Why Is So Much Money Economy Inflation Still Depressed?

In 2014, 2015 and 2016Q1, GDP increased by 7.3%, 6.9%, 6.7%, M2 increased 12.2%, 13.3% and 14% respectively. The gap between the broad money supply and nominal GDP growth continued to widen, indicating that the super currency did not flow into the real economy and fell into the trap of liquidity.

Because there is no inflow of money.

And start the credit cycle, and therefore did not cause entity inflation represented by CPI and PPI from the demand side.

When we study the relationship between domestic money supply growth and inflation, we find that money supply is a good leading indicator of the trend of price change, but the magnitude of its price rise depends on the output gap.

The 4 rapid growth of M1 in the history (1997, 2000, 2003, 2007) is almost the same (between 20%-24%), but thereafter corresponds to four different price levels, namely deflation, no inflation, moderate inflation and high inflation (CPI-1.5%-8.7%).

Money supply is mainly influenced by demand side in the short run, and is pmitted to the real economy through the industrial chain. The degree of inflation also depends on the supply situation, that is, the utilization rate of capacity and output gap.

The 4 increase in money supply in the past 1996-2007 years led to a very different price level, mainly because the 4 high supply of money corresponded to the middle stage of the economic cycle, the initial stage of recovery, the mid-term of recovery and the end of economic prosperity, respectively, in different economic growth levels, output gaps and supply and demand background.

At present, the global and Chinese economies are in the doldrums, and there are widespread overcapacity. Therefore, the oversold currencies did not promote economic growth and inflation by improving supply and demand relations.

Why so much?

Macroeconomics is mainly concerned with two major issues: why the economy will grow and why the economy will fluctuate, namely, the issue of long-term growth and short-term volatility.

Monetary policy is a short-term demand management tool. Low interest rates are conducive to stimulating credit, investment and consumption. Liquidity is conducive to improving the convenience of micro entities.

However, according to the theory of economic growth, long-term economic growth depends on the improvement of capital, labor and total factor productivity on the supply side.

It is difficult to promote the improvement of resource allocation efficiency and innovation by monetary drainage. This requires structural reform on the supply side. Moreover, long-term reliance on currency draining increases the difficulties of supply side reform: delaying excess capacity clearing, soaring housing prices, weakening competitiveness, disillusionment among young people, and encouraging speculation rather than innovation.

The deterioration of income distribution and the low interest rate lead to the mismatch of resources and distort the economic structure.

According to the monetary quantity equation MV=PQ, money growth is nothing more than economic growth, price and money flow rate.

In the past 2014-2016 years, the gap between broad money supply and nominal GDP growth has been constantly widen, and the excess money has not entered the real economy (Q).

The core of the super developed currency may be two directions:

The first is to maintain the debt cycle and the financing of Ponzi's financing, resulting in a large accumulation of funds, resulting in a decline in the V of money circulation.

Redundant black and white chemical enterprises, three or four tier cities, small developers, local financing platforms and other capital black holes continue to leverage, the snowball snowball is getting bigger and faster.

China's economy is also increasing leverage.

The two is to push up asset price bubble P, the stock market bubble and the housing bubble have emerged.

Since the opening of the current monetary easing cycle, the stock market bubble has been pushed up in the first half of 2014-2015 years, and then the asset price of the first tier and second tier cities in the second half of 2015 has been pushed up since the second half of the year.

Recent housing prices in Shenzhen, Shanghai and other tier cities have skyrocketed and spread to the second tier cities such as Nanjing, Suzhou and Hangzhou. The housing market is showing signs of accelerating catching up. In 2016, the housing market was similar to the "buffalo" "leveraged ox" policy cow in 2015, which has already been divorced from the fundamentals of price to income ratio, urbanization slowdown and economic slowdown.

In 2016, we need to be vigilant against the housing market's repeated mistakes in the 2015 stock market and the Japanese bubble collapse in 1991.

The ten crisis, the nine real estate, the high real estate bubble will reduce the competitiveness of a country's real economy, and the collapse of the real estate bubble will trigger an economic and financial crisis.

After the 4 trillion fiscal stimulus left behind in 2009, a large number of overcapacity left over, and a stock market bubble left over by the stock market over the past 2014-2015 years, the long-term trial and error of public policy showed that the current structural and institutional problems are difficult to solve through the total demand management policy. The structural reform of the supply side needs to be prepared from the plan to the landing.

Empty talk is bad for the country and hard work is good for the country.

Reform is more effective than action.