If the monetary policy and fiscal policy are free to talk about, there will really be more, so here I will pick the most common questions for newcomers to learn the fundamentals and briefly talk about them. I still recommend "Macroeconomics" to those who want to study hard . Compared with "Money and Finance" , a lot of content is written in the book, and it is very detailed.
Monetary policy is set by the central bank and fiscal policy is set by the Ministry of Finance. China's central bank and Ministry of Finance are both controlled by the state, so it can be seen that the two departments cooperate tacitly, but the United States is different.
The central bank of the United States, that is, the Federal Reserve (Fed) is independent and not controlled by the government, and the Federal Reserve is actually an investment bank (OMG will tell you about investment banks and commercial banks in the next section. This content is very important, and there are many pitfalls in TOT ), there are many families behind it, including the well-known Rothschild family (ps: Please Baidu this book for those who think of "Currency War" at this time, and see what Baidu Encyclopedia said in the last few paragraphs) , while the U.S. Treasury Department is controlled by the government. The most obvious thing you can think about is that Trump often criticizes the Federal Reserve, saying that the Fed has made interest rates too high. Trump’s own twitter crazily diss Powell and Powell is still sitting firmly in the position of Chairman of the Federal Reserve , and will reply to Trump a few words during the press conference.
Back to the topic, monetary policy is generally related to the amount of money. For example, cutting interest rates is equivalent to taking more money out of commercial banks and putting it into the market. Fiscal policy is related to tax increases and tax cuts, such as Some time ago, I saw the "tax reduction and fee reduction" sign at some bus stops, which is equivalent to paying 500 personal income tax, but now I only need to pay 300, and the excess is directly given to the workers for their own disposal.
If a country's economy is not developing well, it will give priority to adopting monetary policy before using fiscal policy. Generally speaking, the two policies will cooperate, but the United States is special. The interests of the Federal Reserve and Trump have conflicted in the past two years, so we have seen such a chaotic situation in the US policy (I...don’t worry, this involves financial history. The history of the Federal Reserve, and the 2008 financial crisis, etc., I... I will slowly make up TOT).
When we study foreign exchange, the most common thing is monetary policy. After all, foreign exchange is the currency exchange between countries. Monetary policy affects more internationally, and fiscal policy affects domestic.
There are many tools for monetary policy, among which QE is a relatively common one. The Federal Reserve used QE after the financial crisis in 2008. Now the EU is also launching QE. It is divided into the following steps
1. RRR cut 2. Interest rate cut 3. Asset purchase 4. Printing money
The RRR cut is to reduce the statutory deposit reserve ratio and the excess deposit reserve ratio. Combining what I have said before, commercial banks and other financial institutions will pay the central bank a sum of money in proportion to their assets, which is the deposit reserve. The ratio of its own assets is the deposit reserve ratio. The central bank will give a certain value to this ratio. For example, it is 5%. Then 5% is the legal deposit reserve ratio. All commercial banks and other financial institutions must meet this ratio. , otherwise you will be fined a lot of money. Generally speaking, commercial banks and other financial institutions will reserve more money than the statutory amount, that is, excess reserves. Generally speaking, RRR cuts will adjust the excess deposit reserve ratio.
The interest rate cut is the most familiar to everyone. It was mentioned in the previous article on interest rate resolution, so I won’t repeat it here.
Asset purchase means that when the market economy is really bad, the central bank will take out the money by itself to buy the equity bonds of certain companies and become shareholders of the company. Normal operation and development during the boom are peer-to-peer assistance, while interest rate cuts are a general stimulus to all industries.
Printing currency is a method that will never be used unless it is absolutely necessary, because assuming that there is 1 share of money in the market, and I print 1 share of money and deliver it to the market, then when the social output does not change, the price of my purchases will increase. Doubled, the money in my hand will be directly depreciated by half, which will bring the most direct inflation. This is the case with the 4 trillion yuan that our country put into the market through the credit business of commercial banks in 2008, which is a no-brainer.
Another tool for monetary policy is the TLTRO used in Europe. This is called a targeted long-term refinancing operation. The central bank lends money to commercial banks at a very low interest rate, allowing commercial banks to issue loans to the market. Commercial banks are rich , also lending to enterprises or individuals at a lower interest rate, then enterprises and individuals can use the money to create new products, which will make the social economy better.
There is also the open market operation mentioned in the Fed's recent interest rate resolution, which often appears in the monetary policies of various countries and is used frequently. For example, the Federal Reserve said last time that it would continue to buy bonds. This is the action of buying bonds back and putting money into the market through open market operations, which is equivalent to releasing liquidity to the market. Because it takes a long time to release liquidity to the market through interest rate cuts, and it will release a lot of money once the interest rate cuts, sometimes the government hopes to control the amount by itself, and wants to release less, then it can control the selling by itself through open market operations. How much bond to issue.
There are many other monetary policy tools, and I will find an opportunity to supplement them slowly in the future. Here I want to say that monetary policy, taking interest rate cuts as an example, takes a long time to be effective. It does not mean that the public will withdraw money immediately after the central bank decides to cut interest rates. , the enterprise will go for a loan, which will take a period of time. The fiscal policy is immediate. I exempted you from the tax of 200 yuan this month, and you will spend it. You don’t need to wait for a year or so like the monetary policy to spend the 200 yuan.
There is no comparison between monetary policy and fiscal policy. Both are strategies implemented in order to achieve an ideal economic state under the current economic environment, and it does not mean that all four steps must be completed after QE is launched. The central bank will check it at any time National data, with appropriate adjustments.
In the next article, I will briefly talk about commercial banks and investment banks. It is still the old rules. If you want to know in advance, you can leave a message. If you have any questions, you can also leave a message. I will reply when I see it.
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