Wall Street Financial Truth

Chapter 10 Who Emptied Your Wallet (1)
The cake of the wealth of the entire society has been bubbled by the virtual currency (that is, inflation).The money on the books does not exist at all, and the real wealth has been cut to the bones by financial capital.In other words, the wealth created by laborers has been greatly diluted, and the growth of people's income cannot keep up with the speed of inflation, so everyone's life will be sad.Due to global integration, the disease has also spread to China, and the situation will be more serious.

1. Why do days become more and more difficult?
As the New Year approaches, a radio station in Canada is discussing a hot topic. The host hopes that the audience can discuss: Why are our days getting more and more difficult?Because according to the data released by Statistics Canada in December 2010, the Canadian national debt is as high as 12 trillion Canadian dollars, and the average Canadian owes more than 6.1 Canadian dollars, and the debt ratio exceeds 20% (every 148 yuan of income costs 100 yuan. ), surpassed the US debt level of 148% for the first time in 20 years, reaching a record high!

The people who called in said that since the recession, housing prices in Canada have risen by 20%, mortgages account for almost half of after-tax expenditures, food prices are getting higher and higher, and they must live frugally in the new year Try to save two months of emergency living expenses in case of sudden dismissal.People are becoming more and more insecure about the future, and life is becoming more and more difficult. Who is to blame for this situation?Some people blame the government and think that the government should intervene before the situation reaches the extreme; but some people think that because the market has become very fragile due to the rapid rise of household debt, the government intervenes at this time, such as tightening the loose monetary policy Or raising interest rates, will bring uncertain pressure to uncertain markets.

Hearing this, I can't help but recall that when I first came to the United States 20 years ago, the first relative I visited was my fifth aunt.At that time, my eyes were darkened, and my future was very bleak. She encouraged me and said: "Don't worry, everything will be fine when you graduate and find a job." Fifth Aunt is qualified to say that.In the 20s, the fifth aunt immigrated to the United States with her husband. At that time, they did not know a single character (do not understand English), and dragged four children. The family of six had only the uncle earning money, but life was better than in Taiwan; Without any debt, the two not only raised four children, but also made them all receive higher education, then work, get married and have children.

Last year, Aunt Wu’s eldest daughter came to Toronto for a visit. When everyone chatted about the daily life, she said with emotion, “In the past, my dad was the only one in the family who went to work. In our generation, most families are dual-career, and most of the children only have two children, but life is very tight. Housing prices, land taxes, college fees, and commodity prices have risen. Children can only ask the bank for loans. Now I finally made it through, but my daughter is married and doesn’t plan to have children. My son would rather be beaten to death alone than get married, saying that the cost of starting a family is too high, and raising a child is equivalent to a sentence of imprisonment and a fine of 25 US dollars. What is this? what happened?"

Think about it too. In the 20s and 60s of the 30th century, in a typical American family of five, one of the couple only needed to go out to work, and the other was at home to take care of the children and take care of the housework. They kept a dog outside and lived in a detached house with a front yard and backyard. The dog chasing after the smoke is like a beautiful picture of life.In the past [-] years, this family life model has been broken, more and more people have left the family, and the husband and wife work together to support the family.So has household income increased?Is life richer and more fulfilling?The answer is clear, no.While overall household income has increased, the cost of supporting a family has made most American families (including Canada) slaves to debt.

Originally, with the rapid development of science and technology, productivity has increased day by day. Especially in the past 200 years, productivity has increased by dozens of times, and commodities are extremely rich, such as televisions, computers, mobile phones and other electronic products. come lower.Our life should be like buying electronic products, it should feel easier and better, and the pressure should be lower and lower.

But apart from electronics, why is everything else getting more and more expensive, and our days are getting worse?
In my opinion, there are many reasons for this, and the mainstream financial model for decades is one of the main reasons.

Here we can use the example given by the American economist Peter Schiff to illustrate: Adam the fisherman made a living by fishing. Originally, he could only catch one fish a day with his hands, which was barely enough for himself; Ten fish can be caught a day, which can feed a family of five, and the remaining five fish can be stored.But at this time, financial capital intervenes, and Famous Day will effectively allocate resources, allowing resources to flow from industries with low efficiency to industries with high efficiency, which can promote the economic growth and progress of the entire society.But the fact is that the remaining five fish were magnified by financial capital in the form of leverage and then cut, and most of them went into the pockets of financial capitalists; further play, even the five fish left by Adam for his own consumption, It also became smaller and smaller, and in the end Adam's family simply couldn't get enough to eat.

It is not difficult to see from this that the cake of the wealth of the whole society has been bubbled by the virtual currency (that is, inflation).The paper money never existed, and the real wealth (the ten fish Adam caught) had been cut to the bones by finance capital.In other words, the wealth created by laborers has been greatly diluted, so that the growth of people's income cannot keep up with the speed of inflation, so everyone's life will become worse and worse.Inflation, especially hyperinflation, would have occurred only in social turmoil such as natural disasters and wars, because productivity has declined.However, in the current situation where the labor force is fully utilized, it should not happen normally.

Coincidentally, recently, relatives and friends in China often complain that everything is going up now except wages are not going up.It seems that due to global integration, the disease has also spread to China, and the situation is even more serious.

2. How to deal with the big economic inflation?
I heard many office workers say that except for wages not rising, the prices of other things are rising. This phenomenon is called inflation in economics.That is to say, for a period of time, the overall level of commodity and service prices exceeds economic growth, the overall level of market prices rises, and the goods and services that can be purchased per currency unit decrease, which reflects the impact on the purchasing power of money. erosion.

The impact of inflation on the economy is multifaceted. In a certain period of time, slight inflation may be positive, but at any time, high inflation is definitely negative, and hyperinflation will destroy the economy!The possible positive impact of the so-called low inflation is mainly to alleviate the economic recession and achieve the purpose of debt relief by reducing the actual debt level. For example, the US used quantitative easing policy to dilute their huge debt this time, which is the best example.

The negative impact of inflation is mainly manifested in a period of time, when the actual value of the currency is reduced. Due to the uncertainty of future inflation, people will reduce stable investment and savings; when high inflation occurs, people are worried about further price increases. , causing consumers to start hoarding goods, and the continuation of this situation will lead to a shortage of goods, and prices will really rise rapidly.This leads to a vicious circle until it leads to hyperinflation.

Hyperinflation is far more harmful to a country's economy than deflation, such as the hyperinflation that occurred in Germany in 1923.During World War I, Germany, like other countries, had to borrow heavily to pay for the war, which led to inflation, but at a lower rate than in the United States at the same time.Inflation in Germany was contained after the war, but it didn't take long for inflation to pick up again.By 1923, the craziest inflation in history was raging in Germany. Prices usually doubled within a few hours. The situation of spending 200 billion marks.So much so that housewives prefer to use banknotes (marks) as firewood for the stove, because it is cheaper to use banknotes as firewood than to buy firewood directly with banknotes.

Regardless of whether it is low inflation or high inflation, it is always the common people who suffer in the end.In the case of inflation, in order to keep the money earned through hard work, ordinary people resolutely put money into asset classes for speculation, such as the stock market, housing market, and quite a few people put money into the gold market.Here I have to persuade everyone that there are almost bubbles in the "three cities" at present, and they have reached a height that cannot be tolerated. "Once the bubble bursts, as long as a financial wave hits, the assets will be swallowed up immediately.

Some people will ask how to say this?

We all know that borrowing to spend in an era of inflation is a wise move.Because the money borrowed from the bank is valuable and the money repaid is depreciated, inflation erodes the value of the money.For example, when you go to the bank to sign a contract to buy a house, the bank seems to have nothing to do but watch its purchasing power get diluted, while you win big because you are smart enough to use debt to fight inflation.This is also what the bank has been promoting all along: use tomorrow's money to realize today's dream of borrowing and consumption.

But please don't forget that banks are not charitable organizations, and they have to repay interest on borrowing money. They use "loans are the smartest way" to lure borrowers into a debt trap.The housing loan crisis in the United States this time is the best evidence: When people in the whole society think that entering the housing market is profitable, some people are willing to be charged high interest by banks in order to obtain housing loans at all costs (by issuing false certificates), because they are convinced that The income invested in the real estate market will definitely exceed the bank's loan interest; however, when a capital chain is broken, the time will come for you to obtain "income" from the bank's liquidation.Under certain circumstances (for example, if you are unable to repay your debts due to unemployment), the bank can justifiably deprive you of your real estate. Who told you to borrow money and not pay it back?

When housing prices are getting higher and higher due to borrowing and consumption, people who own real estate may be immersed in joy.But let me remind you first, don’t be too happy too early. Since paper assets can expand, then “success is nothing, failure is nothing.” After inflation, there must be deflation. Once the economic environment changes, that is, when inflation reaches a certain level , when the monetary system collapses due to the unlimited expansion of credit funds, it will be like a heavy hammer coming quietly, the castle in the air will collapse, and asset prices will fall like a free fall, and the speed of decline will be very rapid. In an instant, everything went bankrupt.

For example, during the financial crisis in the United States in 2008, not only did real estate fail to preserve its value, but it was horrible.Since the housing market suddenly fell in July 2006, four years later, despite the government's rescue measures one after another, the housing market has continued to "fall and fall" until now, causing more than 7 million people to lose their homes.According to a CNN report, there were 2000 million "shadow inventory" houses in the United States in 2009, that is, properties that were confiscated by banks. That is to say, 210 million households will lose their properties in the following year. At least it will continue to fall, and it is expected to fall back to 210, or even 1998 prices.

So far, the Chinese stock market is not an "efficient market". In the past 20 years, due to information asymmetry, each retail investor has lost an average of 5 yuan.The tragic stock market crash is still fresh in everyone's memory. Many people who speculate in stocks are "in the BMW and out of the bicycle"; and gold, which is known as the most valuable, once reached as high as $20 per ounce in the 80s, which is equivalent to today's Then it was hit by a financial wave, and the price of gold plummeted to more than $850 an ounce.

However, if you don't invest in these "three cities", how can ordinary people be willing to see the money in their hands becoming less and less valuable?It can be described as a dilemma.

In the situation of economic inflation, what should ordinary people do?
First of all, we should abandon the mentality of following blindly. Don’t buy gold when someone says that gold can preserve value, and buy silver when someone says that silver is good.

Now that the global economy is integrated, in the commodity market, financial hegemony has already entered the market at a low level and is ready, waiting for the last fool to take over.The best way to deal with people at the top of the pyramid is not to participate in speculation or to enter the market. You must cover your own pockets, or invest money in traditional financial products, such as treasury bonds, or purchase funds issued by banks or other financial institutions. A financial product with guaranteed capital and low return, even if it does not increase in value, is better than being swept away by a financial tsunami.Because during inflation, it is the best time for financial hegemony to fool the people into buying assets. When the people who follow blindly are fooled into the market and expect to rely on investment (speculation is more accurate) to preserve their value, the first to sell must be the game. Hegemonic capital.By the time the public wakes up, it is too late, and it is not uncommon for assets to fall by half.

Everyone must keep in mind that inflation should not and will not be the norm. At this time, ordinary people can only count on the government to take action. I believe that in order to maintain a stable and united social situation, the Chinese government will absorb the tragedy of hyperinflation in history. Years, at most two years is expected to be reversed.

Today, most mainstream economists favor steadily lower inflation, arguing that low (as opposed to zero or negative) inflation reduces labor market slack and allows the economy to adjust more quickly in case of recession, preventing monetary policy from Bringing the risk of a liquidity trap to a stable economy is what the New Keynesian school says.And keeping inflation low is the duty of the central banks of various countries, which can be controlled by three means: deposit reserve ratio, rediscount rate and open market operations.

However, according to conventional economic theory, inflation should not be the norm at all.With the great development of productivity, commodity prices should have become cheaper and cheaper.Especially in the past 100 years, with the rapid development of science and technology, productivity has increased rapidly.For example, tailors used to sew by hand and could only produce one piece of clothing per day. Now they rely on sewing machines to produce hundreds of pieces of clothing a day. It is normal for the price to drop.Just like household appliances, computers and mobile phones, not only the styles are constantly updated, the performance is getting better and better, and the functions are getting more and more, but the prices are constantly falling.

But over the past few decades, inflation has become the norm as the Keynesian school has gained the upper hand.The reason why Keynesianism was favored was due to the Great Depression in the United States in the 20s. His method was like a boost to the depressed economy.Unexpectedly, after the Great Depression ended, many people thought that Keynesian theory saved the Great Depression, and evolved his theory into Neo-Keynesianism, using his method as a commonly used "tonic", and inflation became the norm.As a result, the financial tsunami continued to hit people one after another.

This kind of drama has been performed countless times around the world in the past few decades, from South America in the 20s, Japan and Southeast Asia in the late 70s and early 80s, to the US financial crisis and the European debt crisis in recent years, Wave after wave is never uneventful.So many financial crises tell us that after every false boom, most people's assets will be wiped out.

(End of this chapter)