Japan And The United States Are Different From Emerging Economies In Terms Of Money Creation Patterns.

Although China's currency has been expanding for many years, the volume of China's economy is still small before 90s, and its position in the global economy is not high, and its foreign exchange reserves are very small.

In real sense, after China's monetary expansion in 90s, the scale of foreign direct investment in China has been increasing continuously through the massive introduction of foreign capital.

Before 90s, the growth rate was very small. From 1992, the scale of overseas direct investment was developing rapidly. China once became the first country in the world with FDI scale. This can be regarded as the first stage of monetary creation since China's reform and opening up.

We often complain that China's currency has led to inflation or soaring housing prices.

In fact, the central banks in the West are all over the money.

After the issuance, the multiplier effect is quite different, that is, the expansion of the balance sheet of the central bank does not mean that the size of the country's currency will increase substantially. The money supply needs the central bank, commercial banks, enterprises and residents to participate in the creation of money rather than the creation of the central bank.

Therefore, President Zhou Xiaochuan did not approve of the complaints about China's over issuance of money. He did not think the central bank had exceeded its currency.

Let's start with two cases. One is Japan and the other is the United States.

Japan's central bank was very crazy on the expansion of its balance sheet. Andouble took office at the end of 2012. After he took office, he launched a loose monetary policy. The basic currency expanded from 100 trillion to nearly 400 trillion. What did he expand? What's the expansion of treasury bonds? Treasury bonds accounted for nearly 90% of the GDP share; buying stocks, 6 trillion ETF annual purchases; at present, M2 is about 940 trillion, M3 is about 1260 trillion, and gold reserves are 440 billion.

But the problem is that commercial banks in Japan are unmoved. Although the central bank desperately put money into it, the credit scale of commercial banks has declined, and cash assets have risen sharply.

So money creation is not done by the central bank. I wrote an article not long ago. I think it should be the central bank.

It is done jointly by enterprises and individuals.

Looking at the United States, the Federal Reserve is also expanding madly. Especially after the subprime mortgage crisis, the Federal Reserve implemented quantitative easing. The total assets of the Federal Reserve increased sharply from 08 dollars at the end of 8 (Lehman's Eve) to about 4 trillion and 470 billion US dollars, an increase of 396.7%, indicating that the Federal Reserve's efforts to promote quantitative easing in the past eight years were very strong, even though they had withdrawn from the QE for the past two years.

It is also an interesting phenomenon that the US central bank's super currency did not cause inflation.

The currency of the Bank of Japan has expanded so much, but so far CPI is at one percent.

In the past, we regarded inflation as the most important control target of the central bank, followed by maintaining a more suitable level of employment.

But now the central bank has reversed, and now the US central bank is considering how to stimulate CPI.

The BoJ's loose monetary policy is to raise the CPI to 2%? If it can be raised to 2% and then cancel the negative interest rate, it is estimated that it will not be achieved until 2018.

Therefore, we need to reflect on traditional monetary and banking textbooks. There are many theories in traditional textbooks, but they are not applicable now.

For example, Fisher Equation, such as Freedman's currency inflation theory, such as Phillips curve.

Similarly, commercial banks in the United States are very cautious in implementing quantitative easing at the Federal Reserve.

At the same time, it did not buy it, but held a large amount of cash assets. By the end of 2015, the credit growth rate was only 20% (roughly 3% annually).

Obviously, when the economy is facing many difficulties, commercial banks in the United States are extremely cautious, and the cash assets of commercial banks increase by 760%.

Now that the economy has recovered, the scale of cash assets has been reduced.

Whether the BoJ or the Federal Reserve, why monetary expansion policy has been pushed down? Because the expansion of the currency is not fast, commercial banks have not become radical because of the easing policy of the central bank. Commercial banks still aim to achieve profits and control risks. In order not to increase the rate of bad loans, the loan is very prudent.

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Let's take a look at the relationship between China's central bank and commercial banks, which is totally different from that in western countries. It should be cautious from the perspective of the balance sheet of the Central Bank of China. The central bank's total assets data in August was 33 trillion and 400 billion, while in 2008 the total assets of the central bank were 19 trillion and 900 billion, and the total assets of these eight years increased by 67.8%.

It shows that the central bank has not significantly increased its balance sheet, and the expansion of its balance sheet is far less crazy than the US central bank.

However, China's commercial banks still expand the credit scale under the condition that the statutory reserve rate is as high as 15%. For example, in early 2000, the credit balance of China was only 9 trillion and 300 billion, and now it has reached 108 trillion and 300 billion, which has increased by more than 10 times.

Credit expansion is much faster than GDP growth, so authorities have warned that the marginal effect of monetary expansion is diminishing.

From historical data, China's M2 is much lower than that of the United States in 2003, and the United States is lower than Japan's.

In the 10 years to 2013, China's M2 exceeded that of the United States, and the United States surpassed Japan.

China and other BRICs share a common feature, that is, they rely on currency expansion to cope with economic difficulties. China, Brazil, South Africa, India and Russia do not.

For example, at the end of 1976, the exchange rate of US $1 against the India rupee was 8.97, and now it has risen to 66.7. In the past 40 years, the depreciation rate of the US dollar has reached 644%, and Russia has lost more than 80 times (1 =0.74 rubles at the end of 1976). China is not high and its depreciation rate is over 250%.

In general, the currencies of emerging economies are all depreciated. The reason for the depreciation is that the government has irresponsibly indulged the central bank in implementing the ultra loose monetary policy, resulting in currency flooding.

In the short term, asset bubbles will continue, but the property market will cool down and the stock market will probably heat up.

Part of the hot money runs out of the property market and will enter the stock market, which can refer to the October stock market in 2010, because it was also the policy of restricting the purchase of the property market.

However, in 2010, the stock market which caused by the suppression of the property market soon died. The possible reason is that the real economy is hot, so inflation is rising. The central bank's monetary policy has tightened constantly, increasing interest rates and raising the reserve ratio continuously.

In contrast, today's real economy is continuing the downward trend since 2011, and market interest rates are also falling. Logically speaking, aside from the valuation level and growth, the stock market should be better than the six years ago.

In short, the risk of following trends is much less than that of finding an inflection point.