□ Hu Zuliu/Wen Caijing Online Edition
If readers, especially government decision-makers, take seriously the conclusions or policy suggestions in Currency War, then we can't help but be surprised and even uneasy.
Deng Xiaoping, the chief architect of China's reform and opening up, once pointed out that "finance is the core of modern economy". Different from the allocation of resources by government administrative instructions under the central planned economy system, under the market economy system, a healthy and well-functioning financial system plays an important role in promoting economic growth by effectively allocating capital and improving the return on investment. The fragile and unstable financial system often leads to frequent financial crises, resulting in economic recession, rising unemployment rate and even serious social and political crises.
It is gratifying that China has made remarkable achievements in financial reform in recent years. From the government, regulatory authorities, enterprises, investors, academia to the media and the general public, they are all very concerned about financial issues. Mr. Song Hongbing's currency war, with finance as the main thread, has been intertwined with world economic, political, social and even military wars for nearly 200 years, and has linked many of the most famous politicians, military strategists and the most dramatic historical events with finance. Its bold conception and large span are amazing.
In today's world, except for a few Renaissance masters who are proficient in economy, finance, politics and history, I believe that few people can create such comprehensive works, and claim to be able to successfully decipher the world wealth code, expose the unknown historical truth and reveal the ins and outs of many major historical events.
As a book to entertain the public, its appreciation value is obvious. The United States has published several books similar to this book, but it has not attracted much attention from the mainstream society. Currency war is a series of related contents in the original work, which has a unique perspective and strong readability, and has aroused widespread concern in China, further increasing people's interest and curiosity in the financial field that originally seemed too mysterious.
However, if readers, especially government decision makers, regard it as a true and rigorous book and take the conclusions or policy suggestions made in the book seriously, then we can't help but express surprise and even anxiety.
Absurd history and finance
Currency wars mainly focus on history. However, it rashly rewrote the widely accepted modern world history, especially American history. From the American Revolutionary War, the Civil War to the First World War, from abraham lincoln to John F. Kennedy, and then to Ronald Reagan, all the assassinations of presidents in American history, without exception, were attributed to the conspiracy of a small group of international bankers for the so-called "currency distribution rights". In the book, the American Revolution is no longer a struggle for the political independence and economic freedom of the North American colonies to unite to get rid of British rule, but for the so-called "currency distribution rights"; The civil war was not a sharp conflict caused by the abolition of slavery, but the result of manipulation by "international bankers"
The book also solemnly declared that without the Federal Reserve, there would be no World War I; The Second World War was not a just epic of the allied forces led by the United States, Britain, the Soviet Union and China to counter the brutal aggression of Nazi Germany, Italian fascism and Japanese militarism. Instead, President Roosevelt cynically verified Keynes's ideas of deficit finance and cheap currency in the smoke of war, which stimulated the recovery of American economy and made international bankers make another windfall in the war. The President of Kenya was assassinated because he signed a little-known presidential decree 1 1 165438 on the silver coupon. The essential reason for the end of the Vietnam War was the fiasco of the golden battlefield in London, which led to the exhaustion of the financial "confidence" of the ruling elite; The Middle East oil crisis is not the decision of the Organization of Petroleum Exporting Countries, but the decision of international bankers and so on.
This series of amazing "discoveries" make history unrecognizable! Simple distortion will inevitably give people the suspicion of grandstanding.
The currency war is mainly finance. Because the writing is fluent, many historical allusions, legends, anecdotes and quotations from celebrities are cited, which is fascinating and arouses the interest of ordinary readers in boring financial problems, and is a great contribution of this book. Unfortunately, this book's descriptions of many economic and historical events or people are full of mistakes, taken out of context, far-fetched, exaggerated, or just random guesses and arbitrary conclusions, which provide readers with wrong information and may mislead decision makers.
The book often emphasizes how international bankers, such as Rothschild, have mysterious superpowers, can play with kingship and government at will, and manipulate world wars and peace, prosperity and depression at will. In fact, the Rothschild family did have its heyday. At least in the19th century, it was recognized as the most influential multinational financial enterprise, and it still occupies a place in the international financial system today. But at present, its market position and influence can be said to be minimal. Whether it is the market share of stock and bond underwriting, trading and corporate mergers and acquisitions, or the scale of its financial assets, it is often not ranked in the top ten in the world, let alone dominating the global financial market.
The book claims that the Rothschild family is the largest creditor in the major developed countries in the west today, which is not true. Similarly, today's Bank of JPMorgan Chase has experienced numerous splits and mergers, and it inherited the same trademark brand from the old JPMorgan Chase company before glass-steagall act. Its shareholding structure, organizational form, corporate culture, business and customer base are all significantly different, and its market influence is not what it used to be.
The book arbitrarily asserts that the so-called international bankers are cabal groups held together for a handful of interests, completely ignoring the objective fact that modern financial markets and financial institutions are facing unprecedented fierce competition. Big waves wash sand, the survival of the fittest, drexel, Baring and other old banks have gone bankrupt, and Kuhn Leibo, who is repeatedly mentioned in the book, has no trace.
In fact, the financial industry is one of the most competitive industries in modern economy, and its industrial structure is far from a monopoly organization, which is one of the reasons why financial innovation is so active. The financial industry is also the industry with the strongest supervision in modern economy, and its business activities are strictly supervised by the Ministry of Finance, the central bank and other governments, full-time financial supervision departments and even international organizations. The so-called "international banker" deliberately portrayed in the book is above the national government and even the international political and legal system, and has mysterious power. I am afraid that apart from the author's rich imagination, it is purely false.
Currency war confuses the concepts of domestic credit and currency, including gold and silver coins in circulation, paper money, base currency, broad money and national debt, inflation and their relationship, especially reversing the causal relationship between currency issuance and public finance.
In the early days, the Bank of England and the predecessor institutions of the Federal Reserve issued money with government (or royal) debt as collateral to control the total amount of money issued, instead of coercing the government to issue bonds continuously. On the contrary, the government often spends too much because of war or extravagance, resulting in a fiscal deficit, which determines the scale and burden of national debt, rather than the central bank's currency issuance. If the government can't make up the deficit by borrowing (issuing government bonds), it often has to rely on the credit of the central bank, that is, the monetary financing of the budget deficit, and the result is to induce inflation. Germany between the two world wars, China during the civil war after the end of War of Resistance against Japanese Aggression, and Latin American countries in the 1980s, especially Bolivia, Mexico, Argentina and Brazil, are all classic cases in which the government made up for the extreme fiscal deficit through the central bank's excessive issuance of money, which led to hyperinflation.
As an important cornerstone of conspiracy theory, currency war insists that international bankers not only manipulate politics and create wars, but also frequently create financial crises, including the Great Depression of 1929. These allegations are quite bizarre and almost absurd. Anyone who knows the basic operation of finance knows that the profitability of financial institutions is closely and positively related to the stability of financial markets and the prosperity of macro-economy. When the economy is prosperous and the market is prosperous, the profitability of the financial industry will also perform well. When the economy is depressed and the market is depressed, the operating environment of the financial industry will obviously deteriorate. Especially every time the financial crisis occurs, financial institutions are faced with huge risks, heavy losses and even bankruptcy. During the Great Depression, hundreds of financial institutions including commercial banks, securities companies and insurance institutions went bankrupt. The latest round of American subprime mortgage crisis has hit many world-class large financial institutions such as Merrill Lynch, Citigroup and UBS, which is the latest example. The book Currency War says that every financial crisis in history was deliberately created by international bankers, which violated basic common sense. The book also claims that it is illogical and unreasonable for international bankers to pursue cheap money and inflation tirelessly. Inflation makes the real price of loans shrink, and banks, as creditors, suffer the most and are naturally the most unlucky. This book does not clearly explain to readers why international bankers are seeking inflation instead of price stability.
The book Currency War tries to give readers a clear-cut innocent impression, but in fact, its position is vague and even contradictory in many places. The book is full of anti-Semitism-constantly alluding to the Jewish background of some international financiers; Mixed ultra-left thoughts-attacking market economy policies such as privatization and free trade; Far-right tendency-hatred of Roosevelt's New Deal and the government's intervention policy in the economy; Populism-anti-elite, hostile to Wall Street, financial circles and big companies; American isolationism-distrust of any international organizations and institutions, including the United Nations, the International Monetary Fund, the World Bank, the WTO and the Bank for International Settlements (BIS); Anarchism advocates absolute personal freedom, revealing natural distrust of any centralization, including the central bank; Compassion for Japan and anti-western consciousness (the bursting of Japan's economic bubble was caused by the financial nuclear bomb attack in western countries; It is "natural" for Japan to advocate the Asian Monetary Fund, while the opposition of the United States is extremely unreasonable.
In a word, this book is a strange "cocktail" in ideology and value judgment. No wonder. The original political positions quoted in the book have been varied, and the author just copied them into the Chinese version intact.
Fed refutes lies
The most puzzling thing is that the book Currency War vilifies the central banking system, especially the unprovoked attack on the Federal Reserve, which has been widely imitated by other countries. In particular, the book exaggerates the fact that the Federal Reserve is a private central bank as an amazing secret, saying that the nature and origin of the Federal Reserve is a "tacit" forbidden area for American academic circles and news media.
In fact, the background of the Fed has never been a secret. More than 0/00 years after the founding of the United States, whether to set up a central bank and what kind of central bank to set up have become important issues in the American election after many public debates and even fierce political struggles. Among the founding fathers of the United States, the first bank of the United States, founded by Hamilton, the first treasury secretary who was most familiar with financial affairs, and the second bank, which was later reset, became victims of politics. Since 19 13 US Congress passed the Federal Reserve Law, American intellectuals and the media have been familiar with the ins and outs of the Federal Reserve. Among the central banks in the world, the structure and organizational form of the Federal Reserve seems to be very special, but it is never a secret. Many introductory economics textbooks in the United States specifically introduce the history and system of the Federal Reserve.
Before entering the 20th century, an important feature of American politics was that it was afraid of centralization of power and carefully safeguarded and defended the rights of individuals and state governments. Although Hamilton admits the importance of individual freedom and national autonomy, he firmly believes that in order to ensure economic prosperity complementary to freedom, the United States must have centralized fiscal and monetary policies, that is, government macroeconomic policies widely used around the world today.
Unfortunately, the federalist program and ideas headed by Hamilton were too advanced to be understood and accepted by his contemporaries and successors in time. As the first experiment of quasi-central bank, the First Bank of America, which was established in 179 1, closed down in181,while the populist representative President andrew jackson vetoed the proposal of Congress to extend the license of the Second Bank of America in 1832. Ironically, Hamilton advocated that the federal government should control the issuance and supply of money centrally, while andrew jackson and others defended the freedom and right of state banks to issue money on their own. However, in Currency War, Hamilton is a sinner who colludes with international bankers, while President Jackson becomes a hero who "kills banks" and defends the control of national currency issuance.
In fact, after President Jackson abolished the Second Bank of the United States, the American financial industry fell into a state of long-term chaos and instability. From 1836, the banking panic crisis in the United States broke out at least once every 20 years. The banking crisis that broke out in 1907 spread all over the country, causing banks to close down one after another, which dealt a heavy blow to depositors and the economy. The government and the public in the United States have learned a lesson from this painful experience and finally reached a consensus that the United States must set up a central bank in any case to prevent and deal with future financial crises.
In view of the unique political tradition and culture of the United States, during the years-long preparation and legal drafting of the Federal Reserve, a set of elaborate power balance mechanism was designed, which reflected the compromise spirit of the American democratic system. Therefore, instead of centralizing power in new york or Washington, the Fed system has established a decentralized system with 65,438+02 regional federal reserve banks in the United States, thus fully reflecting and representing the interests of different regions in the process of monetary policy formulation. In addition, the Federal Reserve Bank is designed as a quasi-public institution, but it is actually a mixed organization of public and private partnerships. Its purpose is to prevent public federal authorities from infringing on the rights and interests of the private enterprise sector.
From the perspective of pure ownership, the shareholders of the Federal Reserve Bank in each region are composed of member banks in that region, because one of the conditions for becoming a member of the Federal Reserve Bank is to buy shares in the Federal Reserve Bank. Moreover, these member banks are private commercial banking institutions (the United States has never had the tradition of state-owned commercial banks), and it is not wrong to say that the 12 regional Federal Reserve Bank of the Federal Reserve System is a private central bank.
But from the point of view of substantive control, the Fed system is a unified central bank controlled by Congress and the federal government and supervised by the public. It represents the best public interest to exercise its central bank functions, including monetary policy (determining reserve ratio, discount loan interest rate and open market operation) and banking supervision, and maintains the stability of the US financial system through its role as "lender of last resort".
Although regional federal reserve banks enjoy certain rights, there is no doubt that the core power of the federal reserve system lies in the hands of the Washington-based board of directors. The Federal Reserve is the leader and nerve center of the Federal Reserve system. It consists of seven directors and is a 100% public institution. All seven directors are appointed by the President and confirmed by the Senate. With the passage of time, especially a series of bank reform measures after the Great Depression in the 1930s, the power and influence of the Federal Reserve have been expanding. The Federal Reserve sets the reserve ratio, checks and determines the discount rate of the Federal Reserve Bank, and most importantly, controls the decision of the Federal Open Market Committee (FOMC). The seven directors of the Federal Reserve are all members of FOMC, accounting for the vast majority of FOMC, and the chairman of the Federal Reserve is also the chairman of FOMC. Because open market operation is the most important policy tool for the Fed to control the money supply, FOMC controlled by the Fed plays an important role in the whole Fed system. In addition, the Federal Reserve has other powers, which can restrict and influence the regional Federal Reserve Banks to a great extent. For example, although the president of the Federal Reserve Bank is theoretically elected by its directors (in which Class A and Class B directors are elected by member banks), they must be approved by the Federal Reserve. The Federal Reserve often recommends candidates for president (usually professional economists) to the boards of directors of federal banks, and the boards of directors of the Federal Reserve Bank are usually willing to follow the "suggestions" of the Federal Reserve. The Federal Reserve also has the right to determine the salary of the governor of the Federal Reserve Bank and examine the budget of the Federal Reserve Bank.
If the power of the Federal Reserve is so great as to control the whole Federal Reserve system in essence, what influence does the "private shareholders" of regional Federal Reserve banks, that is, member banks, have on the operation of the Federal Reserve? The answer is: almost zero. Although the member banks own the shares of the Federal Reserve Bank, they do not enjoy the corresponding benefits of similar ownership. Although the Federal Reserve system can record huge profits of more than 20 billion US dollars every year, shareholders or member banks can expect to receive an annual dividend of 6% at most, and most of the profits are transferred from the Federal Reserve to the US Treasury. Therefore, unlike the shareholders of ordinary private companies, the shareholders of the Federal Reserve Bank have no control over the property they nominally own. Member banks can only elect one Class A and one Class B director on the board of directors of the Federal Reserve Bank, and the director is usually nominated by the president of the Federal Reserve Bank. Therefore, shareholders or member banks actually have no substantive power and influence in the Fed system. In fact, compared with half a century ago, only about one-third of American banks are members of the Federal Reserve. As the member banks actually do not have the rights and interests of "private shareholders", and they must also undertake the obligation to deposit reserves in the Federal Reserve Bank, and the cost of shareholders or members is very high, so many banking institutions have left the Federal Reserve system, weakening the control of the Federal Reserve on the money supply, so that the US Congress added a special clause in the "Deregulation of Deposit Institutions and Monetary Control Act" passed by 1980, that is, all deposit financial institutions must be in the Federal Reserve regardless of whether they are members.
Currency War confuses the essential difference between ownership and control, and makes a big fuss about key issues related to the central bank, such as whether the leadership of the Federal Reserve is professional and competent, whether it is properly formulated in monetary policy, and whether it is perfect in maintaining financial market confidence, price stability and full employment goals. To some extent, this reflects China's prejudice against private ownership after nearly 30 years of reform and opening up, but to a greater extent, it is a fundamental misunderstanding of the Federal Reserve, a central bank with special organizational structure and institutional arrangements. The birth of the Federal Reserve is a historic milestone in the financial and monetary system of the United States and even the world. The book Currency War angrily wrote that "the elected government of the United States was finally subverted by money on February 23 19 13", which was simply confusing.
No matter what prejudice this book has against the Fed, the fact is that the Fed has enjoyed a high reputation in the eyes of the American public since it was established nearly 100 years ago. Many opinion polls show that the American people's trust in the unelected but influential elite institution even exceeds that of many public authorities, including Congress and the President. -
Currency War, by Song Hongbing, the first edition of CITIC Publishing House in May 2007.
Hu Zuliu is the managing director of Goldman Sachs Group and co-director of China Economic Research Center in Tsinghua University.