[YueKai macro] decryption of "excessive currency issuance": nature, causes and impact are not prevented

"Currency over issuance" is a popular view. Whether it is used to explain the rise in the price of a certain type of assets or to promote a certain type of investment targets, it seems to be very convincing, which is in line with the simple truth of "water rises and ships rise". But what is the essence of currency over issuance? How to measure excess currency? How can money be over issued? What is the relationship between rising house prices and excessive currency? How to effectively avoid excessive currency issuance? This paper will answer the above questions one by one.

1、 What are we talking about when we talk about currency over issuance?

1. The M2 / GDP ratio is the most commonly used basis to demonstrate the existence of excessive currency in China. China climbed from 57.1% in 1985 to 215.8% in 2020, while the United States was only 92.1% in 2020.

2. Whether monetary factors lead to the rapid rise of the overall price level and asset prices may be the appropriate standard to judge whether the currency is over issued or not. There are many defects in m2 / GDP as a measure of monetary excess, which are related to statistical caliber, national savings rate and financing structure; And just as when parents criticize their children for indulging in games, the root is not the length of the game, but the children's poor performance, Lbx Pharmacy Chain Joint Stock Company(603883) when talking about excessive currency, they are actually worried that their savings and pensions will be eroded by inflation and the growth of income will not catch up with the growth of house prices. The widespread spread of the theory of currency over development was in 2010, when CPI and house prices rose rapidly.

3. If only from the perspective of inflation indicators, there is no obvious excess currency in China, but the inflation indicators do not include asset prices such as real estate and stocks, which is different from residents' perception. From 2001 to 2020, China's total CPI increased by 57.1%, with an average annual increase of 2.3%, while the per capita disposable income of urban and rural residents increased by nearly 600%, and the income increase was much higher than inflation. In addition, if residents invest their savings in relatively stable products such as monetary funds or bond funds, they can also outperform CPI. From 2002 to 2020, the general index of China national debt rose by 95.2%.

4. The social public's "crusade" and cognition of excessive money is more due to the life pressure and anxiety caused by the rapid rise of house prices. There is a close relationship between the rise of house prices and the rapid rise of total money. The three rounds of house price increases after 2008 are highly consistent with the three accelerated upward movements of M2 / GDP ratio.

2、 How is money over issued? What is the essence of currency over issuance?

The public believes that the over issuance of money is that the central bank starts the money printing machine to print money, but under the modern credit monetary system, in fact, commercial banks are the direct money supplier, and the central bank is only one of them.

1. The over issuance of money is not entirely the responsibility of the central bank, but is jointly decided by the central bank, commercial banks, the public and the government. 1) Money is cash and bank deposits held by the public, of which deposits dominate, accounting for 96.3% in November 2021. 2) The central bank puts cash passively rather than actively. In cash issuance, the central bank plays a more important role in receiving orders and delivering goods. 3) Commercial banks create deposit money through asset expansion such as loans. Banks have created "first-hand" currency through business activities such as loans and bond purchases, while the public uses "second-hand" currency in daily transactions, payments and private lending. 4) The central bank can regulate money to a certain extent through monetary policy. However, the total amount of money is not completely controlled by the central bank. The loan willingness of commercial banks and the public will affect the effect of monetary policy, resulting in exceeding or falling short of expectations.

2. The essence of excessive currency issuance is excessive borrowing and leverage of the real sector. Over issuance of money means that the total amount of money exceeds the potential reasonable amount, and money is mainly created by commercial banks through loans and debt purchase. The source is the credit demand of residents, enterprises and other entity departments. The M2 / GDP ratio is highly consistent with the macro leverage ratio in level and trend. In the past 20 years, local governments, state-owned enterprises and real estate departments (residents and real estate enterprises) have been the three main leveraged entities.

3、 The rise of house prices is that too much money chases too few houses: money excess originates from speculative demand and so on

1. The monetary growth to meet the reasonable housing needs of residents can not be regarded as over issuance, and the rise in house prices supported by fundamentals should not be attributed to over issuance. The population growth of the main age for house purchase aged 25-50, the rapid increase of urbanization rate, the steady growth of residents' income and the longing for a better life have led to the rising demand for house purchase. The rise of residents' housing demand drives the rise of house prices, which also leads to the increase of real estate loans and the growth of total money.

2. Speculative demand and panic demand lead to the rapid rise of house prices and currency. The currency created by this part of demand belongs to over issuance. 1) The long-term contradiction between supply and demand in the real estate market has led to the long-term upward trend of house prices, which has contributed to the market expectation of "house prices rising forever", so there are a large number of speculative demands divorced from the real housing demand. 2) Out of concern about the continued rapid rise of house prices in the future, the rigid demand of some residents was forced to advance. 3] After enjoying the dividends of the times and the industry, some real estate enterprises have long been used to adding leverage and overtaking in corners, overestimating their own ability, underestimating the changes of the times, blindly expanding and diversifying, and further pushing up the total amount of money and debt risk. 4) Real estate is a high-quality collateral. Under the expectation of long-term rise in house prices, the default risk of real estate loans is low, so the bank's willingness to lend is very positive.

3. The over issuance of real estate related currencies will lead to a series of negative effects: 1) the rapid rise of house prices will increase the pressure on residents to buy houses and reduce the enthusiasm and vitality of young people; 2) Residents' future income is overdrawn excessively, and their consumption and anti risk ability are reduced; 3) Aggravate the polarization between the rich and the poor and social discontent: 4) push up the rent cost and squeeze the living space of offline retail and service industry; 5) Occupy too many credit resources and raise the financing cost of the whole society; 6) The debt risk of real estate enterprises is high. If it is not handled properly, it may cause a chain reaction.

4、 How to effectively prevent excessive currency issuance?

The regulatory authorities have the responsibility of macro-control and should take multiple measures to prevent excessive currency issuance.

First, we will implement a prudent monetary policy to keep the growth rate of broad money supply M2 basically matching that of social financing scale and economic growth.

Second, strengthen financial supervision and improve the two pillar regulatory framework of monetary policy and macro Prudential policy.

Third, the long-term mechanism of the real estate market to stabilize market expectations.

Fourth, adhere to high-quality development, from real estate prosperity to technology and manufacturing power.

Risk tips: the epidemic changes exceeded expectations, and the real estate regulation exceeded expectations

 

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