Title: Economic Recovery and Sacrifice of a Generation: The Credit Foundation of Debt Expansion Lies in the Future of Young People and Technological Innovation. If Interrupted, a Generation Will Be Sacrificed.
Today's topic is "Economic Growth and Sacrifice of Young People," or "Economic Recovery and Sacrifice of Young People." This topic stems from the long-standing debate between free-market economics and government intervention. This debate has been ongoing globally, with economists, businesses, and governments constantly discussing this issue. The core question is whether decision-making power should be determined by the market or the government. This is a saying in China. Economic schools of thought overseas, such as classical liberalism and Keynesianism, as well as more radical market interventions similar to Keynesianism, have been debating this issue, leading to extreme planned economies. The current consensus is that the planned economy model has failed. However, pure free-market economics has also failed, but this has not been proven. Why is that? Because governments have always been accustomed to intervening in the economy since ancient times, which is determined by the structure of power, it is a behavioral pattern. Personally, I believe that government intervention provides certain safeguards for the market, actually providing rules and maintaining order for pure free play.
I have studied the economic trends and national security trends in Somalia, a situation that has lasted for 20 years without a federal government. This situation has brought great risks. For example, its waters have been occupied by fishermen from Northeast Asia, forcing local fishermen to lose their own fishing resources. After that, they turned to piracy as a means of livelihood, which is a change. In addition, the internal struggles between various warlords have caused the loss of a unified market and brought great uncertainty, resulting in the complete disappearance of industrialization and only sporadic workshop-style businesses remaining. In terms of essential businesses, including electricity, communication, and transportation, the aviation industry has developed rapidly due to insufficient ground security. Although lacking technology, foreign communication companies have cooperated with local authorities to provide a large number of competitive communication and aviation companies. Some economists who adhere to the original market attention view this situation as a successful example because of the rapid development in communication, but in neighboring Kenya, it takes 12 years or even longer to achieve the same success. The prices of its airlines are also very cheap. All of this is presented as a successful case, but they deliberately ignore the problems of the entire economy, including security issues, the collective cessation of industrialization, and even the expansion of security issues to its coastline, where European companies dump biological and nuclear waste. Greenpeace later seized this issue and exposed it, although Greenpeace is an extreme environmental organization, it can also present a corrective effect to some extent, and after it seized the issue, it exposed it. Another problem is that after the internal security loss, even the United Nations relief teams were attacked, and then the death rates of children, infants, women, etc. increased sharply, and various infectious diseases, including cholera that had already been eliminated elsewhere, became prevalent. This represents a completely barbaric free market economy, lacking public health and public safety such as public education, to the extent that industrialization is lost. Therefore, we understand that a completely free market is unreliable.
Among the fastest-growing countries in the past 100 years, apart from the United States, a great economic power that is based on a fully democratic society that has developed from the colonial period, it is also filled with elite government intervention throughout the development process. This point is rarely mentioned in my study of economic history. In the past 100 years, whether it is Japan, South Korea, Taiwan, Singapore, or mainland China, the entire development, whether it is latecomer advantage or government intervention, has played a huge role. In some other countries in Asia, Africa, and Latin America where the government has not played such a role, without exception, their economic development has been very poor.
However, this is not the topic today, but rather how far modern society has developed. The US market is becoming increasingly heavy, especially after the establishment of the Federal Reserve, the adjustment of the monetary policy of the Federal Reserve and the intervention of the Treasury Department in fiscal expenditures are becoming increasingly heavy. Of course, their fiscal expenditures have a complex mechanism, which requires the House of Representatives to propose it to Congress, including some laws from the White House that also need to be passed by Congress in order for the Treasury Department to implement it. Of course, the White House has its own set of rules, such as emergency interventions implemented in emergencies, such as subsidies initiated directly by the Treasury Department during the 2020 pandemic. In the entire modern society, you will find a huge problem, that is, since the Federal Reserve started to intervene and central banks around the world started to intervene in monetary policy, the series of consequences caused by the massive intervention of governments in not only fiscal but also regulatory aspects. What are these consequences? The size of the government is getting bigger and bigger, while the credit of the currency system is actually getting weaker. The increase in the quantity of the currency far exceeds the needs of the real economy. What changes does this bring? The global wealth gap and class stratification are getting heavier, and the wealth gap between the rich and the poor is getting bigger, including the collapse of the middle class in the United States.
This actually means that wealth is accumulating more and more at the top, because in this process, with the flooding of currency, the assets of those who own assets are appreciating, while the assets of those who hold cash are depreciating. For the poor, or even the middle class, they actually do not have much money to allocate a lot of assets. The bottom layer has nothing at all, except for some government subsidies or the wages they earn. So, we understand that whether it is the United States, China, Japan, or Europe, all these economies are adopting the same strategy, which is the flooding of currency, coupled with increasing taxes. This actually allows wealth to accumulate massively at the top.
In welfare states, debt continues to expand. In order to balance the entire society, various welfare benefits have been provided to both the middle class and the lower class. However, this also brings a problem, which is whether these welfare benefits can be sustained in the long term.
For China, it has expanded massive debt mainly invested in infrastructure construction. China hopes that infrastructure construction can generate potential surplus for the entire economy, that is, potential returns. This means that although infrastructure construction may not be profitable on accounting statements, it has potential future value in the development process of the entire economy. However, this has also resulted in the increasing wealth of asset owners, such as those who owned real estate in first-tier cities like Shanghai and Beijing in the early years, and even some people in key provincial capitals, their wealth is increasing. But for most people who do not have as much wealth, especially farmers, they are being sacrificed, and the wealth gap is getting bigger.
China used to hope to solve this problem by borrowing money from the future while the entire economy was striving to move forward. This surplus compensates different people at different times. This means that those who become rich first, then the privileged, and urban residents, based on the assets they own, will become richer and richer. But because the entire economy is expanding, this expansion process makes all urban residents, whether they are poor or farmers, richer than before. This allows the social stability of China to continue to exist because the legitimacy of its governance comes from economic growth.
However, what does this process mean? It cannot be terminated and then borrow money from the future. There are two reasons for this. One is population aging, and the increase in young people who can pay higher and more future taxes and meet more future needs provides a credit reason for current expansion. At the same time, based on future technological growth, future technological growth can provide a present value basis for now, and there is a credit basis for debt. Now China faces two problems, one is population aging, that is, changes in population structure, and the interruption of the road to borrowing from the future even if technological growth is stopped by the United States, that is, the other leg is interrupted. Once this credit value is collectively interrupted, it will be reflected in assets because the background of assets is a high valuation based on future credit, and once this future credit is interrupted, the high valuation of real estate, which is China's most important asset, cannot be sustained.
The above only talks about China, so let's talk about Japan. Why are people suddenly interested in its stock market, from Warren Buffett's investment to the market, investors, economists, and analysts suddenly realize that there is growth? In fact, many people still do not understand one essence of it, which is that Japan faced the same two problems after the burst of its valuation bubble. One is population aging and structural changes, and the other problem is that its chip technology has been restrained by the United States, and its road to borrowing from the future has also been cut off, resulting in a loss of 96.2 trillion yen in asset valuation and more than 15 trillion yen in bad debts for banks in just 10 years from the 1990s.
How did it digest this problem? It relied on the generation of people who bought houses during those few years at the end of the 1980s. They carried it over and carried it over the process of mortgage loans for 30 years, which is bad debt. Those who do not have bad debts must carry it over, and carry it over with this asset contraction. At the same time, they have to pay with this asset contraction, which is far greater than the contraction of these assets. In fact, they are a sacrificed generation. After they carry it over, until now, these...
The collapse of the debt bubble has been completely eliminated. After it was eliminated, when the yen depreciated sharply, it began to gain a large trade surplus, especially with the United States, which increased by more than ten percentage points last month.
This is the biggest change. At the same time, it is possible for its domestic national income to start growing again. Therefore, at the same time, it is inevitable that the current generation and even part of the next generation may have to sacrifice like Japan for the next 30 years.