Chapter 6 Section 5 The Blood of RMB Appreciation and China's Future

If the currency is overissued, the result is depreciation.However, it is different in China - the renminbi depreciates internally and appreciates against the U.S. dollar. Many people cannot understand this phenomenon.While the pressure of domestic inflation is increasing day by day, that is, while the RMB is depreciating internally, why is it rapidly appreciating externally, especially against the US dollar? When talking about this issue, there is another episode.When a well-known university professor in China made a program on TV, he added up China's domestic deposits and huge foreign exchange reserves to prove that China is strong enough to implement large-scale investment plans.

As everyone knows, there is quite a bit of overlap between the two, that is, most of the foreign exchange reserves are accumulated by the domestic issuance of base currency, at the cost of greater inflationary pressure and more flooding liquidity threats to the people. On December 28, 1993, the central bank issued the "Announcement on Further Reforming the Foreign Exchange Management System". According to this, from January 1, 1994, China implemented the unification of exchange rates. The central bank's foreign exchange receipts and payments under the current account of domestic institutions The system of foreign exchange settlement and sale by banks shall be implemented.As long as the foreign exchange of trade surplus, international loans, and foreign direct investment is forcibly settled by the central bank, the central bank will release RMB currency supply equal to the amount of forced foreign exchange settlement to the market.

In layman's terms, the central bank reserves foreign exchange by printing money in the country. As a result, the larger the foreign exchange deposit, the greater the amount of base currency, and the higher the multiplier effect of the currency. At the end of 1994, China's foreign exchange reserves were only 51.6 billion U.S. dollars. Since 2003, the new foreign exchange reserves reached 116.8 billion U.S. dollars, and the increase has been even more rapid since then.It is also since 2003 that Chinese people clearly feel that there is more money in society!Similarly, it was also from 2003 that China's housing prices entered a fast-rising track.

That's where the inner connection lies.There is more money in the country, the currency depreciates, and funds are frantically pouring into real estate and other fields out of the need for hedging and preservation of value, resulting in skyrocketing asset prices. Putting base currency in the country to reserve foreign exchange such as US dollars will inevitably lead to this situation. According to data from the central bank, as of the end of 2010, the balance of China's foreign exchange reserves had reached US$2.85 trillion, a year-on-year increase of 18.7%, and the annual increase in foreign exchange reserves was nearly US$448.2 billion.With such a large amount of foreign exchange reserves, there must be a corresponding large amount of RMB invested in the country. How can there be not much "money"?

It is worth noting that the increase in China's foreign exchange reserves not only led to the excessive issuance of domestic currency, but also condoned the excessive issuance of US dollars, providing a strong impetus for it, and the excessive issuance of US dollars was then reserved by China. Putting in more base currency, the U.S. prints and issues more dollars, and China re-reserves... thus forming a vicious circle—this is of course a virtuous circle for China, but it is undoubtedly a virtuous circle for the United States. Foreign researchers have also paid attention to this problem.

American scholars Robert Skidelsky and Vijay Joshi pointed out that there are many intertwined causes of the global recession, but a more correct view is that the accumulation of foreign exchange reserves in some countries in East Asia and the Middle East played a role in the collapse of the global economy. Critical laissez-faire. From 2003 to 2009, global foreign exchange reserves climbed from US$2.6 trillion to US$6.8 trillion, with an average annual growth rate of 15%, while the average annual growth rate of global GDP in the same period was only 4.4%.This means that inflationary pressures have grown sharply.However, the foreign exchange reserves of various countries are mainly held in the US dollar, which has enabled the United States to avoid inflation, adopt "Keynesian" domestic policies, and enter an unsustainable period of asset and consumption prosperity.In short, there is an intrinsic connection between China's foreign exchange reserve accumulation and the inflationary monetary and fiscal policies of the United States.

China seems to be more wronged than Dou E, but from the analysis of the source, it is all caused by itself.How can it not be damaged by playing games with powerful countries in this way? China needs to make adjustments as soon as possible in many ways. The scary thing is not being unaware of the danger, but ignoring the many crises and risks behind it. On December 16, 2009, I wrote in the article "Inflation is Already Around Us (Also Talking about Housing Prices)": "...Investment is the supply of the future! Developed countries such as the United States, supported by excessive credit, can Docking with China's exports, digesting China's excess production capacity. After the subprime mortgage crisis, because American consumers have overdrawn their consumption in the next few years, their consumption capacity is not what it used to be. In this case, if China Still investing on a large scale, once this supply capacity is released in the future, how serious is the situation of overcapacity? This will keep China in a cocoon in the future - on the one hand, the price of bulk commodities has risen, the cost has risen, and on the other hand, a large number of products Backlog. That is to say, after inflation, China will enter an economic form where imported inflation and domestic deflation coexist!"

Western developed countries pressured the appreciation of the renminbi (the official start after the attack on the euro), and China's exports fell, resulting in: related excess production capacity. China's domestic large-scale investment supply has increased, and the income and purchasing power of the people cannot keep up. In addition, the relevant investment projects themselves are already surplus projects, and the result is bound to be: related excess production capacity. are all coming back to one point. This is exactly the crucial point. The result of the double excess is that for the sake of GDP and employment, we can only continue to invest, and we can only continue to inject capital for investment. If we are short of funds for injection, we can only continue to invest in the base currency—returning to a vicious circle.

Since the renminbi is not an international currency, it can only be digested in the country, which means that the trend of declining purchasing power of the renminbi is difficult to change. On the other hand, the subprime mortgage crisis has burst the huge financial bubble in the United States, and President Obama will inevitably return to the policy goal line of emphasizing traditional manufacturing (creating employment) and vigorously developing new energy (seeking new economic growth points).In fact, after Obama took office as US president, he focused his policies on the above two areas and proposed a plan to double exports. To achieve these goals, a weak dollar policy must be implemented.From the perspective of bulk commodities, this actually means the establishment and further strengthening of a rising point.

However, the United States is not a country dominated by labor-intensive industries. To a large extent, it must rely on the power of technological progress.Therefore, I have written many times before and pointed out that the U.S. economy will recover in the fourth quarter of 2010, especially after November 2010. Since this recovery cannot effectively absorb employment in the short term, the recovery of the U.S. economy will be closely related to the unemployment rate in the initial stage. The U.S. economy will not recover in an all-round way until the financial industry is revived. China's huge investment will inevitably drive the demand for resources.

On the other hand, the weak dollar policy implemented by the United States in this new cycle is also injecting a strong impetus into the bullishness of resource products. The combined force of the two will inevitably push up the price of resource goods. I emphasized in the article "Investment Speech" written on January 16, 2009: "At that time, I judged based on the interest analysis method that the price of gold would continue to consolidate until the transition zone between Bush's resignation and Obama's inauguration. , I have mentioned many times that the price of gold is waiting for Obama. After Obama took office, the price of gold will go out of a wave of rise (at that time, I saw $1,300, and I made a judgment on the next stage of gold in early 2010). "2009 1 On April 20, the President-elect of the United States, Democrat Barack Obama was officially sworn in as the 44th President of the United States on the open-air platform on the west side of the U.S. Capitol. As early as 2008, I researched and deduced a rough model on the synchronization between gold and the U.S. dollar, and found that: from 2009, gold and the U.S. dollar will move synchronously in certain periods of time, and this synchronization Significantly more frequently than ever.As a result, gold's near-perfect synchrony with the U.S. dollar has baffled investors. At the end of September 2009, when I was invited to give a speech in the United States, I was asked this question by many people.In fact, the reason is not complicated. When the monetary characteristics of gold overlap with those of the U.S. dollar, or when the commodity characteristics of gold overlap with those of the U.S. dollar—the commodity of the U.S. dollar is only available when the demand for hedging is strong. It will be manifested only when it is - the trends of the two will be synchronized. The difficulties faced by Obama determine that he must force the appreciation of the renminbi. In fact, since Obama came to power, the wave of pressure on the appreciation of the renminbi has been getting higher and higher.In almost every meeting between China and the United States, appreciation of the renminbi is a must-discussed topic. On the one hand, if the United States wants to implement a weak dollar policy, on the other hand, if it wants to ensure the unshakable global hegemony of the dollar, it can only be achieved by harassing the euro, which is the only one that can compete with the dollar, or triggering crises in other related economies. , that is, to strengthen the only strong position of the dollar by triggering crises in other economies. This means that the renminbi will not only appreciate against the euro, but also against the U.S. dollar—and this is only one link in forcing the appreciation of the renminbi. Another link will appear in the future, which is to force the yen to depreciate rapidly by triggering the Japanese debt crisis. , leading to the rapid appreciation of the RMB against the Japanese Yen. However, factors such as financing difficulties, rising labor costs and raw material costs, and increased tax burdens have made it very difficult for Chinese small and medium-sized enterprises.What needs to be mentioned here is that the production costs of many companies in Western countries are constantly decreasing due to technological innovation, which makes China gradually lose its low-cost competitive advantage. If the renminbi appreciates suddenly and rapidly, in this process, a considerable number of labor-intensive enterprises with low technical content and a considerable number of private enterprises with high technical content and less support from government policy resources will go bankrupt.With the emergence and spread of bankruptcies, the foundation on which the renminbi relies becomes fragile, and the renminbi will depreciate rapidly against the U.S. dollar. In this case, it is very easy to cause foreign capital and hot money to withdraw, and the pressure on the renminbi to depreciate suddenly doubles. Increase. The logic of this dangerous layout is: First force the appreciation of the renminbi, causing a large number of export-oriented manufacturing companies to go bankrupt due to losses, including many high-quality companies, and then push the renminbi to depreciate sharply, so as to push up the huge profits obtained in China's bubble and arbitrage, and acquire high-quality Chinese companies , RMB assets, resources! This is the blood of RMB appreciation. When all the external chess pieces are placed where they should be, and when the chess game is gradually formed, can China truly realize the crisis it is about to face? On March 18, 2009 and November 4, 2010, the Federal Reserve successively announced the launch of two rounds of quantitative easing monetary policy, and on December 3, 2010, it clearly implied that "the third round of quantitative easing monetary policy will not be ruled out if necessary." ". On the last day of 2010, the debt of the US government had exceeded 14 trillion US dollars (equivalent to the GDP of the United States for one year, and the US debt ceiling was more than 40,000 Geithner billions in 1993).The Obama administration must convince Congress as soon as possible to raise the debt limit.This is definitely the last straw for the United States, whose economic growth is still very fragile.Otherwise, the United States, which has a huge deficit, will no longer be able to issue bonds, or even repay the matured debts. Debt default will lead to a sharp increase in interest rates. The United States may repeat the mistakes of Greece, and the debt crisis will break out, shocking the global economy and markets.Moreover, if government spending plummets, it will inevitably lead to a sudden cooling of the US economy and a sharp increase in unemployment. It is almost certain that the United States will never let this happen. In February 2010, when the debt scale of the United States was about to reach its limit in order to save the economy, the Obama administration lobbied strongly and pushed the US Congress to amend the bill to increase the government debt ceiling from US$12.4 trillion to US$14.3 trillion. On January 6, 2011, U.S. Treasury Secretary Geithner sent a letter to the Senate, reminding Congress to act early to raise the ceiling of the U.S. public debt to avoid payment difficulties and market chaos.If Congress does not take measures as soon as possible, the consequences will be "catastrophic".Geithner said that according to the current borrowing rate, the US national debt will reach 14.3 trillion US dollars by the end of March, which is the existing national debt ceiling. On March 1, 2011, Federal Reserve Chairman Bernanke stated that the consequences of the U.S. Congress failing to raise the debt ceiling would be more destructive than the shutdown of the U.S. federal government and would bring the U.S. economy into turmoil."If members of Congress cannot come together to raise the U.S. short-term debt ceiling to help finance the federal government through basic fiscal restructuring, it will be more damaging than a U.S. government shutdown," Bernanke said in his semi-annual statement on monetary policy before the Senate Banking Committee. "Bernanke strongly supports the budgetary changes necessary to reduce America's mountain of debt and the rising deficit it faces in the coming years.He said the fiscal challenges facing the United States are the most urgent long-term issues that the government needs to address. Why is raising the US debt ceiling dangerous?Because the figure of 14.3 trillion US dollars is very close to the total GDP of the United States.Once the debt is higher than the GDP, it means that an economy may fall into weakness-the reason is very simple, the wealth created by economic development is basically the same as the debt interest, and in layman's terms, it is starting to work for nothing! In this case, the fuse of the debt crisis may be ignited at any time, the Greek sovereign debt crisis is a typical example. But the US Congress raised the debt ceiling is inevitable.In fact, in the past 10 years, the US debt ceiling has been raised 10 times, and another increase is inevitable. On February 14, 2011, the White House predicted that the federal budget deficit for this fiscal year would expand to US$1.65 trillion, accounting for 10.9% of GDP, the highest level in history and much higher than the internationally recognized warning level of 3%. The accelerated expansion of US public debt in recent years is the result of the economic recession triggered by the international financial crisis, the reduction of tax sources and the deficit fiscal policy for many years.Yan Qingmin, assistant to the chairman of the China Banking Regulatory Commission, believes that the United States has not yet found a good solution to the problem of huge fiscal deficits, and its credit risks continue to accumulate. Preservation and appreciation of foreign exchange assets.Xiang Songzuo, deputy director of the International Monetary Institute of Renmin University of China, also said that as the amount of US government debt increases, the value of its national debt will also face the risk of severely shrinking, which will affect the foreign exchange assets of creditor countries including China. safety. This is the inevitable result of China's continued purchase of US bonds.Today's passive fruits come from the causes planted yesterday. As early as the beginning of 2009, economist John Williams said: "If the government does not take the method of printing more money and devaluing the dollar, there will simply not be enough money to achieve the level of social welfare it promises." Williams believes that , given that the U.S. government is monetizing its huge debt, the Fed will print more money and further devalue the dollar. Song Hongbing, a private researcher, believes that the US economy has been hijacked by debt. The biggest commonality between 1929 and 2009 is that the debt-to-GDP ratio of the U.S. economy "has an astonishing similarity." In 1929, the total debt of the United States accounted for 300% of GDP, and the entire national economy collapsed under the heavy debt pressure; in 2009, the total debt of the United States was close to 400% of GDP. The United States needs more dollars to stimulate its economic development and let the world share the pain of its economic adjustment.At the same time, it has indirectly led to another result: when related Chinese companies are in a state of bankruptcy, they have a stronger ability to acquire Chinese companies and related Chinese resources. Even more worrisome is China's own excess money supply. The excessive issuance of currency is like a powerful medicine with wonderful effects for the economy, but after taking too much, it will inevitably lead to serious organic diseases, so that any remedial measures are powerless. After the U.S. economy recovers, its ability to withstand inflation will increase, and the demand for bulk commodities brought about by the recovery of the real economy will intensify inflationary pressure in China, while the real economy lacks endogenous benign and strong performance in China , the ability to absorb this inflationary pressure will be weakened. The central bank's policy of tightening credit will accelerate the ischemia of China's real economy. In fact, Chinese enterprises, especially private enterprises, have been plagued by insufficient funds. The so-called excess liquidity basically exists in the field of speculation.The central bank's policies can't do anything to them, but the lethality to the real economy is sharp. In other words, when China and the US face the same bubble, the results they face are completely different. We are in such a process: from inflation to high inflation and then to deflation, this process may not be long, but it is full of anxiety and pain. This means that the Chinese economy will face an extremely unfavorable situation. It should be recognized that the external appreciation and internal depreciation of the renminbi has not only caused the increasingly serious defect of declining purchasing power in the country, but also planted huge hidden dangers for overcapacity. At the same time, it has also laid huge hidden dangers for the future reversal of the renminbi. The phenomenon of internal currency depreciation and external appreciation also occurred in Japan in the mid-to-late 1980s.The domestic depreciation of the yen and the external appreciation accelerated the condensation of the bubble.However, when the bubble was punctured, Japan found that a large number of American assets it had previously purchased had to be handed over, and a large amount of wealth was looted. This lesson is not far away from China. It is worth mentioning that the American system is designed so that the lives of politicians are determined by the voters. Politicians at all levels are responsible to their voters and do everything possible to please the voters.This determines that the government must pursue the goal of maximizing the interests of voters.Moreover, the behavior of the government is relatively transparent.The institutional arrangements in the United States endow the public with the right to know relevant information, which the government must satisfy.Therefore, even when it is aggressive to the outside world, the U.S. government must explain to the public the reasons for doing so and the next step.Therefore, many things in the United States are actually public (the so-called spreaders of conspiracy theories, in fact, did not pay attention to these public information. They called it "conspiracy" because they couldn't understand it).It is this kind of institutional arrangement that restricts to the greatest extent the behavior of government officials to practice favoritism, fraud, and selfishness, and the soil for corruption is very poor.It is precisely this kind of institutional arrangement that makes this nation have creativity and cohesion beyond imagination.The advantages of the system have made a strong United States, giving it the ability to attack foreign countries, not the other way around. This is common sense that we must understand. Regarding this point, we can also know through the relevant details disclosed by WikiLeaks: any content related to the United States is beneficial to the national interests of the United States. Therefore, when the United States is in crisis, it will inevitably make the choice that is most beneficial to it.As the currency that has the greatest impact on the US dollar, it is inevitable that the euro will be attacked -- of course, the euro's attack is also determined by the euro's own defects. The above is just one of the analysis bases for my prediction at the end of 2008 that the euro sniper war will start in 2010. In March 2010, I further confirmed that in May 2010, the euro country will start a decisive battle with Wall Street, and the battle will be resolved quickly, and the result will be that the influence of the euro will be damaged-this is an inevitable result. On March 17, 2010, I further analyzed in the article "The Tragic Hero of the Currency War: Papandreou": "After the euro, the next big speculators will attack China. The trick is still: the influx of hot money --Forcing the appreciation of the local currency--Pushing up the bubble--Evacuation of hot money--The bubble burst... However, China has been actively creating and accumulating bubbles, and has never been tired of it, sparing no effort. In many cases, we should not complain that the speculators are too cruel, but should Think about your own problems. Those who don’t introspect themselves will perish. When Papandreou was fighting tragically, several land kings were born in Beijing, including a subsidiary of China South Industries Group Corporation. As soon as the land king came out, the surrounding housing prices immediately skyrocketed... At this moment, this scene cannot help but make people sigh.” What happened afterwards was basically consistent with my derivation - in the month when the attack on the euro was completed, the United States and other Western countries began to forcefully suppress the appreciation of the renminbi.If you understand the previous program, it is not difficult to understand their purpose. In addition to strong pressure, another trick is to depreciate the local currency to cause a relative appreciation of the renminbi. What kind of cause, there must be what kind of effect. The inflationary pressure brought about by the money supply several times faster than the growth rate of the U.S. dollar is also putting continuous pressure on Chinese enterprises, and at the same time, injecting increasingly strong pressure on China's inflation.The result of doing so is that it is possible to push yourself into a desperate situation: create conditions for the rapid depreciation of the renminbi in the future, and provide more convenience for the foreign capital that has completed the layout to acquire high-quality assets in China in the future. The life-and-death chess game of this economic decisive battle has already begun. Many scholars believe that the United States cannot stand the disadvantages brought about by the appreciation of the dollar. One of the arguments is that the appreciation of the dollar will increase the debt of the United States, while the depreciation of the dollar can dilute the debt of the United States. The depreciation of the dollar is more in line with the national interests of the United States. The conclusion is that the United States prefers devalue the dollar.This kind of view is too dogmatic and lacks a big picture, which is a typical retail investor thinking. In 2008, when I took the time to study for a PhD in finance, I felt deeply that the financial teaching in China was out of touch with reality.Without the integration with other disciplines, finance is just a tool.Many people think that China lacks cutting-edge financial talents. In fact, what China lacks are strategists who understand financial common sense. As long as the appreciation of the U.S. dollar is not carried out when the United States concentrates on large-scale debt repayment, the significance of this appreciation to creditors is more like a roller coaster ride. More importantly, what conditions are accompanied by the rapid appreciation of the dollar?It is to promote the bursting of the renminbi bubble. If the renminbi depreciates sharply instantly, the dollar can be exchanged for renminbi at a ratio of 1:20 or even higher, and the high-quality assets in China can be purchased cheaply. Does it actually cancel out? Moreover, doing so will not harm the interests of the country's creditors and will not trigger public backlash.It can be described as the best of both worlds.Once the time comes, the United States may coordinate and cooperate with various means and tools—this is definitely the strength of Wall Street, triggering the return of global dollars to the United States, causing China and other emerging markets to quickly shift from inflation to deflation, from excess liquidity to Shortage of mobility and crashing down due to heavy blood loss in a short period of time. The greater danger lies in the low-carbon economic route of China's "power rationing" (this kind of low-level low-carbon economic route is unique in the world), the pressure of RMB appreciation, the pressure of rising labor costs, the pressure of monetary policy tightening, and the pressure of raw materials. The pressure of rising prices and the pressure of taxes and fees to support huge investment plans have made more and more small and medium-sized enterprises face life-or-death choices. Once external attacks are launched, these companies will suddenly fall to the ground and become the pockets of others-especially those companies that have raised funds overseas due to the tightening of domestic monetary policies. Once the dollar appreciates, they will die intensively without any precautions! The secret lies here. This is what China must be vigilant at the moment. At the same time, when the U.S. dollar officially entered a strong track (the "official" is added here because it does not refer to a short-term rebound of the U.S. dollar, but refers to a turnaround), the new trend that I have mentioned many times began in November 2008. The cycle will also end, and the kingship of resources will fade, because only in this way can the United States acquire more resources, and then through the depreciation of the dollar and the strengthening of resources, it will resolve its own debts and strengthen its own strength.