1988: Back to the human world for a few years

Chapter 443 Bad News
As the saying goes, there is nothing new under the sun, and history is just repeating itself again and again.

For a long time, many people, both at home and abroad, have criticized China for its reluctance to fully open up its financial markets, making it impossible for markets to operate in the conventional sense.

But in fact, the country was reluctant to fully open up from the beginning for many reasons;

For example, the country’s economic foundation was too weak at the time and could not withstand drastic fluctuations;
For example, the country lacked relevant experience at the time and did not dare to release all of them at once;
For example, the main purpose of Huaxia’s establishment of a financial market was to provide financing for a number of key state-owned enterprises, and it did not want to be too market-oriented and fall into a passive position;

Balabala, and so on.

But in Yang Mo's opinion, there is another very important reason...

It was the large-scale financial attack that the island country encountered in the 1990s that prevented China from fully opening up its financial markets.

You have to know that the island country was the world's second largest economy at the time. With such a small country, its GDP was close to 60% of America's and 4.2 times that of China. Its economic strength is so strong that it cannot be overstated.
But after that long and large-scale financial attack, the island nation's economy, which was once at its peak, gradually entered a lost forty years;
China has always had a tradition of learning from history. What happened to the island countries is happening right before our eyes. How can we possibly open up such a sensitive financial market before we have a thorough grasp of the situation?

Of course, the imperfect market-oriented operation of the financial market is just a digression and not the point.

The point is that the European and American economics community, which has been paying close attention to the economy of the island countries and conducting research on them, has used the series of changes and experiences of the island countries from the late 1980s to the mid-1990s as a blueprint, and based on the premise of a free economic framework, has summarized six major negative factors at the national economic level and has always taken them as a warning.

It was precisely because of not hitting these six negative factors that Hua Xia, which was not well-connected, was not greatly affected by the 1998 financial tsunami and was even able to help Hong Kong get out of the crisis unscathed.

In fact, in the eyes of many people, the financial tsunami in 98 was actually just a reappearance of the financial sniping war that the island country encountered in the early s. In a sense, it can even be regarded as a continuation of that financial sniping war... It’s just that South Korea and other Southeast Asian countries do not have such a large economy as the island country, so they were naturally defeated.

………………

The so-called six major negative factors, in fact, often do not exist independently, but are an organic whole that influence each other and are implicitly interdependent. If you are manipulated by the invisible hand and unfortunately hit these six points at the same time, unless others are merciful, congratulations... you are about to fall into an extremely passive currency war.

Unfortunately, regardless of whether the Plaza Accord was signed by the island country itself, in the following years, under the manipulation of the invisible hand of the market, the island country stepped on the six major negative factors step by step with extraordinary accuracy;

A reborn person like Yang Mo, even if he doesn't remember the exact day when the island country's stock market and foreign exchange market reached a major turning point, can roughly judge where the time window is with the support of later impressions and theoretical knowledge... This is the main reason why he is eager to reach a cooperation with Sankyo Co., Ltd.

The first major negative factor: severe over-issuance of currency.

This is a major problem that anyone with eyes can see. Although the island nation's economic vitality is still as strong as ever, in fact, if you check the data, you will know that the island nation's M2 balance is now more than twice its total GDP.

These over-issued currencies are undoubtedly equivalent to providing a certain father with abundant ammunition to short the Japanese yen. In the subsequent Asian financial tsunami, the reason why Thailand became the biggest loser was because the currency was over-issued too much, giving the Somalia tycoon the opportunity to use the Thai baht to snipe the Thai baht. It is a textbook example of making money out of nothing.

The second major negative factor: There is a strong expectation that export trade will weaken in the future.

Indeed, the island nation has always been a world-renowned import and export powerhouse. Relying on its strong scientific research capabilities and manufacturing level, the island nation's automobiles, electrical appliances, semiconductors, precision instruments, optical instruments, medicines and other products are now world-beating. Based on the island nation's export base, an 8% export growth rate is indeed a somewhat exaggerated figure.

But the problem is, you have to understand that what is being talked about here is the "expectation of weakening in the future", which is obviously different from the current actual trade export volume.

The simplest point is that cars are now the island country's pillar export commodity, and cars also have the highest economic growth rate in the country. However, with the vigorous resistance movement against the island country's cars in America a few years ago, in recent years, even though the island country has spared no effort to develop the Southeast Asian and African markets, the market share of Japanese cars in the world, especially in Europe and the United States, has continued to decline.

In addition, with the increasing pressure from America and the transfer of industries to South Korea, the market share of the island country's semiconductors and electrical appliances in Europe and the United States has declined to varying degrees.

More importantly, the exchange rate of the island country has been showing a trend of "gradual decline in the tug of war" over the past year. With the loss of the three support points of 132:1, 140:1 and 148:1, anyone with a discerning eye can see that the island country is unlikely to hold up the exchange rate of the yen.

As we all know, the depreciation of the yen is beneficial to the island country's exports. The 1990% export growth rate in 8 was inevitably contributed by the depreciation of the yen exchange rate.

But what if the exchange rate of the Japanese yen falls to the bottom and then rebounds strongly under the manipulation of international speculators?

Would it be possible for the island nation’s exports to be so strong at that time?
It's definitely impossible!
Can a country that cannot maintain the support point of its currency exchange rate suppress future exchange rate rebound?

Unrealistic!

Therefore, the island nation’s 8% export growth this year is nothing more than the last supper. In the eyes of those with a keen sense of smell, the future weakening of export trade is almost a foregone conclusion.

In fact, it doesn’t really matter whether this is the “last supper” of export growth for the island nation;

It is a well-known fact that "expectations" can be speculated, and can even be hyped into a big negative... The island nation is not a country with complete sovereignty. If America, the biological father, says they can do it, it's OK if they can't; but if you say they can't do it, that's OK even if they can.

In many cases, what determines the macro-economic direction of a country is not the economy itself, but the iron pipes behind it that represent hard power.

The third major negative factor: Rapid domestic inflation
After all, the island nation is a country with scarce resources and is heavily dependent on imported raw materials. Therefore, since the 80s, with the "daily record highs" of real estate prices, their domestic CPI has always been at a high level that outsiders cannot understand. Whenever you think this is the limit, you will soon find that this is just the beginning.

It has to be said that the tolerance of East Asian countries, which are deeply influenced by Confucian culture, is really incomprehensible... If it were an ordinary Western country, and the CPI increase was close to or even exceeded 3% for more than a decade, the people would have turned the table over long ago.

There is no way. Since the 80s, especially after 1985, the asset bubble in the island country has become serious. With the over-issuance of currency, the actual purchasing power of the yen in the country has been declining at an alarming rate every year.

The Japanese yen is not valuable in China, and even less valuable abroad. Unfortunately, the island country is not America and does not have currency hegemony. Therefore, there is no better way than to invest the money madly overseas to contribute to the GNP... So, this is why Sankyo Corporation did not frown when it heard about the investment amount of tens of billions of yen. In this era of resource mercantilism, instead of keeping the money depreciating in China, they are eager to invest it in overseas assets with real value.

The fourth negative factor: exaggerated debt leverage.

In fact, as the world's second largest economy, the resource-poor island country has always attached great importance to overseas investment. Although its total GNP at this time is not as exaggerated as in later generations, it is also very serious. Therefore, although its M2 balance is nearly three times its GDP, in fact, as long as it does not commit suicide, the yen is not so easy to attack.

It's a pity that after the signing of the Plaza Accord, from 1985 to 1990, the island nation's bond market was too open. The degree of openness was even exaggerated to the point where companies could issue bonds directly in the market. Coincidentally, the Bank of Japan lowered interest rates to the lowest level, which made it more cost-effective and easier for companies to issue bonds in the market than to seek bank loans. As a result, a large number of large listed companies in the island nation changed their financing methods from bank loans to issuing bonds... By 1990, in the financing structure of island companies, only about 220 trillion yen came from bank loans, while the financing amount from self-issued bonds was almost equal to bank loans, reaching 200 trillion.

In this situation, the island country's banks, feeling a strong sense of crisis, began to over-lend for the sake of performance. Not only could companies with poor credit get loans, but as long as you had valuable real estate such as a house, the bank could even lend to individuals at low interest rates... This in turn led to excessive credit expansion. As a result, a large number of "zombie loan companies" and "zombie loans" have appeared in the island country. Not only have these zombie loan companies become financing mouthpieces for large companies, they have also caused the level of bad debts and non-performing loans in the island country's banking industry to reach an astonishing level.

Therefore, faced with this dangerous situation where everyone is burdened with huge debts, the island country has no choice but to dilute these debts by over-issuing currency in order to prevent an all-round collapse. It has thus fallen into a vicious circle of "the more currency is over-issued, the more debt there is, and the more debt there is, the more it needs to over-issue currency to dilute it."

Therefore, the sharp fluctuations in the exchange rates of the island countries over the past year are ultimately their own fault. If they had not entered this vicious circle themselves, given their economic size and activity, it would not be so easy for others to attack the yen even if they wanted to.

The fifth negative factor: excessive asset bubbles.

As mentioned earlier, ever since the island country introduced new accounting standards in 1989, the domestic chaebols and listed companies have been happily playing the game of transferring money from their left hand to their right hand. Although this prosperity on paper is thriving, its essence is just like the story of two people creating a GDP of million yuan from a pile of dog shit. It is nothing more than a self-deceiving joke.

However, what is frightening is that at this time, it is conservatively estimated that nearly 30% of the M2 balance of the island country is concentrated in the stock market and the real estate market, and the companies that play this paper game are not just one or two, but a common phenomenon... Up to now, nearly 2/3 of the stocks in the island country’s stock market are held between companies. Can you believe this in the future?

In short, the chain of asset bubble formation in island countries is as follows:
Financial reforms in the 70s - comprehensive liberalization of financial markets - large companies issuing bonds on the market themselves - banks having a hard time - excessive lending - excessive credit expansion - serious bad debts and overdue debts - everyone pooling their money to make the bubble bigger and bigger.

And now, it has developed to the point where it can't withstand the slightest poke.

The sixth negative factor: America’s high interest rates
As everyone knows, after winning the Blue Star Tournament against its opponent, America has become the sole overlord of Blue Star. However, it has consumed a huge amount of energy and financial resources in the process. It can't wait to show its fangs and look for prey to suck blood to restore its physical strength.

Obviously, the first choice is the son of a certain country whose economic size accounts for 60% of its GDP but who always shouts "the island country can say no". Although the financial war in the new era seems to be bloodless and civilized, it is undoubtedly much more cruel than a real war, and the results that can be captured are much more abundant.

In this battlefield, the deadly weapon in America's hands is the well-known US dollar hegemony.

And in order to unleash the power of this weapon, one thing that must be done is... raise interest rates!
As of May 1989, 5, the American Federal Reserve completed the second time in its history, a total of 17 rounds of interest rate hikes, causing its interest rate to jump from the original 16% to a historic high of 6.9%.

In this case, facing the currency sniping of a certain father, if the island country dares to respond by raising interest rates (from 1987 until the end of the Fed's interest rate hike, the island country's interest rate has been maintained at a low level of 2.5%), America will dare to take advantage of the opportunity to attack the island country's capital market;

But it is obvious that the island country, which is now highly confident, has always wanted to say "no" to America, so in 1989, it took the initiative to raise interest rates, and eventually raised it to 6%.

You have to know that given the current situation of the island country, raising interest rates is tantamount to actively bursting its own asset bubble. At this time, interest rates in the Americas have been at a relatively high level. For countries like Japan and South Korea that have no capital control, once a trend of plummeting interest rates is formed, the island country's domestic and foreign capital will inevitably be lost rapidly under the attraction of high interest rate differentials. By then, a large number of island country companies will inevitably change their names.

Of course, the island country dared to take the initiative to try to burst the bubble, which was due to a certain degree of confidence. After all, the island country is the world's second largest economy, and the foreign exchange reserves in its hands are not comparable to those of the Southeast Asian countries in later generations. Therefore, even if it resists, it is not so easy to succumb.

In fact, the repeated pulls and sharp fluctuations in the Japanese yen exchange rate over the past year illustrate this point well; and it was not until 1991 that the island nation's stock market began to collapse, and by 1995, the island nation's economy completely stagnated, rather than the major recession that many people thought. This undoubtedly tells everyone a reality... The island nation's bone is not as easy to chew as many people think.

But this is not important to Yang Mo.

Restricted by China's national conditions at the time and the current financial market practices, it is impossible for him to get enough fat through financial means in this epic and long tug-of-war... Besides, his current strength does not qualify him to be the banker. Finance has always been a zero-sum game. A small fish that accidentally breaks in can easily be eaten by the big crocodiles at the table.

Moreover, he himself pays more attention to value investment rather than price investment just on paper. Therefore, the reason why he attaches so much importance to the precious window before this long tug-of-war officially enters the white-hot stage is that he is not aiming at the hot money that can bring double or even several times returns.

It’s just that Bai Mengmeng’s situation is different from his, and the situation that his little apprentice’s father needs to face is also different from his, so he doesn’t mind systematically explaining to this girl the overall situation that the island country is about to face.

After all, not only have several groups of member companies of the island nation Asemin Chamber of Commerce come to Tongren for investment inspections, but the Hong Kong branch of Mitsubishi Bank has also recommended some Japanese companies to conduct inspections. Presumably, with the previously copied "property rights financial transaction cooperation of precious economic timber" as a prelude, the father of his little apprentice will certainly be able to maximize the benefits and profits he deserves from the other party after relatively completely understanding the actual situation and real demands faced by these Japanese companies.

………………

After listening to his master explain in detail what the six major negative factors are, and comparing them with the actual situation of the island country, he explained one by one what kind of impact these negative factors will have on those Japanese companies and their real demands, and what kind of cooperation entry points can be created for his father through the demand points and financial operation models generated by these Japanese companies in their own business models.

The young disciple was so shocked that his nose felt sore and he almost cried out loud.

She knew that her master had always been very good to her, but it was rare to find a master like Yang Mo who was so generous and considerate of his own apprentice.

What Yang Mo taught her in the past were extremely valuable knowledge at the moment; and what Yang Mo talked about today can even capture the pulse of those Japanese companies investing in China from the underlying logic. Its practical value and guiding significance at the moment are priceless... In fact, since the reform and opening up, many regions have always held a love-hate attitude towards foreign investment. A very important reason is that they have not figured out the other party's true demands and psychological price, and even their operating model, resulting in many pitfalls. At least from this point of view, what Yang Mo talked about today is indeed invaluable to people like her father.

No one knows better than her how difficult her father's current situation is, and no one knows better than her how much help Yang Mo's words today can be to her father.

Thinking of this, Bai Mengmeng looked at Yang Mo with red eyes.

Master, if you were not from Qilu but from Guizhou, or if you had not yet reached such a lowly but powerful position...how great it would be!

Seeing that his little disciple's eyes were a little red, Yang Mo smiled and picked up a piece of slightly cold bacon and put it into his mouth.

After savoring the extremely crispy texture of the pig skin, he put down his chopsticks and tilted his head to look at his apprentice: "Xiaobai, I heard that your father has been calling you frequently recently. It seems that he really hopes that you can go back to help him. Um... have you decided on a time to go back?"

Hearing this, Bai Mengmeng's eyes got even redder, and her face turned pale. "The specific time hasn't been decided yet. My dad actually wants me to spend more time with you, Master, to learn. But he's having some difficulties with his work, and he really needs someone to help him... So, I guess... it's almost time, right?"

She is clearly a straightforward young woman who dares to love and hate, but she spoke these words in a discontinuous and hesitant manner, and Bai Mengmeng's reluctance was evident.

Seeing this girl acting like a little girl, Yang Mo just smiled softly: "When the time for your return is decided, let Master know. Master will prepare a table of food to see you off... Don't look so dejected, there are still many days to come... When Master is done with his work, I will find a chance to go to Guizhou to see you!"

Eh?
Bai Mengmeng's eyes lit up when he heard this: "Master, will you really come to see me?"

Transportation these days is not really developed. It is extremely difficult to travel in mountainous areas like Guizhou where there is no flat land for more than three miles. Therefore, in Bai Mengmeng's heart, once the master and disciple separate, it will take a long time for them to meet again.

Yang Mo smiled indifferently: "When has my master ever lied to you?"

In fact, China's infrastructure work has never stopped. Since entering the 1990s, China has been developing at a rapid pace in this area. By the time I finish the important matters at hand, it will probably be the end of next year or the year after. At that time, I will go to Tongren to relax. Although it is impossible to arrive on the same day like in later generations, it will only take two or three days.

Teaching an apprentice is actually a very stressful and tiring task. He has no plan to teach a second apprentice in his lifetime, so when he can get away, he spends a few days visiting the only apprentice who has ever handed him the apprentice tea. It is both a matter of affection and not a difficult decision.

Bai Mengmeng didn't think too much about it. After hearing what Yang Mo said, she was immediately delighted and immediately raised her white and tender little hand: "It's a deal... If you lie, you are a puppy!"

Hearing this extremely childish threat, Yang Mo rolled his eyes, then lazily raised his right hand and patted her: "Okay, if you lie, Master is a puppy."

Seeing the master and apprentice talking like children, Tugou, who was standing by, suddenly became excited: "I want to go there too! Xiaobai...when the time comes, you must make some tea or something for me to try!"

Bai Mengmeng said proudly: "No problem! As long as you come before or after the Qingming Festival, I promise to make you eat until you vomit!"

Hearing that he could eat as much as he wanted, Tugou became even more excited: "Then I'll also get those dragon bubbles and black bubbles you told me about!"

Bai Mengmeng waved his hand carelessly: "Don't worry, that thing is everywhere in the mountains of Tongren. As I said before, as long as you come before Qingming Festival, I will pick as much as you want to eat!"

Classmate Tugou: "Oh, right! Oh, right! And that fish you mentioned called Mr. Something... Oh, Mr. Cheche, you have to take me to catch two of them when the time comes!"

Bai Mengmeng: "No problem! I'll take you to the river to catch them, and then we'll grill them by the river!"

Tugou classmate: "And mountain crabs!"

Bai Mengmeng: "It's just a small matter!"

Classmate Tugou: "Wild cuckoo!"

Bai Mengmeng: "Then I'll let you eat one and throw one away!"

Tugou classmate: "Then you'll ask me to ride a water buffalo... I haven't even seen what a water buffalo looks like!"

Bai Mengmeng: “…”

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PS: I have recently looked at the exchange rate trends of some Asian countries' currencies. I can only say that history is a reincarnation again and again.

(End of this chapter)