Liu Jin and Chen Hongya: It can be expected that in the future, major economies in the world will increase taxes, increase transfer payments, and be careful to increase inflation rates to solve the problem40The economic imbalance that has slowly accumulated over the years is extremely uneven.
2020COVID-19 is a special year, and the world is rapidly entering the era of zero interest rate. 2020year3month15On the th, the Federal Reserve announced a rate cut, lowering the federal funds rate from1.25%Down to0.25%Almost zero. In fact, this is not the first time in history, as early as08During the financial crisis in, the Federal Reserve lowered interest rates from2%Down to0.2%And it has been maintained for a long time7Year until2015year10The month has only gradually retreated. The same applies to Europe and Japan.2009year5Month, Eurozone Central Bank(ECB)Reduce the marginal loan facility interest rate from5.3%Down to1.8%，2014Further downgraded to0.4%Since then, it has been maintained at this level, and the deposit interest rate has continued to rise from3.3%Down to-0.5%This means that financial institutions not only have no interest on their deposits with the central bank, but also are subject to penalty interest. The era of zero interest rates in Japan started even earlier, and the Bank of Japan1995The discount rate (the loan interest rate from commercial banks to the central bank) will be adjusted from1.8%Lower to0.5%，2001Annual decrease0.1%, followed by a brief pullback (to0.8%）During the financial crisis, it once again dropped to0.3%The excess deposit reserve rate of Bank of Japan is adjusted from2016Entering the negative range since the beginning of the year. Although China has not officially entered the era of zero interest rates, the overall trend is very similar to that of Europe, America, and Japan, with the main interest rates being08The financial crisis of the year has halved. Zero interest rate and negative interest rate are essentially the same thing: the deposit interest rate can be negative, and the penalty interest can be seen as the storage fee for cash; But the lower limit of the borrowing rate must be zero. If borrowing money itself can make money, it will generate unlimited arbitrage space, so it is impossible. We collectively refer to interest rates hovering around zero as zero interest rates. It should be noted that zero interest rate refers to the risk-free interest rate in economics, such as short-term treasury bond interest rate, while the lending interest rate of enterprises and individuals will not be zero due to the existence of credit risk. The direct reason for the formation of zero interest rates in recent years is the quantitative easing policies of various countries. Generally speaking, the central bank reduces the interest rate by purchasing short-term treasury bond. When the interest rate approaches zero, it can continue to increase the money supply by purchasing a specific number of long-term bonds and other financial assets. In the past ten years, the central banks of developed countries in Europe and the United States have expanded their balance sheets by at least3Times.08Before the financial crisis in, the Federal Reserve's asset size accounted forGDPThe specific gravity is only6.6%，2019The year has already reached21%Absolute expansion4.7Times, during this period, the relative size of the Federal Reserve's holdings of treasury bond bonds and government supported institutional bonds increased from5.1%Ascend to18.7%Absolute expansion5.4Times; During the same period, the proportion of European Central Bank assetsGDPSpecific gravity from16.3%Increase to39.3%Absolute expansion3Times, the scale of holding treasury bond is from2%Increase to24%Absolute expansion16Times; The relative size of Japanese bank assets varies from21%Up to103%Absolute expansion5Times, the relative scale of holding treasury bond is from13%Add to87%Absolute expansion7Times. The data of the People's Bank of China cannot be directly compared with that of the West, as the entire financial system is directly administratively managed by the government. So, if we look at the total amount of loans in the entire banking system08yearGDPof150%Growing to the current level250%, grow into a wholeGDPCome on. Under the assistance of monetary policy, the global economy has gradually recovered over the past decade. The United States2010The annual rate is the first to get out of the financial crisis. Until the outbreak of this COVID-19, the economic growth rate remained at2%-3%High order; Eurozone in2014Starting from the beginning of the year, the economic growth rate recovered to before the outbreak of the epidemic2%The level of; Japan is slightly worse, about1%； China has continued to maintain a decade of rapid economic growth, although the growth rate has increased from9%Gradually descending from left to right6%Up and down. Zero interest rates are actually a long-term trend Although we say that the direct cause of zero interest rates in the short term is the central bank's monetary and financial market operations, in reality, zero interest rates are a40The inevitable result of the long-term trend of the year. If we extend the timeline to20At the beginning of the century, we will find that the current zero interest rate is due to sustained40Due to the interest rate cut in. The Current Interest Rate Level and the Last Century30to40The time is comparable. In the United States10Take the interest rate of one-year treasury bond bonds as an example,1919The interest rate of treasury bond in5%Around, during World War II(1939-1945)lower2%； After the war, interest rates continued to rise, and in the last century80Achieved for the first time in the early 1990s14%； from80Since the mid-1990s, interest rates have continued to decline, and2019At the end of the year, it has decreased to2.2%Left and right, but after the outbreak of the epidemic, it slides to1%following. An interesting phenomenon is that,40The loose monetary policy in brought about a continuous increase in asset prices, but did not trigger high inflation. If the stock market value is divided byGDPTo briefly estimate the valuation levels of capital markets in various countries, it can be found that1980Year to2018In, almost all major countries saw a significant increase in stock market prices. Among them, the valuation of US stocks is from0.48Multiply to1.48Times, Japan from0.71Up to1.06Times (Japan period:1994to2018Year), The valuations of the German and French stock markets have increased more than fivefold. But at the same time, global inflation has been well controlled. Also in1980~2018In, the average annual inflation rate in the United States was2.6%Japan0.2%The Eurozone is particularly focused on1990Annual average of4%The inflation has gradually decreased to the current level1%。 Japan has actually been struggling with deflation1994-2018The inflation rate during the year was only-0.5%。 The purpose of continuous interest rate cuts is of course to stimulate employment and economic growth. However, we see that policy stimulus has not been able to bring about rapid economic growth. Excluding the rapid recovery after the war10Year, from1960Year to2019In, developed countries experienced two significant changes, one being per capitaGDPThe growth rate continues to decline, and the second is the continuous decline in population growth, which is caused by the combination of the two factorsGDPThe growth rate continues to decline. Taking the average annual growth rate of the economy or population of the United States, the European Union, and Japan as a simple comparison1960Year to1980Year1980Year to2000Year2000Year to2019The situation in three stages of the year, per capita of the three major economiesGDPThe average annual growth rate is3.6%、2.1%and1.0%The average annual growth rate of the population is0.6%、0.4%and0.1%，GDPThe average annual growth rate is4.3%、2.6%and2%Even if interest rates continue to be lowered, the economic growth rate will still decline significantly. Lowering interest rates is to boost demand, and insufficient demand is a structural issue Why hasn't continuous interest rate cuts brought about high inflation or rapid economic growth, but asset prices are getting higher and higher? Before answering these questions, let's first take a look at a set of macroeconomic identities: ① supply=Demand; ② supply=capacity*Capacity utilization rate; ③ demand=consumption+investment+Net exports (foreign demand). Over the past forty years, globalization and technological progress have greatly improved production capacity, enablingGDPThe production capacity on the supply side has achieved significant growth. But to reflect production capacity in economic growth, it needs to be determined by demand. Because supply equals demand, the necessary condition for economic growth is for demand to keep pace, otherwise some production capacity can only be idle. Unfortunately, in the past40In, production capacity was expanding, but utilization rates were decreasing. According to the St. Louis Federal Reserve database, the utilization rate of US production capacity is as follows:,1967-1980The average value of capacity utilization during the year was84%，1980-2000During the year81%, to2000-2019The annual average decreases to77%。 These data indicate that in the process of significantly increasing production capacity, insufficient demand has become the main bottleneck of economic growth. So, in theGDPWhich demand among the three carriages - consumption, investment, and net exports - is insufficient? If we consider the world as a unified economy, exports are equal to imports, and net exports are always zero. For major economic countries, the main significance of imports and exports is to be embedded in the international production system, which must be balanced in the long term and cannot bring about long-term demand pull. So, from a global perspective, the measurement of demand mainly comes from consumption and investment. Among them, investment demand is relatively easy to stimulate, and interest rate cuts can directly stimulate the investment expansion of enterprises. But stimulating investment will lead to a dead circle: the economy grows slowly due to insufficient effective demand. The result of reducing interest rates to stimulate investment is to further expand production capacity, but the expanded production capacity must be solved with more consumption. If consumption does not grow, the problem will not only be solved, but will become worse. At the same time, the investment behavior stimulated by interest rate reduction will not be limited to entities, but will inevitably include land and financial assets. Therefore, with interest rate reduction, all long-term assets, such as land, stocks and bonds, will become more and more expensive, resulting in asset foam. Therefore, the real gap in insufficient demand lies not in investment, but in consumption; It is the insufficient consumer demand that leads to the insufficient utilization of production capacity, dragging down economic growth. Only stimulating consumption is the key to solving the problem. Insufficient consumer demand can also explain the problem of low inflation rates. Only when there is more demand for a certain commodity, the price increases. Insufficient consumer demand means that the flow directionCPIIf there are not many currencies in the basket, inflation will naturally not rise. This is exactly the opposite of the mechanism of high asset prices caused by the surge in investment demand. The polarization of wealth leads to insufficient consumer demand, and the interest rate reduction is to cooperate with government borrowing Why are there structural deficiencies in consumption? One important reason is the polarization of wealth. If we study the consumption and savings propensity of the general public, it is not difficult to find that the marginal consumption propensity decreases with the increase of income level. In other words, for a relatively poor person (such as migrant workers or young people), the desire to consume is strong, and the most important constraints on consumption are income and wealth. Therefore, an increase in income will inevitably lead to more consumption; For relatively wealthy people, because most of their consumption needs have been met, only a small portion of their income will be used for consumption, and the rest will be converted into savings. The wealth saved will enter financial and physical investments through the financial system. So, if the polarization between rich and poor increases, due to the relatively small increase in consumption by the rich, but the poor do not have income to support consumption, the overall consumption demand of society will decrease. in the past40In the middle of the year, the wealth gap between countries has increased to varying degrees. Taking the United States as an example, according toWID(World Inequality Database)Data provided,1939In, the highest income in the United States10%The income share of the population is47.8%Lowest income50%The share of the population is14%What is the difference in income share between the two groups34One percentage point, the war has eased the income gap1945Year, highest10% And minimum50%The income shares of the population are35.6%and19.7%Gap20Percentage points, and the proportion of income between the two groups remained at this level until1980Age;1980After the year, the differentiation rapidly expanded to2018Year, highest10% And minimum50%The income shares of the population are46.8%and12.7%Gap34Percentage points, this level is equivalent to1939Years are equivalent. Other developed countries are also in a similar situation, starting from1980Year to2018In, the income share gap between the two groups in Germany widened13Percentage points, the UK has expanded10One percentage point, Japan has expanded12Percentage points (during Japan:1992to2018France is slightly better, only expanding4Percentage points. China's reform and opening up have brought about a huge takeoff of the overall economy, but at the same time, it has also brought about more acute problems of wealth inequality. In the early stages of reform and opening up, the highest income earners10%And the lowest50%The share of income remained basically unchanged, but after40In, the difference between these two groups widened38Percentage points. That is to say, China's wealth gap is very similar to that of the United States. In order to alleviate the political contradictions caused by wealth inequality and make up for the economic problems caused by insufficient demand, major developed countries have implemented varying degrees of transfer payments, providing government subsidies to the impoverished population, allowing them to obtain consumption energy higher than their income levels.OECDStudied the national savings situation of countries such as the United States, France, the Netherlands, Australia, and South Korea The study divides the population into equal groups based on income level5Group, most countries are located in the two lowest income groups, i.e. at least40%The population savings rate is negative, while the United States has60%The population savings rate is negative. This indicates that the consumption of the poor is relatively strong, as they actually spend more wealth than their own income. For most countries, the most important means of government transfer payments are social security and medical expenses. Taking the United States as an example,1980-2019During the year, the proportion of US government expenditure on traditional Chinese medicine and social security increased from44%Ascend to63%, accounting forGDPRelative gravity from9%Ascend to13%。 It is precisely because of these huge transfer payments that the poor can afford higher consumption, thereby boosting the overall level of demand in society. How to Increase Transfer Payments Without Increasing Taxes: Debt Inflation So, where does the money used to subsidize the poor come from? It can be through taxes on the wealthy. In cases where taxes are insufficient to cover, external borrowing can be carried out, and the amount of borrowing depends on future tax conditions. Since the last century80Since the 1990s, European and American countries, represented by Reagan economy and Thatcherism, advocated small government and large market, and advocated tax reduction. By the 1990s, this trend of thought had converged into the Washington Consensus1980Since the beginning of the year, the highest marginal tax rates for corporate income tax and personal income tax in European and American countries have been continuously lowered, and currently only in the last century80Half of the early years. Taxation is decreasing, and the pressure of transfer payments is increasing day by day. The only way out is for the government to borrow. 1980to2019During the year, the debt of residents, businesses, and governments in developed countries increased, with government sector debt rising the most and the US government debt rising the most/GDPThe relative scale of has increased59Percentage points, up in France78Percentage points, up in the UK40Percentage points, up in Germany31One percentage point, Japan is the most severe, with an increase153Percentage points. in summary,1980In the past 40 years, globalization and automation have greatly improved production capacity. At the same time, under the influence of the Washington Consensus, governments of all countries have continuously lowered tax rates on the rich, and the gap between the rich and the poor has gradually widened. Low income groups have insufficient effective demand for the whole economy due to their low income, which has slowed down economic growth. In order to stimulate the economy, the government chose to lower interest rates. The interest rate reduction has a certain stimulus but limited effect on private consumption and productive investment. On the contrary, the government's motivation to borrow has been greatly stimulated, and the government happens to complete the transfer payment by borrowing instead of taxation. The interest rate cut has stimulated private investment to a certain extent, but at the same time, it has further increased overcapacity, led to higher asset prices, further widened the gap between rich and poor, and reduced effective demand again, so the government continues to expand borrowing... In this cycle, the interest rate is getting lower and lower, and the debt is getting higher and higher. What does zero interest rate mean in the future? As we mentioned earlier, zero interest rates, asset appreciation, low inflation, wealth inequality, transfer payments, and debt surge are all closely related concepts. The emergence of this series of imbalances is due to the fact that governments around the world have been using short-term stimulus policies to attempt to address long-term trend issues. Zero interest rate is where we finally40After the New Year, we reached the extreme point of treating headaches and foot pain. Future40This imbalance cannot be maintained indefinitely, and will inevitably return to a more sustainable balance in a gentle or intense manner. The power of technological progress is unstoppable, but the speed of globalization is slowing down or even regressing due to this imbalance. Investors with huge assets worldwide should realize that the assets on their books are only a number; The national debt always needs to be repaid, but the low-income class does not have this ability, so the national debt is actually the debt of these investors or their descendants. If we look at assets and liabilities together, in fact, net assets are not as much as they appear on the books, and a large part of the assets are offset by liabilities. Throughout history, there have been three ways to repay national debts: first, by increasing taxes directly; Secondly, covert breach of contracts through relatively high inflation levels; The third is direct breach of contract. None of these three methods will bring pain. Increasing taxes will slow down economic growth and increase employment pressure. Poor control of high inflation can turn into vicious inflation and become out of control. During the two World Wars, France and Japan both adopted this method,1919Year to1950During the year, the average annual inflation rates of France and Japan were14%and20%The most extreme example is Germany, with an average annual inflation rate of up to155%。 The direct breach of contract is often a by-product of the social revolution and the alternation of political power, which brings social unrest that all societies can not avoid. So, by comparison, we can highly expect that major economic countries around the world will breed increasingly strong opposition to the absolute free economy in the near future. They will increase taxes, transfer payments, and be careful to increase inflation rates in order to solve the problem40The extreme economic imbalance that has slowly accumulated over the years. If these easing measures cannot be implemented, they may be replaced by more intense social unrest or even global conflicts, just like the zero interest rate state before World War II. (Author's introduction: Liu Jin is the Vice Dean of Changjiang Business School; Chen Hongya is a researcher at Changjiang Business School. This article only represents the author's viewpoint. Source:FTChinese) |
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