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How about www.LegiEX.com? Talk about inflation and deflation

How about www.LegiEX.com? Talking about inflation and deflation, in daily life, the most deeply felt and talked about is the rise in pork prices. Some people even said that it was pork that drove the rise of other products, triggering this round of "inflation".

Admittedly, pork may be the fuse, but the root cause is still due to the trend of the global economic cycle. It is impossible to let all the pots be backed by the "second brother".

1. Credit expansion and contraction

China's housing prices are relatively "urgent" and we always want to increase. We can explain this with China's large population and large space for urbanization, but is there a stronger driving force behind it? The stock market in the United States has been trending better in recent years and has repeatedly hit new highs. Is it really all because the American real economy is booming?

The root cause behind these phenomena is the promotion of credit. This is a macro drive from the monetary level.

There are two aspects of borrowing and lending of funds. We often talk about global economic integration, assuming that we view the global economy as a whole. From the current division of labor, the role of the United States is the global bank, which is mainly engaged in financial business, and the role of China is manufacturing. enterprise.

Some people may have such puzzles. Why have American manufacturing industries moved away, domestic industries have been hollowed out, and the economy can still grow steadily?

Because the United States is a country with a financial foothold. Just like our daily banks, we can develop and make profits without engaging in the production of physical products. China is the most complete manufacturing country in the world, but there is still a large gap in the financial sector compared with the United States.

Most of the international settlement now requires the use of US dollars, and the internationalization of the RMB still has a long way to go. A large portion of the US dollars we earn from the current account surplus is to buy US Treasury bonds. Just like the profits from business operations need to be stored in the bank.

The expansion and contraction of credit is generally reflected in the asset statement. Whether it is a bank or other companies, their balance sheets expand, and their businesses are showing a trend of development. Conversely, if their balance sheets shrink, the business is also showing signs of recession.

 2. The alternating cycle of inflation and deflation

Inflation is mainly due to the large amount of money invested, resulting in a much higher amount of money than GDP growth and the need for normal circulation.

Money will depreciate and become less valuable, and the corresponding goods and services will become more and more expensive, causing the wealth of the people to be diluted, the actual purchasing power to decline, and the standard of living to decline.

The shrinkage on the demand side leads to a relative surplus on the supply side, and the commodities produced cannot be sold. A large number of loans issued during the credit expansion period will become bad debts, and the financial system will face risks. In extreme cases, a large number of banks closed down and the national credit system collapsed.

Deflation is due to insufficient money supply and insufficient liquidity in the market, causing prices of commodities and assets to fall, corporate revenues to decrease, and profits to fall, resulting in increased bank bad debts.

In the face of uncertain economic prospects, the power of corporate borrowing and bank lending has been greatly reduced, and credit further shrunk, eventually leading to a comprehensive economic recession.

3. The U.S. once again moves toward loose monetary policy

There is also a concept in economics called "mint tax", which is simply the government's income from currency issuance. From a global perspective, because the US dollar is a universal currency, compared with other countries, the United States has the ability to issue dollars and obtain profits through the "mint tax.

The United States can purchase goods and services in other countries and regions of the world through quantitative easing and increasing the issuance of dollars.

Other countries obtain US dollars through the sale of goods and services through international trade, and their central banks use these US dollars as foreign exchange reserves and issue their national currencies in the form of foreign exchange contributions.

Therefore, over the next period of time, the oversending of the US dollar will remain normal, and global inflationary pressures will gradually increase. Unexpectedly, I encountered African swine fever, and Brother Two was pushed to the cusp of the storm.

Regardless of how the world situation changes, we believe that we will succeed in seizing opportunities, meeting challenges, achieving comprehensive social and economic development, and striding forward towards the great goal of building a prosperous, powerful, democratic, civilized, harmonious, and beautiful socialist modern power.

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Our team has extensive customer experience and expertise. These valuable experiences, especially in the special needs of customers and technological innovation, give us a unique and unique advantage.

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