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Chapter 6 Who Directs Economic Activities (2)
Compared with other markets, the stability of the currency market is particularly important.This is exactly the purpose of setting up financial regulatory agencies in various countries.The outbreak of the US subprime mortgage crisis is largely due to the fact that the chaos in the money market has not been effectively regulated.Of course, in addition to this, the spontaneous adjustment of the financial market is equally important.

Since 2008, the Chinese stock market has been eagerly anticipating the launch of stock index futures because stock index futures have the function of shorting and longing. When the stock index falls, investors can short the market in the stock index futures market. To achieve a hedging effect, so that when the stock market falls, it will not fall as much as it is now. Of course, when it rises, there will be no crazy skyrocketing.This is the self-regulating role of market instruments - stabilizing financial markets.

It can be said that the self-regulating function of the financial market depends on whether the market mechanism is sound, which is more obvious when compared with other markets.If the financial system is not perfect, then the regulation of the financial market also depends on the regulation of the government.

Currency price volatility and "market failures"

Since 2006, global commodity futures have grown rapidly in the global economy. Under the background of central bank interest rate hikes in major economies and signs of economic slowdown in the future, the prices of various commodity futures have soared and fluctuated sharply.Many commodity prices hit record highs.Among them, the fluctuations in the energy and metal commodity futures markets were particularly severe. Oil and various metals hit record highs and oscillated at high levels; sugar and cotton among agricultural products also fluctuated sharply.The price of oil reached its peak in mid-2008, and then began to plummet in a slump, followed by a sharp drop in the prices of various commodities in the futures market.At this point, financial markets have completely "failed".

Excessive fluctuation of financial prices is a kind of "failure" in the market. In essence, "failure" is a kind of separation between price and value, thus destroying the market and price mechanism.

Market "failure" refers to the inability of markets to allocate goods and services efficiently.For economists, the term is usually used when inefficiencies are particularly significant, or when nonmarket institutions are more efficient and wealth-creating than private choices.On the other hand, market failure is also commonly used to describe a situation in which market forces fail to serve the public interest.As the saying goes, nothing is impossible without the market, but the market is not omnipotent.The free market relies entirely on the invisible hand of price to achieve the balance of supply and demand. When the price fails to regulate the market, it will cause the price of the product to deviate from the value, thereby destroying the price mechanism of the market and causing market failure.

After World War II, international capital flows and financial liberalization achieved tremendous development.The number of financial assets has far exceeded the size of the real economy.Regardless of whether it is a developed country or a developing country, the growth rate of financial assets is 2-3 times higher than the growth rate of the country's GNP.Moreover, as far as the economy as a whole is concerned, there is a tendency for the virtual economy to separate from the real economy.At the same time, while optimizing the allocation of social resources, these phenomena have had disastrous consequences for the real economy due to the huge instability and vulnerability of the financial market.Several worldwide economic crises after the war confirmed this point.

In fact, due to information asymmetry, "failures" are more likely to exist in financial markets.

In the securities market, what determines the fair price of securities and the efficiency of the securities market is the true, accurate, sufficient and timely information provided by the open securities market.Since the information held by insiders, corporate managers, securities dealers, and major shareholders with controlling power is in an asymmetric state with that of ordinary investors, the incentive for the company's management is particularly important, because its moral hazard reflects It is very unique (imperceptible) and serious (huge amount) in the corporate governance structure.The complexity of information in the securities market, the decisiveness of information to securities prices and the sensitivity of the public to information make fraud and insider trading a prominent problem in the securities market.

In addition, the public product characteristics of information itself and the public's "herd mentality" are also the main reasons for the failure of financial markets.This point is easier to understand.

From the point of view of information itself, it has the nature of a public product. Listed companies are generally unwilling or provide as little information as possible. The resulting natural monopoly increases the cost of information acquisition for investors, thereby inhibiting the "information search investment" in the securities market. "The enthusiasm of the activity.At the same time, the buying and selling behavior of investors who pay information costs by making information investments may be quickly imitated by others, and price fluctuations will occur immediately, so that the former type of investors cannot obtain the full benefits of their information investments, thus weakening their ability to search for information. driven by interests.The irrational behavior of investors immediately caused the irrational prosperity of the market. This is the investment "herd" behavior: since others have already studied the stock price and affirmed its performance, it is necessary to waste time to find a reasonable one. price?As a result, a "collectively irrational" stock price surge has formed, causing false prosperity in the market and the possibility of future market "failures".

Inflation: a "monetary phenomenon" without exception

In Germany after World War I, a thief went to someone's house to steal something and saw a basket full of money.He poured out the money and took only the basket.

On the streets of Germany in 1923, some children played a game of stacking blocks with large bundles of banknote marks; a housewife was cooking, and what she burned was not coal, but banknotes that should have been used to buy coal... …You must be in disbelief.But the fact is true - Germany at that time was experiencing the craziest inflation in human history, and the currency depreciated to such an extent that it is almost unbelievable today: at the beginning of the year, 1 mark can be exchanged for 2.38 dollars, and in the summer, 1 dollar can be exchanged for 4 Trillion marks!A newspaper rose from 0.3 marks to 7000 million marks!
The German people at that time lived through a terrible nightmare.As soon as workers and teachers get their wages, they rush to the store to buy bread and butter at a speed of [-] meters. If they run slower, the price of bread and butter will rise by a large margin.Because the rate at which prices are rising is insane!The savings that the old people had accumulated all their lives disappeared in an instant, the workers went on strike, and the farmers went on strike.In the midst of such a huge economic crisis, the German people have suffered greatly.No jobs, no food, nowhere to go.The German people are extremely dissatisfied with foreign imperialism and their own government. Struggles and riots continue to occur all over Germany, and Germany is in serious turmoil.

This is inflation.

In macroeconomics, inflation refers primarily to a general increase in commodity prices and wages.Generally, it refers to the continuous and general increase in prices for a period of time caused by the fact that the supply of money is greater than the actual demand for money.Its essence is that the total social demand is less than the total social supply.

Inflation in modern economics means an increase in the overall price level.General inflation is a decrease in the market value or purchasing power of a currency, while currency depreciation is a relative decrease in the currency value between two economies.The former is used to describe the national currency value, while the latter is used to describe the added value in the international market.

The law of paper money circulation shows that the amount of paper money issued cannot exceed the amount of gold and silver currency it represents. Once this amount is exceeded, the paper money will depreciate and prices will rise, resulting in inflation.For example, if the amount of gold and silver currency required in commodity circulation remains unchanged, but the issuance of banknotes exceeds twice the amount of gold and silver currency, a unit of banknotes can only represent 1/2 of the value of a unit of gold and silver currency. In this case , if paper money is used to measure prices, prices will double.Thirty years ago, maybe you could pay $30 or $1 to see a movie that you paid $2 to see last week.Back then, for $9, you could eat dinner, watch a movie, and buy a bag of hot buttered popcorn.This is what is commonly referred to as currency devaluation.At this time, the amount of paper money in circulation doubles the amount of gold and silver currency required in circulation, which is inflation.

Inflation can only occur under the conditions of paper currency circulation, and this phenomenon will not occur under the conditions of gold and silver currency circulation.Because gold and silver money has value in itself, its function as a means of storage can spontaneously adjust the amount of money in circulation so that it matches the amount of money needed for commodity circulation.Under the conditions of paper money circulation, because paper money itself has no value, it is only a symbol representing gold and silver currency and cannot be used as a means of storage. Therefore, if the circulation of paper money exceeds the quantity required for commodity circulation, it will depreciate.

It can be said that inflation and currency are closely linked.Milton Friedman, the Nobel laureate in economics, once had a famous statement: "No matter when and where, inflation is a monetary phenomenon without exception."

In fact, from historical experience, we can see that there is a positive correlation between the growth rate of money supply and inflation: countries with high inflation rates tend to have high money growth rates.For example, Belarus, Brazil, Romania and other countries all experienced serious inflation from 1992 to 2002, and their currency growth rates were also high.Conversely, both inflation and money growth rates were lower in the UK and US over the same period.

Currency Crisis: "Money" Can Cause Big Trouble

With the deepening of the financial crisis, according to Russian official statistics, from New Year 2009 to early February 2009, the ruble depreciated by 2%.From the beginning of 23.1 to the beginning of 2008, the ruble lost 2009% of its value.From August 47.4 to February 2008, the ruble depreciated by 8%.Worse still, market transactions suggest that the ruble could depreciate by a further 2009% over the next year.There is a sense of sadness in Russia, and Russian economists are full of pessimism about the ruble. They have reached a consensus that at the current rate of decline, the continued depreciation of the ruble is unstoppable.Regarding the performance of the Russian central bank in this currency crisis, Alexa Shenko, the former first deputy governor of the Russian central bank, criticized that the central bank made a big mistake on the depreciation of the ruble: it did not depreciate when it should have depreciated last year. .Now the market has begun to frantically test the critical point of ruble depreciation to see whether the central bank "can survive to the last drop of blood".

In order to support the ruble, the Russian government used one-third of its foreign exchange reserves to support it, but this still did not have a positive effect.Economists say the ruble will continue to depreciate in the future.At a time when foreign exchange reserves plummeted and capital outflows accelerated, people downgraded Russia's sovereign rating to only two notches above junk.Amid internal and external difficulties, the future choices of the Russian authorities, who are obsessed with pegging the ruble to the dollar, will become more difficult.

In other words, Russia will inevitably encounter a serious currency crisis. From 2008 to 2009, along with the financial crisis, the currency crisis has begun to be staged in many countries.

The concept of currency crisis can be divided into narrow sense and broad sense.A currency crisis in a narrow sense corresponds to a specific exchange rate system (usually a fixed exchange rate system), which means that a country that implements a fixed exchange rate system will, in a very passive situation (such as when the economic fundamentals deteriorate, or when encountering In the case of powerful speculative attacks), adjust the country's exchange rate system and switch to a floating exchange rate system, and the exchange rate level determined by the market is much higher than the original deliberately maintained level (that is, the official exchange rate). The impact of the uncontrollable and intolerable phenomenon is the currency crisis.

Currency crisis in a broad sense refers to the phenomenon that the range of exchange rate fluctuations exceeds the range that a country can bear.Usually the situation manifests itself in such a sharp devaluation of Russia.

In the 20s, with the end of World War I, the world economy entered a period of recession, and the currencies of European countries were faltering. Germany, the Soviet Union, and France's marks, rubles, and francs all experienced chaotic periods.The working people of Germany and the Soviet Union were thus plunged into a desperate situation.In the absence of reserves and foreign support, most of the people had to work hard to feed their stomachs.Many people were forced into exile, and even the prestigious nobles were now very poor.But during this period, France staged a wonderful story of successful currency defense.

The franc crisis also started with the First World War.The French government spent 1030 billion gold marks in World War I, which was twice the military expenditure of all the major participating countries in 1913 and 1914.After the end of World War I, there was a gap of 62 billion francs in the French finances, and there were huge loans. In 1926, the exchange rate of the franc began to decline.It is believed that the franc will face the same fate as the Deutsche mark.Joseph Cayo's government changed eight finance ministers in 1926, but none could solve the problem.At this time, Prime Minister Raymond Poincaré came to power.He changed short-term borrowing into long-term borrowing by raising short-term interest rates, raised taxes and cut government spending. At the same time, he borrowed a huge loan from Morgan Bank in New York to supplement the cash of French banks. His series of measures Trust in the franc was restored.Since then, the value of the franc has stabilized, and the economic and political situation has gradually stabilized.This is a well-deserved battle to defend the currency.

(End of this chapter)