The Global Financial Market And The Real Economy Are Facing Severe Challenges.

The recent global market turmoil has added new uncertainties to the prospects for recovery.

Especially with the end of the international commodity boom cycle, the global price level tends to decline, exacerbating the pressure of deflation.

From financial liquidity to economic growth, the global financial market and the real economy are facing severe tests.

Huge fluctuations in global financial markets and low inflation have also triggered the global market.

Worrying about how to prescribe for the recovery and get rid of "stagnant growth" has become a major problem facing all the countries in the world.

What is deflation? Although academic circles define their meaning, they all emphasize a necessary condition, that is, the overall and continuous fall in prices, showing a characteristic of "stagnant contraction".

Deflation of the real economy continues. At present, the inflation rate of several economic sectors continues downward.

According to J.P. Morgan's global inflation data, the global inflation rate in the second quarter of 2015 was only 1.6%, far below the 11% average level in 1990~ 2013.

The core inflation rate of the European and American countries deviated from the target of inflation. Even if the European central bank offered a new round of loose monetary policy last year, it would be difficult to turn the tide. The euro area inflation rate still lingers near the critical line.

In the emerging market and developing countries, internal growth is weak, deep-seated problems are prominent, industrial production downwards, especially China's capacity reduction, inventory reduction and other structural adjustment measures also to a certain extent exacerbated the lack of global demand, deflation risk is spreading worldwide.

The Fed's interest rate increases the price volatility of the global market.

The US dollar dominates the world economic and financial cycle, and the change of US dollar currency cycle is the premise for understanding the trend of world economic and financial development.

Withdrawing from quantitative easing monetary policy, in this process, the appreciation effect of the US dollar will affect the general price level through the channel of "import purchase price PPI-CPI".

The United States is not only the "importer" of global deflation, but also the "exporter" of global deflation.

As the US dollar is the benchmark currency of global commodities, the continued appreciation of the US dollar has led to a further decline in international commodity prices.

The slow growth of the real economy and the expansion of output gap also contributed to the low inflation.

Since the subprime mortgage crisis and the European debt crisis in 2008, the global demand dynamics and patterns have undergone major changes. Global industrial output and new orders index are sluggish, indicating a slow and sluggish recovery in the manufacturing sector.

But during the three years of the global financial crisis, global imports have shrunk by 8.4%. China has grown 23.3% against the trend. It has become one of the main supporters of global demand.

However, in recent years, as China started the process of "deleveraging, capacity production and inventory elimination", the incremental demand has greatly slowed down, and the output gap has begun to increase. The limited market resources of the world have become the focus of competition among countries, which has directly led to the decline of global price level.

The Baltic Dry Index (BDI), as a barometer of the world economy and the leading indicator of international trade, fell from 1464 in November 2014 to 905 at present, a drop of 38%, the lowest in 30 years, highlighting the trade slowdown caused by the global economic slowdown and the import and export of raw materials.

Population structure change and aging trend lead to changes in savings and consumption structure, and consumption growth tends to stagnate. This is an important factor leading to supply imbalance and further causing global demand to shrink and the general price level to fall.

At present, the global deflation is structural. Structural problems need structural reform. Finding new supply substitution, raising total factor productivity and promoting world economic growth are the fundamental solutions.

Besides,

Stepping into the new cycle will enable many dollar denominated emerging economies to increase their overseas debt risks and boost the global debt burden and financing costs.

According to IMF statistics, after the financial crisis in 2008, the scale of overseas debt issuance of non-financial enterprises in emerging markets surged sharply. Most of them were emerging market big enterprises using offshore bonds issued by offshore subsidiaries and cross-border foreign currency loans to carry out capital arbitrage.

If the US dollar enters the appreciation channel, the cost of bond renewal in emerging economies will increase significantly, and the risk of debt will also rise.

At the same time, the impact of demographic changes on the world economy and the general price level is more profound.

The world's major economies have entered the turning point of the labor force cycle, especially in 2008~2014, which superimposed the turning point of the population cycle of the two largest economies in the US and China.