Wall Street Financial Truth

Chapter 37 How the Common People Protect Their Wealth (7)
However, at present, the latest data on the fiscal deficit and debt owed by the United States have reached astronomical figures. The total debt (corporate debt + private debt + national debt) owes a total of 70 trillion US dollars, and the average American owes 23 US dollars, equivalent to RMB Everyone is a million "negative".Currently, the U.S. currency reserves and bank reserves total $2.7 trillion. Based on the above data, the U.S. financial leverage ratio exceeds 26 times.In contrast, Lehman Brothers had a debt leverage ratio of about 31 times before its collapse, and the federal debt alone had exceeded $14.5 trillion!It is by no means inferior to European debts. Just paying interest every year has to use up more than half of the fiscal revenue.No wonder even Standard & Poor's, which has always been "protecting the calf", had to lower the rating outlook of the US Treasury for the first time at the end of 2011, which was the first time in history.

Such a situation in the United States, that is, in the past few decades, is due to the economic theory of New Keynesianism, which makes the United States have no worries about its national debt. Instead, its creditor "Huang Shiren" wants to plead with "Yang Bailao" , you can’t fail, if you don’t have enough money to spend, I will lend you, so you can spend it “hardly”.

However, the American model cannot be replicated by individual families, let alone by other countries (not to mention that the U.S. itself is trapped in it and cannot get out of it). The European "Pig Five" is a lesson from the past.

Over the years, a common feature of developed countries in Europe and the United States (except for Northern Europe) is that countries have maintained loose monetary policies, with interest rates close to zero or even zero interest rates to inflate credit.As we all know, interest is the embodiment of borrowing costs. Once zero interest, it means entering an era of lawlessness.With the ultra-low interest rates in European and American countries over the years, no matter individuals or enterprises, including the government, are over-indebted, which eventually triggered the highest level of sovereign debt crisis.

In this financial tsunami, the central banks of Europe and the United States further loosened credit by implementing low-interest policies, trying to use the root cause of the crisis to rescue the crisis.What's even more ironic is that many European and American countries also regard this kind of backlash as a sign that the crisis has bottomed out and the economy has regained prosperity.

What's more serious is that at present, many member states of the euro area all rely on the European Central Bank and want to use the central bank's abundant funds to resolve the government's deficit and debt crisis, but its inherent Achilles' heel lies in: in the EU, rich countries (such as Germany, France) and the relatively "poor" "PIIGS" (the so-called five European pig countries - Portugal, Ireland, Italy, Greece and Spain) coexist, as if the poor and the rich live together, Germany and France can still be How long was the kidnapping?I can't help but think of our people's communes back then. After all, we haven't reached communism yet, and it's hard to last for a long time.

We can't help but ask, how far can such a borrowing and consumption model go?At present, the public debt of nearly half of the EU countries has reached an unsustainable level.When one day wakes up, the ECB loses its credit. As long as one of the 16 countries in the euro area refuses to use the euro, the chain reaction of other member states will eventually lead to the disintegration of the euro area, and its debt currency will be completely abandoned.Buffett therefore issued a stern warning: the euro stood on the verge of collapse.The "relying on human assistance" model of some members of the euro zone cannot be maintained for a long time, and the collapse of the euro is not "inconceivable".

However, some European officials claim that the United States is blocking the euro.To be fair, there may be American factors in the short term, but flies do not bite seamless eggs. External factors (short term) are the conditions for changes, and internal factors are the basis for changes.To borrow a common saying, "If you come out to play around, you will have to pay it back sooner or later", can you pass the first day of junior high school and the fifteenth day of junior high school?Isn't the "Hungarian" risk of the European debt crisis beginning to prove?
Like the United States and those countries in Europe, due to long-term low interest rates and continuous loosening of credit, the debt ratio of Canadians has exceeded the international warning line of 145, which has exceeded the high point of 150 (every income of 100 yuan costs 150 yuan), which is higher than that of the United States. The 147.2 before the outbreak of the subprime mortgage crisis was even higher, and it is advancing towards the extremely high point of 160.Some economists frequently issue warnings!Canada's economic crisis has no suspense, just when it will break out.

All in all, European and American countries can completely solve and avoid the global financial crisis only if they completely abandon the consumption model of low-interest loans and living beyond their means, and return to the heavenly way of thrifty housekeeping, food accumulation to prevent hunger, and no pains to reap rewards!Otherwise, the economic crisis will sooner or later lead to a political crisis!

16. Nordic model - return to production and frugal life
Which model has been the most successful so far on this planet?I think that's the Nordic pattern.

The current economic model advocated by the global mainstream, especially in the developed countries of the world, mostly adopts the American model, and its economic theory is based on New Keynesianism: reduce savings to increase income and drive economic growth; "demand" is more important than "supply" "Consumption can drive production; a gold standard is required, and legal tender is desirable; the government can be fully relied on to regulate the economy.

Dozens of years have passed, and under the leadership of this economic model, some developed countries led by the United States have all fallen into "one center, two basic points" one by one - centered on the housing market, with high debt and The unemployment rate is a vicious circle of basic points.

"One center, two basic points", just like the seesaw we played with when we were children, one end is pressed down, and the other end is tilted up.Take the United States as an example. The fiscal deficit and debt consumption of the United States have already reached astronomical figures.But to reduce the fiscal deficit means that the government will reduce expenditure, reduce large-scale basic projects, and reduce personal consumption, so that the unemployment rate will rise further; and the unemployment rate is the biggest killer of the housing market. If the housing market falls further, households with negative equity will become more and more With more and more foreclosures, financial institutions will continue to fall, and all walks of life will also be damaged, and the financial crisis will further deepen.If we try to reduce the unemployment rate, the existing private enterprises will be struggling, and they will all become "presidents" (always laying off employees), and the only thing they can count on is the government.But the government has no money (the Obama administration almost stopped normal operations due to the 2011 budget), so without increasing spending and investing in basic projects, it can only raise taxes and continue to borrow, so the fiscal deficit will definitely continue to rise , the two ends can't be settled.

However, on this earth, the Nordic model is like a bright light in the dark night, pointing out the future direction for us.Nordics believe in traditional economics: regard frugality, hard work and production as virtues; believe that the gold standard suppresses inflation and provides a stable monetary environment, enabling the economy to flourish; governments should strive to assume fiscal responsibility to balance the budget; national policies are generally not excessive Intervene in economic affairs; production can drive consumption; "supply" is more important than "demand" in the relationship between supply and demand, because a good "supply" creates another "demand".

Following this traditional economic model, the Nordic countries have steadily developed production and become a country with the most complete social welfare, the highest per capita GDP, and the richest people in the world through savings and frugality, which has attracted worldwide attention.However, after this economic crisis, the Nordic model has also been questioned. In August 2010, The New York Times published an article titled: "Denmark Begins Cutting Its Enviable Social Security".You can know the meaning from the title, and the article wants to prove the conclusion that has been drawn long ago: How long can the high-welfare society in Denmark last?
However, after reading the whole article, the negative reports that complained repeatedly seemed to open the door to heaven: In Denmark, if you lose your job, you can immediately receive unemployment benefits (equivalent to 80% of the salary before unemployment), provided that you must participate in the job-seeking training program , Unemployment benefits can be received for 4 consecutive years; now facing the global economic crisis, the Danish government can't stand it anymore, so it wants to cut benefits and reduce the period of receiving unemployment benefits from the original 4 years to 2 years!
The article lists a 58-year-old nurse who has been unemployed for four years due to illness. Not only did she receive free medical treatment for one year, she also took 4% of her salary for vocational training, and finally got a job in telemarketing. To catch up with the economic crisis, he is currently receiving vocational training as a secretary with a salary.Faced with government cuts to benefits, the nurse complained about receiving unemployment benefits for only two years.As a result, the United States has questioned how long Denmark's high welfare can last.

In fact, a high-welfare country like Denmark also has Norway, Sweden and Finland in Northern Europe.It can be said that these countries were not as good as the United States 40 years ago, but looking back, after the test of time, how is the situation now?

A friend who was on a business trip to Norway came back and complained that when he was in Norway, he could hardly drink coffee before 10 am, and the coffee shop didn’t open until 10 am at the earliest, and closed on time at 6 pm.On Sundays, all stores are closed. How can this be compared to New York, where people can drink coffee at 5 in the morning, and some chain stores are still open until 1 in the morning, and customers can still drink hot coffee when they go in.

And another friend who is married to Sweden told me that Swedish government agencies and government-affiliated units have a two-month summer vacation from early June to early August every year, especially opera houses, libraries, and museums that are funded by the state. (raised) cultural institution.Private enterprises have three weeks of summer vacation, and another two weeks of vacation during Christmas and New Year.That is to say, in Sweden, the average office worker has at least 6 weeks of paid vacation a year, plus other statutory leave, sick leave, personal leave, etc., and almost half of the year is on vacation.

We have long heard that the Nordic countries are rich and have a good welfare system, but we never expected it to be this good!In summer, parents take summer vacation with their children, leisurely accompany their children to go surfing on the beach, go to resorts to get close to nature, or travel to neighboring countries to cultivate parent-child bonds.

So a question arose.Danes have excellent unemployment benefits when they are unemployed, Swedish office workers enjoy summer vacation (in North America, only school teachers and students have summer vacation), and Norwegians do not seem to put making money first.So where is the market competition? Are the Nordic people too "lazy"?

As mentioned above, the Nordic people have high welfare and do not need to work very much. If they are unemployed, they are still supported by the government.I can't help thinking, the people living there are so happy. They don't know what stress is at all.Isn't this raising lazy people?

If the Nordics are lazy, how do we make sense of this when Denmark, Norway and Sweden are all among the wealthiest countries in the world, with universal health insurance (people don’t have to pay to see a doctor) and state-funded higher education (with free college education), and a comprehensive social security system (to provide for people in old age).

(End of this chapter)