Quotes:

This essay still begins with a thought-provoking short story!

Let’s consider some typical economic phenomena if we abstract an economic society as consisting of only one deep-pocket family with ten billion of dollars (currency in circulation) and one thousand poor peasant families.

At this time, even though the big wealthy man has billions of dollars, the scale of his demand for consumption is limited, and a large amount of wealth is only hoarded in the safe and will not participating in the circulation of the community, while thousands of poor farmers do not have the ability to consume even though they have the demand for consumption. As a result, the economy in this situation is depressed and in a deflationary economic environment.

At some point, what will happen when thousands of farmers all go to borrow ten thousand dollars from the rich man to trade with other farmers to buy what they need?

1. As more farmers borrow on credit, the money in the rich man’s house will become less and less.
2. Even if the farmers spend the borrowed money, it is possible to prosper the economy and raise the overall level of prices.
3. With more farmers borrowing money, more money will be involved in transactions in society, more economic activity will take place, and the economy will prosper. This is an economic environment of gradual inflation.
4. It is also a process of gradual increase in leverage throughout society.
5. Even after the rich man has lent out almost all of his wealth, he still has a claim on nearly ten billion of dollars, and he does not think that he has become poorer. Therefore, it does not reduce his ability to meet his own consumption needs.
6. The central point is that all of these credit borrowing processes and economic activity transactions comply with the zero-sum principle, and the money in circulation in society as a whole does not increase by a single cent.

Next, it is the process of debt repayment and deleveraging by farmers. As the farmer returns the borrowed money to the owner, the economy and society return to silence and depression, and deflation begins again.

Therefore, it can be concluded that the overall leveraging behavior of society can lead to economic prosperity and inflation, and the deleveraging behavior of society can also lead to economic depression and deflation.

The story doesn’t end here. The previous conclusion is important, but it is not the main conclusion I want to draw.

Now let’s take the wealthy owner in the story and change it to China’s modern day financial banking system, would this make any difference? Or what factors would change and be different?

One of the most important and central changes is that the total size of the money in China’s banking system has increased rather than decreased as poor farmers have increased their credit lending to China’s banking system.

In these two subtly different stories: on an economic level, there will be little essential change.

But on a financial level. The credit behavior of modern commercial banks, in violation of the classic zero-sum principle, leads to an increase in the money supply of society as a whole with an increase in credit, and the money supply, in turn, is the source of funds for the next credit, which leads to an increase in credit in society, with seemingly no restraining force, which leads to the size of the debt and the level of leverage of society as a whole to grow at an unimaginable level.

The resulting money supply also grows dramatically, and likewise works its way into the economy, so that economic prosperity, and higher levels of inflation, likewise develop at levels beyond imagination on a scale of many times that of tens of times that of the economy.

As can be seen from the slightly modified story, the quasi-money system of China’s modern financial and banking system is notable for the fact that a large amount of sovereign credit money can be derived from commercial bank credit, which brings a sky-high money supply to the economy and society, which works together with the previous conclusion that the act of increasing leverage can allow the economy to flourish and inflation to develop.

This is the most central main reason for the high speed of our economy and the high level of inflation for more than a decade. And it’s the main reason of the rapid development of China’s GDP is from, GPD has been up to more than 2 digits of growth level, most of which is from the growth of debt GDP.

Thus, to analyze economic issues thoroughly, then one must not leave the focus on analyzing the important role of money.

Moreover, the focus of the analysis must be on two important factors: the quasi-money system that violates the zero-sum principle and consumer credit that leads to increased leverage.

Historical review: a glorious financial and monetary history

It was the best of times, it was also the worst of times.

Good fortune lies in trouble, and bad fortune rests upon it

China’s recent 30-year financial and monetary history is enough to leave an important mark in the world’s financial history. With the emergence of computer technology, database and network technology, so that the modern circulation of money to add a completely new form of existence - electronic money, the existence of this form of money, enough to produce a huge change in society. It is precisely because of the development of IT technology that the quasi-money system, which violates the zero-sum principle typically met by the capital market, has the prerequisites and foundations for tremendous development. It is a breeding ground for huge financial and economic disasters!

Let’s start by looking at the most central financial and monetary data for China over the past years, starting in 2000 and ending in 2014. This includes both stock and annual incremental data on the money supply.

At the end of 2014, deposits stood at $113.86 trillion, loans at $81.68 trillion, foreign exchange account at $29.41 trillion, broad money M2 at $122.84 trillion, narrow money M1 at $34.80 trillion, cash banknotes in circulation at M0 at $6.03 trillion, and base money (the central bank’s total liabilities) at $33.82 trillion.

At the end of 2014 compared to the end of 1999, over these 15 years, deposits have grown 9.5 times, loans have grown 7.7 times, foreign exchange accounts have grown 18.9 times, broad money M2 has grown 9.4 times, and base money has increased 8.6 times.

No matter from China’s financial money stock and incremental data can always be seen. China’s money supply growth is very rapid. In these 15 years, China’s base money and broad money supply M2, almost all to 15 years ago, about 10 times the size of the scale. And the total size of M2 has reached 122 trillion, or about 19 trillion U.S. dollars, which has exceeded the size of the money supply M2 (nearly 12 trillion) of the world’s largest economy, the United States.

The following are some of the essential features inherent in China’s quasi-money system.

1. China’s base money growth, significantly by the U.S. dollar as the anchor for printing foreign exchange accounts, which accounted for about 90% of the size of the base currency. The growth of base money can only be provided by the country’s central bank.
2. The growth of China’s broad money supply, M2, is a combination of base money growth and quasi-money derived from on-balance-sheet bank credit. Quasi-money growth, can not be provided by the country’s central bank, can only be derived from the commercial banking system by credit.
3. Quasi-money growth scale and trend, its own trajectory and law, the size of the bank’s on-balance-sheet credit is also the size of the growth of quasi-money, subject to the constraints of the central bank reserve ratio. Therefore, the bank table credit has the highest limit constraints, in China’s 20% reserve ratio constraints, quasi-money for the maximum size of the base currency 4 times, in fact, can only infinitely close to this limit and can not reach this limit. This release process, we can also be understood as the money multiplier effect. Theoretical money multiplier limit value of 5 (the inverse of the reserve ratio 1/0.2)
4. M2 limit theory: a certain base money size and reserve ratio, the money supply has the limit of growth, the bank table credit and quasi-money scale limit value constraints, the closer the real value of the theoretical limit value, the M2 growth is more difficult, the more difficult to grow bank deposits, the more difficult to grow bank credit, the more exhausted the bank’s credit funds, the larger the size of the central bank’s reserves, the more the size of the bank’s system of funds the more the less the more tense the more prone to a run on the bank systemic risk increased substantially, the bank systemic risk. The systemic risk of the banking system has increased dramatically.
5. Countermeasures to this monetary tightening. Printing of base money and downgrade! But downgrade is the behavior of thirst, will continue to increase the systemic risk of banks, and printing base currency, is to reduce the behavior of monetary credit, may cause national sovereign monetary credit crisis.
6. The correct countermeasure is to macro-guide the whole society to take the initiative to deleverage.

The central bank’s data show that China’s quasi-currency scale of 88 trillion yuan, China’s huge scale of quasi-currency, in fact, is a kind of temporary loss of liquidity of the country’s sovereign credit currency, it can be converted with the currency at any time and get liquidity. The main factor binding the quasi-currency loss of liquidity is the bank’s deposit rate. Huge scale of quasi-currency, although not directly involved in economic and social circulation and trading activities, but is the cornerstone of consumer confidence!

Because the capital market transactions always satisfy the zero-sum principle, therefore, even if very little money circulation in society, it is also possible to do the prosperity and health of economic development.

At present, China’s circulation of cash banknotes M0, for the scale of 5.5-7.5 trillion, because of the existence of electronic money, electronic money is also involved in economic activities in the transaction and circulation, and cash banknotes have the same role and effectiveness, M1 is about 34 trillion, about the size of the base currency, that is, China’s circulation of money in the total scale, to participate in the economic activities of any circulation links and buying and selling transactions.

In China’s quasi-currency system, the most important and most overlooked point is this:

“Blessing in disguise”, although China has become the world’s second largest economy, the total size of the money supply also exceeded the United States became the world’s first, but the total debt of society as a whole, but also reached the first level of the universe.

Precisely because the quasi-money system has the above characteristics, which led to China’s total debt scale of society as a whole, the level of comprehensive social leverage in the past decade or so, several unconstrained rapid development of the current level of total social leverage, the total debt scale, in China’s 5,000 years of history of any period of time, have never appeared.

China is facing a crisis, mainly in violation of the zero-sum principle of the quasi-money produced by the scale is too large, at the same time is a huge scale of debt is difficult to maintain, the development of the economy’s level of profitability, has not been able to cover the sky-high amount of debt principal and interest payments, the debt crisis once the outbreak of the whole society passive deleveraging, will allow the economy to enter into deflationary environment quickly, so that the burden of debt has become even more unmanageable, once a large number of Debtor default and flight, it will make the vast majority of the huge scale of national sovereign credit currency - quasi-currency lost the backing of the person in charge, because this scale is too large, has exceeded the size of the country’s base currency of 2-3 times, the national government and the central bank is simply not able to and incapable of peddling, which will lead to a large area of bank insolvency, and This will lead to an economic catastrophe in which China will enter a deflationary environment of the century that has never been seen in history, and the global economy will lose China’s huge demand and be trapped in an economic depression.

Will war be the only dangerous way to finally solve all the crises?

Economy and finance

I. Economy

Economy is the cycle of production and consumption, which is accomplished through any transaction between a buyer and a seller, where the buyer buys the material goods and services sold by the seller through the use of money and credit, and where the transaction always follows the zero-sum principle at the same time, and where the seller’s monetary income is always equal to the buyer’s monetary expenditure.

The above seemingly very simple economic transaction model, in fact, has a very rich connotation, thinking about how far, this simple model of the connotation of how deep.

This model can be used to analyze the simple economic phenomena in each economic field, but also can analyze the complex development trend of the whole national economic environment. It can be used to analyze the economic problems of individual economic markets and local economic markets, but it can also be used to analyze the complex problems of social supply and demand relationships and the development of inflationary and deflationary trends.

This is due to the fact that any individual and organization in the society is at the same time a buyer and a seller in the model, and all activities in the social economy have to be reflected in their production value through transactions. Without transactions, there is no economy!

In trading activities, the buyer uses money and credit, and the seller provides products and services, and the zero-sum principle will always be followed in any one or more trading activities, which means that the seller’s monetary income will always be equal to the buyer’s monetary expenditure. Zero-sum thinking is an important mode of thinking that must be grasped in analyzing economic issues.

Many people have the idea that the real estate market, the stock market, and even the land market, are all reservoirs of money. In fact, any such pool theory thinking is very wrong, because they only see the buyer’s monetary expenditures without seeing the seller’s monetary income, in the model of the transaction, many people are only concerned about the first half of the model, while ignoring the seller to provide products and services to obtain the monetary income, the lack of zero-sum thinking typical of the error.

Beyond the products and services provided by the seller in the trading model, there is actually an important class of financial assets, such as stocks, bonds, and other financial assets.

The buying and selling transactions of financial assets is not a social value creation process, financial assets are not the most terminal products and services that are directly consumed, therefore, their transaction amount will not be included in the GDP, while their transactions will always meet the zero-sum principle, therefore, the SSE A-share stock market, no matter tens of thousands of points or less than 1,000 points, is not going to have any effect on the increase or decrease in the money supply, and the same time The trillions of dollars of trading capital traded in the A-share market every day some time ago will not make any contribution to the country’s GDP. Because of this, when considering economic issues, I do not take financial assets into account in the products and services offered by sellers.

When analyzing economic problems, we often think about analyzing the supply-demand relationship. In fact, the supply-demand relationship in economic activities is already reflected in the above model, because the balance and imbalance of the supply-demand relationship will always be ultimately reflected in the scale and frequency of trading activities, and as long as it is a trading activity, it will definitely be within the scope of analysis of the above model.

Supply, is the products and services provided by sellers, and demand, is the money and credit provided by buyers.

Demand can be categorized into consumption demand and consumption capacity, of which consumption capacity is the most critical. Consumption capacity refers to the ability to pay for the money and credit that the buyer can provide to complete the transaction.

Credit creation is mainly divided into two types, one is credit borrowing under the direct financing mode, in which the creditors providing credit are any institutions and individuals with non-bank attributes. The other is credit lending belonging to the indirect financing model, whose credit-providing creditors are commercial banks.

In the story described in the previous article, the poor farmer borrows money from the rich man, which is a credit borrowing under the direct financing mode, and the creditor is the rich man, while the poor farmer borrows money from the bank, which is a credit loan under the indirect financing mode, and the creditor is the commercial bank, and the debtor is the poor farmer in both financing modes.

Modern commercial banks, through their credit, generate a large amount of the country’s sovereign credit money, and derived or derivative money, which can also be called quasi-money, is an important part of the money supply, M2. Therefore, it is entirely possible to conclude that China's economy is essentially a credit-created economy, or simply a debt-pulled economy. And what a huge scale of credit creation, and through consumer credit to stimulate the production of credit to synchronize growth and prosperity to achieve.

At the same time, consumer credit, although it will lead to a boom, but more will lead to a disaster.

In my opinion, whether money is derived or not is one of the most crucial points to think about in order to distinguish between direct and indirect financing, and secondly, the fact that indirect financing creates two pairs of claims and debts is also one of the points of reference to differentiate between them. Any act of direct financing, although it is also a process of increasing leverage in society and will lead to an increase in the size of the total debt of society, but the country’s sovereign money supply will not grow as a result of it, whereas any act of indirect financing will not only lead to an increase in leverage in society and an increase in the size of the total debt, but it will also lead to a simultaneous increase in the country’s money supply, M2.

The supply of money and the creation of credit, which is an important manifestation of the buyer’s ability to pay in the previous economic model, occupies the most important key position in the economy in the chain of economic production and consumption.

In the financial and monetary system of modern society, commercial banks can generate money by relying on credit, which I call the quasi-money system, a new thing in modern financial history. This monetary system is a monetary system with serious flaws and huge financial loopholes.

From this to the other, when thinking about and analyzing economic problems, it is necessary to consider another important area that is closely related to money supply - finance!

II. Finance

It is very clear to see that finance is the front of economic transactions, providing money and credit creation services for the buyer. Finance itself does not create wealth and value, but it is an important part of economic activity to create wealth and value to complete the transaction. Therefore, finance serves the economy.

In different economies, the experience of finance and the essence of the grasp, is different.

In some countries in Europe and the U.S., the interest rate on money deposits is very low, and they maintain an economic environment of low interest, low profitability and low inflation.

In China, on the other hand, the financial market has become a market that creates wealth, and the interest rate differential between commercial banks’ deposits and loans is so huge that it has become the core source of commercial banks’ profits. China’s various financial capital market trading activities are also very active, such as stock and bond markets, futures markets, etc., wealth creation myths, from time to time from such markets.

It is clear that China has maintained a high interest, high profit, high inflation economic environment for more than a decade in modern times.

In the modern financial and monetary field, one point that has to be emphasized is that in the last 30 years, with the emergence of IT technologies such as computer technology and network technology, money has appeared in a completely new form of existence - electronic money.

Electronic money, is a force that has all the power to cause major changes in society.

The emergence of the computer network and electronic money, so that economic activities in the transaction behavior can occur thousands of miles away, greatly accelerating the frequency of transaction activities and the circulation of money speed.

With the use of electronic money as a form of payment of money in economic transactions, it is possible to focus on another point - the means of payment.

Bank cards, credit cards and other Internet banking payments (UnionPay), is a familiar means of electronic money payment, which is not focused on here.

Now there is also a reliable and convenient mode of payment - Alipay.

Alipay is a non-banking system of the 3rd party payment method, other details need not be discussed. Do not underestimate the Alipay, its surface is a means of electronic payment, in fact, it has the function of the bank, therefore, his profit-making model can be similar to the bank, a large number of small current savings from the banking system to transfer to the Alipay account, from the user’s point of view, the currency exists in their respective Alipay account, in fact, the currency has been transferred to the Alipay bank account, because the transfer of monetary funds The transfer of currency funds will be maintained at a certain small scale, but deposited in the small account in the total size of the transfer of funds is considerable, therefore, Alipay to retain a certain amount of current funds for daily withdrawals, the rest of the funds can be rated in the bank, or to buy the bank’s currency funds, which has the attributes of the bank Alipay an important source of profit is the dividends of financial innovation.

If Alipay’s account deposits funds of trillions of dollars, then a year only to consider the profit of fixed deposit interest rates is the scale of 30 billion yuan. Therefore, based on this consideration, the balance treasure, is a high interest rate to stimulate retail investors demand funds into this precipitation pool of initiatives to increase the size of its profits.

Alipay is an important means of electronic money payment for online remote transactions.

However, small and medium-sized economic transactions in China’s daily life are generally accomplished using cash bills and not using electronic money and its means of payment.

Obviously, WeChat Pay sees this business opportunity, based on mobile devices such as cell phones WeChat Pay, or mobile wallets and the like or collectively referred to as mobile payment of another electronic means of payment, will also quickly come to China’s future life, the Chinese New Year’s red envelopes to grab the red envelope craze, which is designed to allow the majority of users to use cell phones to bind their bank cards, laying the groundwork for the cell phone mobile payment.

If the computer-based Internet banking payment and Alipay payment is all remote transaction electronic payment means, then the future of the cell phone mobile payment, will become the daily life of the face-to-face transactions of electronic money payment means, of course, it is also both remote transaction electronic payment means. Similarly, a large amount of money deposited in the account of the payment means provider will also become an important source of profit. Spring Festival platforms, QQ groups sent out a large number of red packets, sent out but real money, but many grabbed the red packets of users, perhaps in the initial stage of cell phone payment and will not be bound to the bank card and lost the right to withdraw cash, a large number of funds, will be lost to the supervision, or perhaps into the payment means of payment providers of the funds deposited into the pool, which in fact, is the whole population in the cell phone mobile payment providers in the issuance of a red packet.

Whether it is Alipay payment or the future mobile payment by cell phone, this all belongs to the category of direct financing mentioned earlier.

In nature, we can often see the water in rivers and lakes, in the microscopic, a large number of liquid water molecules will get energy and out of the water surface into gaseous water molecules, at the same time there are also a large number of gaseous water molecules lose energy back to the water surface and become liquid water. At some point, the water molecules that become gaseous will almost equalize with the water molecules that become liquid. And liquid, tangible water can be used for a variety of purposes, including irrigation and drinking.

Currency is also like water, a large number of small amount of current funds can be deposited in the Alipay, Balance Treasure and other funds account, the same moment of the transfer of funds into and out of the funds is almost balanced, so the balance of the treasure with the use of tangible water, can be used for the bank deposit, buy money funds, or investment and other purposes.

For the country’s financial and monetary system. 124 trillion of the total money supply M2, at the same moment, there are up to 34 trillion of demand deposits (in electronic money) and cash bills together called M1 flowing in the society, even though at different moments there are demand deposits converted to time deposits, but there are almost a considerable amount of time deposits to gain liquidity and become demand deposits. The money M1 circulating in the society will also remain at a considerable size.

In nature, sustained heat or sustained precipitation can upset this equilibrium, and in the monetary realm, these equilibria can also be upset under certain unexpected circumstances.

In the event of certain accidents on network electronic payment platforms, a large amount of funds could also be quickly transferred out of the 3rd party payment platforms leading to a run on such payment platforms. This type of 3rd party payment platforms under the direct financing model is not risk-free.

At the same time, all kinds of membership cards, shopping cards, any means of payment that have monetary properties but are not currency or electronic money, are all subject to this profit model and risk.

When analyzing the financial and monetary phenomenon, the most important thing to pay attention to is China’s current financial quasi-money system.

Bank credit, which belongs to the category of indirect financing, generates two pairs of creditor and debt relationships; in the first transaction depositors deposit money in the bank, the creditor is the depositor and the debtor is the bank (to satisfy the zero-sum principle); in the second transaction the bank extends the loan to the borrower, the creditor is the bank and the debtor is the borrower. In the process of the 2nd transaction, the entire banking system will be derived out of thin air and the size of the credit equivalent to the derived currency, the bank to issue credit this transaction, we can think of the bank as a buyer, by which the expenditure of the currency to buy the borrower’s (the debtor’s) collateral, but after the completion of the transaction as a buyer of the bank in the currency but did not reduce, and as a seller of the borrower, selling collateral but gained the real money income (which becomes yet another person’s currency after the payment transfer), a transaction that clearly violates the zero-sum principle that any buyer-seller transaction will always follow. This is where the quasi-currency system is deeply flawed and vulnerable (a very important point here).

Under such a flawed quasi-money system, a continuous savings and loan cycle will result in the money supply of the whole society growing in line with the growth of on-balance sheet bank credit (indirect financing), which, in layman’s terms, means that the whole society will be borrowing more and more money. The more money there is, the more payment capacity will be provided to buyers in economic transactions, the more active economic transactions will be, the more rapid the growth of GDP (consisting mainly of debt GDP), and the higher the profitability of money will be, leading to a significant increase in the level of profitability of the whole society’s leveraged operations. In essence, but will lead to the total debt of the whole society is getting bigger and bigger, the total debt of the whole society, the comprehensive leverage level reached a human history has never appeared, incredible height.

To summarize, the economic dimension of providing credit to consumers, or consumer credit stimulating a synchronized boom in production credit, is the core factor in the growth of credit creation in the socio-economy, while in the financial and monetary realm, the quasi-currency system, by violating the zero-sum principle of the capital market, leads to a significant increase in the scale and space for credit creation across society, with more and more money being supplied, which in turn leads to credit creation even more. The repeated reinforcement of each other leads to a society-wide flood of credit creation, a flood of credit, the scale of debt is expanding endlessly, and the comprehensive level of social leverage develops beyond imagination. The combination of these two factors, consumer credit and the quasi-money system, acting on their own economies is the truth of China's economic prosperity in the past, and moreover, the root cause of all the crises in the future.

This quasi-money system under the process of large-scale credit issuance, but also the process of the limit of the money multiplier release, this monetary system, the size of the credit is not unlimited, the theoretical maximum value of the money multiplier, is the inverse of the reserve ratio, in the reserve ratio of 20%, the maximum money multiplier is 1/0.2 = 5, and 5-1 = 4 times the size of the base currency, is the theoretical maximum size of the credit The limit value, therefore, the money multiplier minus 1 can be directly abstracted as the leverage index of the whole society (here in fact, the effect of directly financed debt on the leverage index of the society should also be taken into account), or considered as the leverage index of financial money.

Under this quasi-money system, the banking system extends credit, although it generates the country’s sovereign credit money - quasi-money (we can think of the generated money as quasi-money because when it is generated, at least the same size of money loses its liquidity and becomes quasi-money, or, more rigorously, the commercial banks generate money through credit), and at the same time generates money. The more rigorous way to put it is that commercial banks generate quasi-money at the same time as they generate money through credit, which is not exactly equal to quasi-money but has a very close logical connection, so for the sake of convenience the previous section directly equates derived money with quasi-money), and the real backing of quasi-money is not the banks and the government or the central bank, but rather all of the debtors of the on-balance-sheet credits of the banks.

Any thinking of taking on debt and not paying it back is wrong, because it would result in a large amount of quasi-money losing its backing principals.

Under this monetary system, if it comes to the process of liquidating debt and deleveraging, it will lead to a reversal of the trend in the money supply, a massive contraction of money and a tightening of money. This would be very harmful to the development of economies of comparable monetary size, and would almost certainly lead to an economic crisis that would be more destructive than a financial crisis.

If the outbreak of the debt crisis led to the economy into a deflationary environment, a large number of debtors are unable to repay their debts, or apply for bankruptcy or flight, will lead to a huge scale of quasi-currency in the banking system to lose the backing of the person in charge of the emergence of a more serious financial crisis, there are only two paths to choose from, one will be the size of quasi-currency instead of the national government or the central bank to the backing of the extremely large amount of printing of base money to this Endorsement. This would lead to a sovereign monetary credit crisis. The second is to opt for massive bank failures and a systemic financial crisis. There is no other way to resolve this. (In fact, a deep and comprehensive fight against corruption and the suppression of all external capital under TURNLEFT would be a shortcut to resolving the crisis.)

The world’s first banks emerged in response to the emergence of usury in society.

Usury is a lose-lose transaction, and the end result is inevitably the result of playing the debtor to death and dragging the creditor to death.

Therefore, the essence of finance, in my opinion, should be to maintain a low-interest, low-winning, low-inflation economic environment, and to utilize tax policies to limit and restrict the high-winning areas or markets in society, so as to maintain a stable and sustainable economic order.

But China’s financial and banking system, but in the community loan sharks, all kinds of private direct financing products are rapidly booming is to create a more unsustainable loan-sharking environment. The outbreak of debt crisis is just around the corner!

III. China’s debt crisis is bound to break out

To understand the severity of China’s debt and judge whether the debt crisis will break out, whether there are rescue measures, it is inevitable to start from the source to recognize clearly, China’s debt crisis is how to evolve.

Recently we have seen the most in the economic and financial field is the word currency war, in fact, currency war layout and planning, has begun a long time ago, and now entered the white-hot stage of the decisive battle.

First of all, we have to understand, what is the purpose of the currency war?

Its main purpose is to spoil a country’s currency issuance system, so that its national currency flooding and exchange rate appreciation, so as to achieve the plunder of another country’s wealth as the main goal, and secondly, maximize the harm to another country’s national capital, so that it loses the opportunity to rise again, and even to subvert a country’s regime as the goal, in order to achieve the purpose of the military war can not be achieved.

Therefore, the layout of the currency war, which has been planned for more than ten years, is to take the plunder of wealth as the primary goal, while the currency is the pricing tool of wealth, it is obvious that the plunder of wealth can be accomplished in the form of directly plundering the currency of a country.

Therefore, the formation of a quasi-money system and the use of money and credit by buyers as a means of payment, which is at the heart of the economic model, can be synthesized with the formation of a quasi-money system, which is the focus of the previous economic and financial descriptions. It can be concluded that stimulating the rapid growth of monetary and quasi-money M2 is the most important part of the process of monetary plunder.

From the laws of operation of the quasi-money system under certain reserve ratio constraints, it can be recognized that this monetary system, although harmful, must have a catalytic process in order for its harm to manifest itself. And that catalytic process is bank credit.

Credit creation, as analyzed in the previous focus on economic modeling, is the key factor at the heart of the rapid economic development in modern times. Credit creation includes private lending and bank credit. Here we ignore private lending and focus on bank credit.

In all credit creation, the most easily overlooked point is the distinction between producer-created credit and consumer-created credit.

First of all, we have to understand the economic society in a premise, that is, the whole society does not create any credit, because the capital market is always a zero-sum market, the whole society can also do the economy to flourish.

Now the Chinese society, appropriate credit to create some production credit, credit will be provided to the producers to expand reproduction, enriching the society’s products and materials, or credit will be provided to scientific research, technological innovation, in order to improve the level of productivity of the society. This is a relatively neutral credit creation.

The reason why production credit is considered neutral rather than benign credit creation is that credit creation leads to the growth of debt, which is potentially harmful and could lead to the outbreak of a debt crisis even if only production credit exists in society. Secondly, production credit will be subject to the constraints of the consumer market in society, and the consumer demand and consumption capacity of the final consumer market will constrain the level of profitability of the funds of production credit, and will constrain the continued growth of production credit in the event that the capacity invested in by production credit is unable to be absorbed by the consumer market in a timely manner. Therefore, it does not lead to the development of production credit to an uncontrollable scale and height.

What is clear is that in order to stimulate massive economic growth in society, a flood of money, and an increase in the level of profitability of capital, a completely new form of credit has to be devised to be extended to consumers.

The real estate market, which has been booming in China for two decades, is an economic market that allows banks to extend credit to consumers on a massive scale. The housing mortgage system, a system that has trapped the Chinese nation in a state of doom and gloom, and consumer credit - home loans - a system that massively provides credit creation to consumers and massively stimulates the massive and simultaneous expansion of production credit in hundreds of real estate-related industries, have led to skyrocketing growth in China’s money supply, M2, while the size of China’s debt is also growing on an incredibly massive scale. The scale of its debt is also growing incredibly large.

Consumer credit, at the same time, is another major hazard that robs the consumer market of future spending power. For more details, see the article “Pillage and Counter-Pillage of Wealth”.

Thus, a naturally flawed quasi-money system would have to be combined with consumer credit in order for a country's debt to grow to almost unimaginable heights. China’s current on-balance-sheet bank credit of over 80 trillion RMB, about three times the size of the RMB base currency, has never been seen before in China’s 5,000-year history.

Any buyer uses money or credit as payment capacity to purchase products and services provided by the seller, a transaction process that always follows the zero-sum principle, so with a scale of up to 80 trillion credits being provided to the buyer, then there must be a transfer of payment to the seller after the transfer of the 80 trillion of the same scale of money that has simultaneously become the seller’s income. Therefore, in this process of credit flood, currency flood, a large number of power and interest capital, hot money capital, can be completed on the Chinese people’s wealth looting without being the whole society.

At present, the whole society has as much as 124 trillion RMB currency, of which a large amount of M2 is generally held by the power elite groups, hot money capital, consortiums and organizations. On the basis of the large-scale wealth plundering and fleeing, these are the scale of the wealth plundering that has been completed and has not yet finished fleeing, even if such a scale has reached a very horrible level.

At present, even if we only consider the banks’ on-balance sheet credit debt, it is already more than 80 trillion dollars.

Under normal circumstances, how to resolve this massive debt crisis?

First of all, we must clearly see clearly the inflation can dilute the debt of this point of view deceptive and confusing.

From the micro for individual debtors, inflation, can reduce the burden of debtors, on the surface, inflation seems to have the function of debt dilution, the process, the size of the debt is not reduced and will increase the interest rate, only the debtor’s ability to improve the profitability, resulting in debt is not a very painful thing. Inflation, which has a positive effect on the continuation and development of debt.

But from the point of view of the whole society’s total debt scale, inflation, from the total social debt scale has never been reduced, and it is because of the increase in the level of inflation, the profitability of the funds also followed the increase, will not lead to the whole society to take the initiative to deleveraging, but on the contrary, the whole society will choose to continue to roll up the increase in the debt to raise the leverage. As a result, the total debt of society as a whole continues to grow significantly.

Secondly, we should be sober and rationally realize that the most correct measure to solve the debt crisis is to take the initiative to deleverage the whole society!

To do in the inflationary environment and capital profitability significantly higher environment, active deleveraging is how difficult.

We can clearly recognize that in order to resolve China’s debt crisis, it is necessary for the holders or institutions of up to 124 trillion RMB to take the initiative to act as buyers to consume and purchase assets, so that the sellers of debt can obtain monetary income and take the initiative to gradually pay off their bank debt, and in this process of active deleveraging, the buyers must not continue to use credit as a means of payment for money. This is the process of benign society-wide active deleveraging, but also a quasi-money annihilation process.

After the deleveraging is completed, the money supply in society will gradually approach or almost equal the size of the base and currency of about 34 trillion. At this point in time, society as a whole has substantially tightened money.

But society as a whole gradually deleveraging process, but also a gradual deflationary process, and deflation, will significantly increase the debt load, so that the debtor deleveraging more difficult, and as the holders of M2 more will tighten the consumption, and gradually strengthen this vicious circle.

This a mutually restraining paradox, active deleveraging process, will eventually evolve into a debt crisis eruption, society as a whole passive deleveraging, and lead to monetary tightening and economic depression.

Quasi-money system combined with consumer credit together to let the scale of social debt continues to expand, in the end is bound to be a difficult to ride the behavior of the mountain is easy to go down the mountain is difficult with the same reason.

From this level, in the process of inflation to let the whole society rational active deleveraging, is a very difficult and almost impossible to complete the task, so that the whole society to take the initiative to resolve the debt crisis has become impossible.

China’s debt crisis is in fact far more complex than the above description.

The previous description only considers the scale of indirectly financed debt caused by banks’ on-balance sheet credit, but the following must be considered in conjunction with the scale of direct-financed debt, the credit creation of society as a whole, which is expanding on a large scale.

As I have explained in detail in several articles, there is actually a limit to the size of on-balance sheet debt for bank credit. At a 20% reserve ratio, the total size of bank credit would be no more than four times the size of base money. If you need details to quantify the size of the bank’s credit, you can use the M2 limit theory formula M2 (MAX) = (base money - M0) / reserve ratio + M0 to inverse the total size of the bank’s credit, for more details see “explore the economic implications of the limit value of M2”. At present, China’s bank credit is very close to the limit of the scale.

Society as a whole has a huge debt society, need more money to maintain production and operation, when the indirect financing scale incremental shrinkage, society as a whole will have to seek a higher interest rate of social direct financing products to solve the capital problem.

This is China’s current social all kinds of direct financing products, such as wealth management products, trusts, funds, loan sharks, all kinds of platform loans and so on the inevitable trend of high-speed prosperity.

As a result, the total debt size of the society is now detached from the statistical tracking. Social direct financing debt does not lead to changes in the money supply M2, but it will lead to the growth of total debt in society and can not be counted, so it is called shadow debt.

Now there are media announcements, China’s total social debt scale of 28 trillion U.S. dollars for about 170 trillion yuan size of the huge, the total social debt scale, has far exceeded China’s money supply M2 of 124 trillion scale, which is entirely possible, mainly to consider the shadow debt scale has been very large.

In my opinion, the social private financing and other direct financing debt scale, basically will not exceed the money supply 1 times the size of the social indirect financing debt scale, subject to the reserve ratio constraints, basically will not exceed the theoretical maximum value of the money multiplier minus 1 times times the size of the base currency.

China’s current on-balance-sheet bank credit is RMB 82 trillion, and shadow debt is estimated by me to be 20-50% of the size of the money supply, so I believe that the total debt of the whole society is around RMB 110-140 trillion. Basically, the whole society is very close to or even already insolvent.

China’s society as a whole this total debt scale, both in terms of scale and degree, is in human history has never appeared.

Consumer credit, mainly in the form of home loans and car loans, has robbed ordinary consumers of their spending power in a rolling fashion.

The current boom in direct financing products continues to rob the relatively affluent, the holders of M2, of their spending power.

As previously analyzed, holders of debt, holders of M2 (monetary savings are also debt from the point of view of depositors), are the cornerstone of consumer confidence.

Relatively affluent groups hold 10 million yuan of savings and hold 10 million yuan of financial products, are also the cornerstone of their consumer confidence, with this cornerstone of consumer confidence they dare to spend hundreds of thousands of dollars in the short term without any worries. But the fact is that the creditors who bought 10 million financial products do not have the ability to consume more at the moment, and their consumption power has been transferred to the black hole of debt. The future shadow debt explosion and the emergence of bank insolvency phenomenon, will greatly eliminate the cornerstone of such consumer confidence.

Therefore, when the majority of consumers in China’s consumer market have been robbed of their spending power, even if they have consumer demand, they don’t have considerable spending power or monetary payment power.

The model of the buyer’s money+credit trading with the seller’s products+services is once again at work.

When the buyer’s ability to pay in money is plundered, at the same time credit creation in society is on the verge of drying up. Then the entire buyer’s market will disappear, the entire society will shrink, and economic activity will slow down and stagnate dramatically.

At this moment a large number of sellers of products and services from the previous debt investment, have become overcapacity, forced by the debt, will inevitably cut off the arm of survival, leading to a continuous cycle of falling asset prices. The economy is trapped in a deflationary environment. And the deflationary environment of the economy, greatly unfavorable debt deleveraging process, and deleveraging process, more will exacerbate this deflationary process.

So think in terms of the consumer market being robbed of its spending power. Combine this with the fact that China’s debt is too large and unsustainable, the ultimate factor, which is the determining factor that leads to the inability of society as a whole to deleverage. China’s debt crisis, the inevitable outbreak of this is an inevitable economic phenomenon, there will be no fluke exceptions.

In this process, it would be futile to consider central banks printing money to try to save the debt crisis. Because the money that is printed can go to the producers as buyers to enhance their ability to pay for investment as buyers, but it cannot go to the hands of consumers to enhance their ability to pay for consumption as buyers. And only the consumer as the buyer’s ability to pay for consumption, is the producer as the seller of the premise of the basis of deleveraging. And the whole society takes the initiative to deleverage is the only correct way to resolve the debt crisis.

The way and sequence of the future outbreak of the Chinese debt crisis is also bound to be the same.

First of all, because of consumer credit to consumer groups of plunder, social direct financing products to relatively affluent groups of plunder, at the same time as the credit creation of indirect financing and direct financing scale are close to the limit of the release of the whole society as a buyer of money and credit creation from the comprehensive ability to pay a significant lack of completion of the economic transaction activities, which led to the beginning of the economic activities of the first shrinkage and depression, asset prices Down, deflationary signs began to show, the real interest rate of funds increased, the real interest rate of debt increased.

This situation will inevitably lead to the first explosion of any civil society direct financing products with higher nominal interest rates on debt. For example, financial products, loan sharks, all kinds of platform loans and so on all known and unknown forms of direct financing. This will then lead to the redemption of a large amount of funds from society back into the banking system, a process that is not a good phenomenon to alleviate the crisis in the banking system, but a worse financial phenomenon, a process that, even though a large amount of funds are withdrawn from the direct financing products of the society and returned to the banking system, will not lead to the growth of deposits in the banks and the growth of the money supply, M2, and will not alleviate the liquidity of the banks and lead to the growth in the size of credit. Instead, it causes a large number of institutions and enterprises throughout society to break their financial chains, thereby jeopardizing the entire banking system.

Thus, after high-interest private direct-financed debt is the first to burst, what will follow will be the beginning of a massive burst of indirect-financed debt within the banking system.

In this process, funds will begin to withdraw from the Chinese market on a large scale, banks began to appear bankruptcy phenomenon, M2 withdrawal rights play a huge power to squeeze the entire banking system, this development process will be accompanied by a substantial depreciation of the renminbi exchange rate, bank deposits and money supply M2 began to appear a large-scale contraction phenomenon, the state to set up barriers or restrictions on individual foreign exchange purchases, forced export enterprises to half or the full amount of foreign exchange settlement and other phenomena perhaps. Will appear, in order to cope with the outflow of funds, when and only when in the large-scale outflow of funds, in the general trend of interest rate cuts choose to respond to the large asymmetric interest rate hikes. This process begins, it can be clear that the outbreak of financial crisis without doubt.

The outbreak of financial crisis under the quasi-currency system will inevitably lead to a more serious economic crisis.

Therefore, China’s economic level, there will be a large number of corporate bankruptcies, business owners, debtors run away from the road to commit suicide and other phenomena will be frequent and more frequent, the increase in unemployment in the community, income reduction, prices are not a substantial increase but a more substantial decline in this process, the real estate market, will be able to see the obvious signs of the collapse of real estate, the collapse of the real estate, the collapse of the first-tier cities in North China, Guangzhou and a substantial general decline in housing prices of 20 percent and Can’t release the volume of transactions, can’t increase the volume of transactions, also can’t let the house prices stop falling for the real estate collapse of the judgment conditions. The clear collapse of the real estate market will be the beginning of China’s economic disaster. Let China’s economy even worse, let the economic crisis deepen development.

With the deepening development of the economic crisis, the phenomenon of reverse urbanization began to appear, a large number of rural areas to the city to work and business people began to return to the countryside on a large scale, the formation of spontaneous movement to the countryside, rural townships and cities began to bustle the anti-depression, a large number of pre-government investment in the urbanization of public facilities, there is a clear overcapacity, and will be reflected in the highway, high-speed rail, aviation and other transportation The transportation sector, such as highways, high-speed railways, and aviation, will also be clearly reflected in this situation.

People flow, logistics and money flow related to economic activities are all obviously weak in this stage.

In this stage, the society starts to become unstable, and localized social crises tend to be sudden and frequent. The social crisis of the phenomenon of the rush to buy and local price increases and local serious inflation phenomenon, need to focus on and prevent. This topic will not be discussed too much.

Only the outbreak of social crises will make the trend of future crises unpredictable and there is no need to make predictions. Thinking independently and acting with the camera is the best response at this stage.

The plundering of China’s consumer market over the past decade or so will lead to the inevitable outbreak of China’s debt crisis, which cannot be resolved! The outbreak of China’s debt crisis will first appear in the high-interest private direct financing type of debt, and then gradually pass to the banking system, will appear in the Bank of China bankruptcy events and RMB credit credit has been continuously downgraded for the outbreak of China’s debt crisis as a big sign.

IV. U.S. dollar index and RMB exchange rate

U.S. dollar index on the surface, is a total of six other currencies such as the euro and other comprehensive changes in the exchange rate of a basket of currencies, but in fact, the U.S. dollar index can be directly abstracted to the world’s various types of materials or price index of the composite purchasing power of the index, the majority of international commodities market commodities in U.S. dollar-denominated, so the price of commodities and the U.S. dollar index has become a more pronounced negative correlation.

The U.S. dollar index can almost form a large cycle of economic correlation, the world economic prosperity, the U.S. dollar index weaker, the world economic depression, the U.S. dollar index stronger.

Now many people have a wrong understanding that the U.S. dollar index can be used to control the strong, thus leading to the collapse of the world economy and depression. In fact, the world economic depression, all kinds of U.S. dollar-denominated bulk asset prices due to lack of demand led to price reductions, which pushed up the U.S. dollar index, and the U.S. dollar index of the strong, at the same time, will be a wind vane role, stimulate a large amount of capital from other capital markets to withdraw from the capital markets, instead of holding the U.S. dollar capital, and more resulting in the world’s capital markets tightening of the currency, the demand for lower, and once again pushed up the U.S. dollar index, and therefore role Mutually reinforcing, into each other as the cause and effect of the cycle.

Japanese debt crisis, the Japanese yen QE, the European debt crisis, the euro QE, have constantly pushed up the role of the U.S. dollar index stronger.

But the future of the U.S. dollar index is stronger the ultimate factor, is the outbreak of the debt crisis.

Has been analyzed, China’s debt crisis is bound to break out, almost no chance to avoid the possibility of the future of the U.S. dollar index, you can see a more dramatic rise in the process, the specific can go up to how much height, I can not quantitative analysis, but in view of the severity of the crisis, the U.S. dollar index breakthrough in the previous highs, when there is no doubt that it means that all types of asset prices in the world’s Great Depression! Crisis, will significantly break through the previous lows.

Renminbi against the U.S. dollar exchange rate, which is an important topic.

Before starting this topic, first of all, we have to figure out the issuance mechanism of the RMB.

The issuance of the RMB base currency is controlled in the hands of the country’s central bank without question. From 1994 to 2012, China implemented a mandatory foreign exchange settlement system, so that trade surpluses, foreign debt, foreign investment and all other ways into the U.S. dollar, can become the name of foreign exchange account of China’s central bank to print the anchor of the base currency. Currently China’s base currency, about 88% of the base currency is foreign exchange accounted for. This is analyzed by many as China’s RMB being kidnapped by the U.S. dollar away from its function of autonomous issuance, and is considered a wrong policy.

In my opinion, the compulsory settlement system is not logically wrong. The U.S. dollar is also wealth, is a reflection of the purchasing power of the world’s goods, so the currency with credit, are symbols of wealth, therefore, China’s wealth increased, according to the logic of the central bank should have been the independent printing of the base currency to correspond to it.

We should next think, if China’s import enterprises, the use of the yuan to buy U.S. dollars to import materials back to China, in this case, then China’s central bank will be recovered with imports equivalent to the yuan currency, at the same time, the domestic market and more imported materials. At this time, the extra foreign exchange accounted for or RMB base currency printed on the Chinese market is gone, while the imported materials have increased. The central bank then must again release the RMB base currency equivalent to the supplies again, which, in turn, is equivalent to the need to print base currency on its own.

We only in-depth details, will find that the mandatory foreign exchange settlement system is not wrong, wrong in the country’s pursuit of trade surpluses, a large number of U.S. dollar reserves, a large number of U.S. dollar reserves hoarded in the central bank, is not used for material imports and other economically related areas, but to invest in U.S. debt, Japanese debt, European debt and other financial related areas, become the object of strangulation by others.

Secondly, from 2000 to the end of 2014 this 15 years, China to non-U.S. dollars and other foreign exchange as the anchor of the size of the base currency printing of about 2.5 trillion, strictly speaking, this part of the base currency printing called the anchorless printing of money point of view, is also inappropriate, 15 years this scale of 2.5 trillion yuan of the base currency printing, the same is also the central bank’s autonomy of the embodiment of the printing of money, but this scale, I’m afraid, even the Interest growth in total social savings, are not printed.

Previously talked about is the central bank to control the growth of base money.

In China’s quasi-money system, the growth of the money supply, and an important quasi-money, or derived money, is not controlled by the central bank, but by commercial banks issuing credit to control the scale of quasi-money growth.

Currently, the size of China’s quasi-money at the end of 2014 to the size of 88 trillion, is about 2.6 times the base money (this 2.6 times the size of the society can be directly considered as the level of integrated monetary leverage). And the counterpart of quasi-money is banks’ on-balance sheet credit debt.

Under this quasi-money system, the more banks lend, the larger the total debt of society, the more the country’s money supply, the more money is used in the economic market, the more frequent the economic transactions, the higher the price of goods, and the profitability of the funds is also increasing. This is evident in the soaring GDP of up to 2 digits, the high CPI, and the equally high double-digit M2 growth rate. All these brilliant achievements conceal the fact that China’s monetary system has been messed up (the money supply is not controlled by the central bank), and the shocking wealth plunder behind the economic boom has also been concealed.

Historically, the past wealth plunder, are plundered country with the depth of the wealth plunder, wealth will become less and less, the economy will become more and more depressed, while China’s modern society wealth plunder, the form is reversed, the social economy will be with the depth of the wealth plunder but more and more prosperous, social wealth but on the contrary, it will be more and more, it is because of the whole society on the wealth of the viewpoint of the dislocation of the understanding of the Chinese people to the appreciation of assets as wealth, to the wealth of the Chinese people to the constant Appreciating assets as wealth, the purchasing power of the currency is constantly depreciating not wealth, while foreign financial capital to the exchange rate continues to appreciate the yuan always as wealth, so China is willing to overdraft the future is not considered to be the wealth of the currency to form debt, to help the process of wealth plunder, the whole nation of how stupid!

China’s money supply is so flooded with growth, CPI or inflation levels have always continued to maintain a high level, from the economic and financial logic, China’s RMB exchange rate should be depreciated, but why China’s RMB exchange rate, but always in the appreciation of it?

It is because China’s currency flood, the economy continues to prosper, resulting in a large increase in the profitability of capital, a large amount of world financial capital can flow into the Chinese market profit, a large amount of hot money, FDI capital, legal and illegal all kinds of capital, are pouring into the Chinese market, at the same time, China has always been the pursuit of trade surpluses, increase foreign exchange reserves. All led to China’s base money in the form of foreign exchange accounted for a substantial increase in the form of banks to issue a steady stream of credit water. On the surface, this is a process of sustained benign economic development, in fact, in essence, is the whole society’s total debt scale is growing, the wealth was plundered by the poor business conditions.

Of course this process, China’s vigorous development of the real estate market, the credit issued to consumers, is the whole wealth plunder, messing up the monetary system in an essential and important factor. I have analyzed this cause and effect process many times in my articles.

The exchange rate issue, the surface issue is strongly causally linked to the environment of the economy. But behind the scenes, there is a more direct logical link in the decision of the exchange rate appreciation and depreciation, that is, the inflow and outflow of capital, a large amount of financial capital inflow into China, then the exchange rate will appreciate, and if a large amount of financial capital outflow out of China, then the exchange rate will be depreciated, this is the link between the exchange rate of the logic of depreciation and appreciation of the factors, as for the inflow of capital because of the why and where to flow, it is the economy needs to answer the question.

Previously analyzed, the purpose of the currency war is wealth plunder, plunder a country’s sovereign credit currency, but China’s money supply is so flooded, prices continue to rise, the people of their own people from the yuan as wealth, is it to foreign financial capital, is wealth?

Definitely yes! Because the RMB exchange rate has been appreciating!

Therefore, creating an environment in which the RMB keeps appreciating is wealth to foreign financial capital because it can exchange more US dollars to leave the Chinese market, which is the global settlement currency and is a reflection of wealth.

Therefore, China’s prosperity and development in these decades, are overdrawn the country’s resources, the environment, the future of the whole Chinese people’s consumption capacity and the well-being of the whole nation, to help the world hostile financial capital to China’s plunder. Renminbi appreciation on the way, strategic shorting capital has been in the outflow, they to stimulate short-term arbitrage capital, Chinese enterprises to go out to finance the U.S. dollar debt capital, currency swaps and other external financial capital into the Chinese market in the form of exchange of bank style to cover up the withdrawal of strategic shorting capital.

Shorting China, must be shorting the yuan, and the best environment for shorting the yuan, is the yuan exchange rate appreciation rather than depreciation.

Therefore, the devaluation of the yuan is the correct strategy to carry out a counter-plundering of wealth.

The future of the yuan exchange rate will be due to the risk of holding the security of funds and large-scale withdrawal from China, resulting in a substantial and rapid depreciation of the yuan exchange rate, with the release of the risk of financial and economic slow stabilization, the severe deflation under the monetary tightening and asset prices after the plunge in the economic environment is in turn the constraints on the exchange rate to continue to depreciate the factors, at this time, even if the country is not anchored to print money, but also will not have to currency Credit is harmed because printing small amounts of money in a deflationary economic environment can solve big problems. With the financial stability and economic recovery, the RMB exchange rate will likely regain the appreciation trend, the development trend of the RMB exchange rate in the next 10 years is likely to be like this, first of all, the RMB exchange rate of small oscillation depreciation, followed by rapid and substantial depreciation, followed by a rebound type of appreciation, followed by the continuation of the oscillation type of depreciation, the exchange rate stabilization, and finally the gradual appreciation. This is the medium to long term contingent development trend of the RMB exchange rate, the specific point of RMB depreciation, can not be modeled for quantitative analysis.

But China’s current, economic and financial have been riding the tiger, the real estate market, lose not to keep not, the currency market, loose not tight not, the exchange rate market, rise not to depreciate not. The exchange rate can not be substantially depreciated, that is because to avoid the formation of the trend of devaluation of the yuan, will lead to more capital withdrawal from China, focusing on shorting the yuan. China’s efforts to maintain the exchange rate, just to maintain the asset planing foam does not rupture, in order to avoid the premature outbreak of the debt crisis, China is delaying the arrival of this burst of time, but in exchange for the time will not be too much.

The future of the Chinese debt crisis under the outbreak of the phenomenon of bank insolvency, so that the holding of capital security risk is to lead to a large-scale regardless of the cost of capital outflow, is the only factor in the future of the yuan exchange rate depreciation, therefore, the yuan exchange rate depreciation, will appear in the phenomenon of China’s bank insolvency after the emergence of the phenomenon. And the formation of exchange rate depreciation under the trend of capital outflow, is China’s future to face the most core of the crisis.

V. The core crisis: M2 drawing rights and capital outflow

The previous step-by-step analysis of the currency war to loot a country’s wealth for the purpose of performance in the country’s economy and financial sector, are a very prosperous and rapid development process. It is completely possible to make people not see clearly that this is a currency war and think imperceptibly that this is a wealth-plundering feast.

To take first, you must first give” is always the only strategy and means of wealth plundering in the zero-sum market of capital.

“To take first”: “to take” is the RMB credit currency, synonymous with wealth, and wealth plundering is aimed at plundering a country’s credit currency wealth.

For the national government, the “give” is the rapid growth of the country’s economic GDP to the size of the world’s second largest economy and the world’s first largest financial money supply, which is the manifestation of the political performance, and for the residents, the “give” is the rapid growth of the country’s economic GDP to the size of the world’s second largest economy and the first largest financial money supply. “For residents, it is the rising value of their real estate holdings, the increasing monetary income of their households, and the growing valuation of their household wealth.

Low-level wealth-plundering tactics: “selling a product that keeps increasing in value, stimulating people to come and buy it in large numbers, and thus plundering large amounts of money through transactions”. Typical examples are the Tulip Bubble and the Stock Market Bubble.

Advanced Wealth Grabbing Technique: “Sell a product that increases in value rapidly, stimulate people to buy it enthusiastically with leveraged borrowing, and thus loot an astronomical amount of money through trading”. Typified by the real estate bubble.

Thus, low levels of wealth grabbing occur in credit-less economies, and high levels of wealth grabbing occur in credit-boom economies.

The most central and difficult crisis that China faces today is the crisis of excessive quasi-currency and excessive M2 drawing rights. Excessive quasi-currency means that the scale of banks’ on-balance-sheet debt is too large, and once a debt crisis breaks out, the debtors of banks’ on-balance-sheet credit can be made to lose their ability to take responsibility for the country’s sovereign credit and monetary backing, and be underwritten instead by the state and the central bank, but if this scale is too large and the central bank is unable to underwrite, then the central bank will be unable to underwrite. If this scale is too large for the central bank to underwrite, then China’s banking system will go bankrupt on a large scale and in pieces. And M2 is too big, that is, when the crisis comes, the force of the run on the bank is too large. China’s entire banking system, will not be able to cope with the impact of this risk, so that the central bank of China to try to anchorless printing quasi-currency peddling efforts to become completely unfeasible, M2 drawing rights too large squeeze on the yuan and squeeze on the U.S. dollar and the crisis of the gold reserves, the central bank can be scrapped anchorless printing to cope with the debt crisis of this effort. This makes the future debt crisis outbreak of bank bankruptcy in pieces to break out of the systemic financial crisis, has also become an inevitable phenomenon.

This most central M2 withdrawal rights crisis is actually quite well understood.

The large amount of savings deposits in the banking system formed by quasi-money is not actually underwritten by the state and the central bank. But by the bank’s table debtors to underwriting, and China’s quasi-money scale, accounting for about 70% of China’s money supply, a large number of savings withdrawals based on the premise that the debtors of the whole society bank table credit debt repayment, if once the economy broke out a serious debt crisis, the simple truth is that the bank’s large-scale savings become no longer safe. So, as long as the large-scale funds realize the existence of this risk, will be fixed in the M2 in a large number of quasi-currency into the currency M1 and liquidity, exchange of U.S. dollars out of the outbreak of the debt crisis in the place. This will lead to a massive tightening of both base money and money supply in China, which will lead to a serious financial and economic catastrophe, and consequently to an even more destructive social crisis.

This is actually a reverse process of the economy’s synchronized boom in production credit for the whole society stimulated by consumer mortgages, leading to a flood of on-balance-sheet bank credit, resulting in an excessively large quasi-money scale, an overly large M2 money supply, and a positive release of the money multiplier limit, leading to an increase in social leverage and an extremely prosperous economy.

And by the outbreak of the Chinese debt crisis under the capital outflow, will lead to the reverse process of the money multiplier play a role in the financial sector of the passive tightening of the currency, the capital chain breaks, the whole society passive deleveraging, and thus triggered an economic catastrophe.

Therefore, the root cause of China’s huge crisis today is formed by a combination of two factors.

1. On the economic side is the massive release of consumer credit.

2. On the financial side, the quasi-money system is naturally flawed. It violated the zero-sum principle that capital markets should always follow.

As I have explained many times in my articles, under a quasi-money system, the danger of deriving quasi-money through bank credit is far greater than the central bank printing base money indiscriminately. And in this quasi-money system, the crisis once the accumulation of accumulation, almost no solution, so even if the central bank continues to use the release of base money, is also unable to solve the crisis.

Because the crisis that China is facing is the crisis of the M2 drawing rights is too large, and M2 drawing rights, are crowded banks and crowded U.S. dollar reserves, gold reserves, shorting the power of the yuan. The central bank chose to print money to cope with the crisis, the essence of the logic is a payroll to put out the fire behavior, is a continue to grow the M2 drawing rights, grow the bank runs against U.S. dollar reserves, grow the power of shorting the yuan behavior. So clear logic I can only explain here. The good thing is that we can wait and see!

M2 drawing rights crisis is essentially a huge scale of RMB currency savings drawing rights to squeeze the U.S. dollar reserves of the crisis, which is a shorting of the RMB crisis, shorting the RMB is not in the currency futures market and in is in China’s financial and currency markets, the process of shorting the RMB, no need to cultivate counterparty plate, China’s central bank, that is, do is to do is to do a shorting of the RMB naturally come to the counterparty plate, which protects the RMB Exchange rate chips is up to about 4 trillion U.S. dollars the size of the foreign exchange reserves, while shorting the yuan chips, is 124 trillion M2 drawing rights in most of any have to exchange U.S. dollars to escape from China’s any yuan capital.

When we understand the root cause of the crisis, in order to fully realize the severity of the crisis and try to find a way to lift the crisis.

The size of the M2 drawing rights that led to the easy run on the banking system is too large, and the quasi-currency is too large, so the solution to the crisis is actually a process that allows M2 to reduce and annihilate the quasi-currency. This process is either an active benign long time a slow process (active deleveraging soft landing), or a passive vicious destructive process (passive deleveraging hard landing). And whether it is active deleveraging or passive deleveraging, the act of deleveraging will lead to a weakening of economic activity and a reduction in the money supply. Both will cause economies to enter into a deflationary environment, which, in turn, is not conducive to the deleveraging process, and therefore, even in the absence of external financial attacks, it will be a very long and painful process.

Secondly, bank insolvency is also a destructive process of passive elimination of M2 withdrawal rights and annihilation of quasi-money. It manifests itself in the form of the outbreak of a severe financial crisis, which leads to a break in the financial chain of society and the inability of the money supply to meet the functioning of the economy, leading to the outbreak of an even more severe economic crisis.

Once again, for sellers to deleverage, they have to provide enough goods and materials or services that can be traded. In the process of deleveraging, the buyer cannot use credit as a means of payment. Therefore, privatization of state-owned assets in the form of whitewashing of powerful capital is also a logic that can deleverage the whole society.

Finally, a comprehensive and in-depth fight against corruption could also be a way to eliminate M2 drawing rights. This is a sensitive and volatile topic, so I won’t go any further.

The combination of factors and constraints, but can be deduced from the conclusion that the future deleveraging is forced by the trend, the quasi-money system will occur under the phenomenon of severe money supply contraction, will lead to the economy into a deflationary environment, and this deflationary situation, once it occurs and the gradual deepening of the situation, it will be the history of the unheard of. The massive outflow of capital from the Chinese market under the outbreak of the future Chinese debt crisis will also be an uncontrollable trend, which will be accompanied by frequent downgrades of the RMB’s credit rating and a significant depreciation of the exchange rate. This core crisis will be marked by the emergence of the biggest black swan phenomenon, the bankruptcy of the Bank of China.

In the capital began to outflow, some analysts believe that stabilizing the exchange rate, pull up the stock market, there is a role in easing the pressure of capital outflow.

This leads to a more concerned topic, the nature and purpose of this round of stock market rally.

According to the previous analysis can be considered, China’s economy and finance, will face an extremely serious crisis, then assume that this analysis is correct and is the consensus, then the stock market of this turn over the scale of the rise, can only be positioned as a level of rebound, rather than the stock market’s reversal or the beginning of the bull market. The stock market applies to the “skin does not exist, hair will attach” reasoning, the growth of the bull market, the need for economic development as a basis. From this consideration, this round of stock market extremely sensational rise, is the policy side with the big capital for the purpose of fleeing and cash as the essence of the characteristics.

The stock market can be capital-driven rise, but not only by the capital to promote the rise of stocks. There is another important factor, is the stock market’s unanimous bullish expectations and attitudes, under the premise that even if there is no large amount of incremental capital to promote, but also can realize the stock market rising, for example, the phenomenon of a stock’s volume of stops, it can be completely contradictory to the rise in the stock market can be done with the incremental capital has nothing to do. Of course, the phenomenon of sky-high stops, but also can show that the rise of the stock has a lot to do with the promotion of funds.

As long as we pay attention to watch, will find this round of stock market rise, from the policy side, is to play a decisive role, that is to say, the country from the policy macro level, to guide a unanimously bearish and push up the role of the stock market.

Remember, in the past in 2014, the state constantly cut the quota, targeted quota reduction, relaxation of the deposit and loan ratio, and then PSL1 trillion to the State Development Bank, and then constantly SLF hundreds of billions of dollars, hundreds of billions of dollars of MLF, interest rate cuts, and then cut the quota, so frequently in the stock market rose in the process of the key time nodes, the release of monetary easing in a timely manner, and constantly help the stock market to pull out of the highs, and once encountered a lack of strength in the stock market rise, or a slight pullback to face the break level. Or a slight retracement facing a break, almost always have timely monetary easing information. Release of liquidity favorable stock market news, is the most critical factor in this round of stock market rally.

Of course, there is another factor that should not be taken lightly, and at the same time, also in the promotion of the stock market.

That is the stock market financing exceeded the scale of trillion yuan.

As buyers of stock financial assets, they can now also use money and credit as a means of payment. In other words, the stock market, too, has begun to realize the function of plundering wealth with leverage.

Even if there is no capital to promote, only rely on the news with, can realize the stock market rose significantly, not to mention this round of stock market rise in the process, more new trillions of financing funds to boost it.

The essence of the stock is a class of financial assets, in fact, from some levels, is also a realization of the monetary payment transfer, the realization of the wealth plunder tool, because any transaction in the stock market, will also meet the zero-sum principle.

The stock market is a zero-sum market can not be denied, how much money into the stock market to buy shares, then there must be an equal amount of money to complete the cash and left the stock market. Of course, the stock market escrow funds account will be deposited on a certain scale of current funds can be used at any time to trade operations, therefore, this sense, the stock market has a certain role in water storage, but it is not a reservoir but extremely similar to the role of a wide river, the water season and dry season of a certain section of the river channel in the water is not equal, the stock market is also the same. This topic is not in-depth.

To analyze the inflow and outflow of funds in the stock market, you need to focus on analyzing which type of funds are flowing in and which type of funds are flowing out. Here, I will not have more data and details of in-depth analysis, but if a large number of retail funds and their financing funds to take over certain FDI, consortiums and institutions, power capital, all kinds of large and small non-permanent, if this kind of completion of the financial capital of the cash has the typical intention of fleeing the Chinese market, then this round of stock market rally, not only will not alleviate the pressure of the yuan’s depreciation, but also increase the scale of capital outflow and accelerate the speed of capital outflow, the stock market will not be the same, but it is not the same. Accelerate the speed of capital outflow, increase the pressure of exchange rate depreciation. And take over a large number of private retail investors and their financing funds, if the stock market, equal to their ability to pay as consumers in the economic market transactions disappeared, was plundered, which is also a greatly unfavorable debt social deleveraging process and boost consumption to stimulate the economy for this purpose.

The future of monetary easing news will continue to appear, passive frequent cuts, and even interest rate cuts, all kinds of disguised tools such as PSL, SLF, MLF, etc. will alternate, therefore, the stock market will continue to appear in good news at the right time, the stock market will continue to be pulled to what position is the end of the round, I can not quantitatively analyze, but any round of rise, for the cash, perhaps the future will appear! A black swan event, will be the mad cow back to its original form, it is recommended that the majority of stockholders, in the crazy money at the same time, to stay a point of caution of cash. The first rule of the Wall Street code, not afraid of you to make money in the capital market, for fear that you leave this market after making money. Zero-sum market to complete the basic principles of wealth plunder, always “want to take first must first give”. Ha ha maniacal laughter is not necessarily the winner, laughing to the end is the winner!

VI. Inflation or deflation? Where is the water?

We can also through the previous economic model, easily analyze the phenomenon of rising and falling prices, analyze the future is the economic trend of inflation or deflation.

By carefully thinking about the core element of the buyer’s money and credit trading with the seller’s products and services, it is then possible to analyze that inflation can occur under the following circumstances.

1. The buyer factor (more money in the hands of the buyer. Income increases and the central bank prints large amounts of base money)

2. buyer factors (more credit available to buyers. Credit increases, commercial banks release credit on a large scale, cut rates…)

3. Sell-side factors (lack of output, capacity is destroyed, especially by the social crisis, social unrest destroyed capacity, this crisis will be the most serious, and the most uncontrollable factors leading to inflation)

4. Sell-side factors (monopolies increase, products and services are restricted to special groups)

5. Combination of factors, interest rate cuts, stimulation of increased trading activity.

Above all, some of the factors leading to inflation would have been very weak and could have been offset by other forces, such as the reduction in the rate was offset by capital outflows, and the reduction in interest rates was offset by a lower CPI.

And that causes deflation to occur. Then the above are reversed.

1. buyer factors (buyers have less money in hand. Income decreases, debt crisis erupts claims disappear, banks go bankrupt)

2. Buyer factor (credit available to the buyer becomes less. Commercial bank credit dries up, private financing risk increases the withdrawal of funds from the field of direct financing)

3. Seller’s factors (increased productivity, abundant output, high inventory and overcapacity)

4. Sell-side factors (breaking monopoly)

5. Comprehensive factors: the reduction of the CPI is equal to the interest rate hike, the real interest rate of all the stock of social funds and the real interest rate of all the stock of debt increased, inhibiting the credit creation activities and the speed of money flow.

The most central cause of deflation is this. The probability of deflation being caused significantly by the factor of reduced money and available credit for buyers is maximized without a sudden and significant destruction and reduction in capacity.

That is to say, the reduction of money available to the buyer (the combination of consumer credit's plundering of the buyer's market, leading to a reduction in disposable income, and social direct financing's plundering of the spending power of the affluent groups will lead to the disappearance of the buyer's market's ability to pay for money in the future, and a significant contraction of transactional activity in the economic sphere). Secondly, there will be a lack of access to credit for any buyer (bank credit will dry up after the release of the money multiplier limit under the M2 limit law, while the high cost of private financing will lead to a lower demand for credit).

And we all think that the printing of money will lead to a major inflationary point of view is simply untenable, because the country’s central bank directly printing money released by the money, can not directly into the hands of the consumer as a buyer, but can only be into the hands of the producer as the buyer of the investment transaction, so as long as the careful thinking of the producer and the consumer as the buyer of the transaction led to the difference between the country and the producer and the consumer, respectively, can be reached after a judgment, the country cannot stimulate the growth of consumer demand even if it prints money. The monetary data and economic phenomena that have emerged in China now fully justify this view. The next article will also focus on analyzing the unthinkable economic phenomenon that even the massive release of money supply by the state cannot stimulate the growth of economy and consumption.

Abstract and summarize the above, should be able to see more clearly in the future there will be a serious deflationary economic trends.

Since I began to pay attention to and think about analyzing the economy and other aspects of the problem, has always insisted that the future will not be serious inflation point of view, if you need a time limit, then the future is within 5-10 years, and at the same time that inflation will gradually shift to the deflationary point of view, the main source of thinking is the development of inflation by the consumer credit, mainly mortgage loans lead to a very prosperous credit society as a whole is the most fundamental factor of the development of inflation, that is, the process of increasing social leverage in the previous story. The previous story in the process of social leverage will lead to the gradual development of social inflation phenomenon thinking the same, therefore, real estate development of the peak period and the highest peak of the social leverage index of the period, is the cumulative level of social consolidated inflation, the highest point of the integrated level of prices of materials, and as long as the real estate development stagnation, then the most serious inflation phenomenon, will not be a long time to appear again, the real estate industry as a whole, the stagnation of the development of the real estate industry to maintain 1-2 years, is the beginning of the collapse of the economic field and the real estate industry is closely related to the industry, inflation will gradually shift to deflation.

In the period of rapid development of the real estate industry, China’s money supply growth rate and GDP growth rate, are more than double-digit or even more than 20% year-on-year growth rate in the development, but the CPI index, but why there is no synchronized growth to more than 10% level, and even last year, any month of the CPI in the control index is set at 3.5% under the premise that there is not any month of the CPI index more than 2.5% growth. 2.5% growth, and early this year the CPI even reduced to a low growth level of 0.8%, a new 5-year low.

Many people’s analysis that real estate is a monetary reservoir, that real estate has stored a large amount of monetary water, and did not flow into the field of people’s livelihood, and therefore did not lead to people’s livelihood inflation to an intolerable point, and the analysis that real estate as long as the development of stagnation, a large amount of monetary water, will be rushed to the field of people’s livelihood, will lead to a more serious inflation.

I analyzed earlier, the social pool theory is almost always wrong, because they only see the buyer’s monetary expenditure, but not the seller’s monetary income, the lack of zero-sum thinking is the key to all the monetary pool theory error. The pool of real money, apart from the central bank’s reserve coffers, is the money accounts of a large number of powerful people, hot money groups and institutions. Their capital account, stored a large amount of monetary water, and its social comprehensive consumption demand capacity is limited, therefore, large-scale wealth plunder under the uneven distribution of wealth, the phenomenon of serious polarization of the rich and the poor, resulting in a part of the group with the ability to consume, but did not produce enough social consumption demand, while the majority of ordinary consumer groups with social consumption demand, but do not have a considerable consumption capacity. The powerful and wealthy interest groups with sufficient consumption capacity, however, are engaged in extensive luxury consumption and real estate investment in the world, a phenomenon that has attracted the attention of the world for all to see.

Inflation and deflation are contradictory and alternate, just like the phenomenon of alternating day and night and summer and winter in nature.

Many people liken this phenomenon to the two sides of the coin, but the two sides of the coin will not appear in front of us at the same time, turn the coin, we will find that yangheng and yin disappear, yang decline and yin to.

Therefore, the economic phenomenon of inflation and deflation phenomenon, is also not a long time at the same time in society, therefore, China’s current social deflation of industrial goods, the phenomenon of livelihood supplies inflation, can also be called the phenomenon of stagflation, can be a short period of time at the same time in society, but the future will not be the same time for a long period of time, therefore, my point of view is that, even in the future in the field of people’s livelihood, with the deflation of the industrial sector Deeper, the whole society debt crisis under the outbreak of passive deleveraging process, with the decline in asset prices, capital profitability of the reduction of the level of real interest rates in society, people’s livelihood in the field of demand, will also enter a comprehensive deflationary economic environment. This is I and most of the economic analysis of the contrary place, even in the emergence of the Russian ruble exchange rate after the collapse of the serious inflation phenomenon in front, I also adhere to this future economy will enter a comprehensive deflation and depression judgment does not change. This is also I adhere to the specific analysis of specific problems and the embodiment of independent thinking.

Currently, China has the world’s first money supply M2 to 124 trillion yuan scale, with liquidity of the currency scale M1 also to 34 trillion yuan scale, but why the whole society is facing the problem of financial constraints everywhere? Even the banking system also appeared money shortage phenomenon and a lot of enterprises and organizations appeared the phenomenon of capital chain breaks and on the verge of bankruptcy. Why is this? In the end, where did the monetary water go?

There are two ways to look at the cash crunch in society: the supply side and the demand side.

The supply side of money, needless to say, refers to the easing of funds in the banking system.

The money shortage that occurred in June 2013 is actually very well understood, that is, the size of bank credit under the quasi-money system, there is a limit constraint, with the money multiplier closer to the limit in theory, then the inventory of funds in the banking system will become tighter, the growth of social deposits will be the tougher, the bank credit will be more and more depleted. This one is intrinsic to the quasi-money system. We can also understand this phenomenon as the M2 limit peaking effect, the money multiplier peaking effect, or the social leverage peaking effect. At this time, any depositor’s slightly large-scale withdrawals will lead to a slight run on the bank and the emergence of capital constraints, and therefore do not hesitate to go to the interbank lending market at high interest rates to borrow funds. From this perspective, the future of China’s banking system, the phenomenon of money shortage, is bound to reappear, and will become more serious, I think the future will be extreme bank overnight lending rate exceeded 100% and other incredible financial phenomena.

As for the demand side of the whole society’s money tight money phenomenon, I have a very good explanation of this phenomenon of the example.

We use a cup to fill a cup of water, you can see the tangible water, this cup of water can be used to quench the thirst, can be used to water the flowers, more can be used to put out the incipient fire.

If we take this cup of water and throw it on the ground, if we do not consider the phenomenon of evaporation, this cup of water, there is no reduction, or a cup of water in the community, but we can not see any tangible water, and can not be used to quench the thirst of the water thrown out, watering the flowers, or extinguish the fire. In other words, the water is still so much water, and there is no reduction, but the water becomes inactive, and also becomes unusable, the only difference is that the area of over-water on the ground has increased.

This example, in fact, is to tell us that the society of money as water, money is still so much, 124 trillion of the money supply, 34 trillion of the circulating currency, in the society has not reduced in the slightest, but China’s investment in the construction of the spread is too large. Therefore, the construction everywhere needs water, but the whole society everywhere is short of water, the water of money is no longer available. The loss of water to quench thirst and watering flowers and other functions, as if the loss of liquidity function of the water of the currency, this is the economy to play financial play to this extremely bad point of the financial phenomenon unique to the natural world of the water can not be retrieved, the water is difficult to use the phenomenon of the water with the same reason.

This shows that now the whole society is still trying to continue to release the currency for investment to boost the economy, trying to use more capacity expansion, more investment to increase the area of overwater, is extremely stupid and unwise, is not analyzed to the root cause of the crisis resulting in headache behavior.

VII. Food crisis!

The issue of food security is a matter of survival of the most important issues, therefore, food security issues apply to the "suspicion of harm from there" principle, any factors that jeopardize the issue of food security, are worthy of attention, and any response to the food crisis and save for a rainy day behavior, are worthy of encouragement and advocacy.

China’s food is currently heavily dependent on imports, while a large number of arable land has been destroyed, the land is polluted, water contamination, the natural environment is extremely harsh and volatile, resulting in an increase in natural disasters, such as the reduction of food production and other factors are obvious.

However, just from the economic perspective, although I also attach great importance to the issue of food security, I do not think that there will be a significant food security crisis in the future in the context of the outbreak of the debt crisis in China, the outbreak of the economic crisis and the depreciation of the exchange rate.

From the level of economic modeling, we can also use the buyer’s money and credit and the seller’s food to complete the transaction this vision to analyze the urgency of the future food security issues.

The factors that lead to a major price increase in food are.

1. The buyer’s factors, a large supply of money, the central bank printing money, such as the Republic of China’s fiat currency issued endlessly leading to a major inflation. Buyers use a lot of credit to buy food when this situation can be excluded!

2. Seller factors, food output and supply reduction, or under the depreciation of the yuan exchange rate leading to food import costs, such as the Russian ruble devaluation of the phenomenon of serious inflation.

Obviously, the central bank printing money and the future exchange rate depreciation leading to food import costs increase in food prices across the board, the two core factors, is that the future of food prices rise the most critical two factors.

China has had a grain warehouse fire burned out of the grain reserves of empty warehouse events, so there are some people take for granted that most of China’s grain reserve warehouses are empty warehouses. That China’s food, almost most of them rely on imports, so the exchange rate is the core factor in determining food prices.

In fact, for this problem as long as the depth of thought can know the truth.

China’s staple food is only divided into two seasons of summer and fall production, two production to meet the country’s annual consumption of staple food for the total population. Therefore, China’s large amount of food, there must be reserves, and more national strategic level of food strategic reserves.

A large, medium and small cities even the daily consumption of food. Are amazing, if there is no grain warehouse reserves around the city, there is no vegetables and meat and other production and supply base, then all kinds of people’s livelihood materials, can only be transported from far away from other agricultural production-based cities or from the imported ports. Therefore, China should be in the railroad line, along the highway, should often see a large number of food trains, or long-distance food trucks fleet, according to the scale of its transportation can be measured by the size of the city’s consumption of the size of the city.

In fact, a large number of Chinese cities, food and vegetables, meat, food, fruit and other supplies, are from the city around the townships as the main supply base, in the night by the short-distance transport into the city around the city’s major wholesale markets, and then by the wholesale market to supply the daily consumption of materials throughout the city, a small portion of non-local production of food, meat, vegetables and fruits supplied by the outside of long-distance transport into the long-distance transportation of food is to ensure that the Long- and short-distance food transportation is the lifeline that guarantees the life of the city.

Based on my own objective thinking, I believe that China will not occur in the future obvious food crisis for the following reasons.

1. First of all, it must be recognized that the previous analysis of the reduction of arable land, land and water pollution, food imports, food production reduction of all kinds of negative factors are objective.

2. China’s food waste phenomenon is very serious.

3. China in the rapid development of the economy, the standard of living has improved significantly, from full to eat well, eat fine, a large number of meat and alcohol consumption, food consumption, food consumption, all to consume a large amount of food.

4. The future debt crisis under the outbreak of the economic crisis at the same time, will lead to a reduction in the income of society as a whole, even if the country opened up the money printing machine, the currency can not be released on a large scale to the hands of the end-user consumers, from the purchasing power of the buyer’s currency to consider the aspect of the future of the demand for food finesse will be reduced. Therefore, China will be the first to reduce food waste and food finesse requirements, reduce the intake of meat food on the first to reduce the demand for food, so as to inhibit the exchange rate depreciation of food imports under the demand for food, so as not to be passed on to the end of the rise in food prices.

5. Debt crisis and economic crisis under the outbreak of economic depression, a large number of rural population back to the countryside, is tantamount to a movement to the countryside, a large number of urban food consumers, into rural food producers. This factor can greatly slow down the development of food crisis.

6. From the ruling wisdom, China in the economic crisis under the enterprise bankruptcy, unemployment increase, income reduction premise, if you can not do to protect the residents of food security, this is quite stupid.

In some cities of a southern province, has now set up an emergency food supply points, while some analysts believe that the future may once again appear food stamp system, I think it is correct to stabilize the people’s hearts and minds of the good initiatives, even if the food supply crisis does not exist, but also to take such measures to curb the social panic of the food crisis.

Therefore, the future economic recession under the change from eating well to eat enough, thus greatly reducing the demand and consumption of food, China to protect the residents of the ration security when no problem.

But history tells us that, on the issue of food security, China has never been afraid of natural disasters, only of man-made ones!

Therefore, my only worry about the future will occur serious, localized food crisis, or localized hyperinflation phenomenon, is the social crisis under the destruction of production capacity. Only this most central factor, the social crisis under the outbreak of capacity destruction, transportation is blocked, will lead to food being snapped up and uneven distribution of resources, once the transportation is cut off, the supply is not timely, it is likely to cause man-made catastrophe.

In the face of the crisis of survival, the lack of independent thinking of the nation, can not do rational treatment, and therefore can not come up with unity is the correct response to combat disaster, but will go their own war, beggar-thy-neighbor wrong line.

And it is clear to me that after seeing the severity of the debt crisis, the financial crisis, and the economic crisis in the future, I believe that it is very likely to get out of control and turn into the most destructive social crisis, the probability of which is rapidly increasing.

Therefore, in the future, in addition to the supply of food, the supply of clean water, the supply of electricity to cities, the supply of natural gas energy, smooth logistics and transportation, and the supply of water, electricity and gas should also be included as the most important safeguard factors to be considered in order to reduce the destructiveness of the crisis. And military control, which is often mentioned, is indeed a powerful measure to maintain stability.

The fields will be turned over and Hu will not return. If there are signs of a social crisis, then the most effective response is to take the opportunity to leave the place where the risk erupted, rather than for the chicken mouth, not for the cattle after the thinking, can you see the future, give up the prosperity of the past?

Going uphill to the countryside, although I do not want to mention, but it is likely to see again. The future of the countryside related to the township consumer market, or will gradually strengthen.

VIII. The beginning of the crisis

My argument has been that the combination of consumer credit and the quasi-money system is the root cause of all crises. While it has led to a boom, it will lead to a catastrophe. The extent of the boom and the extent of the destruction of the catastrophe will be rare in the history of mankind.

In the role of consumer credit to plunder the consumer market and consumer spending power, will lead to future consumer demand shrinkage, so that society as a whole lost the ability to take the initiative to deleverage and opportunity. The role of the quasi-money system, will make the country’s macro-control measures, or monetary easing to stimulate the economy, all lose their role, will lead to the operation of the traditional economic laws of the trajectory, all become reversed, that is to say, the more loose money to save the economy, the economy will become worse.

We all know that in November 2008 decided to 4 trillion monetary stimulus to stimulate the economy under the policy, China’s various types of asset prices rose sharply, at the same time directly to the real estate industry to save back, and even in some cities in the extreme 2% off the phenomenon of selling houses appeared, and finally led to the price of housing not only restored to the original price, and even the general price of housing prices out of the price of the market has doubled.

In November 2008, the 4 trillion big water release, in fact, is a banner of comprehensive monetary easing, its effect, significantly reflected in 2009.

And in 2014, a year of economic downturn, although we did not announce the monetary easing and the big water release to stimulate the economy. However, the scale of our actual water release has exceeded the 4 trillion big water release in 08.

Water, is money.

And money, divided into two kinds, base money and derived money (quasi-money)

Let’s look at the chart below.

The size of China’s credit growth in 2014 has exceeded that of 2009. Looking again at base money, base money growth in 2014, also exceeded the size of 2009.

Looking again at the money stock data in the previous graphic, the size of China’s money supply, base money, is substantially larger than it was in 2009.

Thus, the size of China’s money supply growth in 2014, both in terms of incremental growth and in terms of the stock, significantly exceeded the 4 trillion dollars of major releases that began in November 2008.

It is evident to all that the prices of all types of assets fell significantly in 2014, such as steel, coal, iron ore, non-ferrous metals, crude oil and other types of bulk assets. And the real estate industry, its prices, although there is no obvious significant decline, but the whole industry is stagnant, the transaction shrinks.

PPI for more than 30 consecutive months of negative growth, CPI hit a 5-year low. Its trend development is shown below.

That is to say, printing money, monetary easing and stimulus, and can not lead to synchronized economic growth, the country continues to substantial monetary easing, but also can not stimulate all kinds of prices rose significantly.

Once the classic formula MV = PY in the above monetary data and economic phenomena, has lost its role. In the quasi-money system clearly makes the formula work the other way around.

This is the quasi-money system I constantly emphasize the role of the quasi-money system of economic and financial operating laws and trend trajectory and the traditional laws of economics operating in reverse phenomenon. Under a quasi-money system, the more money is released to stimulate the economy the worse it gets. That is, China’s traditional countermeasures to print money to save the economy has become ineffective, even if the printing of money, but also can not save the economy, what else can be done to stimulate economic development?

The previous analysis of the economy and financial laws running trend will be so, I have a very simple analysis and prediction here.

In the first quarter of 2015 in January, February and March, the money supply M2 will increase by a total of 4.8 trillion, otherwise, M2 year-on-year in March 2015 will fall below 10% growth. If this target is accomplished, plus December 2014 for a total of 4 months, M2 will grow by a cumulative total of 6.8 trillion RMB, what kind of pace is this? This is a more crazy than 08 years 4 trillion big water release looking for death rhythm! We can focus on tracking attention to see March 2015 is the choice of M2 growth fell below 10% or continue to big water, while more focus on tracking attention to March 2015 after the various types of asset prices and inflation CPI index in what position. And from this, we may conclude that China, although not publicized in the media, but in fact a substantial release of money, and to focus on whether the stimulus to the economy has played a considerable role.

Or you can choose to continue to track the monetary data to June 2015, to complete the 10% year-on-year M2 growth target, then China only the first half of this year to complete the 10 trillion yuan scale of money supply injection, this target can be issued by the central bank base currency and commercial bank credit to release the derived currency to complete the role of the joint role of the central bank, if the completion of the growth of this money supply target, then the period from If this money supply growth target is accomplished, then from December 2014 to June 2015 a total of seven months, a short period of time will need to release a total of 12 trillion yuan of money supply to the liquidity market, which will be a large-scale release of water in the rhythm of what scale? It will be far more than the 2008 4 trillion currency stimulus scale. We can focus on the March-June 2015 monetary data and focus on the April-July 2015 economic data. The financial and economic operating trends of this economy will then be more visible!

What we can see in 2014 is the stagnation of the real estate sector, making the winter early for closely related industries, in fact, the economic collapse has already begun within industries such as steel, ore, coal and so on. It is reflected in the asset prices continue to fall deep amplitude phenomenon, and to date, even if the premise of a substantial release of water, there has not been any sign of improvement.

The real estate industry, one industry collapse and all industries are depressed, and before the real estate industry, one industry boom and all industries are prosperous phenomenon is completely reversed.

We can be completely from the real estate industry exists in society’s most large-scale, the most common range of consumer credit - mortgage this factor to consider, the future of the entire society, there is no industry can be replaced by the real estate industry as a pillar of the economy, the so-called economic transformation, is also completely impossible to achieve. And it is inevitable. Although consumer credit such as car loans and credit cards also exist in society now, their scale and scope are unable to compete with the catalytic effect of home loans on economic development.

From this level of analysis, in order to save the economy and stimulate its development, the only way to delay the collapse of the economy is to continue to develop the real estate market, and in particular, to continue the massive release of mortgage loans to consumers, but it is clear that this is a road of no return that will make the future crisis even more unmanageable.

Therefore, from this factor can be judged, China why has not been able to give up the real estate industry, always pampering this market explicitly play dark security, even in the quasi-money laws of the credit dry up led to many banks to stop under the premise of housing loans, the country’s central bank have stepped forward to issue a letter to require the commercial banks to continue to issue housing loans, in order to maintain the development of the real estate industry.

But the laws of the economy and the law of money is relentless, even if you do not take into account the external hostile financial forces worth of this once-in-a-lifetime good time to short China in front of the action, even if you only consider the operation of the economy itself and the law of money, the real estate industry, there is no chance of saving the whole.

But this industry is extremely special, all aspects of the forces are maintaining the market does not collapse as a whole, therefore, the real estate industry, will be the last in the economic field of the collapse of the industry.

I think the real estate industry, will collapse after the phenomenon of bankruptcy of the Bank of China, will collapse after the RMB exchange rate devaluation.

Many people do not believe in the existence of conspiracies, therefore, the timing and sequence of the collapse of the real estate industry can be used to determine whether there is a conspiracy of a reference element.

According to the inherent operating law of the economy, the real estate industry should be the first to collapse, leading to economic collapse, and then lead to capital outflows, followed by the exchange rate depreciation of such a running trend.

And my point of view is that the international financial hostile forces, will not give up this good opportunity to launch financial attacks on the Chinese economy.

Therefore, the future of international financial capital, will try to first snipe China’s bankruptcy of a bank, resulting in large-scale withdrawal of capital from the Chinese market, resulting in exchange rate depreciation and passive large-scale tightening of the currency, while the scale of capital outflows and currency tightening, the bank as a whole, the systemic risk, so that the banking system to stop lending comprehensively, cut off the loan, drawdowns and forced the debt, resulting in the break of the social chain of funds, the whole community to create the credit dried up, and will lead to the overall collapse of the real estate industry, the real estate sector, the real estate sector. Resulting in the collapse of the real estate industry as a whole, the real estate industry, the overall collapse of the real estate industry, will be the first-tier cities in the North, Shanghai and Guangzhou real estate prices as a whole fell 20% and could not stimulate the volume of transactions to amplify and thus unable to stop the decline as a basis for judgment.

Therefore, I think the overall collapse of real estate will appear in the bank bankruptcy, will appear in the exchange rate devaluation, and property tax nationwide substantive collection, will appear in the overall collapse of real estate. Local governments at all levels will inevitably change from eating “land” to eating “housing”, but before there is land to eat, it is certain that they will not eat housing in advance.

The overall collapse of the real estate industry will be the beginning of China’s economic catastrophe.

In 2014, the prices of bulk assets, including steel, resources, minerals, energy and other prices continue to fall, industrial price index PPI and consumer price index CPI trend down, reflecting the economic field has been initially showing the beginnings of a crisis.

IX. The Great Deflation of the Century, the Global Depression

The world’s first electronic computer appeared in 1946, and the emergence of this new thing was destined to cause great social changes.

In recent decades, based on the development of IT technology, the emergence of electronic money, a completely new form of money, accompanied by the financial and monetary field, the economic sphere, the emergence of many new things, such as the full development of quasi-currency system, such as the prosperity of consumer credit in society. This is a financial and monetary and economic phenomenon that has never occurred on a large scale in the history of mankind.

Therefore one conclusion can be drawn on this basis.

In any monetary system that exists on a large scale in different countries around the world where there is a massive release of money derived from commercial bank credit on a large scale, there will be a serious financial crisis and a crisis of monetary tightening under passive deleveraging. That is to say, a country’s money supply M2 and the circulation of money M1 difference value is too large, means that such a country financial risk is also huge, and at the same time to pay attention to the importance of identifying by bank credit derived from quasi-money is an important component of M2. And consumer credit (mortgage, car loans, credit cards) scale is too large countries, its past economic development in the last decade must have gone through a rapid boom process, the future will also face a rapid recession process.

Unfortunately, the “great China”, at the same time, has both aspects of the extreme boom development. The future outbreak of the Chinese debt crisis will be the eye of the storm of the world economic crisis.

China used to waste a lot of mineral resources and destroy the environment, a large number of low-end manufacturing products exported overseas, a large number of exchange back to the U.S. dollar for a huge foreign exchange reserves, while high-tech and high-end manufacturing products, luxury goods rely heavily on imports.

Because China is a low-end manufacturing country, so the future exchange rate depreciation, will occur with Russia and some countries by the exchange rate depreciation led to a major inflationary economic phenomenon is completely different, but the more depreciation of the RMB exchange rate, the more deflationary China’s economy. The high-tech and high-tech manufacturing components, auxiliary manufacturing tools, etc., the price will rise dramatically, there is an obstacle to productivity and production technology to improve the role. The foreign luxury market will also experience the cold chill. The devaluation of the RMB exchange rate has the effect of stimulating exports, but in the future, the international community will set up a lot of trade barriers against China, completely knocking down China’s ability to generate foreign exchange, and the reduction in demand caused by the foreign debt crisis, the global economy deflation, will also be the main reason for depressing China’s ability to generate foreign exchange.

Any country with a large quasi-currency is where the biggest risks lurk.

Here have to focus on the U.S. monetary system.

Source from the public data, the United States in 2008 before the start of the sub-debt crisis, their money supply M2 is 7.5 trillion U.S. dollars, the U.S. sub-debt crisis began after the start of three rounds of QE, a total of 4 trillion U.S. dollars in the scale of money printing, to the end of 2014, the United States of America’s money supply size of 11.5 trillion U.S. dollars in size, it can be seen very clearly, the U.S. monetary system, a significant suppression of the quasi-currency growth and derivation. . Their money supply growth, significantly by printing base money, rather than by releasing the growth of quasi-money.

And consumer credit mortgages, the United States in ‘08 broke out the two houses bond crisis, the source of their mortgage funding, is part of the direct financing from, and Fannie Mae and Freddie Mac is the source of the institutions that provide direct financing funding for mortgages. This in turn could have significantly inhibited the development and growth of consumer credit.

Under such a monetary system, it is still possible for debt and financial crises to erupt, i.e., a large number of debtors could go bankrupt and default, and a large number of financial institutions and creditors could be caught in the crossfire and go bankrupt, but there would be no monetary tightening under the debt and financial crises that would lead to the outbreak of an accompanying economic crisis. It’s simple: because the growth of debt and leverage under such a monetary system does not lead to an increase in the money supply, then, in turn, the bursting of debt and the deleveraging process will not lead to a significant contraction in the money supply. As a result, the U.S. market economy, going forward, will perhaps be the first to emerge from the recession. The U.S. may become the ideal place for the world’s financial capital to go in the next economic cycle.

Economic booms and busts, inflation and deflation have always alternated in human history, and history has always been repeating the story of such social honor and disgrace, and the development, growth and bursting of bubbles have also been repeated many times in history, but the phenomenon of passive deleveraging of the whole society under the quasi-currency system has never been rehearsed in human history, and this is a brand-new play, which has been performed in the past ten years or so in China. Economy in the quasi-money system under the process of increasing leverage led to the phenomenon of extreme economic prosperity, let the world jaw-dropping, then the next has never been rehearsed in human history quasi-money system under the process of passive deleveraging led to the centuries have not appeared in the phenomenon of deflation, will also make the world tongue-tied, and China is the world’s economy is the world’s largest cheap resources and products provider, but also the world’s economy product Consumers, the world economy once left China’s demand, the global economy will also be trapped in a history of unseen in the Great Depression.

X. Where to go from here!

In the upward cycle of economic development, the whole society to increase leverage and increase the level of profitability, which is a very easy thing, but once the economic inflection point appears, the economic development of the big cycle began to go downward, when the whole society realizes that it is necessary to start to deleveraging, at this time, will lead to no one can not be deleveraged, so that the stampede effect occurs, and the whole society can only be passive deleveraging will lead to further avalanche fall in asset prices.

Only from China’s financial quasi-money system combined with the harm of consumer credit in the economic field of these two aspects at the same time to think thoroughly, in order to recognize the severity of the future crisis and the development trend, and therefore, to find a way to deal with the situation is also a very simple matter.

Only can rationally predict that the future will face a serious deflationary environment, then active deleveraging behavior, will become possible.

Then the first and most important countermeasure is to do everything possible to actively deleveraging before asset prices further avalanche, only to run ahead, in order to stay away from the pain of passive deleveraging of the whole society.

In early 2014 I wrote an article, “shocking crisis under the choice of day and death ALLDOWN, DIE ANOTHER DAY” in English title are composed of two movie titles.

The meaning of ALLDOWN, which we all appreciate now, is the sharp fall in the prices of all types of assets in the world.ALL has a clear and double meaning, referring to the world-wide and all bulk asset prices, and DOWN means falling prices.

And 2015 and beyond, asset prices will still face further downward pressure, the rebound in the process of decline and its magnitude, I can not quantify, but the world’s various types of asset prices, far from bottoming out, will still be with the deepening of the debt crisis and the outbreak of the Chinese debt crisis, will face a deeper fall in the process.

Next, it will be DIE ANOTHER DAY.

ANOTHERDAY is which day, only God will know!

The fall in world asset prices of all kinds is a sign of the return of credit to money. And any currency with credit is wealth.

What is absolutely unexpected to everyone is that it is possible to give back the wealth that was once plundered away - the inward purchasing power of money?

Therefore, the future CPI decline, or even substantial negative growth, is a quasi-money system under the law of passive deleveraging led to a passive tightening of the currency is an inevitable phenomenon, this is a is mind-boggling and can not be convincing or refused to think about a point of view and judgment. This is also my Tianya signature use “Ran, the reason why Ran; otherwise, do not think so” origin.

The future even if the nominal interest rate reduced to 0, as long as asset prices fall, respectively, manifested in the PPI and CPI substantial negative growth above, also means that the whole society all the funds real interest rate increases. This process, Dali China had a large number of abandoned, widely not considered a wealth of money holders, therefore, now should be able to appreciate why some of the world’s businesses and financial institutions, such as Apple, Samsung and other companies and some consortiums will be a large number of holdings of U.S. dollars in cash.

Therefore, in the future, Chinese should grasp a cash for the king's response, prudent investment, do not large debts. In view of the future depreciation of the yuan exchange rate is also a very clear trend, therefore, can be appropriate to hold the U.S. dollar, the specific position according to their specific circumstances at their own discretion, but I do not recommend heavy holdings of the U.S. dollar. This countermeasure as early as in my previous analysis of the article has been put forward. Its core judgment is based on the CPI index, as long as the CPI and asset prices do not appear to rise significantly, then this response must be correct. If the future CPI has a tendency to rise significantly, then you can increase the holding position of the U.S. dollar. 2015 January China’s CPI rose 0.8% year-on-year, breaking many people’s glasses, while the euro zone CPI has been negative growth, the euro QE, actually stimulate the CPI to a year-on-year increase of 2% for the termination of the conditions. Today’s latest news: U.S. CPI in January slipped 0.7%, a six-year low, leading to the shadow of supply exceeds demand U.S. oil fell more than 5%, Buhai oil fell 2.6%, these are asset prices have been in the lows of the further deep decline, while more stimulated by the U.S. dollar index 94.2 position breakthrough to 95.2, such a magnitude of the rise in history, is also considered to be relatively rare. These phenomena, in my quasi-money system and consumer credit combined as the outline of the analytical thinking system, are completely normal, but also by my analytical thinking in advance predicted, these megatrend prediction of the point of view, scattered in my previous analysis of the article in various places.

Based on the previous comprehensive thinking on both economic and financial factors.

I boldly concluded that the next 5-10 years will appear some extreme small probability of financial and economic events.

1. The banking system will completely stop housing loans, housing mortgage system will exist in name only. The housing provident fund system will be abolished, and the withdrawal restrictions of the housing provident fund will be relaxed before. (This system is to blame for the most lethargic decade in China’s history.)

2. Money supply M2 will experience negative growth in the 2-digit range year-on-year, and its size will shrink by ten trillion RMB. Over the next 10 years, M2 will not be able to break through 150 trillion dollars and will shrink closer to about twice the size of base money.

3. About 75% of China’s GDP is made up of credit-created debt GDP, and in the future, under the environment of widespread credit suspension, loan cut-offs, and loan drawdowns by the banking system, credit creation by the whole of society will almost dry up, and therefore, GDP will also experience negative growth in the range of 2 digits year-on-year, and on the premise that the GDP in 2014 will be 63 trillion yuan, the size of China’s future GDP growth, however, will shrink in the direction of the annual GDP of 30 trillion yuan in the direction of the size. Within 10 years, China’s debt/GDP ratio will exceed 500%, or be close to 1000%. The sudden increase and multiplication of this ratio focuses on the disappearance of debt GDP due to the drying up of credit creation across society in the aftermath of China’s debt crisis, where the level of annual GDP growth will appear to shrink dramatically to about 50% of its previous level, resulting in a multiplication of the ratio by reducing the denominator by 1 ½, rather than attempting to express a doubling of credit creation, including socially-financed debt, resulting in a multiplication of the numerator and a multiplication of the ratio. multiplication scenario. In the future, passive deleveraging, the total debt of the whole society will also appear a first fast and then slow down the gradual shrinkage of the process. 4.

4. China’s CPI will appear negative growth, do not rule out close to -10% or even more substantial negative growth. CPI reduction, equal to the interest rate hike, greatly unfavorable to the operation of the economy, greatly unfavorable to the development of debt society. Greatly unfavorable to the holders of assets but greatly favorable to the holders of cash money!

5. There will be widespread bankruptcy of Chinese banks.

6. Widespread corporate bankruptcy and insurance company bankruptcy.

7. A large number of stocks in the stock market will be delisted, and stock indices will fall below their previous lows and to very embarrassing levels.

8. Renminbi credit downgraded to BB! RMB sovereign credit downgraded!

9. China will introduce a personal bankruptcy law at an opportune time.

10. There is a sharp increase in all kinds of uncontrollable and unexpected risk factors in the world, especially the risk of war.

……

War, and only war, is the only way to resolve all crises!

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