There are always friends who say, "Why don't you mention such an obvious reason? It's so obvious, yet you don't say it, which can only mean that it's something that cannot be said." My principle is to not tell lies, and to be selective about the truth.

In the past two years, the hottest topics without a doubt have been fertility rates, real estate, and debt.

Regarding debt, there has always been a question that has puzzled everyone. Intuitively, we feel that too much debt is not good for the future, but at the same time, we think that the country controls the printing press, so just print more money, what's the big deal?

Today, let's explain this to everyone.

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First of all, it should be said that borrowing new money to repay old debts is very normal and very common. Even in extreme cases, the government can completely say that it will not repay the future debts, only the interest. This is not only possible, but it has also happened in history.

For example, the Netherlands, the Netherlands is the grandfather of modern finance. They have always been borrowing new money to repay old debts, but later they got tired of it and said they wanted to issue a type of bond that does not repay the principal, only the interest. What does this mean? You lend the government 10,000 yuan, and the government gives you an IOU, and in the future, every year you can get 500 yuan with this IOU, a 5% return rate. It's equivalent to you buying a 5% and risk-free financial product, which is also acceptable.

At that time, there were many wealthy people who lent their money to the Netherlands, and every year they gave the interest to their children, and they could die in peace, effectively avoiding the children wanting to prove that they are not a waste and losing the money.

Now there is a problem, if you are not a wealthy person, and you originally planned to eat interest slowly in the future, and one day you regret it, what should you do?

The Dutch have already thought about this, they have a secondary market for government bonds. If you don't want this bond, you can go to the secondary market and sell it to someone who needs it.

If there are many opportunities to make money in society, everyone may not care about this 5% return, and it may be difficult for you to sell this bond, and you may have to lower the price to sell it. If there are few opportunities to make money, the whole market wants your 5% financial product, and you can even sell it at a higher price. The current U.S. debt is also like this, the price of that bond is also fluctuating in real time.Of course, it was later discovered that such an approach was unnecessary. If one does not want to repay the principal but only the interest, borrowing new to repay old can also achieve the purpose of "perpetual debt." However, once perpetual debt is sold, it is not easy to recover.

But here lies the most critical question: how to ensure that people continue to lend you money?

The answer is self-evident, which is "credit."

People dare to buy your bonds because you must promise them not to secretly "print money on a large scale to repay the debt." After all, doing so may feel good in the short term, but everyone is not foolish, and they will never lend to you again in the future. For example, if your bond promises a return rate of 5%, and you print 100% more money in one year, anyone with a brain problem would buy your bonds, and even someone with a brain problem would hold your currency.

Note that it is not that money cannot be printed. In theory, no government can resist the impulse to print money, but a responsible government will consider the long term, print as little as possible, and try to restrain itself.

If the government is sufficiently restrained, the people will take out their idle money to lend to the government, which can both alleviate the government's urgent needs and stabilize the currency value.

Later, the Dutch went to England to become the leader, established the Bank of England, and the British went to the American continent, creating the United States.

The operation of "government borrowing + bond market" gradually spread to the world, and our country is also using this method now.

However, in the actual operation later, there are significant differences.

For example, in the Netherlands, the United Kingdom, and the United States, their currencies have also depreciated by more than 90% in the past century, which seems very bad.The key issue, however, is that peers are even worse. There are not many currencies that can last a hundred years, and even fewer that can depreciate by 90% over a century. Most countries devalue by this much within just a few decades, which in turn highlights that they are the tallest in a group of short people.

Our country is actually relatively restrained. Many people may not accept this, but it is indeed the reality.

In the past few decades, the money supply in China has increased significantly, mainly due to foreign trade and foreign investment in China, where US dollars were exchanged for RMB in circulation, which suddenly pushed the RMB up many times.

Secondly, it is the mortgages of the people, the government's national debt, and the local government's urban investment bonds, all of which have borrowed a huge amount of money from the bank. The actual money printed is not much.

Now, most countries are also borrowing new money to repay the old, including Japan and the United States.

Moreover, everyone should pay attention to the countries that care about government debt and take it seriously. Generally, these countries are quite reliable. Those unreliable countries, when the government needs money, just print it directly, why bother borrowing?

For example, the hotly debated Argentina not long ago. Argentina is a country that has no credibility at all. When the government needs money, it prints it casually, leading people to get rid of their pesos as soon as they have them, or they will depreciate. If they can exchange it for US dollars, they will do it as soon as possible. As a result, the local currency and US dollars are used side by side in Argentina, and people save US dollars and get rid of their local currency.

Now everyone understands why their new president wants to abolish their own currency and change to US dollars, because the Argentine people with little economic knowledge also realize that the peso is pure garbage, which is constantly printing money to plunder the people, and it is better to abolish it quickly. This deep disappointment in their own country's currency is something we cannot experience, and we cannot understand their magical behavior.

There is also Turkey, which is also a peculiar country. Their annual interest rate is higher than Russia's, 45%, but the currency is still depreciating crazily. In May last year, 100 US dollars could be exchanged for 1,800 liras, but now it can be exchanged for 3,000. Let's think about how much it has depreciated? Their people have lost trust in their own currency, and they are crazy about saving US dollars, euros, and even RMB. As soon as they get their own currency, they will get rid of it as soon as possible, or it will depreciate again.

Everyone can see that the national debt is a stabilizer, a commitment. The government guarantees through the act of "borrowing money" that it will repay the money through fiscal revenue in the future, instead of printing money, to maintain people's faith in the currency.At this point, everyone should consider a question: if a country were an individual who owes a large sum of money, can't pay it back, and wants to borrow new to repay the old, under what conditions would it be safe?

Firstly, this person must be progressing forward, and their future income must be higher than their current income. In this way, even if they borrow more money, they will be able to pay it back in the future.

Secondly, they must be able to afford the increasingly higher interest payments.

So, how about our country's debt situation?

Generally speaking, to measure the size of debt, we need to compare the debt-to-GDP ratio, just like an ordinary person might collapse under a debt of three million, while a billionaire owes this much money without it being an issue.

Japan's ratio is 260%, the United States is 126%, and China's situation is more complex because the local governments may have an unclear amount of debt through urban investment bonds. However, according to Wind's statistics, China's debt-to-GDP ratio is approximately 117%, and some data suggest it's 77%, which doesn't include urban investment bonds.

From this, it can be seen that our country's debt is not outrageous, but the previous "borrowing for development" model is definitely unsustainable. Moreover, debt is like a "snowball"; it can become very terrifying as it rolls, and if not controlled, it can double quickly, a fact well understood by those who frequently take out loans.

A few days ago, the state also suspended some infrastructure projects in several provinces, which are the ones that can't afford the interest payments. Next, the central government is likely to repay on their behalf but will not allow them to continue their own operations.

Speaking of this, it is clear to see our country's debt situation.

Can debt be continuously repaid by borrowing new to repay the old?Of course, it's possible.

The premise is that one must acknowledge the debts owed. At the very least, the interest should be paid, and the principal can be repaid gradually in the future.

This is also why many people, upon seeing Japan's enormous debt, instinctively feel that Japan is doomed, but in fact, Japan's interest rates are very low, and the pressure to repay the interest is very small, which has allowed it to survive.

Now everyone understands why our country also wants to lower interest rates. Our local governments have borrowed a lot of money through urban investment bonds, and the annual interest expenditure is very large. Local governments have no money, and many public services cannot keep up, and some iron rice bowls may even be broken. If the interest rate is reduced, the pressure will not be so great. It is highly likely that interest rates will continue to be lowered this year.

The biggest difference between the government and individuals is that we, the common people, cannot print money no matter how much debt we owe, but the government can. If the government ultimately takes the route of printing money to repay its debts, it's not that it can't be done, but it will inevitably destroy the entire environment, because someone has to bear the cost. If you use inflation to repay the debt, it is actually those who work hard to save money who bear the cost.

If the government prints money to repay its debts, the result will be "Argentinization" and "Turkization". Everyone will be determined not to save money because whoever saves money will bear the cost. Money will be spent as soon as it is received, and inflation will be further driven up. The entire environment will deteriorate day by day, and it will take many, many years to return to normal, which is not worth the loss. Once credit is lost, it is very, very difficult to rebuild.

So, as long as the economy develops and future income can cover the interest on the debt, the government can continue to borrow. The scale of our country's debt is indeed a bit large, but it is not outrageously large. As long as we are restrained in the future, borrow less, pay off the interest first, and gradually repay the principal, there will be no problem.

The more troublesome issue is the household sector.

Those who borrowed a large amount of housing loans during the prosperous years a few years ago are now facing bottlenecks in their careers and the overall environment, and their pressure is very, very great, so they have to tighten their belts to repay the loans.

The most tragic thing is that the house may not be worth the one million yuan loaned for the purchase at the beginning, due to the decline in housing prices. In this situation, the vast majority of people still choose to grit their teeth and continue to repay, otherwise, they will be ruined for life if they become a deadbeat. Not only will they be ruined, but their children will most likely be ruined as well. With the temperament of the Chinese people, they will definitely not cut off the supply at will.The people I've seen who have defaulted on their loans are almost always in a desperate situation where they truly cannot repay, and I have indeed never seen anyone default simply because house prices have fallen.

Logically, they could also consider borrowing new money to repay the old, but at this point, they would also encounter the problem of rising interest rates. Eventually, their income might not even be enough to cover the interest, let alone the principal.

So if they are law-abiding citizens, they would certainly try to save money by cutting back on their expenses to repay their loans. This kind of belt-tightening would have a huge impact on the consumption of the entire society.

A significant uncertainty in our society now is the scale and duration of this "belt-tightening to repay loans."

Pessimists say it might be like Japan, where debt repayment lasted for twenty years. Optimists say there's nothing to worry about, after all, the car sales in the past two years show that people still have money. To be honest, I don't know, so I won't make wild guesses.

What if "not very law-abiding citizens" owe money?

In the past two years, many of those who have fled abroad are unable to repay their debts and simply left their homeland. Those who went to Africa and Latin America are quite a few of this kind. They divorced and took on the house and debt themselves, and some people simply took out a bunch of small loans before leaving.

This is also why the government wants to lower interest rates, to reduce pressure for everyone, and also to reduce pressure for the government itself, after all, the government has not borrowed less, Japan simply reduced it to zero interest rate at the beginning.

Recently, Japan said it has successfully emerged from deflation, and our country is likely to learn from Japan's strategy, and there are already signs, such as low interest rates, expanding government spending, and building factories overseas. At first, the Japanese government's spending was mainly on infrastructure, and later, the infrastructure projects lost too much money and turned to the livelihood field.

Who bears the cost of lowering interest rates? Of course, it's those who deposit money in banks. Everyone has noticed, before each loan interest rate drops, the deposit interest rate must be reduced first. A few years ago, the interest rate for depositing in banks could reach 4%, it was reduced to 3% last year, and now it's only a little more than 2%, and it is estimated that it will continue to decrease.At this point, the conclusion is clear.

Facing a huge debt, borrowing new to repay the old is also a method.

But the premise is that the interest must be affordable. If the interest can't be repaid, secretly printing money to pay the interest, at this time, the growth of the money supply will be very, very fast.

At first, the wealthy will find that they choose to sell their domestic currency for other currencies. Then the middle class will find out, and finally, the average person will find out. At that time, a vicious inflation like that in Argentina will occur. Our country has experienced this during the Republic of China, so the government has always been very vigilant.

But no matter how to repay the debt, it is always a painful process. How pleasant it is to borrow money, how bitter it is to repay the money, and this bitterness is indispensable. It may just be borne by different people.

Anyway, now is at a crossroads, many things are not determined, how the government will repay the debt, how to face the decline in birth rate, and how to solve the deflation trend.

At this time, as ordinary people, there is not much room for operation, otherwise it is easy to have problems. Not long ago, there were people around who boldly bottomed out at the market of 2900, because according to the past rules, 2900 is very safe. Then they found that the past rules were also invalid, and now everyone probably guesses the situation.

So keep healthy, keep a stable mentality, be optimistic psychologically, be conservative in behavior, and get through this period.