Our GDP is 70% of the United States and the population is 4 times its size. Why is our domestic demand not as exuberant as that of the United States?

The modern economy may sound complicated, but it's all about production and consumption.

But it comes down to consumption.

Because there is a demand for production, and consumption is the ultimate demand, so consumption is the ultimate engine of economic development.

In one country, producing to satisfy the consumption of others is called an export-oriented economy.

The construction of factories, ports, transportation and other infrastructure for export, and the subsequent urbanization, is called an economy of investment in labor.

When growth is stagnant and demand is falling in other countries, or when they are insecure about external supply chains and demand production back, there must be enough consumer demand within the exporting country to catch up.

This is called "domestic demand-driven economy".

The so-called East Asian model follows the same path, with export, investment and domestic demand playing the leading role in driving the economy.

In 2021, the contribution of consumption to GDP growth in emerging countries has reached 65.4%.

So a slowdown in spending is not just a sign that people are less willing to spend, it's a sign that the economy is in trouble.

If people's ability and willingness to spend are falling, what about domestic demand? How does the "inner loop" turn?

Then comes overproduction, factory layoffs, rising unemployment, falling incomes, and a further collapse in consumption...

Many experts are always looking for problems from the mentality of the young people, criticizing them for lying down, as if the problems would disappear if the young people's ideas were reversed without the need to reform the distribution mechanism.

This obviously ignores the structural problems of the economy and fails to see the ** recessionary spiral ** that the world is in.

In this spiral, consumption degradation is not only a problem of consumption, low desire is not only a problem of mentality, it is a spiral system of one link against another, mutual cause and effect, and mutual reinforcement:

We are ordinary people who are bound by the trend of The Times. On the one hand, we should try our best to see the direction of the macro trend and make decisions in accordance with the cycle, so as to avoid being dragged into the trap of "fellow villagers don't go".

On the other hand, we should also see the changes of market players and consumer groups. Then you can know how to do business and work in the recession period. It is best to keep warm before the "cold" arrives.

「Whether you want to get consumer spending going, or you want to know what's going on in the world when it's going down, you have to know how it's going down, right?」

Some say black swan events, such as pandemics, discourage contact consumption.

Another example is the Russia-Ukraine war, which caused a huge increase in energy and food prices, and reduced global demand.

However, the epidemic and the war between Russia and Ukraine are just the trigger. The real problem lies in the economic structure. Even if there is no war or epidemic, there will be other black swans, lighting up the crisis.

Objectively speaking, 「the world is at the end of a long debt cycle」.

There are many symptoms of this cycle, but two stand out:

First, the expansion of debt to the end, so the currency can not be issued, liquidity will turn to contraction;

Second, 「when the debt cycle ends and the debt cycle comes, people reduce their consumption in order to pay off their debts.」

The logic behind why money can no longer be overissued is explained in section 2 of this column, which focuses on the effect of the "debt cycle" on consumption.

The characteristic of the debt cycle is that when borrowing, you are good to me and good to everyone; You're having a hard time paying off our debts.

Dalio's video animation, How the Economic Machine Works, makes the following points:

1. An economy is made up of countless transactions;

2. In a transaction, one person's expenditure is another person's income;

3. When you borrow, you have significantly more spending power and others make more money;

4. So the economy spirals in the debt cycle. As debt increases, people spend more and their income increases;

5. The money to borrow appears to come from the bank, but actually comes from your future self -- when the debt comes due, you must reduce your spending to pay it off;

6. During the debt cycle, because you cut spending, others cut income;

7. The economy then spirals downward, with less income and less consumption.

Such a cycle is inevitable, and the decline will not be so smooth, because a significant number of people will default rather than repaying their debts by cutting back on consumption.

In the upward cycle, asset prices rise along with the expansion of debt, but in the downward cycle, asset prices and transactions fall, while debt does not. Even if people sell their houses and reduce consumption, they still cannot pay their debts and are bound to default.

The situation of default becomes more and more, it is called debt crisis. **

The process of the debt crisis is very severe, damaged because of the credit system, no one dare to borrow money, and no one dare to outward investment, market will shrink sharply, so it's not gentle and slow "compression consumption ➜ repay debt", but sharp and short process of "perhaps" debt and assets.

Why do modern economies like to print money to solve problems?

Economist Ma Yinchu once told such a story:

The shopkeeper immediately used it to pay the bill in a rice shop next door. The owner of the rice shop turned around and returned the meat money to the butcher. The butcher immediately went to pay the feed on credit, and the feed merchant hurried to the hotel to return the room money. And so the hundred pieces of silver came into the hands of the storekeeper. At this time, the scholar said, the room is not suitable, asked for the money back and left.

You see, the owner didn't make any money, but everyone paid off their debts. What's the point of this story?

Politics shows that the economy is not money, but the flow of money! **

In the modern economy, who takes on the role of the scholar in injecting liquidity into the market?

Banks!

The bank lends money to the innkeeper, goes around, the innkeeper gives the money back to the bank, there is no more money in the market, there is no inflation, but the debt is actually settled.

What is possible in theory, in reality, is completely different, because the money is not given to the innkeeper.

From the bank's point of view, the innkeeper was too indebted to be trusted, so he preferred to give money to the landlord, who had land, which was the bank's favourite asset.

When the landlord gets the money, he goes to speculate on the real estate. The housing price is becoming more and more expensive. In order to buy a house, the scholar only has a travel budget of one or two silver coins...

So that's what happened. There was a lot of excess money, but it was flowing only between the banks and the landlords.

What is more serious, scholar's money was "the landlord ⇄ * * * * bank" the system to absorb, no money "hotel ➜ m vendor ➜ butcher shop ➜ hotel......"

** This explains why the M2 figure is large, but the market is still short of money, because only money that is floating around can help the economy. **

What's the problem?

Not giving money to the right people.

Therefore, some Western countries bypass the banking system and directly distribute money to the whole population, which is useful instead. It will not have the effect of "all money is equal to no money", because most of the capital flow generated by the lower middle class occurs in the consumer sector.