Xie Guozhong: Debt Crisis Ferment Two Times Bottom &Nbsp; Inflation Is Bubble Gravestone.

The global economy is heading for another crisis, the core of which is the government debt crisis.

The world is unstable because policymakers are reluctant to deal with structural problems.

This year's two panic is coming earlier than 2010.

High oil prices, the US real estate market downturn, the European sovereign debt crisis, Japan's recession, coupled with the tightening policy of inflation in emerging economies, all of these factors have brought downward pressure on the global economy.

The magnitude of the economic downturn and the acceleration of inflation are astonishing.

Risky assets such as stocks and commodities will be under severe pressure this summer.

Continuous foam

A whole generation of policy makers grew up in an environment full of bubbles.

This environment affects their trade-off between bubbles and the economy.

Whenever a bubble breaks, they can save the economy by blowing another bubble, so they are not afraid of bubbles.

Therefore, although low interest rates are stimulating bubbles growth in some places, they are not worried.

Once a huge bubble breaks down, it usually washes away a whole generation of speculators.

The next bubble will need to wait until the last generation of the last bubble burst.

The reason for bubbles in the past 20 years is that policymakers continue to use low interest rates to rescue speculators.

Policymakers seem to believe in the doctrine of economic growth free from economic problems.

Therefore, although the bubble may burst again and lead to economic downturns, creating another bubble has brought them the hope of solving economic problems.

In addition, the term of office of politicians is very short, so they are very willing to take the expedient measure to kick the question to the next term.

If we can always solve the consequences of the previous bubble burst by blowing up a new bubble, then the world is a paradise.

Everyone will be rich and no work.

But such a world does not exist at all.

The pattern of continuous foam production will come to an end.

Inflation is the gravestone.

Inflation is a monetary phenomenon.

Bubbles are also a monetary phenomenon.

Although there are various explanations for the specific causes of bubbles, bubbles will not be possible without loose monetary policy.

Inflation and bubbles compete with each other for money.

When some factors lower inflation, such as outsourcing in the past 20 years, excess money will support bubble development.

When the short-term means of suppressing inflation are exhausted, the bubble will be hard to sustain, as funds are sucked away.

The biggest bubble in this round is in the field of government bonds.

Government bonds are considered the safest asset.

Because the global economy is still in a predicament, capital flows into this asset class.

This bubble is essentially unstable.

Inflation is rising everywhere.

The fear of falling real value of bonds will emerge sooner or later.

I think the bond bubble will burst in the last quarter of 2012.

Double dip

The global economy is declining again.

Similar scenes appeared last summer.

The second round of quantitative easing by the Fed reversed this downward trend by raising the global stock market.

But this wealth effect is very short-lived, because the surge in oil prices has had a great impact on consumers.

So the structural problems were revealed again after the end of the downwind, and the second round of quantitative easing just came into operation soon.

The US property market is diving again.

About 1/4 of us owners' property values are negative.

In the absence of fast recovery, they are more willing to lend property to the mortgage bank and unload their debts.

Banks are recovering more and more property, and the housing market is declining due to fears that banks will sell their holdings.

Europe's sovereign debt crisis is on the rise again.

This problem has never been completely solved.

The EU's aid to Greece and other member countries is enough to solve their immediate liquidity crisis and not improve their solvency.

The only solution is to let Greece go bankrupt.

The EU is afraid that it will infect other countries, waiting for a miracle.

So the European debt crisis feels like a chronic disease.

The current crisis is not the last.

Japan is in a severe recession.

The 9 magnitude earthquake destroyed a large part of Japan's capacity and took a long time to recover.

The hope of rapid pformation will soon be broken.

It is this hope that keeps the yen from depreciating, but the reality is that as Japan increases imports to rebuild, its trade imbalance will continue to deteriorate.

The Japanese yen is likely to depreciate sharply in the second half.

In response to the crisis, emerging economies are tightening policies, but inflation seems to have not been tamed.

There are two disadvantages to this battle against inflation.

First, the Federal Reserve's very loose monetary policy is constantly stimulating commodity inflation.

Emerging economies are unable to cope effectively with this situation; second, interest rates in emerging economies are rising slowly and slower than inflation.

Therefore, their real interest rates are still negative, thus further stimulating inflation.

Greater austerity is needed to produce results, but it worries the market that economic growth will be affected.

It seems that the global economy is falling at the same time.

This summer's economic data are most likely to be very poor and amazing.

Fear will occupy the financial market.

Who can save the market?

A month ago, I mentioned the possibility of the third round of quantitative easing in this column.

But feedback is not positive.

Almost everyone told me it was impossible.

But when the market began to slide, they came up with new ideas.

Suddenly, the third round of quantitative easing became possible.

I think the price of oil will drop by 25%, and the third round of quantitative easing is possible; only when the economic data are so bad that people will be shocked, the third round of quantitative easing will be possible.

When the oil price falls sufficiently large, the Fed can take the opportunity to launch the stimulus plan again.

Like other countries, inflation is eating up American income growth.

The Fed still does not want to believe that its policy is in any way unfavorable to production.

The Fed's policies stimulate bubbles, slow down structural reforms and curb consumption.

But the Fed is still not repentant. It believes in the magic of monetary stimulus to revive the economy.

Therefore, with the further decline of the US economy, the Fed will not be able to stand on the wall and will certainly do something.

Is it going to be a massive round of QE? Or what other policies? It's hard to say.

If the Fed does take action, the stock market will go up and people will feel better.

But this feeling will be temporary.

The Fed's stimulus policy will lead to a rise in oil prices, thereby eliminating all the benefits of rising stock prices.

The Fed is now riding a tiger, and it is a disaster.

If Europe can decisively solve its debt crisis, its confidence will revive.

Greece will default, which is almost undeniable. Dragging down will only affect financial markets.

Once the solution is released, the loss of Greek bondholders and the refinancing of the affected European banks will be clear, and the financial market will price these negative news and move forward.

The financial market has great expectations for China and hopes that China can relax its policy.

Almost every month the market is talking about that China's inflation is going to peak and it is possible to relax the policy again.

Although we can not deny this possibility, this opportunity is very slim.

China's inflation is at an unstable stage.

In comparison, statistics are not as important as what people see.

Under normal inflation conditions, the prices of products and services that people regularly consume may increase by a few percentage points.

In today's China, prices of goods and services are usually up to 10% to 30%.

This shows how serious the inflation problem is.

As I pointed out in this column two weeks ago, China's economy is slowing down. That's good news.

China's economic growth is too dependent on the real estate bubble.

The longer the growth is, the more painful the final adjustment will be.

In addition, the bottleneck of China's economic growth is becoming more and more difficult to overcome.

For example, energy shortages may be very serious this year.

If China abandons inflation and stimulates economic growth again, the energy shortage is likely to become a serious crisis.

The Federal Reserve or Europe may again support the financial market, but China will not.

If the market recovers, it is also temporary.

The global economy is heading for another crisis, the core of which is the government.

The essence of the developed countries is the high cost of social welfare.

Unless they can significantly reduce that.

Asset bubbles will enrich the ruling class and let ordinary workers and entrepreneurs be penniless. Developing countries should stop this phenomenon.

Developing countries such as China and Vietnam have strong cost competitiveness, and low wages are the source of their wealth creation.

But they redistribute wealth through asset bubbles, and the value of workers and entrepreneurs is undervalued. As a result, businesses and workers are keen to speculate.

As fewer and fewer enterprises and workers are willing to engage in production, inflation is rampant.

The inflation crisis in emerging economies will become more serious unless the basic governance concepts change.

The world is unstable because policymakers are reluctant to deal with structural problems.

Expediency can only gain temporary confidence.

When the power is exhausted, the world will face another huge crisis.