Recently, everyone has been talking about the issue of "loosening the monetary policy," and I'll discuss it again today. Let's not delve into economics; instead, we'll use the simplest logic from everyday life to help everyone understand why the impact of "loosening the monetary policy" seems to be diminishing.

First, let's revisit the principle that has been mentioned repeatedly: when banks "loosen the monetary policy," it doesn't mean they directly print money and then have everyone line up to collect it from the bank.

The process mainly involves two pathways.

The first is to encourage wealthy individuals to take out loans.

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Why emphasize the wealthy here? Because there is a fundamental prerequisite for bank loans: collateral. Without collateral, you can at most borrow tens of thousands of dollars for consumer loans (which also depends on your workplace and bank statements), and it's almost impossible to borrow more.

So, those who can borrow large sums of money are usually already very wealthy. They mortgage their assets, borrow money, and then invest in other ventures.

The largest loan an ordinary person may take in their lifetime is probably a mortgage loan, which is essentially mortgaging the house you just got to the bank and then borrowing money. The wealthy often have more than one property, and they don't borrow through individuals but through companies, which allows them to borrow even more.

Some may wonder, how can lending to the wealthy stimulate the economy? In fact, it used to be possible because, after all, the loan has to be repaid, right? So, when the wealthy receive a loan, their first thought is how to invest it, make some money in the future, and then repay the bank's money with interest in a few years, and still make a profit themselves.

In the past, it wasn't as competitive as it is now. First, you could engage in foreign trade, invest in building a factory, hire a bunch of workers, produce products, sell them to earn US dollars, distribute the profits to the workers, and after paying back the bank, there would still be a lot left.

Money flowed from the top down in this way: the wealthy borrowed money, ordinary people received wages, and everyone benefited from the dividends of monetary policy easing.Do workers, once they have money, want to eat or get married and buy a house? So, everyone starts taking loans from the bank to build houses and open restaurants. Do the common people have other needs? Thus, milk tea, Werewolf Kill, bars, and takeout also rise up, and gradually the service industry absorbs far more manpower than the manufacturing industry.

Of course, not only the rich can take out loans, but the government can too, but it's a bit more complicated because the government can't take out loans directly and needs to use a city investment shell.

For example, if a local government wants to build infrastructure and build a road, what if they don't have money? They set up a city investment company, put the local canteen into this company, and then go to the bank to borrow money with the canteen as collateral to build the road. In the future, when the road makes money, they will pay back the bank's money.

Building a road requires hiring workers, right? You need to buy steel and cement, right? Behind steel and cement are all workers, and the funds for infrastructure have also turned into the wages of ordinary people, and the water from the bank has reached ordinary people.

Everyone has seen it, right? The bank issues loans, and the common people in society have jobs, restaurants, houses, and roads. In a sense, this is the reason why our economy has been soaring in the past few years. At that time, there were many opportunities in our society, and the money borrowed from the bank could always make more money. After making money, we would borrow more money, invest more, hire more people, and the economy was on the rise, with an annual growth rate of more than 8%.

Looking back at the forty years of economic development, the earliest driving force was actually the foreign trade after joining the WTO, which injected purchasing power externally.

So what has happened now?

There are fewer and fewer projects that can make money, or the purchasing power is getting lower and lower.

First, it's foreign trade.

When our country just joined the World Trade Organization, the world market was open to China, and the labor force in China was too cheap, almost producing as much as it could sell. At that time, the business owners took money from the bank, bought equipment, recruited people, made money in foreign trade, borrowed more money, and continuously expanded production capacity. China's production capacity rose exponentially.But we can also sense with common sense that this state itself cannot continue indefinitely.

It has finally started to show problems in the past two years. The market that can be occupied is basically almost the same now. China's foreign trade exports account for about 15% of the world's total, and it is estimated that this scale is not likely to expand significantly, or rather, there is not much room for expansion.

Western countries used to believe in globalization very much, but after witnessing the unfortunate situation of Germans being controlled by Russia with oil and gas, they began to deliberately reduce their dependence on China. In fact, the "de-dependence" has started a long time ago, but it has always been unable to be put on the surface. After the Russo-Ukrainian war, "not depending on a certain country" has become politically correct, and Western countries are now openly discussing it.

For example, the United States' largest trading partner is now Mexico, and Europe has also transferred a large amount of production capacity to the former Soviet Union's Eastern Europe, where the labor is cheap, and there are tax incentives within the EU. Turkey's foreign trade has also developed very rapidly in the past two years. The previous article also mentioned that India requires companies to try to set up factories in India, otherwise, they will impose heavy taxes, and many of our companies have gone there. I just searched, BYD is also making plans. These are not obvious for the time being, but the long-term effects will definitely become more and more obvious, and globalization is transitioning towards "regionalization."

Everyone should have heard that our foreign trade is not very good this year. I checked the data, and it is not because of the industrial transfer, which takes a long time and is not obvious now. The biggest problem now is still the global economic weakness caused by the US dollar interest rate hike. Why the US dollar interest rate hike will lead to global economic weakness, I explained in "Why will the US dollar interest rate hike bring down many countries? What about our country?" If you are interested, you can take a look.

On the one hand, the US dollar interest rate hike has brought down the global economy, which indirectly shows that the US dollar is still very strong. In addition, many countries have also been drained of foreign exchange due to the US dollar interest rate hike. The people of those countries may want to buy products from China, but now they don't have US dollars for foreign exchange, and they can't trade. It is estimated that it will be better in the second half of the year or next year.

Superimposed on the sudden domestic non-consumption this year.

Now our banks lend money to the rich, but there is a lack of purchasing power, both overseas and domestically. The rich dare not invest even if they have money.

The second is that the government's own investment return rate is also getting smaller and smaller. For example, in the early days, investing in a high-speed rail between Beijing and Shanghai was in high demand, and it might have quickly made a profit and then recovered the investment.

However, projects with high usage rates and strong profitability have already been built, and other projects in remote areas may be too sparsely used, and they can't make much money at all. It may take hundreds of years to recover the investment. The problem is that both highways and high-speed railways require a lot of money for maintenance. It may be that the money earned every year is not enough for maintenance, and the government still needs to continue allocating funds or loans to maintain these infrastructures every year.As infrastructure development progresses, it becomes increasingly cautious, because for many local governments, building another road may not only fail to increase revenue but could also become a burden. Moreover, the current level of urban investment bonds has reached 65 trillion, and borrowing more is really about to become unpayable.

Speaking of this, it is clear why the previous monetary easing would stimulate consumption:

Because the starting point was low in the past, the market prospects were broad, and people both domestically and abroad were willing to consume. There were always investable and profitable projects, so the money issued would turn into physical projects, further absorbing labor.

In the past two years, the purchasing power both domestically and internationally has been weakening. Abroad, it is due to the depression caused by the US dollar's interest rate hikes, and domestically, it is due to a sudden lack of consumption, and everyone is not spending money.

So after the banks issue money, the money accumulates at the top and cannot come down, and it cannot be converted into industrial funds that will employ many people, starting to repeatedly speculate on assets, so the monetary easing has no effect. Not only that, but it also leads to "rich inflation, poor deflation."

The rich go to the bank to get money, and there is nothing to invest in after getting the money, after all, foreign trade is not booming, open a restaurant, a sea of red, what can be done?

After thinking about it, nothing can be done, or buy a house to see? The rich all think this way, so they all go to buy the relatively scarce large flat luxury houses in the first-tier cities. So it is quite funny that the economy is not very good, but the increase in the first-tier luxury house is very large. I asked a few days ago, and many luxury houses in the West City have increased by more than ten million in less than two years. You know, this is during the epidemic period, it is inconceivable.

But the problem is, the rich do not invest, the factories do not start work, what do the workers earn? The answer is that it is indeed not easy to make money recently.

Everyone has seen it, the lack of purchasing power is the root of all the current problems.

It's not much now, the most terrible thing is the situation in Japan, the people are not willing to spend money.It means that the common people have money, but they all keep it in the bank and stubbornly refuse to spend it, resulting in a lack of purchasing power and a bleak market. The Japanese people just don't want to spend money, trying to save as much as possible, which leads to a mess in housing prices and a mess in the economy.

The Japanese government has been claiming for thirty years to start the printing press, diluting the wealth of the common people, to see if you will spend money or not. They even reduced the interest rates to zero (in fact, it's not really zero interest rate, but very, very low, I checked, the annual deposit interest rate is 0.003%), to see if you still save money. Moreover, with such a low interest rate, how about borrowing a little money to spend, or buying a house? The people are stubborn and just won't spend, and they won't take out loans even if they die, let it be.

The United States gives money to the common people, and the people spend money too fiercely, leading to high inflation. The Japanese government is almost envious of that inflation and also gives money to the common people, but they just keep the money in the bank and don't spend it.

The embarrassing situation in Japan now is:

Infrastructure has been completed, and there is nothing more to build, a large number of marginal areas have been abandoned, and the infrastructure there has also been abandoned.

Aging and low birth rates lead to extremely low social desires, everyone does not consume, and domestic demand is weak;

Foreign trade has also been poor, completely defeated by the rise of China and South Korea.

Japanese multinational capital is doing well overseas, but that money has nothing to do with the Japanese people.

The most important thing for us next is to avoid becoming like Japan.

What can we do about it?I personally don't think it's a big deal. Our fellow citizens, as long as the environment improves, are still willing to spend money, and it should not become like Japan. Currently, we are still in the recovery phase, and things should get better after it. After all, last year's experience had a huge impact on too many people, and it cannot be eliminated in a short time.

However, in the long run, to achieve sustained prosperity, it is inseparable from "letting the rich invest and letting ordinary people spend money."

Or, to put it the other way around, ordinary people dare to spend money, and society has hope. After all, your expenditure is someone else's income. If no one spends, others have no money, and sooner or later, it will be transmitted to you. In the end, the bad consequences will spread from the outermost circle to the inside, first affecting individual businesses and those working in private enterprises, then state-owned enterprises, and finally civil servants.

But how can we encourage everyone to spend money?

I don't need to say much about this. The main thing is a sense of security. There is a very bad aspect in society now, which is constantly creating an atmosphere of "there will be big trouble waiting for everyone in the future." I don't know where this trend of thought comes from. The expected aftershocks of the new crown did not appear much, but instead, such a strange thing appeared.

Almost all articles and videos advise you to prepare for the winter in the coming period, not to invest, not to consume, not to change jobs, and to enter the system. You say, under this atmosphere, who dares to consume? But how can the economy be good if no one consumes?

You may ask me, what do you say to do?

I don't have a solution either, I can only advise you not to invest, not to consume, not to change jobs, and to enter the system. Once social concepts are formed, it's like a train, turning around is very difficult. Everyone thinks that the economic winter is coming, and it may really come. Everyone does this, and as an individual, you can only be conservative, save more money, and hold on, what else can you do? If you take risks blindly, it may be a dead end.

Speaking of this, readers may ask, is there any way to solve it?

I don't know, but I think if we can get back on the path of stable development, confidence should come back, and consumption will also increase. The most troublesome thing recently is the interest rate hike of the US dollar, and everyone's foreign exchange has been drawn to the United States, and no one wants to be good. After the US dollar interest rate hike in the second half of the year or next year, foreign trade should be able to catch a breath.Additionally, I recently came to a sudden realization about an issue: the welfare systems in developed Western countries, where they distribute money to the lower classes, might be something we cannot avoid.

The simple truth is, without a comprehensive social security system, people might start saving money for old age at a certain point. You never know how long you will live, so there is no limit to how much money you might save, and as a result, consumption could be dismal. If domestic demand is sluggish, we will have to rely on Europe and America continuously. If they stop buying our products, we will immediately face problems.

Moreover, the traditional method of "banks lending money to the rich" is becoming less and less effective. Money is piling up with the wealthy and not trickling down to the lower classes. Without money to spend, the economy cannot get moving. So, it might not be a bad idea to directly distribute money to the grassroots people. The government could borrow from banks to distribute money to the people to supplement their purchasing power, and then repay it with taxes when the economy improves, which could avoid inflation.

In addition, there is the ongoing issue of distribution that everyone talks about. The aforementioned money distribution to the people could be achieved by increasing taxes on the wealthy. More and more economists now recognize that the key to overcoming future crises is to tax the rich. However, I still want to say that secondary and tertiary distribution is not a problem at all; the whole world is doing it. But it must be within the framework of the law, and we should not follow India's example, or else it could lead to major chaos.

Let's summarize in one sentence at the end:

After the pandemic is lifted, it should not be a problem for GDP to rebound by 5%, but the troubles are still very obvious. The purchasing power both domestically and internationally is still too weak. The biggest short-term impact is the interest rate hike by the US dollar. Once it finishes raising interest rates, our foreign trade should improve. The key in the long term is still domestic demand. The key to domestic demand is the sense of security in the hearts of the people, feeling that there will be no major storms in the future, feeling that the elderly will be taken care of, and only then will they spend money with confidence. Having purchasing power is everything, and this might be the key task we need to focus on in the future.

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