed out that the investment in Chinese calligraphy and painting artworks has entered the "100 million yuan era".

From the perspective of the relationship between the trend of calligraphy and painting and the money supply, whenever the currency is issued too quickly, it is also the time when the auction of calligraphy and painting hits new highs repeatedly. The "100 million yuan era" of calligraphy and painting is another comment on inflation. But the absorption of monetary liquidity in these areas is too limited. In May 2010, a reporter from Xinhua News Agency conducted an exclusive interview with Peng Sen, deputy director of the National Development and Reform Commission.Peng Sen's answer explained the absorption and flow of money.

Peng Sen said: "Everyone knows that in order to deal with the financial crisis, various countries invested a large amount of money. In 2009, China's bank loans issued more than 9 trillion yuan. After the liquidity of funds is sufficient, we must find a way out. Why did no similar problems occur in 2009? But what happened this year (referring to 2010, the same below)? At that time, housing prices were rising steadily, and the stock market was also performing well. A large amount of funds were absorbed by capital markets such as real estate and the stock market. Since this year, the state has introduced a series of policies to curb excessive housing prices. The stock market is going up, but the stock market is also going down. The property market is cooling down, and the stock market is in a downturn. In this case, after a large amount of funds withdraw from the stock market and the property market, they start to choose new targets. Let’s analyze the varieties that have risen significantly in price. Although they are all necessities, except for round-grained rice Except for vegetables and vegetables, they are all small varieties of agricultural and sideline products. These products are produced seasonally and consumed all year round. The supply and demand are fixed, and they are not particularly large, so they are easy to store and easy to speculate with hot money..."

Real estate and stock market--two major "sponges" of China In China, a large amount of money invested is mainly absorbed through real estate and the stock market. Once the absorption capacity of these two areas is limited, it will inevitably promote the flow of money to areas such as agricultural products.Therefore, in order to prevent the public from overreacting to the increase in agricultural product prices, the state will carefully seek some kind of balance.For example, when the price of agricultural products rises and the CPI increases rapidly, the regulation on real estate will be relaxed.And when the rising momentum of agricultural product prices slows down, the regulation and control policies tend to become more stringent.At the same time, the control of real estate and the suppression of the stock market are generally difficult to carry out synchronously in today's over-issued currency-the government must carefully find an outlet for the currency flow. Rising prices are the result of over-issuance of banknotes and a signal of currency depreciation. Therefore, when the CPI continues to rise and accelerates, many people will actively buy houses and exchange banknotes for assets out of fear of shrinking wealth.The behavior of buying a house under such circumstances is actually equivalent to passive speculation. At this time, the house has actually become a form of deposit, to be precise, a financial product. When more and more people invest funds in real estate out of risk avoidance and value-added needs, the financial attributes of housing will become more and more obvious, eye-catching and prominent.When the financial attribute of real estate replaces the commodity attribute, its function is dominated by another form of existence of wealth instead of the corresponding residence.In this case, the fundamental force that determines housing prices is no longer the actual supply and demand relationship. Strictly speaking, it is not limited to the actual supply and demand relationship, but depends on the looseness of monetary policy.The looser the monetary policy, the more abundant the liquidity. In short, the greater the money supply, the faster and the greater the rise in housing prices. When I was studying related monographs, I found an interesting rule: in countries where housing transactions are frequent (including house changes) and speculation prevails, the financial attributes of housing will be more clearly reflected.However, this is very different from China.The frequent transactions in China are related to the poor quality of houses (which had to be upgraded many times) and the prevalence of speculation, while in foreign countries, because the quality of houses is more guaranteed and they can be traded many times, they have financial attributes. Kenichi Ohmae said in "Psychoeconomics": Americans have to change their houses an average of four times in their lives.Compared with the Japanese who only have one house in their lifetime and take 35 years to pay off their housing loans, American houses are more like financial products.I once published an article in magazines and other publications, calling this phenomenon of American housing "the chattelization of real estate".The lifespan of American residences is as high as 100 years. As long as the location is right, residences can appreciate in value like financial products, and there is a lot of room for profit.As long as they take advantage of the profits earned from housing growth, Americans can change houses one by one, and, more quickly, they can finally buy a big house in a high-end residential area. Through the comparison of a large amount of data, I found that any country with outstanding financial attributes of houses is likely to cause systemic problems, and will eventually drag down the financial industry and detonate a crisis.The United States after the subprime mortgage crisis is a typical example. Of course, when the financial attributes of housing are fully reflected, its ability to absorb money will also be greatly enhanced. In August 2010, the CPI rose by 3.5% year-on-year, which was a new high for the year. At the same time, the housing sales also rose suddenly and rapidly.Out of fear of currency depreciation, the public once again flocked into the market, pushing the already abnormally high housing prices to continue to rise.In fact, China's housing prices have always been driven by this kind of fear, and it has completely deviated from the traditional theory of supply and demand. What needs to be emphasized is that if you don't control the amount of currency issued and don't solve the problem at the source, it will be useless to rely solely on monetary policy "recycling". Would you love it if dead rats became currency? The proliferation of money will inevitably lead to people's trust in resources. Money is a symbol of wealth.In the era of physical currency, currency itself is a resource.Of course, some alternative currencies are excluded. For example, in "Money, Banking and Economics" co-written by Thomas Mayer and others, dead rats have also been used as currency in some places.I was intrigued by this but couldn't find any further relevant explanations, guessing it might be the need to benefit rodent control, since in this case more "currency" (dead rats) means fewer live rats, which means With the improvement of the living environment of human beings, and the dead rats will become more and more difficult to obtain - just consider this a joke. The question is, would you love dead rats if they were suddenly declared currency by the government?Regardless of this result, the rat species will definitely be hoarded and eventually collected by the relevant departments in the name of protecting endangered animals-prolific rats are the most natural money printing machine!The captured corrupt elements must also be related to dead rats, and they have become veritable "big rats". In the era of paper money, paper money itself has no value, it is just a symbol, and the value of paper money must be expressed through the resources it represents.Therefore, the Canadian dollar and Australian dollar, which the author has mentioned many times in articles and speeches, have a strong trend in the cycle when resources are king.The resources behind them are very rich, and they are all countries with superior systems and strong technological innovation capabilities.The movement of a resource is highly correlated with the movement of its currency. When the resources corresponding to the currency are greatly reduced or disappear, the currency will inevitably depreciate rapidly. In recent years, the leverage effect of paper money and financial derivatives accumulated by human beings has made the stock of currency larger and larger. On the other hand, the wealth corresponding to these currencies is getting smaller-this is the core point I have repeatedly emphasized. American Stephen Lieber wrote in the book "The Coming Energy Crash": By 2040, all the underground oil in the world will be exhausted; within 25 years, 16 kinds of metal minerals will disappear from the earth; Freshwater, the world invests as much as 500 billion yuan in its equipment every year; at present, solar energy only accounts for 1% of the world's total energy consumption, and the high cost of its development is prohibitive... According to data provided by the China Nonferrous Metals Industry Association, among the ascertained reserves of nonferrous metal mineral resources in my country, the reserves available for economic use account for less than 30% of the total resource reserves.By the end of 1999, the reserves of copper ore were 19.419 million tons, 370 million tons of bauxite, 7.714 million tons of lead, 22.491 million tons of zinc, 1.433 million tons of tungsten, 972,000 tons of tin, 581,000 tons of antimony, and 1.329 million tons of molybdenum , 22.136 million tons of rare earth ore and 2.75 million tons of nickel.According to the forecast of my country's non-ferrous metal ore output and resource utilization level in 1999, the static guarantee period of non-ferrous metals is 16.9 years for copper, 6.7 years for lead, 9.4 years for zinc, 6.7 years for tin, 4.8 years for antimony, and 16.5 years for molybdenum.If the bauxite is used according to the actual utilization level, the guarantee period is only 5.7 years.If considering the growth factor of the demand for non-ferrous metal mineral products due to rapid economic development, and deducting the damage to resources due to indiscriminate mining, the guarantee period is even lower.The production capacity and resource status of mines are the key factors that directly restrict the development of my country's nonferrous metal industry.At present, most non-ferrous metal mines in my country are in a very difficult situation, with insufficient recoverable reserves, declining production capacity, low efficiency, accelerated closure, declining self-sufficiency rate of mineral raw materials, and increasing dependence on imports. On the one hand, it is indiscriminate mining, on the other hand, it is rough processing, and the value of resources has not been improved... In the process of these energy sources being gradually exhausted, banknotes are still being continuously released from the mint, and the surplus of banknotes is the general trend .This is a crucial big issue and a key issue that we must clearly understand today. We all know that the U.S. dollar, as the world's largest currency, has been continuously flocking to the world.However, in recent years, the inflation in the United States has not been serious, except that about 70% of the U.S. dollar circulates in countries other than the United States (for example, China’s purchase of a huge amount of U.S. bonds is also an indirect absorption of the super-issued currency in the United States), and The high-tech sector in the United States is also closely related to the absorption of money.New technologies have injected vigor and vitality into the development of enterprises, increasing the demand and absorption of currency.John Gao, an expert in the field of world-class innovation, directly believes that "innovation has become a new currency". The United States is a country with huge resources and excellent institutions. The United States has gathered the most and the best scientific and technological talents in the world.As of 2009, 40% of the world's Nobel Prize winners were from the United States. The United States accounts for 40% of the world's total expenditure on scientific and technological research and development, and 38% of all patented inventions in industrialized countries.In the "Global Competitiveness Report 2009~2010" released by the World Economic Forum, the United States maintains its leading position in international competitiveness and is the country with the strongest innovation capability in the world.The dominant position of the United States in global scientific and technological progress is also reflected in the high output of papers and patents-the number of papers by American authors included in the three major international retrieval systems ranks first in the world.The number of patent output in the United States has been ranking first in the world for many years, far ahead of Japan, which ranks second, and Germany, which ranks third. The United States is a leader in technological innovation in the world. It has been diligently pursuing and making breakthroughs in technology.It has many great companies like Microsoft, Google, etc., as well as young and dynamic companies like Facebook. In 2007, when Google announced its plan to enter the mobile phone market in a high-profile manner and launched the mobile phone operating platform Android, it aimed not only at Apple, which had just launched the iPhone, but also at giants such as Nokia and Microsoft in the field of mobile operating systems. .Many people are wondering, can Google do it?As a result, in just three years, Android's strong position in the industry has been established. In the second quarter of 2010, among new smartphone users in the United States, Google Android beat Apple's mobile phone operating system for the first time.Judging from the sales of the entire first half of the year, Android phones have also surpassed the iPhone. The leading role of the United States in technological innovation is almost irreplaceable.However, if innovation is also used as a basis for the existence of the dollar, then this foundation is no longer rock-solid. On September 15, 2010, the "World Intellectual Property Indicators Report (2010)" released by the World Intellectual Property Organization pointed out that in 2008, the number of global patent applications was 1.91 million, an increase of 2.6% over 2007. Patent filings grew at the slowest pace since the dot-com bubble burst. Some researchers even believe that one of the reasons for the outbreak of the global financial crisis is related to the slowdown of technological innovation. One of the reasons for the outbreak of the global financial crisis can be said to some extent that the growth rate of technological innovation in the United States lags behind the growth rate of global financial capital, while Wall Street is still regarded as the best place for wealth appreciation.Therefore, in the absence of effective investment targets, a large amount of funds purchased artificially manufactured high-risk financial derivative products, resulting in excessive bubbles, which eventually led to the financial crisis.Under the situation of increasingly fierce global competition, the innovation advantages that American companies rely on have been weakened, while the "BRIC countries" that participate in international competition with traditional production factors such as resource advantages (Russia, Brazil) and manpower advantages (China, India) Competitiveness has increased. Both in the United States and globally, the pace of innovation has slowed, and the absorptive capacity of the currency has declined.From this point of view, the future of banknotes is bleak, or in other words, the general trend of banknotes is depreciation. The various assets generally fall into two broad categories: real assets and financial assets, with the majority of financial assets being indirect claims to ownership of real assets.The two are interconnected. After the outbreak of the subprime mortgage crisis, why did the prices of some bulk commodities continue to rise when the actual demand did not really come up?The reason is simple. Part of the currency absorbed by the virtual economy was released into the real economy due to the bursting of the bubble, added to real assets, and participated in the competition for commodities. In recent years, unrestrained financial innovation has led to a dramatic expansion of the global derivatives market. Before 2008, the global scale of various financial derivatives, including subordinated bonds, had reached 531 trillion US dollars, and the financial derivatives market objectively absorbed a considerable part of the excess currency.After the subprime mortgage crisis, some funds began to withdraw out of risk aversion considerations and poured into the real economy, driving up the prices of related commodities. The United States is keen on developing financial derivatives. To some extent, it is closely related to the ability of the financial derivatives market to absorb the dollar.On the one hand, most financial derivatives are traded in U.S. dollars. The development of financial derivatives can increase the demand for U.S. dollars and provide an inexhaustible impetus for the continuous injection of U.S. dollars.On the other hand, the absorption of U.S. dollars in the financial derivatives market has reduced the amount of money flowing into the real economy, ensuring that U.S. prices can remain relatively stable despite the excessive issuance of U.S. dollars. Therefore, it is impossible for the United States to restrain the development of the financial derivatives market at any time.All of this, in the final analysis, is still a problem of currency oversupply.The root cause of the global "excessive bubble" is the excessive issuance of currency, and financial derivatives only further magnify the consequences of excessive currency issuance and accelerate the outbreak of the problem. Now and in the future, human beings will have to pay the price for the continuous oversupply of money.When many people have not yet realized the real meaning of risk, the risk of rapid loss of wealth is coming at a faster rate than climate warming.The lack of relevant knowledge makes people ignore these risks. Of course, all governments and related institutions around the world are covering up the fact that the currency is over-issued, and are unknowingly grabbing the wealth that the people have worked so hard to create. The issue of currency demise has attracted great attention from the end of the 19th century to the beginning of the 20th century.Marx and Engels once put forward a clear and systematic theory of currency demise. We will not comment on the value of this theory for the time being, but at least in some areas, when paper money is flooded to a certain extent, people will return to barter to realize circulation of goods.In fact, it happens every time a big hyperinflation arrives, it just isn't as common. Maybe it's too early to talk about this.But one thing is certain, with the proliferation of paper money, people's wealth will be strangled faster and faster, submerged in the surging torrent of money.In the new cycle, even if you wait for your wealth to stay close, it will not help, because the shrinking of wealth has nothing to do with your personal behavior.The super-issued currency fell from the sky like a mudslide, destroying everything, sweeping everything, and no force can stop it.People with a sense of crisis and wisdom can only plan in advance and take countermeasures to avoid the risk of wealth being swallowed up by the torrent of banknotes, while those who are unaware, or indifferent, can only watch the inexplicable loss of wealth And helpless.