What are the causes and solutions of the financial crisis?

The causes of the 2008 financial crisis

Under the background of economic globalization, the imbalance of international economy will lead to the redistribution of international capital on a global scale. In a sense, the international economic imbalance and the defects of the international monetary system are the preconditions for the outbreak of the financial crisis, while the attack of international hot money is the realization condition for the outbreak of the financial crisis. Judging from the current international situation and China's domestic situation, the preconditions for the outbreak of financial crisis have been met, so preventing international hot money attacks is the primary goal of formulating China's current macroeconomic policy.

Keywords: financial crisis, international economy, international monetary system and international hot money

Whether the financial crisis is caused by external factors or internal factors, there have always been two opposing views in academic circles: conspiracy theory and legal theory. Conspiracy theory holds that the financial crisis is caused by premeditated and planned attacks on the economy and is caused by external factors, especially after the financial crisis in Southeast Asia. Legal theory holds that the financial crisis is the law of the economy itself and is caused by internal factors. The theory of three generations of financial crisis is basically the theory of recognition law. With the improvement of financial supervision technology, the possibility of a country's financial crisis caused by problems in supervision or control becomes smaller; With the increasing trend of economic globalization, the modern financial crisis basically shows that under the condition of international economic imbalance, international capital is driven by interests and the distorted national monetary system leads to the outbreak of regional financial crisis, so in essence, the nature and causes of financial crisis have changed. Based on the existing research, this paper analyzes the causes of the financial crisis from the perspective of international economy.

I. International economic imbalance

Huang Xiaolong (2007) [1] believes that the imbalance of international payments leads to the imbalance of international monetary system, and the virtual economy leads to excess liquidity, which in turn leads to global economic imbalance and financial crisis. Huang Xiaolong studied the financial crisis from the external factors of China. However, fundamentally speaking, the root of global economic imbalance should be the imbalance of the real economy, and the imbalance of international payments is only the appearance of the imbalance of the real economy. The imbalance of the real economy leads to the international flow of monetary capital, and the international capital flow leads to the expansion and depression of the virtual economy, thus forming a liquidity shortage and eventually leading to the financial crisis. Therefore, the imbalance of the global real economy is a necessary condition for the financial crisis, and the liquidity shortage caused by the virtual economy is a sufficient condition for the financial crisis.

Throughout the history of financial crisis, financial crisis is always accompanied by regional or global economic imbalances. 1929 before the financial crisis broke out, the international economic structure changed greatly, and Britain's dominance in the world gradually tilted towards the United States and Europe. In particular, the rapid economic growth of the United States shows a trend of replacing Britain's hegemonic position. This international economic imbalance laid the groundwork for the subsequent financial crisis. At the end of the 20th century, the trend of regional economic integration was faster than economic globalization, and the economic ties between Latin American countries and the United States made the "butterfly effect" of Latin American countries on the American economy stronger than other countries. In the 20 years at the end of the 20th century, the economic structure in Latin America was unbalanced, which often manifested as the financial crisis in Latin American countries. The imbalance of economic structure in Europe, America and Japan is also the root cause of the financial crisis in Europe, America and Japan. When the regional or global stable economic structure is broken, the new economic balance is often driven by the financial crisis. 1992 the European financial crisis originated from the rapid economic development after Germany's reunification, which broke the economic balance between Germany and the United States and between Germany and other European countries. 1990 Japan also achieved a new economic balance because of the financial crisis after the economic balance between the United States and Japan was broken.

Regional or global economic imbalance will lead to the redistribution of international capital within a certain range. Under the background of regional economic integration and economic globalization, the influence of a country's macro-policy may be regional or global. In the short term, the international economy is relatively balanced at a certain point, and the total amount of global capital and demand is certain. When a country's economy changes, it will cause corresponding changes in international capital and demand in different countries. If it is a small economy, its influence is only regional, if it is a big country, its influence is global. When the economy of a big country becomes stronger, it will attract international capital to the country and lead to capital outflow from other countries. When the capital flows out to a certain extent, there will be a shortage of liquidity, and the financial crisis will change from possibility to inevitability. The signal of this change is the high interest rate policy of big countries or the strong monetary policy of big countries. For small economies, when the economy becomes stronger, it will attract the inflow of international capital. When the inflow of international capital is large, after the country's real economy absorbs international capital saturation, international capital will merge with the country's virtual economy, thus promoting the economic bubble. When the virtual economy is seriously deviated from the real economy, international capital will quickly retreat, which will lead to the transition from excess liquidity to tight liquidity in small countries and lead to the outbreak of financial crisis.

From the formation path of the financial crisis caused by international economic imbalance, we can see that the international economic imbalance is manifested through the balance of payments, and the adjustment of the balance of payments is carried out through the international monetary system. If we have a perfect and effective international monetary system, we can completely avoid the mandatory and destructive adjustment of the international economy, that is, we can avoid the financial crisis. The actual international monetary system is manipulated by big countries, so the international economic imbalance will be further distorted and amplified.

Second, the distortion of the international monetary system

Xu is a scholar who attributed the financial crisis of developing countries to the inherent defects of the international monetary system earlier in domestic academic circles. Xu (1999) [2] believes that on the one hand, order weakens the international monetary system hovering between reform and maintaining the status quo; On the other hand, the weak position of developing countries in international trade, investment and debt; Developing countries under double constraints have to swallow the bitter fruit of the financial crisis again and again, and the inherent defects of the existing international monetary system cannot escape the blame. That is to say, the international monetary system follows the basic principles and ideas of the Bretton Woods system when mediating the international balance of payments imbalance, while countries lose their original order and discipline when formulating monetary policies to coordinate the international economic imbalance, so the current international economic imbalance is amplified and aggravated by the current international monetary system.

After the collapse of the Bretton Woods system, the existing international monetary system is loose. Although the role of the euro and the yen in the international monetary system has gradually increased, the diversification of reserve currencies can not effectively solve the Triffin dilemma, but only disperses contradictions, that is, the status of reserve currencies is both domestic and international. As a reserve currency, countries' macroeconomic policies based on domestic macroeconomic conditions will inevitably contradict the requirements of the world economy or regional economy, thus leading to instability in the foreign exchange market and turmoil in the financial market. Countries that peg or peg to a certain reserve currency are not only affected by the monetary policy of the reserve currency countries, but also by the intersection of monetary policies of many countries. Changes in exchange rates and interest rates between reserve currencies have greatly enhanced their influence on developing countries, making the foreign exchange market more unstable and turbulent. This influence can be divided into regional and global. In view of the special status of the US dollar, the impact of changes in US economic policies may be regional or global.

Taking the US dollar as an example, the value adjustment of the US dollar is realized through the adjustment of the US dollar interest rate. It is impossible for the Federal Reserve to take into account the macroeconomic situation of countries (regions) that are linked to the US dollar or use the US dollar as reserves when setting the US dollar interest rate. Therefore, when the US dollar interest rate is adjusted, it will often have an impact on other economies, especially those countries and regions that are closely linked to the US economy or whose currencies are linked to the US dollar [3]. First of all, the international monetary system based on the US dollar is not perfect. No matter whether the floating exchange rate policy or the fixed exchange rate policy is adopted, the American economy affects all countries closely related to its economy and the changes of their currencies. If the floating exchange rate policy can abide by the discipline of monetary policy making under the monetary system, then there will be no unstable speculative attacks in the world financial market, and there will be no turmoil in the money market or even a financial crisis caused by it. Because of the contradiction between the autonomy of making monetary policy and the correlation of economic globalization, the current monetary system can't guarantee the discipline of the US dollar under the premise of floating exchange rate, so a country's macro-policy will lead to the turmoil in the money market of economically related countries and the financial crisis catalyzed by speculative capital. As far as the current situation is concerned, although the Bretton Woods system has collapsed, compared with emerging market countries and developing countries, the appreciation or depreciation of the US dollar will still cause strong economic fluctuations in these countries. When the American economy is prosperous, the appreciation of the dollar will lead to capital outflow; When the American economy is depressed, the depreciation of the dollar will lead to inflation in these countries.

From the above analysis, we can see that the current international monetary system retains the ideas and principles of the original international monetary system, but loses the original order and discipline. Powerful economies can use this system to pass on the financial crisis and get more profits without having to bear too much responsibility.

Third, the attack of international hot money

International economic imbalance is a prerequisite for the financial crisis, and an imperfect international monetary system will aggravate it. However, the initiator of the financial crisis is international hot money. After the collapse of the Bretton Woods system, the financial crisis could not be separated from the attack of international hot money. 1992 during the European financial crisis, Soros obtained a loan of 1 :20 through a deposit. In a short month, he sold the pound equivalent to $7 billion and bought the mark equivalent to $6 billion, which forced the pound to depreciate sharply and made a net profit of/kloc-0.5 billion dollars after paying off the loan [4]. 1994 before the Mexican financial crisis, a large number of international hot money continued to enter the Mexican securities market. Among the foreign capital absorbed by Mexico, securities investment accounts for 70% ~ 80%. However, in more than 40 days after the assassination of the Mexican presidential candidate, the withdrawal of foreign capital 1000 billion dollars directly led to the outbreak of the Mexican financial crisis [5]. 1997 the southeast Asian financial crisis was also the first time that international hot money attacked the Thai baht, buying low and selling high, and skillfully using financial derivatives to obtain high returns.

According to the IMF's statistics on international hot money, the international short-term capital in the early 1980s was $3 trillion, which later increased to 7. 2 trillion, equivalent to 20% of the global gross national product that year. At the end of 2006, the total assets managed by global hedge funds alone reached 1.43 trillion US dollars, an increase of about 6 times compared with the end of 1.996. The investment strategies of hedge funds are also constantly enriched, from the initial "short selling+leverage" strategy (market neutral funds) to a single strategy (including arbitrage, direction, event-driven, etc.) and other investment strategies. ), multi-strategy (including emerging markets, mergers and acquisitions, etc.). ), fund funds and so on. Its risk characteristics are also diversified, including macro hedge funds with high risks and high returns, and market neutral funds with low risks but relatively stable returns. Since 1990s, the most striking feature of international capital flow is that the excessive flow of international capital has caused the instability of national, regional and even global economic development, and huge international monetary capital is bound to make profits in various countries and regions in the world.

Why can international hot money destroy a country's financial system? As we all know, the scale of international hot money is large, and it is fully capable of influencing and shortening the financial cycle of the attacked countries. Financial cycle refers to the natural process of a country's financial market from prosperity to depression. When international hot money enters the attacked country, it will affect the changes of a country's interest rate and exchange rate, thus accelerating the financial market from rational development to irrational prosperity [6]. According to the self-realization principle of financial market psychological expectation, when a large amount of international hot money enters a country, even if the country's economic development is average, it will promote the rapid development of financial economy with a large amount of capital entering. At the same time, under the situation that international financiers master discourse hegemony, they consciously exaggerate the achievements or problems in the development of the attacked countries in order to produce positive or negative psychological expectations. From the actual situation of Latin American countries and Southeast Asian countries, economic achievements are generally touted by "economic miracle" and "new development model", and then the problems in the economy are exaggerated by "unsustainable" and "facing collapse". In the whole process, the premeditated entry and exit of international hot money will lead to the collapse of the financial market. During the financial boom, international hot money skillfully used financial derivatives to earn high profits, and it can also use the financial crisis to earn high profits or acquire high-quality capital of crisis countries, thus controlling the economic lifeline of the attacked countries. This is the fundamental reason why international direct investment (FDI) bought high-quality assets of crisis countries at low prices after the financial crisis broke out in emerging market countries, forming new economic colonialism.

Fourth, China's measures to prevent aggressive financial crisis.

After China's stock market went from skyrocketing to plunging, and China's real estate market experienced a wave of upsurge to wait and see, has China's economy entered an inflection point from prosperity to crisis? Will there be a financial crisis in China? From the economic appearance, China's economic operation is still characterized by excess liquidity, inflation and expectation of RMB appreciation. From the perspective of economic essence, there are some problems in China's economic operation, such as lagging industrial structure adjustment, weak independent innovation ability of technology, imperfect financial market and so on. These phenomena and problems are caused by both external and internal factors.

At present, the characteristics of global economic imbalance are more obvious. First, the American economy entered a depression period, and the subprime mortgage crisis made it worse, while the economies of the European Union, Japan, China and Russia continued to grow. Secondly, the proliferation of dollar issuance has led to the continuous depreciation of the dollar against the euro and RMB, which has put other countries under inflationary pressure. Third, the scale of international hot money flowing around the world is growing. In order to revitalize the economy, the United States has adopted a monetary policy of cutting interest rates, and the dollar is also rapidly depreciating against other currencies.

Since 2005, there has been a spread between RMB and USD in China. In February 2006, the spread reached 3%. After the inflow of overseas capital, it is often converted into RMB and then lent. Income can not be measured by deposit interest rate, but by loan interest rate. 1 year benchmark loan interest rate is 7. 47%. If the annual appreciation of RMB is expected to be 5%, the international hot money will return to close to 13. If international hot money does not take the form of lending, but directly invests in China real estate or stocks, its yield will be higher. In 2007, the profit from investing in China real estate was not less than 30%, and the Shanghai Composite Index rose by 96. 7% that year.

The expectation of RMB appreciation and the high return of foreign hot money investment in China have attracted a large number of foreign capital to enter China through various channels. Domestic scholars have different calculations about how much international hot money entered China in 2007. Through simple calculation, the foreign trade surplus and foreign direct investment are subtracted from the added value of foreign exchange reserves. In 2007, the international hot money entering China through various channels was nearly $80 billion. The inflow of $80 billion of international hot money can fully explain the phenomena of excess liquidity, housing and stock market bubbles, and the current inflationary pressure in China. As long as the expectation of RMB appreciation exists, international hot money will not be taken away. The fundamental reason why the expectation of RMB appreciation still exists is the sustained growth of China's real economy, which shows that China's international trade surplus still exists, and the prices of non-tradable goods in China are far lower than those in developed countries. What international hot money urgently needs to do now is to continue to raise the price of non-tradable goods in China, flee at an appropriate time, detonate the financial crisis in China under the herd effect, and then international capital will come back to buy high-quality capital in China.

In order to effectively prevent the above-mentioned aggressive financial crisis, China must first strictly control the irrational development of the virtual economy, quickly reduce the bubbles in the property market and the stock market, and trap international hot money to stimulate the growth of the real economy. There are two ways to trap international hot money: one is to turn international hot money from short-term profiteering into long-term normal profit, so as to reduce the cost of utilizing foreign capital and let foreign capital serve China's economic construction. The second is to establish long-term psychological expectations and leave foreign capital in China; Among them, it is very important to maintain the sustained growth of China's real economy. Third, reduce China's foreign exchange reserves in a planned way, especially in the form of national debt, convert foreign exchange reserves into tangible assets, realize the preservation and appreciation of foreign exchange, and adjust the international economy with foreign exchange reserves to make it conducive to the sustainable development of China's economy. Finally, strengthen the control of cross-border capital and actively intervene and supervise short-term international hot money.