A brief discussion on the current global economic situation and countermeasures

Nanfang Shuo, special researcher at Tianda Research Institute

At a time when global inflation and global warming are becoming increasingly serious, in 2008 The G8 summit was held in Japan. As expected, this summit, like the past few, did not reach any effective and important conclusions. In people's minds, this summit is nothing but extravagant and absurd images of a bunch of dignitaries eating caviar while talking about the food shortage, and claiming that for the sake of environmental protection, three years of snow will be sealed up to be used as air conditioners.

In recent months, due to the increasingly serious problems of inflation and global warming, the world has successively held food summits, summits of oil exporting and consuming countries, and world climate conferences. The G8 summit may be one of these series of meetings. period. However, despite the frequent meetings, major countries only use the meetings as a tool for their own interests and have no intention of using the meetings as a platform to solve problems. So the same topic was talked about again and again, and the problem remained unresolved. For example, at the summit of oil producing and consuming countries, oil producing countries emphasized that supply and demand were normal and that the soaring oil prices were caused by speculation. The U.S. Senate also launched an investigation into oil futures speculation, but in all meetings, the United States avoided mentioning it. Speculation and speculation, but just asking oil countries to increase production. How could oil prices soften despite the fact that speculation accounts for 70% of the rise in oil prices? Another example is the United States' refusal to actively reduce greenhouse gas emissions since it withdrew from the "Kyoto Protocol" in 2001. It continued to stick to its stance at this G8 summit, which resulted in the meeting making only empty promises to reduce emissions while avoiding mention of specific measures. What is the difference between such a commitment and non-commitment?

This year’s G8 summit is the most obvious proof of the “defunctionalization” of this summit organization. Its performance this year reminds people of the summit in August 2007 when Germany was the host.

In August 2007, the subprime mortgage crisis in the United States spread from North America to Europe. The core of the subprime mortgage problem is that U.S. investment banks repackaged huge mortgage debts in the name of "financial innovation" and turned them into derivatives such as "Credit Obligations" (CDOs) and "CLOs" (CLOs). , peddling to the international financial system. The three major credit rating companies in the United States endorsed these derivative financial products, so Wall Street financial oligarchs were able to convert claims into capital and use foreign savings as financial capital for their own operations. Its entire operation is quite deceptive. In view of its deceptive nature, French President Nicolas Sarkozy believed that the three major credit rating companies were the culprits of subprime mortgages and asked the international community to investigate. The problem is that if there is an investigation, Wall Street's power to manipulate global financial capital will be greatly affected. Therefore, Sarkozy's proposal was ignored, which of course delayed the early response to the subprime mortgage crisis. More than a year ago, Sarkozy accused the three major credit rating companies of defrauding the world. It was only on July 9, the day after the conclusion of this year’s G8 summit, that the U.S. Securities and Exchange Commission (SEC) Chairman Cox officially admitted that the three major credit rating companies were defrauding the world. Credit rating companies have indeed committed serious shortcomings such as inaccurate ratings and inability to avoid conflicts of interest. Cox's admission is equivalent to confirming the accusations made by French President Sarkozy more than a year ago. However, because of the delay of more than a year, the subprime mortgage crisis has become even more out of control.

Hot money has become the biggest driver of global inflation and financial instability

At the 2007 G8 summit, Sarkozy made prescient accusations against the three major rating companies responsible for subprime mortgages. In addition, it also warned against the proliferation of international dollar funds. It called for international controls on the flow of hot money, but this went against the interests of the United States, Britain, and Japan, which have the most hot money, and was blocked. The summit only made an empty resolution that countries should pay attention to the flow of hot money. Looking at the proliferation of international hot money in recent years, as much as 760 billion US dollars entered developing countries in 2006. By 2007, it had increased to 1.030 billion US dollars, accounting for 7.5% of the gross production of all developing countries; while investment in commodity markets In the past five years, funds have surged twenty-fold from US$13 billion to US$260 billion, becoming the largest driver of global inflation and economic instability.

In addition to the above-mentioned issues, German Chancellor Merkel, the host of the 2007 G8 Summit, hoped that the Kyoto Protocol would expire in 2012 and the United States had unilaterally withdrawn in 2001. In the five years before the deadline, the United States has been forced to make commitments to reduce greenhouse gas emissions. However, the United States has always believed that its initiative to reduce emissions will give developing countries such as China and India the opportunity to catch up and shorten the gap with the United States, thereby affecting the United States' dominance. This was actually the consideration behind the United States' unilateral withdrawal from the "Kyoto Protocol" that year. However, in 2007, because this issue was dominated by Europe, the United States came under heavy criticism, so the United States made a policy shift. That is, it agreed to reduce emissions, but it must also include emerging powers such as China, India, and Brazil. The policy shift in the United States is an attempt to delay the emission reduction issue for another five years. This move by the United States contributed to the Bali Conference at the end of 2007 and the empty resolutions at this year's G8 summit.

The two G8 summits in 2007 and 2008 are specifically traced here, mainly to show that this summit is no longer a communication platform to solve global problems, but has become a tool used by specific powers to realize their unilateral interests. .

What the United States is trying to achieve is an international financial and economic order with the "dollar standard" as the core, and thereby get rid of its obligations to the international community, such as greenhouse gas emission reduction issues and the problems caused by the "dollar standard" The restriction of chaos and so on are the main reasons for the "defunctionalization" of the G8 summit. Because the G8 summit cannot face up to and restrain the credit rating companies' fraud on the local and foreign financial systems of the United States, and cannot restrain the proliferation and speculation of hot money, especially the G8 summit has been unable to restrain the bottomless pit of international balance of payments and fiscal deficits in the United States for a long time, these All are the origins of today’s global financial and economic turmoil.

The U.S. subprime mortgage crisis continues to spread upward

Less than a week after the conclusion of this year's G8 summit, the upward spread of the subprime mortgage crisis has reached a new high, not only California IndyMac Bank The two largest mortgage companies in the United States, "Freddie Mac" and "Fannie Mae", also collapsed; and the subprime mortgage exposure positions of Wall Street investment banks "Citigroup" and "Merrill Lynch" have once again surfaced, and nearly 200 billions of dollars in bad debt losses. According to statistics, approximately 150 banks across the United States will fail in the next twelve to eighteen months. No wonder global stock markets collapsed in response. On July 2 this year, the U.S. stock market fell 20% from its previous high for the first time, thus officially announcing that it had entered a bear market stage. Now, with the financial turmoil and the stock market falling again, it is of course an expansion and deepening of the deterioration. It may have the following impacts in the future:

First, since the subprime mortgage crisis emerged, the United States could have reduced losses by strengthening control, but the subprime mortgage problem is essentially "the United States converting debt commodities into "It is one of the ways of operation to siphon funds from around the world to suppress its financial power and economic sustainability." Any control is not in the interests of Wall Street's financial oligarchs. This is also the reason why the United States not only fails to restrain the Wall Street financial oligarchs who caused the problem, but instead continues to use financial resources to bail out the problem after the problem occurs. This makes the supply of U.S. dollars in the name of "increasing liquidity" even more excessive, and also makes the already weak U.S. dollar more depreciating, and inflationary pressure cannot be alleviated. This means that this wave of financial turmoil has actually escalated the credit crisis of the US dollar to another level. Earlier, the International Monetary Fund estimated that the losses caused by the subprime mortgage crisis would reach US$970 billion. But with the accumulation of subprime mortgage losses and the collapse of the housing market, this crisis has jumped up to the major mortgage markets and banking systems. Its potential for unexploded bombs is too great to be taken lightly.

Secondly, as pointed out earlier, the US Securities and Exchange Commission has admitted that the actions of the three major credit rating companies are suspected of being illegal and improper. However, in fact, the subprime mortgage crisis has continued for nearly two years. , but the scale of global losses exposed to subprime mortgage risks has always been a mystery like a black hole, so the West calls it the "debt tunnel." The reason is that in the early 1990s, the concept of "innovation" was prevalent in the United States, and "accounting innovation" and "financial innovation" on Wall Street were the two major focuses. In order to allow investment banks and companies to have greater financial leverage, the former has tried its best to relax the arrangement of accounting items, reclassify liabilities to assets, and engage in hidden or even fictitious transactions by setting up funds overseas. In addition to later triggering fraud cases such as the "Anlong Case" and the "Andersen Accounting Company Case", this "accounting innovation" also set the stage for financial and insurance institutions in other countries outside the United States to be exposed to subprime mortgage derivatives transactions and huge losses. Fallen into a trap. For example, Deutsche Bank, which was first hurt by subprime mortgages, suffered serious losses due to subprime mortgages under its offshore funds. In terms of "financial innovation", the most important thing is that the three major credit rating companies cooperate with investment banks to convert claims into financial products in order to absorb foreign savings and beautify the packaging of subprime mortgage products. Since "accounting innovation" and "financial innovation" can hide large amounts of liabilities and losses, forming a "debt tunnel" that is difficult for outsiders to see into the secrets, even today, the losses caused by subprime mortgages and their upward spread are still not known with certainty. , just where the fire burns, the problem will be exposed. At present, it has continued to spread to the major investment banks, and has been burned upwards to the "second mortgage companies" such as "Freddie Mac" and "Fannie Mae". At this time, the problem of foreign central banks and financial insurance companies being exposed to U.S. debt gradually emerged. At present, due to the bailout provided by the U.S. Treasury Department, the "second-home" problem has been temporarily suppressed. However, as the U.S. housing market declines, mortgage foreclosure cases continue to increase, and inflationary pressures continue to rise, the impact that the expansion and escalation of this wave of financial turmoil will have on global finance cannot be underestimated.

Thirdly, the financial situation in the United States is currently in turmoil again. It has actually shown that the shrinkage of real estate and credit markets, the inflation caused by the devaluation of the US dollar, and the contraction of consumption are getting worse. In the end, it will be reflected in the shrinkage of global assets and the tightening of foreign trade. The already existing over-investment and excess production equipment in the world will surface, which will lead to factory companies laying off workers or closing down, and a recession or even depression with an increase in the unemployed population.

Recently, there have been massive layoffs in the British and American financial industries, the unemployment rate has risen rapidly, and mainland China's recent export growth rate has also fallen to a new low. These are signs of tightening in the global market. However, as the United States continues to invest fiscal chips in order to save Wall Street, the U.S. dollar has More oversupply, coupled with the severe financial situation, the United States is unlikely to raise interest rates significantly in the short term, which means that the momentum of US dollar depreciation will not decrease but increase. The kind of inflation driven by the depreciation of the US dollar will not necessarily Moderated due to reduced market demand. The recent decline in oil prices, which has been hovering at a high level, is proof of this. In addition, inflation driven by oil prices also involves US oil strategic interests. If after the election this year, the United States instigates Israel to use force against Iran for one reason or another, and oil reaches a sky-high price of US$300 per barrel, it will be a global catastrophe.

Where is the source of hot money?

It is precisely for this reason that at this moment of stagnant inflation, the resurgence of financial turmoil in the United States has shown that people cannot take the current global economic situation lightly. In addition, we obviously must have another more structural observation and thinking framework for this situation. In this regard, I will refer to the works of American financial expert Richard Duncan (The Dollar Crisis: Causes, Consequences, Cures) and William Bonner and his colleagues. "Empire of Debt: The Rise of an Epic Financial Crisis" (Empire of Debt: The Rise of an Epic Financial Crisis) briefly describes the views put forward. Only in this way can it help people understand and understand the difficulties of today's global economy. , market and financial turbulence is on the rise, which is actually a huge structural problem. This structure has been barely functioning for a long time. In the 1990s, the continuous participation of emerging economies, with their cheap labor and low- and medium-level technologies that moved freely around the world, kept industrial manufacturing products at low prices for a long time and undermined the power of inflation. Some analysts and scholars Even put forward the theory of "the end of inflation". But today, the basic structure of "debt-to-debt financing" in the United States has become unsustainable due to the subprime mortgage crisis. Once the US dollar's credit crisis emerges, the US dollar will accelerate its depreciation, inflation, shrinking assets and consumption, and the global flow of US dollar hot money, etc. All the chaos today is getting bigger and bigger day by day. Soros said that "the U.S. dollar is the world's largest bubble" and another investor Marc Faber said that "the U.S. Federal Reserve is the world's largest speculator." Although these words may sound ugly, they actually make sense.

Everyone is well aware that today’s global economic and financial chaos is essentially an unwelcome gift to the world from the unsustainable dollar-standard era. In the past thirty years, since the Britten Woods Agreement that regulated global trade and finance in 1973, international trade and finance have lacked the objective material intermediary of gold and have changed to the U.S. dollar standard based on its huge overall national power. , at this time, the original international trade and financial order became a subjective system based on confidence in the US dollar. This "paper gold" system gradually developed into an economic cycle of "U.S. twin deficits - countries with surpluses with the United States return their surpluses to the United States to make up for their twin deficits." This uneven cycle, precisely because of its imbalance, has given many emerging economies, such as the Four Tigers in the past, and later China, India, and Vietnam, opportunities they had never had before to pursue national development through trade. development, and the United States has the financial and fiscal leverage to continue economic and military expansion. But since the U.S. fiscal deficit exceeded 100 billion U.S. dollars in 1982 and the U.S. balance of payments deficit exceeded 100 billion U.S. dollars in 1984, its problems have become increasingly apparent. Especially since the second half of the 1990s, this problem has become increasingly unsustainable. Its main symptoms are as follows:

First, it is essentially relying on the return of surpluses from other countries to purchase U.S. government bonds, treasury bills, corporate bonds of government-backed companies, and stock and housing market assets. And the "debt empire" that exists; within its own country, it drives savings to the capital credit market at low interest rates for a long time, and supports its consumption with the prosperity of the stock market and housing market and the belief that it will always rise. This is also the source of Bush's belief in the so-called "ownership society." American individuals and families are highly indebted, and borrowing money to speculate on houses, cars, and stocks is a manifestation of the so-called "irrational exuberance." This means that the United States’ “debt empire” has a dual nature, with debt as its backbone both externally and internally. This is the reason why its assets are always in a state of overheating and bubbles, and it is also a structural factor in the subprime mortgage crisis.

It is recommended to raise the hot money issue at the APEC meeting

Secondly, countries that rely on exports to the United States and hold huge surpluses will also be in a long-term overheating state, but they will return to The US dollar foreign exchange deposits in the United States often flow back in the form of hot money after market operations, expanding the momentum of asset bubbles in emerging economies. The same is true for Japan in the past, today's mainland China, and countries such as India and Vietnam. In the past five years, China has had an influx of US$1.75 trillion of hot money, which is the main reason for asset bubbles, increasing inflationary pressure, and the proliferation of gamblers in society during the process of asset bubbles.

This is of course related to the so-called "Washington Consciousness" formed in 1989, which opened the door to the free flow of capital in emerging economies. It is also related to the ups and downs of global stock markets today due to the inflow and outflow of hot money, the "1997 Asian Financial Crisis" in emerging economies, and the recent financial and economic turmoil in Vietnam. The problem of short-term speculative funds has caused continued pressure on the instability of emerging economies.

Third, and perhaps more important, is that in this period of prosperity caused by the US dollar debt cycle, global equipment and investment have also become excessive, and have reached a very high level. Once If confidence in the credit of the United States is lost or the country declines, connectivity problems will quickly arise. The U.S. subprime mortgage crisis and the shrinking housing market have caused urban housing prices to fall by 10%, assets have evaporated significantly, the dollar has depreciated, and consumption has declined. Finally, trade has shrunk, threatening the world. Mainland China’s import and export growth rate from January to June this year A sharp decline in profit margins is an important sign.

It is precisely for this reason that the deterioration and instability of the current global economic situation are a natural by-product of the expansion that relied on the excessive supply of "paper gold" for a long time in the past. This expansion has resulted in excessive plunder of natural resources, which is also the main cause of global warming and dramatic changes in climate and ecological environment. It awaits stepped-up efforts globally and by every country to moderate it. In the current system, it is this expansion that has caused global financial and economic turmoil. Since the United States cannot reduce its twin deficits on its own, nor can it make policies that go against the interests of Wall Street financial oligarchs, it only hopes that the sovereign funds of other countries will significantly reduce their investment. Since fundamental reform is impossible, the current chaos is destined to continue to be delayed. How African-American society adjusts itself becomes particularly important.

Increase hot money flow costs and penalty costs

First of all, as far as mainland China is concerned, its hot money overflow has exceeded the level of one trillion US dollars. The arbitrage and extraction of hot money has indeed become a Secondly, due to the gradual transparency of subprime mortgages, people have gradually realized that China's foreign exchange reserves are exposed to a very high proportion of U.S. credit risks. If the United States will resort to impairment and restating measures to bail out companies on the verge of bankruptcy, major creditor countries including mainland China, Japan, and the Middle East will surely suffer serious losses; secondly, it can be seen from recent trends It is pointed out that this wave of financial and economic turmoil has deepened to this day and has had an impact on the reduction of global aggregate demand. China's exports have shown signs of declining. We have also seen that Europe, such as Finland, has officially entered a recession stage. This means that it is no longer possible to have one-sided expectations for the current situation - hoping that the situation will get better; instead, we must have more long-term plans. We believe that China must make preparations for the following issues:

1. In terms of hot money control, more strategies must be developed to increase the flow costs and even penalty costs of hot money. Since the "Washington Consciousness" of "free flow of capital" was adopted in 1989 following the advice of World Bank expert John Williams, the greed and harm caused by hot money has made it become the Financial Times It is called "one of the channels that shape economic instability." At least a dozen countries have experienced significant financial and economic turmoil as a result. Due to its increasing harm, the issue of hot money control, which was once regarded as a standard and no one dared to have an opinion on, has gradually become a public discussion. Coordination and recording of short-term capital information, hot money is not allowed to flow out within a certain period of time; real estate speculation caused by hot money is curbed by increasing taxes on "absent landlords"; a "Tobin tax" of flow costs is levied on the flow of hot money ( Tobin's Tax) etc. In addition, in the past, hot money flows could not enter the international agenda due to the lack of opinions from major emerging economies. Nowadays, countries such as China, India, and Brazil have experienced the harm of hot money. In addition, many countries in East Asia have been harmed. , the time has come for China to raise this issue through consultations at forums such as the Asia-Pacific Summit or the Asia-Pacific Economic Cooperation (APEC) and take synchronized measures.

Adjusting the economic structure while fighting inflation

2. In view of the possible decline in international trade, China may have to have "adjusting the economic structure while fighting inflation". New directions. It includes the improvement of domestic industrial structure and industrial added value, the strengthening of regional balanced development strategies, the expansion of investment in emerging strategic industries such as alternative energy industries, and the strengthening of the grain and agricultural industries. China has great potential to "come first, come first" in industry. In this era of inflation, taking this opportunity to adjust new economic strategies with progressive implications will be extremely beneficial to the future after global stability.

3. At present, the subprime mortgage problem continues to spread and expands to the main loan market, so China’s exposure to the US debt system is gradually becoming clear. This also reveals issues such as China's management and application of foreign exchange deposits and China's connection with the global credit market. These high-end issues already require special attention, and necessary international negotiations will inevitably increase. This is also the key to preventing the hard work of all citizens over the past years from evaporating with the depreciation of the U.S. dollar and from being damaged by the shrinking of the U.S. credit market.

4. With the seriousness of the inflation problem, it is indeed time for China to make adjustments in the past when it followed the pace of the United States and allowed it to develop. In terms of objective situation, this global inflation may not be more severe than the US dollar and energy crisis between 1972 and 1974, but its degree of turbulence is only a little bit different from that of the 1930s.

The reason is that the past era of expansion was also an era when the gap between the global rich and poor became increasingly absolute. This is what is now called "M-shaped". The M-shape of society expands vulnerability to inflation and people's sense of exploitation. This is the reason why social unrest caused by inflation has spread to more than 40 countries around the world. This also means that anti-inflation, economic adjustment, and balanced regional development must all have to curb the M-shaped transformation of society as the main goal. Only if this is the case, a "harmonious economy" will be possible.

Secondly, as far as Taiwan is concerned, today’s Taiwan has long been far away from the golden age when it was the leader of the Four Tigers. Due to incompetent governance in the past eight years, Taiwan has experienced a "lost decade" and missed the time to adjust its industries and set its direction. Since then, the stock market has continued to plummet, the housing market has been sluggish, and social confidence has been extremely weak. Taiwan's performance in the face of inflation is not satisfactory. The key is that it always lacks sufficient directionality. Therefore, setting the direction has become Taiwan's current urgent task. For Taiwan, the direction of efforts should be:

1. In the past, from 1972 to 1974, Taiwan faced inflation. Under the leadership of Li Guoding, its response strategy was the best in Asia, and thus it was able to survive the energy crisis. Then you can quickly take off and become the first of the Four Asian Tigers. Taiwan's best response strategy at that time was to set up strategic industries for the next stage during the recession, such as major commodity industries such as the petrochemical industry and the information industry. This also shows how to prepare strategic industries for the next stage, such as the renewable energy industry, the re-upgrading of traditional industries, and industries involving cross-strait integration, which should be the direction of Taiwan's efforts.

2. In the past decade or so, Taiwan has adopted various deregulation strategies under the order and values ??controlled by the United States. And people also know that the so-called loosening of restrictions is actually opening the way for the strong to expand their freedom. This is the reason why Taiwan's tax system has become increasingly polarized in recent years, the polarization of rich and poor has accelerated, and the M-shape has become increasingly serious. But we must also know that although it is impossible for Europe and the United States to significantly reform this system that indulges the strong and distorts fairness and justice, some new directions have been formed. Since this year, major European countries such as Germany, France, and Italy have launched large-scale cross-border efforts to arrest tax evasion; the United States has also begun to legislate to regulate the tax evasion functions of banks (especially Swiss banks), and prohibit states from using tax havens as bargaining chips for internal competition; in addition, it also includes strengthening Supervision of tax havens and forced disclosure, etc. Constrain the rich and powerful and strengthen the value of fair tax collection, rather than abandoning supervision of the tax responsibilities of the rich due to excessive tax costs. This is crucial for Taiwan, where there is great inequality between rich and poor.

3. Recently, Taiwan has continued to adopt a unilateral policy of opening up to the mainland, including direct charter flights, opening up cross-strait capital market interactions, and preparing to open up mainland capital to enter the stock and housing markets. This is of course a major breakthrough compared to the past refusal to open up. However, after all, Taiwan's openness is still mostly short-term and still lacks a long-term sense of direction. Therefore, it is only for the sake of individual interests such as the stock market, real estate market, aviation tourism, etc., and leaves people with no overall view. Sexual feelings. How to set up a larger interactive cooperation structure for the cross-strait financial economy may be more important.

Will the Hong Kong dollar continue to be pegged to the US dollar?

In the end, Hong Kong may be more difficult. There are two million poor people in Hong Kong out of a population of seven million. Hong Kong's long-term laissez-faire real estate prices have skyrocketed, and because Hong Kong has always refused to decouple the Hong Kong dollar from the U.S. dollar. As the U.S. dollar continues to depreciate and other currencies generally appreciate, Hong Kong's inflation problem has become increasingly serious. Due to the difficult life of the people, tax refunds and subsidies were given repeatedly. The problem is that tax rebate subsidies are a kind of "charity", while the appreciation of the Hong Kong dollar or the resetting of tax standards are the "system". Replacing institutional "reform" with opportunistic "handouts" can only temporarily ease the feeling of inflation, but cannot improve or reduce inflationary pressure. In addition, global currencies are generally appreciating while the Hong Kong dollar is still pegged to the US dollar. In addition to worsening inflation, it is also another form of "downward competition" that only makes itself cheaper. It is precisely for this reason that amid the fight against inflation, the issue of Hong Kong dollar appreciation has become increasingly urgent. At present, the United States continues to use fiscal chips to rescue the financial industry, and the supply of U.S. dollars continues to expand, increasing depreciation pressure. However, the Hong Kong dollar is still pegged to the U.S. dollar, which will make inflationary pressure even heavier. Today, the world is fighting inflation at a double rate (raising exchange rates and interest rates), but Hong Kong is unique. If we do not make corrections, the harm to Hong Kong people will inevitably be inevitable.

It is precisely because of this that the US dollar bubble is in crisis, and the associated financial and economic turmoil is increasing. It is estimated that more US banks will join the ranks of bankruptcies, and countries around the world need to strengthen and strengthen "governance". Adjusted myself.

This is a new challenge for the two sides of the Taiwan Strait and the three places, and it should not be taken lightly!