Municipal investment bonds are local currency bonds, and local currency debt is not actually a debt, but a tax, which is spread evenly among everyone.

叶小野 · 2023-10-11T14:53:43.000Z

Urban investment bonds are local currency debt, and local currency debt is actually not a debt, but a tax. It is a tax that is spread equally to everyone. When we look at international news, debt crises broke out in many countries last year, leading to national bankruptcy and social unrest. For example, Sri Lanka and Argentina, which just won the World Cup, are all deep in debt traps. On the other hand, we can also see that the U.S. government’s debt ratio exceeds 100%, and it owes more than one year’s GDP. Japan is even more exaggerated. Japan’s debt ratio exceeds 200%, which is almost as if the debt ratio warning line does not exist. But we have never heard of a debt crisis in the United States and Japan, nor have we heard that the U.S. and Japanese governments are at risk of bankruptcy. Moreover, the governments of Japan and the United States have no plans to reduce their debts. In order to stimulate the economy, they continue to expand their debts. The government debts of both countries are increasing every year, and they have never worried about paying off their debts. Why are they all owed money, but the results are completely different? To understand this, you need to understand that domestic currency debt and foreign currency debt are both debts and have completely different properties. Local currency debt, that is, the United States issuance of U.S. dollar bonds, or Japan issuance of Japanese yen bonds, is unlikely to trigger a sovereign debt crisis, because debtor countries can always repay their debts by printing money, and there is no real possibility of repayment. Local currency debt is not actually a debt, but a tax. The country needs money, either through tax collection or debt issuance, and the final recipients are the domestic people. Charging taxes may offend the people, so the government might as well just issue bonds. Since the money needs to be repaid anyway, I can just print money and quietly harvest the national wealth of the country. The United States and Japan can do this because they are developed countries, their citizens and companies have money, and the bonds they issue can be easily sold in their own countries, and because of their good reputation, many countries and international financial institutions will also purchase them. of bonds. However, if developing countries want to borrow money, they cannot issue local currency debt because no one will buy it. Therefore, developing countries issue foreign currency debt, the most common of which is US dollar bonds, which are real debt. You need to get real products, earn foreign exchange through exports to obtain US dollars, and then pay off the debt. Once your exports cannot keep up and your foreign exchange reserves are exhausted, a sovereign debt crisis will erupt.You see, it is also a sovereign debt. Local currency debt is tax, and foreign currency debt is the real debt. So what type of debt is issued by China? Is there a debt crisis? The treasury bonds issued by China are basically local currency debt. Local urban investment bonds are also local currency debt. No matter how much money you owe, it can be settled by printing money. To put it bluntly, whether it is the 65 trillion urban investment bonds or the 58 trillion government bonds we are worried about, they are not actually debts. They are only shared equally among everyone. A tax on the head. By printing money to pay off debt, won’t inflation develop? Yes, but moderate inflation is actually conducive to economic development, so governments of various countries will intentionally expand debt to increase the currency in social circulation, thereby stimulating economic development. Of course, this requires a degree of control. If the hand that prints money cannot be controlled, the debt will be paid off in the end, but the currency will also lose its credibility. The final result will be that the money is no longer valuable, and hyperinflation will occur. In order to prevent debt from turning into hyperinflation, China has also set up a firewall when borrowing. That is, the funds raised through debt are not used to pay salaries to civil servants and provide benefits, but to form effective investments, which in turn form high-quality assets. In other words, China's debts are matched by assets. Once the economy rises, Then asset prices will rise accordingly, which will offset part of the debt. In other words, as long as the economy continues to develop, it doesn't matter how much debt you owe. Once the economy stagnates and asset prices fall, the debt will increase. In addition, the money printed when repaying the debt is not converted into productivity, inflation will also come, and an economic crisis will be difficult to avoid. Therefore, what we have to worry about is not how big the debt ratio is, but whether the economy can continue to improve in the long term. Economic development cannot solve all problems, but without development, the problems will be even greater. I think everyone has realized this deeply in the past three years.

Municipal investment bonds are local currency bonds, and local currency debt is not actually a debt, but a tax, which is spread evenly among everyone.
If we look at the international news, we can see that last year many countries experienced debt crises, national bankruptcies, and social unrest. For example, Sri Lanka and Argentina, which just won the World Cup, are both deeply trapped in the debt trap.
On the other hand, we can also see that the US government debt ratio exceeds 100%, and the money owed is more than one year's GDP.
Japan's situation is even more exaggerated. Its debt ratio exceeds 200%, and it simply treats the debt ratio warning line as non-existent.
But we have never heard of a debt crisis in the United States or Japan, nor have we heard that the U.S. government or Japanese government is at risk of bankruptcy.
Moreover, the Japanese and American governments have no intention of reducing their debts. In order to stimulate the economy, they continue to expand their debts. The government debts of the two countries are increasing every year, and they never worry about not being able to repay them.
Why are the results completely different even though they both owe money?
To understand this, you need to understand that although both are debts, local currency debts and foreign currency debts have completely different natures.
Domestic currency debt, that is, the United States issuing dollar bonds or Japan issuing yen bonds, cannot trigger a sovereign debt crisis, because the debtor country can always repay the debt by printing money, and there is no situation where it really cannot be repaid.
Local currency debt is not actually a debt, but a tax.
When a country needs money, it either collects money through taxation or issues bonds, and the final bearers are the domestic people.
Collecting taxes may cause resentment among the people, so the government might as well issue bonds. Since the money needs to be repaid anyway, I can just print money and reap the wealth of the country's people silently.
The United States and Japan can do this because they are developed countries, their citizens and companies are wealthy, and the bonds they issue can be easily sold in their own countries. Also, because of their good credit, many countries and international financial institutions will also purchase their bonds.
However, if developing countries want to borrow money, they cannot issue debt in their own currency because no one will buy it.
Therefore, developing countries issue foreign currency debts, the most common of which are US dollar bonds, which are real debts.
You need to produce real products, earn US dollars through exports, and then repay your debts.
Once your exports fail to keep up and your foreign exchange reserves are used up, a sovereign debt crisis will break out.
You see, both are sovereign debts. Domestic currency debts are taxes, while foreign currency debts are real debts.
What kind of debt is China issuing? Is there a debt crisis?
The national debts issued by China are basically local currency debts. Local municipal investment bonds are also local currency debts.
No matter how much money is owed, it can be resolved by printing money. To put it bluntly, the 65 trillion yuan of municipal bonds and the 58 trillion yuan of government debt that we are worried about are not debts, but taxes distributed to everyone.
Wouldn’t printing money to pay off debts lead to inflation?
Yes, but moderate inflation is actually beneficial to economic development, so governments will deliberately expand debt to increase the amount of money in circulation, thereby stimulating economic development.
Of course, this requires a limit. If the money printing cannot be controlled, the debt will be repaid in the end, but the currency will lose its credit. The end result is that money will no longer be valuable and hyperinflation will come.
In order to prevent debt from evolving into hyperinflation, China also set up a firewall when borrowing.
That is, the funds raised through debt are not used to pay civil servants' salaries or provide welfare, but to form effective investments, which in turn form high-quality assets. In other words, China's debts correspond to assets. Once the economy rises, asset prices will also rise, which will offset part of the debt.
In other words, as long as the economy continues to develop, how much debt is owed does not matter.
Once the economy stagnates and asset prices fall, debt will increase. If the money printed to repay the debt is not converted into productivity, inflation will come and an economic crisis will be difficult to avoid.
Therefore, what we should worry about is not how high the debt ratio is, but whether the economy can still improve in the long run.
Economic development cannot solve all problems, but without development, problems will be even bigger. I think everyone has experienced this deeply in the past three years.