Exception:Internal Reference 11.29《Some Progress of Spot BTC ETF》
Over the past year, industry insiders, experts, and big Vs have continued to discuss whether our country is falling into a so-called "balance sheet recession."
Especially when the social finance data was released in July, it really caused quite a shock. (Refer to Liu Jiaolian’s 8.13 article "Growth dropped sharply by 270.3 billion")
However, looking over a long period of time, this fluctuation is not surprising.
The term balance sheet recession was first proposed by Ku Mingchao, a Taiwanese-American economist who was born in Japan. It is used to refer to a special form of economic recession, that is, an economic recession occurs because high debt in the private sector causes individuals or companies to generally pay off debt to increase savings instead of consumption or investment, which in turn leads to a slowdown or decline in economic growth.
This type of recession is proposed to distinguish it from the economic recession caused by the downturn of the commodity cycle. The balance sheet recession is driven by the debt cycle. It is purely due to excessive borrowing and entering a stage of forced deleveraging. The economy supported by fragile bamboo poles (leverage) suddenly collapsed along with the bent bamboo poles.
Japan's decades-long recession starting in 1990 and the U.S. financial crisis of 2007-2009 are believed to fall into this pattern.
In layman's terms, people all over the society feel that they have borrowed too much money in the early years and have too much pressure to repay debts and interest every month, so they invariably, actively or forcedly, choose to live a frugal and live within their means or run a business. method, and the remaining balance will be used to repay old debts in order to reduce the pressure of debt repayment. However, people suddenly switched from borrowing money to save money to pay off debt, which actually led to an economic recession. This is the so-called balance sheet recession.
This question may sound a bit unbelievable to Chinese people who still maintain traditional Chinese virtues. Being frugal, living within one's means, being frugal and focusing on savings, aren't these the fine qualities in our culture?
Why is it that when economists say that everyone in society upholds good qualities, it is found to be the main culprit causing the economic recession?
So you say, do we still need traditional virtues and good qualities?
Regarding this reason, Dalio, the founder of Bridgewater Associates, introduced it in his popular science video "How the Economic Machine Works". Readers who have not seen it can read Liu Jiaolian's 8.23 article "China Deleveraging".
The reason is that one person's expense is someone else's income. Everyone is reluctant to spend money, which makes it difficult for everyone to make money.
Another important reason is that modern legal tender is basically in the form of debt currency. In other words, if you mortgage your assets with a bank, the bank can create money based on the valuation of the assets. For example, you mortgage your house, the bank prints the money, and the developer gets the money. (Refer to Liu Jiaolian’s 8.27 article "Xu’s Banknote Printing Machine")
You get the debt, the developer gets the money, the bank gets the business.
Your debt is the bank’s financial asset. Banks can package these financial assets and sell them to wealth management and trust companies. They then sort these financial assets, re-segment and combine them, package them into gorgeous high-yield financial products, and sell them to middle-class or wealthy people who have money in their pockets and are seeking to maintain and increase their value. (Refer to Liu Jiaolian's 8.4 article "The 230 billion thunder exploded")
Link after link, every link in the entire chain is waiting to make money. Only you, who is burdened with debts and pays regular principal and interest, can provide them with income and profits.
The principal you repay will be offset by the corresponding amount of debt, and then both disappear from the balance sheet. The interest you repay is converted into the income of each link in the above chain.
The characteristic of debt currency is that it is created out of thin air and disappears out of thin air. Its entire life course, from creation to disappearance, is to take away interest - the product of your labor and sweat - and bring it to countless people who benefit from it.
You said I don’t want to play anymore and I want to pay off all my debts. So, how much debt you pay off will eliminate how much money you have. For example, you take out 1 million and pay off a debt of 1 million. Then, the financial assets that originally had a debt of 1 million disappeared from the balance sheet. Assets disappear. At the same time, there will always be 1 million less currency available in society. In other words, the 1 million also disappeared without a trace along with the disappearance of the debt.
And all the people who are waiting to enjoy the 30-year interest you have worked so hard for are unhappy.
There is less mobile money in society, and naturally money becomes tighter and more difficult to earn. A large number of rich people who were happily enjoying your interest payments naturally lost a little bit of income because you scrimped on food and clothing and saved money to pay off debts.
What if more people paid off their debt? For example, if 100,000 people each pay off a debt of 1 million, then 100 billion in assets and 100 billion in money will disappear.
As assets and liabilities decrease, the size of the balance sheet will naturally continue to shrink "bang" and "bang". There is less and less money in society, and everyone feels that it is getting harder and harder to make money. Assets have shrunk or even exploded, making people feel poorer and even more afraid to spend money. As a result, the economy fell into a downturn or even recession.
However, to accuse the common people of cutting spending, saving defensively, and not spending money, let alone borrowing money, is a small number of economic researchers who have lost their conscience.
The deleveraging cycle is an era of returning to traditional virtues.
When the plane is descending, the important thing is not to shout "the plane is descending" as if no one else knows that the plane is descending. The important thing is to find a way to get the plane up again. The person who pulled the plane up was definitely not the passengers, but the captain.
Dario gave four methods:
Compared with those who sing about balance sheet recession, cutting spending is exactly the number one operation in Dalio's approach.
Since people are already overwhelmed by high leverage and high debt, they still use the decline of the balance sheet as a moral stick to accuse people of not actively consuming or borrowing. What is the meaning of this and what is the intention?
The second tip is to reduce debt. You see, replacing debt is reducing debt. In Dario's opinion, this is only natural and the right approach.
Of course, debt currency makes it mathematically impossible to pay off the entire debt. Because for every 1 dollar of debt, there is 1 dollar of money. To pay off the debt of 1 yuan, you need to pay back the 1 yuan and add additional interest. Suppose the overall social debt is A, then the total amount of money is also A. If you want to pay off all the debt, you need to repay a total of A + B money, where B is the interest. It can be seen that it is mathematically destined that debt currency will not be enough to pay off all debts before currency is completely eliminated. In other words, the total amount of money payable is always greater than the total amount of existing money.
Because it cannot be repaid, there must be someone on the margin who wants to borrow something new to repay the old. Leverage increases until it reaches a point where it can no longer be increased, and the debt cycle reaches its peak.
The method of reducing debt does not refer to paying off debt, but writing off debt reasonably and legally.
To write off a debt illegally is called defaulting on the debt. There are many ways to write it off reasonably and legally. For example, through extension, the original 30-year debt is now extended to 100 years to repay, etc.
The third method is called wealth redistribution. What matters is the direction, and the reasonable and legal redistribution of money from places with plenty, from the rich, to places with little, and to the hands of the poor.
Inflation plus helicopter money might be an interesting approach. Because you can't just take money out of other people's pockets, just print more and distribute it equally to everyone on a per-capita basis.
For example, Lao Wang has 100 million, and there are 99,999 Zhang San who are paupers, each of whom only has 1 yuan. The wealth gap between Lao Wang and Zhang San is 100 million times. Print an extra 100 million yuan and distribute it equally among the 100,000 people, each receiving 1,000 yuan.
After redistribution, Lao Wang has 101,000 yuan. And Zhang San and others each have 1,001 yuan. The wealth gap between Lao Wan and Zhang San has narrowed to about 100,000 times.
What if 10 billion more are printed and each person is given 100,000? Lao Wang 100.1 million yuan and Zhang San 100.01 yuan. The gap between rich and poor has further narrowed to about 1,000 times.
This approach is close to the UBI (Universal Basic Income) that has been heard a lot in recent years.
According to the social security account payment, each person is given a few thousand yuan per month to meet basic food and clothing, which is conducive to boosting the economy and social harmony. This is the concept of UBI.
UBI is actually a bit like the communist "distribution according to need" meaning. Since everyone needs so much money every month to maintain basic living, then it should be distributed to everyone unconditionally.
Of course, the current mainstream plan may still be the socialist "distribution according to work" idea. That is, printing money to carry out some big projects and so on, letting everyone work, and then earning the money through labor and ability.
However, relying on investment to distribute will still generate debt and investment income issues. If you invest 1 trillion, you still have to get 1 trillion back plus benefits. So there will still be the problem mentioned above that A + B is always greater than A. Unless we can tolerate these investment projects not being profitable or making money.
The last resort and the last thing that must be done is to print money. Because deflation means that money, that is, liquidity, evaporates and water dries up, then water needs to be released and rainfall needs to occur.
It is not difficult to print money, but it is difficult to distribute money, that is, how to effectively distribute the newly added currency in a reasonable way.
The central bank can print money, and the government can spend money. So the US approach is that the Federal Reserve is responsible for printing money and the Treasury is responsible for spending it.
Active monetary policy means loose money and releasing water, but the released water can easily get stuck in the financial system and idle.
Active fiscal policy means setting up projects to spend money to dig rivers and divert water to where it should go.
If it is a UBI-style universal money distribution, it will be like rain.
Dalio believes that as long as it is properly controlled and the amount of money printed and released is just enough to fill the money hole caused by the deflation caused by deleveraging, then an elegant balance can be achieved, that is, a harmonious deleveraging, and the economy A soft landing was achieved, and then after everyone's balance sheets were repaired, the plane took off again and the economy recovered again, heading towards the next boom.
Exception:Internal Reference 11.29《Some Progress of Spot BTC ETF》
(Public account: Liu Jiaolian. Knowledge Planet: The public account replies "Planet")
(Disclaimer: None of the content in this article constitutes any investment advice. Cryptocurrency is an extremely high-risk product and may return to zero at any time. Please participate with caution and be responsible for yourself.)