Rebirth of the Industrial Tycoon - Vol 2 Chapter 514
Chapter 514 Economic Zhuge Liang
The four words “financial crisis” are indeed a bit frightening to the economists on the spot.
A financial crisis that involves the entire Asia, in the eyes of economists, is like being chased by a serial killer. Even if you hide at home, you will be scared, and you will be awakened by nightmares when you sleep.
“Chairman Li, this is the right seminar for us. Don’t be kidding me!” someone said.
“I know this conclusion is hard to imagine, but I am not joking.” Li Weidong said with a serious expression, “Let me go back to the three questions that Secretary Chen just mentioned.
The first question is the impact of Thailand’s abandonment of the fixed exchange rate. The current situation is the depreciation of the Thai baht. This is a short-term impact and is also expected.
In the long run, my judgment is that Thailand’s financial system will collapse, which will lead to an economic crisis in the entire country. I predict that Thailand’s economy will go backwards for ten years. ”
Li Weidong’s conclusion once again aroused some quiet discussions at the scene.
Then someone asked: “Chairman Lee, it’s just the devaluation of the Thai baht. Although it will have an impact on the economy, I don’t know that it will make Thailand’s economy retreat for ten years? Then, Thailand’s economic development over the years has not been completely affected. Drifting!”
Li Weidong immediately explained: “Currency depreciation will cause a series of chain reactions, first of all, the debt problem. Thailand’s open financial policy has caused a large amount of foreign debt in its banking system and enterprises.
Of these foreign debts, only 10% are national debts, the others are borrowed by the private sector, and half of them are short-term debts. If the Thai baht depreciates, teachers should be very clear about the risks of these short-term debts. ”
Of course, foreign debts are borrowed in foreign currencies, such as borrowing dollars or Japanese yen. If you borrow Thai baht, the Bank of Thailand will print the money directly.
Since the borrowing is in U.S. dollars or Japanese yen, you must also use U.S. dollars or Japanese yen when repaying.
The depreciation of the Thai baht means that the amount Thailand needs to repay has increased.
For example, borrowing 100 US dollars, according to the exchange rate of 1:25, it is 2500 baht. Later, the Thai baht depreciated, and the exchange rate became 1:50, so if you return 100 US dollars, you will have to spend 5000 baht to pay back.
During the Asian financial crisis, the depreciation of the Thai baht more than doubled, which directly doubled Thailand’s foreign debt.
The increase in external debt alone is not the most serious. The most serious is that half of these external debts are short-term debts, that is, the amount of repayment will double in the short term.
Borrowing for more than 30 years, repaying twice, and borrowing for more than 30 days, repaying twice, are two opposite situations.
The sudden doubling of tens of billions of short-term debts was beyond Thailand’s ability to resolve. As a result, the entire financial system collapsed instantly.
Short-term debt is not only a problem in Thailand, but also a problem in Southeast Asia.
After entering the 1990s, several major Southeast Asian economies were fooled into opening up the domestic financial industry in a short period of time, but did not open step by step.
This kind of de-emphasizing policy has made it easier for Southeast Asia to obtain funds, but it has also created a large amount of short-term debt.
Emerging markets are prone to short-term speculators. This truth is actually easy to understand.
For example, in the stock market, those investors who make new shares must be short-term, and they will leave when they hit the daily limit. Only those blue-chip stocks with stable performance will be held for a long time.
In the eyes of investors, the emerging markets in Southeast Asia are just listed stocks, so everyone is playing short-term. Related debts are also short-term debts, with high interest rates, and short-term returns are pursued.
In contrast, a large mature economy like the United States has issued Treasury bonds for 30 years, and the annual interest rate for 30 years is only more than two points, but there are still many people who hold them on a large scale. This is the so-called “blue chip stocks” with stable performance.
All economists present are aware of the impact of currency depreciation on short-term foreign debt.
But someone immediately said, “There are actually many ways to solve short-term foreign debt, such as raising the repayment interest rate and extending the repayment period; another example is borrowing new debt to repay old debt. As long as this period of debt crisis can be overcome, it should not be enough. It is even more nonsense to bring the entire financial system down and the economy to go backwards ten years.”
“You are right, but these methods all need money to solve. That is, Thailand needs a foreign fund to help them resolve the debt crisis. The problem is that this requires tens of billions of dollars. Who can afford the money? ?” Li Weidong asked.
“Although tens of billions of dollars is a lot, the United States can still make it.” The man continued.
“This is financial aid, not investment.” Li Weidong said with a smile.
People around nodded their heads. Based on what everyone knows about the United States, if it is an investment, it is profitable. Americans may be willing to pay.
But in terms of financial aid, Americans have always been modest gentlemen, who talk and do nothing.
The same is true of the facts. After the Asian financial crisis detonated in Thailand, China assisted Thailand with 2 billion U.S. dollars, but the United States did not give any help to its former Vietnam War allies. Instead, it asked Thailand to disclose its 30 billion U.S. dollars in foreign exchange commitments.
The person then retorted: “Even if the United States doesn’t make a move, there is still Japan! Japan has a lot of investment in Thailand. Large companies such as Toyota and Honda have set up factories in Thailand. Japan should not just follow Thailand. The economy collapsed.”
Li Weidong shook his head: “My opinion is on the contrary. I think that in the face of Thailand’s debt crisis, Japan will not only not help, but will also fall into trouble and withdraw funds from Thailand!
Once it loses Japan’s financial support, it is inevitable that Thailand will fall into an economic crisis. With the debt of tens of billions of dollars down, with the size of Thailand’s economy, it will really go back ten years! ”
Li Weidong organized some thoughts, and then said: “The reason why I made this judgment is mainly based on Japan’s own financial system, which also has problems. Especially Japanese banks are in crisis.
The crisis of the Japanese banking system can be traced back to the housing bubble in Japan. The bursting of the Japanese real estate bubble that year caused a huge problem of non-performing loans in the Japanese banking system, many of which eventually turned into bad debts.
But in recent years, the yen has been appreciating, and the Japanese banking industry has relied on overseas loans to obtain huge profits, thus concealing the problem of non-performing loans caused by real estate.
The inflow of overseas loans from the Japanese banking industry is mainly in Southeast Asia, and most of them are short-term debt. When Southeast Asian financial markets encounter problems, Japan cannot continue to make profits from overseas.
If overseas loans cannot be profitable, Japan will inevitably withdraw funds from overseas to ensure that the country’s capital rate is sufficient, otherwise Japanese banks will go bankrupt due to the bad debts of the real estate bubble.
Take Thailand as an example. Funds are needed to tide over the difficulties. If Japan withdraws the funds, it would be equivalent to making a profit for Thailand. At that time, Thailand will inevitably fall into an economic crisis. ”
Li Weidong’s remarks once again caused a low-pitched discussion, but this time there was no rebuttal. Although what Li Weidong said is an inference, all of it conforms to the law of economic operation.
Secretary Chen did not have such a deep understanding of economics. He looked at Situ Jian next to him, as if asking what Li Weidong said.
Situ Jian immediately replied in a low voice: “Analyzed from the perspective of economics, there are possibilities for what Li Weidong said.”
Secretary Chen nodded suddenly, with Situ Jian’s words, he knew how to report to the leader.
At this time, Professor Huang Liwei said; “Chairman Li, according to your inference, Japan will also be severely affected?”
Li Weidong nodded: “Not only Japan, but the entire Asia-Pacific economy will be affected by this. Because Japan’s overseas investment is not just in Thailand.
Malaysia, Indonesia, the Philippines in Southeast Asia, and South Korea in Northeast Asia all have Japanese investment, and they all face the risk of being withdrawn by Japan.
Although these countries have not fully opened up their financial fields like Thailand, their financial system is more or less similar to Thailand. Such as fixed exchange rates, high interest rates, or short-term foreign debt.
After the financial collapse in Thailand, it is likely to cause a chain reaction, which will affect the financial systems of these countries, so now we return to the third question mentioned by Secretary Chen.
To talk about how Thailand’s abandonment of a fixed exchange rate will affect Asia and the world, my conclusion is that this will detonate an Asian financial crisis! ”
……
The development of real estate has always relied on banks. Real estate companies borrow money from banks to build houses, and then sell the houses to repay the loans. This method similar to the empty glove white wolf is not only used by Chinese real estate developers. This is how real estate developers all over the world operate.
Under this set of operating mechanisms, real estate companies are in a state of high debt. For real estate companies, what they worry most is not that the house cannot be sold and the bank will not continue to issue loans.
So when the Japanese real estate bubble burst, the biggest losses were not real estate developers, real estate investors, nor ordinary people, but banks.
For real estate developers, it was originally borrowed money to develop real estate. The real estate bubble burst, and the big deal would go bankrupt. The same is true for real estate investors. They all use loans to speculate in real estate.
However, the bank is the one who actually pays for the money. All the losses incurred in the real estate bubble will eventually be passed on to the bank.
The Japanese real estate bubble burst, and the resulting non-performing loans were eventually borne by the banks, and bad debts gradually formed.
With the scale of Japanese real estate at that time, no economy in the world can absorb the non-performing loans generated by the burst of the bubble.
However, these non-performing loans did not immediately detonate the Japanese economy.
The reason is that the Bank of Japan made profits by issuing loans overseas, offsetting the pressure of non-performing loans.
Because the interest rate of the yen was low at that time and the interest rate of the emerging markets in Southeast Asia was relatively high, investors withdrew capital from Japan and invested in Southeast Asia to engage in short-term arbitrage and obtain huge profits. In this process, the Bank of Japan also made a profit.
The economy of Tokyo, Japan, has also been advancing all the way, reaching a peak in 1995, as if it had not been affected by the bursting of the real estate bubble at all.
The Japanese economy at the time was not driven by real estate.
The troika driving economic growth is investment, consumption and export.
The contribution of real estate to the economy is mainly investment. As a developed country, Japan completed domestic infrastructure construction in the 1960s and 1970s, and Japan’s economy has long since been driven by investment.
Japan’s consumption stations account for more than 60% of GDP, while the rest depends on exports and government spending. The contribution of investment to the Japanese economy is almost negligible, and sometimes even drags down economic growth.
For developed countries like Japan, as long as there is no change in consumption and exports, the economy can be stable.
So after the real estate bubble burst, the Japanese economy has not shrunk, and it has maintained rapid growth for several years.
Someone may argue that the economic growth after the real estate bubble in Japan depends entirely on the appreciation of the yen.
But in statistics, statistics of a country’s economic growth rate are calculated in accordance with the national currency, and inflation factors are also excluded.
For example, when the National Bureau of Statistics publishes economic data, it uses RMB to provide data, and only when comparing data with foreign countries will it be converted into US dollars.
Therefore, the appreciation of the yen does not affect the calculation of Japan’s economic growth rate in yen. From a statistical point of view, Japan’s economic growth in those years is real.
Although Japan’s economy is growing, the non-performing loans caused by the bursting of the real estate bubble cannot be digested. By 1995, the Japanese banking system had already had nearly six trillion yen in bad debts. According to the exchange rate at the time, It will cost more than 700 billion U.S. dollars.
The 700 billion U.S. dollars in 1995 was enough to cause a crisis in the Japanese banking system, but also in 1995, a major event occurred in Japan, that is, the Great Hanshin Earthquake.
After the earthquake, the yen began to depreciate, which stimulated Japan’s exports. Japan’s economic situation appeared to be very good, and funds began to flow back to Japan, and the Japanese banking industry took a sigh of relief.
The Great Hanshin Earthquake caused the depreciation of the yen and stimulated Japan’s exports, making the Japanese economy peak in 1995.
The economic circle generally believes that the Japanese economy is developing in a positive direction. The Japanese government is also very confident in raising the consumption tax from 3% to 5%.
From the perspective of future resumptions, Japan is simply a mystery operation. Not only Japan, but also the countries that have been harmed by the Asian financial crisis are constantly fainting.
However, this was Zhuge Liang’s view after the fact. According to the analysis of economists at the time, the Japanese economy was in a growth period, and the situation in Southeast Asia’s emerging markets was also very good. At this time, who would believe that it was 20 years of loss?
Until the Asian financial crisis broke out, Japan’s banking problems finally broke out. In November 1997, Japan saw the first bank bankruptcy incident. The reason was the bad debts caused by the bursting of the real estate bubble.
The bankruptcy of peers also made other banks vigilant. They accelerated the recovery of funds from Southeast Asia, and the withdrawal of loans from the Bank of Japan created a sharp credit lock in Southeast Asia and exacerbated the Asian financial crisis.
Japan pierced the real estate bubble that year, and capital cannot find investment channels in Japan, so it can only move to emerging markets, thus creating the economic growth of the so-called “Asian Tigers”.
However, it was also the bad debts caused by the real estate bubble, which allowed Japan to withdraw overseas capital, prompting the Asian financial crisis to be out of control.
So the source of the Asian financial crisis is actually Japan. With the outbreak of the Asian financial crisis, financial predators such as Soros are just a catalyst, and the final pot has to be Japan’s back.
……
Li Weidong put forward the conclusion that the Asian financial crisis is about to break out.
However, most of the economists at the scene did not agree with Li Weidong’s views.
Although Thailand’s economy has grown rapidly in recent years, it is after all an economy of 180 billion U.S. dollars, and its economic proportion is not high in the Asian economy.
In a mere Thailand, if you adjust its monetary policy, it will trigger an Asian financial crisis. This is too big a fuss!
Moreover, Thailand has no irreplaceable industries. Thailand’s life and death have no impact on the Asian commodity supply chain.
In the next second, several people stood up, intending to question Li Weidong, or to refute Li Weidong’s views.
The few who were going to ask questions did not expect that there would be so many people in the same way. They were all stunned by each other, and then they began to humbly.
“Professor Liu, you can speak first!”
“Academician Wu, I think you stood up first, so let’s talk about it first!”
“My movements are a little slower than Professor Qian, so let’s Professor Qian speak first!”
Li Weidong looked at several people, either professors or academicians, all of them were well-known domestic economists.
In an instant, Li Weidong’s heart was filled with pride.
“This is to fight against the confucians! I have become an economic Zhuge Liang!”
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(End of this chapter)