Dreaming back to 1949, the great powers were there to deceive us

Dai Zong kept deducing in his mind, and after a long time he spoke again,

"Things don't develop in isolation. If you expand M2, it will inevitably affect M1. Too much money will inevitably lead to inflation. This is an iron law!"

Hu Zhenhua nodded slightly to show his agreement.

Economics isn't a complicated concept; it's all about supply and demand. Antiques are valuable because they're scarce.

Why are house prices rising? Because supply exceeds demand!

Why are house prices falling again? Because of oversupply!

What should we do if our country wants to develop and our nation wants to revitalize? Expanding M2 is a historical necessity!

If ordinary people want to preserve and increase the value of their money, it is unrealistic to keep it in the bank. You can buy land, gold, silver, or even a pile of copper and keep it at home, which will preserve its value better than keeping it in the bank!

Hu Zhenhua used to hate the decision-makers for the large-scale expansion of M2, but now that he is in a different position, he can understand this helplessness.

Hu Zhenhua took a sip of tea slowly and said,

"We lend money to businesses! Most of the time, they use the loans for production. For example, a coal mine takes out a loan to mine coal. Although M2 increases, coal production also increases!"

Dai Zong immediately asked,

"If the company that borrowed the money was a textile factory, it would use the funds to purchase large quantities of cotton, which would definitely cause cotton prices to rise!"

Hu Zhenhua immediately retorted,

"If cotton prices rise to a point where ordinary people can profit from it, then next year, ordinary people will plant more cotton. When production increases, the price of cotton will naturally fall!"

Although Dai Zong was refuted, Guan Tianpei took over the conversation and said,

"If more cotton is planted, food prices will rise again, which will fuel inflation."

Hu Zhenhua smiled and said firmly,

"We must accept appropriate price fluctuations! Reasonable inflation contributes to economic growth!"

"Ridiculous! How can inflation help economic growth?"

The person who spoke was He Baoyi. Her eyes were filled with anger, and she obviously thought what Lao Hu said was heresy.

The idea that inflation is good for economic growth was formed in the mid-20th century, which is exactly the period now.

It is still in its infancy. Not only does He Baoyi not understand it, but most economists in the world don’t understand it either!

Hu Zhenhua did not expect that common sense in later generations would not be recognized. He thought about it and said,

"First, moderate inflation can stimulate consumption. When people expect moderate price increases, they tend to consume in advance. For example, if consumers know that commodity prices may rise slightly next year, they will buy goods now, which will increase consumer demand in the market. When companies see increased demand for their products, they will expand production, thereby driving economic growth.

Secondly, for businesses, a certain amount of inflation can lead to higher product prices. Without a corresponding increase in costs, profits can increase. Increased profits free up funds for expanding production, innovation, and R&D, such as hiring more employees and upgrading equipment. This contributes to economies of scale and improved efficiency.

Finally, from a debt perspective, reasonable inflation reduces the debt burden. If you borrow money, the actual value of your future debt repayments decreases as inflation occurs. The same is true for businesses and governments. Under reasonable inflation, the actual cost of debt decreases, which encourages businesses and governments to engage in more economic activity and promotes economic growth.

He Baoyi suddenly stopped talking!

She couldn't refute the three points that Lao Hu said.

Economics is very complex and cannot be explained clearly in one conversation.

Hu Zhenhua continued,

"In fact, I personally do not support a large-scale expansion of M2. If the growth rate of currency does not match the growth rate of the economy, it will easily trigger inflation. However, at this stage, we must expand M2 for two reasons!"

"First, inflation has a lag. For example, if we inject 100 billion yuan into the market today, it will take several months or even a year or two for it to be reflected in prices. If we can take advantage of this time lag and create a large amount of wealth, we can stabilize inflation."

"Secondly, my country's national conditions are completely different from those of the West! The West is a high-welfare society with comprehensive systems for medical care and pensions, so people have no worries and can spend money freely! Therefore, the M2 in the West generally does not exceed its GDP. But my country is different. We are poor and blank. Even with the advantages of the socialist system, it is impossible for us to achieve Western welfare standards. Therefore, since ancient times, ordinary people have liked to save money. Just wait and see, a considerable portion of our M2 will be composed of residents' long-term deposits!"

Let’s first look at a set of data. In 2023, my country’s M2 was 292.27 trillion yuan, GDP was 126.06 trillion yuan, and residents’ long-term deposits were 136.99 trillion yuan.

In the same year, in the United States, M2 was 20.86 trillion US dollars, GDP was 27.36 trillion US dollars, and the deposit balance owned by households and non-profit organizations was around 17.786 trillion US dollars (please note that this is not a long-term deposit).

From this set of data, we can see something very interesting. my country's M2 is more than twice its GDP, while the US's M2 is only equivalent to 2% of its GDP.

Prices in our country are stable, while the United States is suffering from severe inflation.

Isn’t it a bit counterintuitive?

One of the important reasons is that residents’ long-term deposits account for an important portion of my country’s M2, and this part of funds is not circulated in the market.

To activate this part of funds, the state has introduced a series of policies, such as bringing home appliances and cars to the countryside, and settling in through housing purchase, etc. These policies have some effect, but they only treat the symptoms and not the root cause, because the vast majority of people do not have social security. If they do not save some money for retirement, what will they do in the future?

Guan Tianpei put down the pen in his hand and said,

"Mr. Hu, so you believe that in order to rapidly develop the economy, we must adopt an approach similar to that of the Chongming Development Bank, where the central bank provides loans for large-scale public projects and then recoups the funds through the profits?"

"That's right!"