Member of the Chinese Academy of Social Sciences Yu Yongding
Produced by | Sohu Think Tank
Edited by | Wang Zhen
On October 11, International Monetary Fund (IMF) released the latest issue of the " World Economic Outlook Report ", which is expected to grow by 3.2% in 2022, the same as the July forecast; the global economic growth rate will further slow down to 2.7% in 2023, down 0.2 percentage points from the July forecast.
Overall, how do you view the performance of the global economy? Will the global economy show a new round of recession? To this end, Sohu Think Tank connected with Yu Yongding, a member of the academic department of the Chinese Academy of Social Sciences. Yu Yongding believes that since the beginning of this year, the Federal Reserve has raised interest rates by five times, with a cumulative interest rate hike of 300 basis points. In the future, the Federal Reserve will continue to implement interest rate hikes and QT. The golden age of the US stock market and housing market has passed, and it is unknown whether it will directly enter the "brass age". Social problems in the United States and Western countries, such as the gap between the rich and the poor, racial conflicts, and the decline in national governance capabilities, may be further highlighted.
Since the beginning of this year, inflation in many European and American countries has remained high, and the European Central Bank and the Federal Reserve have taken aggressive interest rate hikes. In a September report, the World Bank expressed concerns about the global economy reappearing in the 1980s - a global economy will generally decline.
Specifically looking at the US economic growth, Yu Yongding pointed out that the tight fiscal policy implemented by the US and the monetary policy have led to a decline in the growth rate of consumption and investment demand. This year, the US economic growth rate has continued to negatively grow in the first and second quarters, at -0.16% and -0.9% respectively (later adjusted to -0.6%). By traditional definition, the United States has experienced a technical recession. The probability of the US economy falling into recession in 2023 should be said to be the highest since 2008. The possibility of the United States falling into stagflation in 2023 is also quite high.
Since 2008, the United States has been implementing QE and zero interest rates policies. What is the relationship between this expansion monetary policy and the sharp deterioration of the inflation situation since the second quarter of 2021? Will the growth rate of money supply exceed the economic growth rate definitely lead to inflation? Yu Yongding believes that the occurrence of inflation must first have a supply and demand gap. If there is no gap in supply and demand, no matter how much money is spent, it is not necessarily useful. Even if the helicopter is spilled, if it is picked up and put into your own drawer, it will not become actual purchasing power, which will be transformed into inflationary pressure. Of course, if you hold too much money to a certain extent and don’t lose it, demand may also increase due to the increase in currency.
In addition, if there is a gap but no currency, there is demand or purchasing power, inflation pressure cannot be formed. But if the supply and demand gap is large, the currency circulation rate will increase, and some new alternative currencies may also be created (for example, write an IOU). In short, supply and demand gaps and sufficient money supply are necessary and sufficient conditions for inflation. But under certain conditions, the supply and demand gap can create currency, and the "overissuance" of currency can create a supply and demand gap. In short, we need to analyze specific issues in . Analyzing the causes of inflation, we must neither ignore the "general economic principles" nor do we have dogmatic.
Therefore, Yu Yongding believes that, first, the main result of the Federal Reserve's implementation of the zero interest rate and QE policy in 2008 was the surge in the (excess) reserves of commercial banks at the Federal Reserve and the soaring asset prices. The zero interest rate and QE policy have made an indelible contribution to the US economy's longest economic recovery in US history. The reason for the continued deterioration of the inflation situation since the second quarter of 2021 cannot be directly attributed to the release of the accumulated pressure on the Federal Reserve's expansionary monetary policy since 2008.
Second, M1 growth rate soared (M1 is more direct related to changes in demand than M2) 240% occurred after the Fed's assets doubled in March 2020, and has no direct relationship with the Fed's QE and zero interest rate policies since 2008.
Third, since 2008, the growth rate of US consumption expenditure has remained roughly 2%, and it was only in 2021 that the US consumption expenditure began to grow rapidly.The changes in the U.S. fixed asset investment and housing investment are also similar. The negative consequences of the Fed's zero interest rate and QE in 2008 will probably take some time before they can truly emerge. In other words, the US QE may indeed have a great impact on the dollar exchange rate and inflation. But this impact may not only appear after a longer period of time when the Fed reduces the balance sheet from more than $8 trillion to normal.
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