From 1974 to 1975, prices in the United States soared, unemployment increased, and the economy entered negative growth. The Federal Reserve implemented quantitative easing. , finally curbed the continued economic decline, but by 1980, inflation was still at 14.8%. "In 1979, Federal Reserve Chairman Volcker started to control inflation in the United States, which led to a hard landing of the economy, but also triggered the financial collapse of Latin America. Today, nearly 40 years later, Federal Reserve Chairman Powell has also begun to control inflation. Will history repeat? What about the coexistence of global stagflation and financial crisis?
A few days ago (August 13), under the theme of "my country's high-level financial opening up to the outside world under the new situation" at the 8th seminar of the China International Finance 30 Forum, President and Professor of Shanghai University of Finance and Economics Liu Yuanchun gave a video keynote speech , shared his own research and judgment on the greater crisis that may arise under high inflation. He believes that it is a high probability that the world will enter stagflation, but the reasons for this stagflation, whether it will trigger an economic recession, and the management of stagflation in the future all seem to be similar but very different from 40 years ago. "The new The laws need to be further explored, requiring a cautious attitude, scientific concepts, and more attention to the impact of the turmoil of the great era on traditional classic theories and traditional policy thinking. "
30 People on International Finance. Liu Yuanchun, a member of the academic committee of the forum, delivered a 20-minute video speech
A trend: the world may enter a new stage of stagflation: the economy is stagnant and inflation continues
After explaining the origin and background of the problem, as an academic committee member of the 30-person Forum on International Finance Member Liu Yuanchun first affirmed the general trend that "stagflation has already occurred in some countries, and global stagflation will occur." Stagflation refers to stagnant inflation , that is, economic stagnation and inflation go hand in hand, just like "when a house leaks, it rains all night." He pointed out that some authoritative institutions have already predicted that in the next two years, the global economic growth rate will decline by about two percentage points, and inflation will continue to be in the 8% range. Economics stipulates that between 6% and 9% is severe inflation, between 10% and 50% is soaring inflation, and more than 50% is hyperinflation. For example, if Sri Lanka declares national bankruptcy, it will not be just an isolated case. . Judging from the data, Argentina , Turkey , Venezuela are all suffering from hyperinflation. IMF's latest forecast also supports Liu Yuanchun's judgment. The IMF believes that world economic growth may decline by 2.9 percentage points this year, and global inflation will rise by 4 percentage points. "This indicates that the global economy will enter a new stage - stagflation."
The IMF released its latest forecast for the world economy in July (from the Internet)
Six new features: similar but different from 40 years ago
Common in the industry Believing that this inflation is different from that of 40 years ago, Liu Yuanchun analyzed six new features worth studying.
* America is unconvinced: Recession in labor market boom?
First is the definition of economic recession. According to common sense, if an economy experiences negative GDP growth for two consecutive quarters, it indicates that its economy has entered a technical recession. However, in the view of U.S. Treasury Secretary Yellen, Federal Reserve Chairman Powell, and U.S. President Biden , the employment level and labor market parameters in the United States continue to improve. The unemployment rate in July was only 3.5%. Compared with last year and the year before last, Significantly decreased. "So they will ask, there has never been an economic recession with such a prosperous labor market in history." To this end, the economics community has proposed new concepts for recession, such as Sahm's law, which states that the three-month average unemployment rate is lower than the previous year. An increase of 0.5 percentage points is considered a recession. "Therefore, according to Sahm's law, there is no economic recession in the United States, nor is there stagflation. There is only expansion, not stagnation." Liu Yuanchun judged.
Inflation in the United States reached 8.4% in the second quarter, but data shows that the job market continues to improve, which has become the focus of research by experts from various countries
* Is this the third inflationary challenge in a century to challenge MMT monetary theory?
Second, if this plague and local wars and conflicts are regarded as the third cause of inflation in a hundred years, many laws need to be re-understood.First, the mid-term epidemic has exceeded expectations. The impact of the epidemic on the demand side and the supply side is seriously asymmetric, and the same is true for material production and service production. What will happen if the epidemic continues for a long time? Second, the Modern Monetary Theory (MMT), which believes in deficit monetization and generally talks about unlimited money printing and quantitative easing, has failed this time and has caused many sequelae. Liu Yuanchun questioned whether the theory is too confident and needs some special periods and times. A long-term test? Because before the epidemic, the global leverage ratio, deficit ratio, and total money supply reached very high levels, but global low prices have been maintained for a long time, which seems to indicate that MMT is feasible. Third, what if the Russia-Ukraine conflict is extended to one to two years? Fourth, for the first time since the era of globalization, we have encountered a major supply chain and commodity price impact. Supply chain management has become a core of macro management. So how should its adjustment and value chain reconstruction be carried out? Will China promote the formation of a new global price system, price mechanism , or even have trend and essential changes?
* Common misjudgment: Energy prices have fallen back to US$90
Third, the formation mechanism of the price and wage spiral in the United States is not yet obvious. The bargaining power of American unions has declined, but the populism index has increased significantly. What impact will this drop or rise have on the macro economy? , especially as the United States is about to enter the November midterm elections.
Fourth, the structural factors of this round of inflation are highlighted, such as rising service prices and rising core food prices. However, for GDP, energy intensity and real relative price intensity have fallen back. "Energy prices have returned to more than 90 US dollars before the Russia-Ukraine conflict, and have not risen to more than 300 US dollars as advocated by Goldman Sachs . If we return to before the new crown epidemic, will service prices continue to rise, such as supply chain shortages? Problem solved, will prices be adjusted accordingly? This deserves further attention. "
Fifth, is the replacement performance of the supply chain on the cost side, the revenue side, or the price side? Liu Yuanchun believes that it is diverse. He gave an example, "The rise in costs depends on the market's gaming ability. In China, commodity prices have risen, but it has not affected CPI because Chinese companies have strong digestion capabilities and consumers have strong gaming capabilities. However, the opposite is true in Europe and the United States. ."
* If inflation expectations are anchored, will stagflation definitely not occur?
Countries are trying to anchor inflation expectations (PPT screenshot of Liu Yuanchun's speech)
Sixth, will the trade-off between economic hard landing and inflation lead to the collapse of the inflation-pegged system in this round? Liu Yuanchun analyzed that the core factor that determines long-term inflation is inflation expectations, and its most important feature is self-fulfillment. Therefore, how to firm and anchor inflation expectations is the key to inflation management. The Federal Reserve currently uses to raise interest rates to anchor inflation expectations, which has achieved short-term results. The inflation rate in July dropped from 9.1 in June to 8.4. However, the medium-term effect depends on the Fed's next policy operation. The August interest rate hike is 75 points or 50 points? Many countries are implementing inflation expectations. "Many people initially thought that stagflation would not occur. They believed that as long as the central bank implemented a real inflation peg and returned to the pre-2008 monetary system, self-fulfilling inflation would not occur." Liu Yuanchun made a comparative analysis.
Different causes of stagflation require different governance, and high global debt is worrying.
Because this round of stagflation has already appeared, it has different origins and different manifestations, so different governance methods are needed. Liu Yuanchun cited four aspects.
First of all, in terms of the three elements of demand side, supply side and international coordination, "the most certain thing is the demand side, and the most uncertain thing is international coordination. Because conflicts and games between major powers have entered a new period, cost releases may occur." Important new changes."For example, on the demand side, can be used to quantitatively hedge , and the fiscal deficit can be reduced to cope with it; on the supply side, measures such as labor market adjustment and structural reform can be implemented. The mid- and long-term cost issues require international coordination, especially the costs of green transformation and bulk commodities. Costs, defense costs, supply chain restructuring costs “This is the most variable area. ”
Sri Lanka’s declaration of national bankruptcy may be just the first of many dominoes. The picture shows the confrontation between Sri Lankan people and the police From the Internet
Secondly, although the methods of raising interest rates and reducing the fiscal deficit will be effective, they will inevitably test global finance, especially under the normal conditions where various types of debts continue to exist. Liu Yuanchun analyzed that the current global debt has exceeded 310 trillion. Raising interest rates by 300 basis points means that the entire interest rate rises to 10 trillion levels, which will account for about 12% of global GDP. “This level is unbearable. "More importantly, the debt problem in emerging economies and some developed countries is very serious - the total debt ratio has reached 207%, of which the government debt ratio has reached 64%, the highest level in the past 30 years, half of which is in foreign currency Of the listed prices, 40% is held by the government. The current twin deficit problem in emerging economies is particularly serious. In 2021, the fiscal deficit rate will expand to about 4.5 percentage points, and the trade deficit rate will expand to 4.5 percentage points. -3%. What kind of Pandora's box will the twin deficits unleash? "First, the debt interest rate will increase, causing the debt of 6 to 8% of GDP to continue to rise. Second, the exchange rate will depreciate by 20 to 30%, causing the debt to increase by 30%. What about superposition? "
Once again, global real estate prices have generally risen during the three-year epidemic. Although the loan structure and residents' balance sheet structure in the United States are better than expected, the 30-year fixed mortgage loan in the United States has soared rapidly recently. , will it cause the supply of to be cut off? ? The United States is in crisis, and more importantly, the endurance of some emerging economies must be in jeopardy.
Again, the U.S. stock market has begun to adjust, and subsequent changes need to be closely watched.
Will the global economic hard landing shorten global inflation. ?
On the 16th local time, Biden signed and passed the $750 billion "2022 Inflation Reduction Act" to address climate change and expand medical coverage, and said he would strive to reduce the government budget deficit by about 30% within 10 years. 0 billion. The budget model of the Wharton School of Business at the University of Pennsylvania believes that the bill will not have an effective effect on inflation. Screenshot from Kankan News Network.
Finally, whether the hard landing of the global economy will quickly reverse global inflation will Is this round of inflation shorter than expected? Liu Yuanchun has no conclusion
First, this round of inflation is different from previous periods. First, it is unclear whether the impact of the epidemic on supply and demand is sustainable in the medium and long term. Second, it is a technical recession in Europe and the United States. This has led to a rapid decline in energy prices, so will a technical recession become possible? Will source prices and commodity prices return to a balancing force before the Russia-Ukraine conflict?
Secondly, is supply chain reconstruction more difficult than war and financial crisis? Because there is not only the game of great powers, but also the background of the wave of anti-globalization. What will happen in the next five years? Within ten years, under the influence of several factors, the changes brought about by the supply chain Will it show up in costs and profits, or in prices? Will it show up as stagflation, or will it show up as a typical recession?
Thirdly, will the asymmetric financial turmoil between the center and the periphery become a new trend in currency quantity? Reservoir? A lot of dollars return to the United States, and in the process it will affect the price How will the mid-term impact be reflected?
[Highlights]
Pictured above: Tu Guangshao, advisor to the 30-member International Finance Forum Advisory Committee, made an opening speech and put forward eight observation points on "my country's high-level financial opening up to the outside world under the new situation."
Picture below: Wang Yurong (left), Secretary-General of the 30-person Forum on International Finance and Deputy Director of the Contemporary China Research Center at Tsinghua University, presided over the opening ceremony. The first topic was "Global Economic Trends: Inflation, Recession and Response" by the Executive Director of the 30-person Forum on International Finance. Qiao Yide presided over (right), and the other two topics were "International Financial Rules: Significance and Challenges" and "Deepening the Construction of Shanghai as an International Financial Center: Prospects and Measures"
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Above: "Global Economic Trends: Inflation, Recession and Response" special session. In addition to Liu Yuanchun's keynote speech, three members of the 30-person Forum on International Finance from left to right, Wei Shangjin, tenured professor of at Columbia University, Southern Technology Dean of the University Business School, former deputy dean of Tsinghua University PBC School of Finance Zhou Hao, director of CICC Li Huang Haizhou gave video speeches respectively, with the titles of "International Transmission of Risks of Interest Rate Increases in the United States and Europe", "Outlook of the Federal Reserve's Monetary Policy and Its Impact on the Chinese Economy", "Possible Ways to Manage High Inflation in the US Economy"
Pictured below: Chief Economist of Industrial Securities Company Wang Han, a scholar, and Xu Mingqi, vice chairman of the Shanghai International Economic Exchange Center and a member of the 30-member International Financial Forum, gave a speech on the spot, entitled "Looking at the global situation since the beginning of the year from the perspective of exchange rates and capital markets." Capital Flows" "The Significance and Measures of China's Improving the Level of Financial Openness under the New Situation"
Link at the end of the article
The first report on participation in international financial rules was released: Chinese people from integration to participation
Author: Li Nian
Photo: Provided to the organizer on site , information photos come from the Internet
editor: Li Nian
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