What impact will the global water release have on us?

 

Whether it is during the epidemic or the current post-epidemic period, water release has become a major theme for governments to restore their economies.

Since February, the United States has launched multiple rounds of stimulus plans. Recently, the Democratic Party has drafted a $2.4 trillion stimulus plan for submission to Congress.

The United Kingdom, the European Union, Japan, Australia, Russia and other countries and regions have also continued to "release water" in various forms and even directly issue money to promote economic recovery and restore employment.

According to statistics from the International Monetary Fund, based on the third quarter of last year, the global real house price index was 167, the highest since the start of relevant statistics in 2000. Among the 63 countries and regions in the statistics, 45 have seen price increases.

China is also stimulating the economy in the form of new infrastructure. At the same time, M2 has also entered the 200 trillion era.

Since water release cannot be avoided, what are the pros and cons of it? How should we guard against it?

1. What was the original intention of releasing water?

We can cite such an example:

In a short-term market, its commodities and currencies are fixed, and the prices of commodities are relatively stable.

But when the currency on the market increases, it probably means that the overall price of goods will rise, and people must find ways to invest the money in their hands, or directly consume them, to ensure that the cash in their hands does not depreciate and the services they enjoy do not shrink. .

In the 2008 global financial crisis, in response to the financial market turmoil and economic recession, the Federal Reserve launched quantitative easing. To understand it simply, it is a limited and controlled release. The Federal Reserve buys treasury bonds and various financial bonds to the market. Inject liquidity (currency), the market has liquidity, what are the benefits?

1. The company can borrow money, solve funding problems, and tide over difficulties;

2. The debt risk in the market is alleviated, and those who owe debts can temporarily demolish the east wall to make up for the west wall;

3. The government endorsed and took over some bad debts to boost market confidence;

Driven by the quantitative easing monetary policy, international capital will also flow in, especially in some emerging markets, such as AI, new energy and other fields, which may set off an investment boom.

Under the impact of the epidemic, the original intention of releasing water is also very similar. Let's take the simplest example:

A catering + catering chain organization originally operated well before the epidemic, and developed chains in many places with a large number of customers. However, after the epidemic, the passenger flow has plummeted, and it has to pay high staff salaries, but the company’s account has nothing money.

At this time, cash flow has become a matter of life and death for the company. If it can borrow enough money to support the company through the recession, the company can get a respite and wait until the business recovers and then gradually repay the debt. If the loan is not available, they can only declare bankruptcy or sell assets for financing.

At this time, the government's release of water and rescue of the market is particularly important.

Japan's "Abenomics" is another example of stimulating the economy through long-term loose monetary policies. Not to mention that Japan directly issued cash subsidies to citizens during the epidemic, and the previous measures such as free kindergarten education were actually "release water" in disguise.

The Japanese government “printed money” (introduced liquidity) through various channels, supplemented by banks’ “negative interest rates”, to induce people to increase loans and allow more money to enter the market.

In this way, commodities on the market begin to circulate and factories are activated. The unemployed population can find jobs more easily. The unemployment rate drops, consumption and investment follow up, and the economy gradually improves.

With the increase in the amount of currency in the market, people began to worry about currency depreciation and panic, so they began to use their savings to purchase value-preserving products or direct consumption, thereby increasing market demand.

For some export-dependent countries, the release of water will reduce the exchange rate to a certain extent, thereby stimulating exports-the original 100 US dollars of goods, now the exchange rate has fallen, only 98 US dollars can be purchased, which stimulates buyers to buy.

Of course, this is the ideal goal that the water release hopes to achieve.

2. Side effects of water release

The release of water is, in the final analysis, a kind of macro-control with currency as a tool. Monetary policy will also fail. For example, money flows to places where it shouldn't flow, forming bubbles and triggering systemic financial risks.

Take the United States as an example. After 9/11 and the Internet bubble burst, the U.S. economy was once in a downturn. The Fed began a loose monetary policy, lowering the benchmark interest rate by 1%, and maintaining low interest rates for many years, driving the U.S. real estate into a frenzy and becoming a support. The main force of US economic growth.

Americans can easily get a mortgage regardless of their loan qualifications. All people who buy a house seem to want to buy a house through a loan, wait for the property to appreciate, and finally sell it for a profit.

Banks and financial institutions often ignore the qualifications of low-income earners and approve high-risk loans to form subprime mortgages. Then a line of subprime loans are packaged and transferred, the risks are transferred, and they are reinvested in the financial market as subprime debt. Sell ​​the form and profit from it. The perfect process is as easy as picking up money.

While global investors were initially optimistic about dollar debt, they rushed to buy it. The illusion that the US real estate was once prosperous also brought confidence to investors. The end of the matter is that this unrestricted water release triggered the US subprime mortgage crisis and caused global financial turmoil.

For those countries with relatively closed markets, the consequences of large-scale water release may be currency devaluation and inflation, but for countries or regions such as the United States and the European Union, large-scale water release may trigger a global chain reaction.

First of all , bulk commodities are anchored by the U.S. dollar. Once the U.S. dollar depreciates, the prices of bulk commodities will rise, triggering global inflation, increasing the cost of imported raw materials and increasing the prices of terminal commodities.

Secondly , capital is chasing profits and avoiding harms. The release of water will cause excess liquidity to enter emerging market countries with good growth and high return on capital, causing inflationary pressure in these countries. To put it bluntly, it is to enter emerging markets to cut leeks and transfer national debts. .

It may also cause the relative appreciation of the currencies of other countries. For example, the U.S. dollar will be released. If other currencies are not released, or if they are released in a small amount, they will appreciate relative to the U.S. dollar. The appreciation of the domestic currency will put considerable export pressure on export-oriented countries.

Because of the depreciation of the U.S. dollar and the appreciation of the local currency, your goods are more expensive for the country of purchase. Goods that could be bought for $100 now require $110.

As for the anchor of the global currency, the U.S. dollar can often be released without hesitation, because there is a global market for it:

The U.S. needs to boost the economy due to the impact of the epidemic-the Federal Reserve releases liquidity-U.S. interest rates fall-U.S. dollar outflows-U.S. dollar exchange rate declines-developed countries follow up to release water-commodity prices rise-global inflation increases-liquidity flows into emerging market countries- Reaping of emerging markets—global economic recovery—shrinking balance sheet and raising interest rates, the U.S. dollar returns.

Therefore, in the case of global water release, as an emerging market country, the most likely result is:

Inflation

Rising human resources costs

Widening gap between rich and poor

If these emerging markets cannot discover new market demands in a short period of time, give birth to new outlets, and follow up the conduction of water release, it will often cause side effects that are difficult to control. After all, no matter whether we release water or adopt monetary tightening policies, the origin of economic recession is often not caused by monetary policy itself.

For emerging markets, the result of the release of water is likely to cause an increase in fixed assets. After 2008, China has had two rounds of similar experiences.

The most terrifying thing about the depreciation of assets is the devaluation of assets for the middle class with a certain degree of resilience. In an emerging market, there are actually many defenses that can be done:

Look for new outlets and make sure it is not foam;

Re-examine the impact of your field and make a response;

Pay attention to government-led industries and investment-oriented emerging fields;

Of course, there is also the most cost-saving method, which is to allocate certain high-quality fixed assets.

Of course, all defensive investments require you to have a pair of shrewd eyes. It is inconclusive.