The logic of sovereign credit currency issuance
To determine whether a country's economy can be sustained in the event of a global crisis, it is also important to judge from the issuance logic of sovereign credit currency.
Balance Sheet:
The central bank is backed by the state, and the currency issued by the state will be stored and regulated by the central bank. The currency obtained by the central bank will be passed on to the lower-level institution - the bank.
Therefore, we often use bank balance sheets to judge whether the core of a country's financial system is safe and stable.
Another thing that needs attention along with the bank's balance sheet is debt liquidity.
Debt transfer:
When banks get money from the central bank, they must release liquidity to the market. How can they release liquidity? They can release liquidity through debt circulation. Debt circulation or debt transfer is bank loans.
In order to ensure that the debts or loans released by banks do not default, the key is to see if the lender has a certain ability to repay after the release, so "mortgage loans" are generated.
Mortgage loans have become the main channel for debt circulation in various countries.
Therefore, debt transfer is the main way and channel for currency issuance and circulation. As a whole, debts are transmitted from the country to the central bank and then to the bank. What is the main basis for banks to output liquidity to the society? It still needs to be done through mortgage loans, but the mortgage anchor has changed.
Asset attributes:
In order to better release liquidity to the society through banks, while also ensuring that banks can guarantee the recoverability of debts, a publicly recognized attribute is created when mortgage loans are made - asset attributes.
Asset attributes include the land, real estate, equity, cars, etc. that we know now, all of which have asset attributes. These asset attributes are not innate, but are given a certain degree of public recognition. This is actually the same concept as the "consensus" in the crypto market, that is, the asset attributes recognized by the public.
When we go to the bank to apply for a loan, how much we can borrow depends on our collateral, that is, how much the assets we pledge to the bank are worth in public perception. The amount of loan we can get is calculated based on the bank's interest rate. This is easy to understand.
Debt circulation attributes:
In public cognition, once an asset is determined to have public cognition attributes and then anchored to a certain value, the asset will have certain debt circulation attributes and can be used to apply for a loan from a bank.
But at this point, some people may be curious about who determines the public perception and pricing power? Where does this consensus come from?
Whether an asset has debt circulation properties, whether it has the ability to borrow from a bank, and what pricing the asset is anchored at are all dominated by "rating agencies".
The three most authoritative rating agencies in the world, Standard & Poor's, Moody's and Fitch, set prices based on the attributes of assets and public perception. Currently, all three rating agencies are from the United States, which means that the United States has the right to price assets in the global credit currency system.
Currency issuance logic:
The state issues currency, the central bank is responsible for circulation, and banks assume debts and pass them on to society. This model is based on the logic of currency issuance brought about by the mutual support of underlying debt logic and underlying assets.
Strictly speaking, no country can violate the logic of currency issuance to increase currency issuance. If it does so, it will be considered malicious currency issuance and will lead to the collapse of the financial system.
However, rules and logic are dead, but people are alive. From the beginning of specifying this set of monetary logic to now, it is not difficult to find that there are more and more loopholes to exploit. The cost of violating this logic of currency issuance is the crisis of economic and financial collapse. However, if the crisis can be avoided or passed on to the world, then naturally there is no need to follow this logic of currency issuance.
black and white:
The logic of currency issuance in the traditional sense is actually quite reliable, but the logic of currency issuance cannot overcome human greed. The subprime mortgage crisis in 2007 was caused by this logic of currency issuance. Banks passed on loans to the society, which eventually developed into over-loans, causing the American people at that time to buy a large number of properties, causing banks to accumulate a large amount of debt. These debts exploded in the real estate industry, and after asset prices fell, the debts could not be repaid, resulting in the transmission of defaulted debts from the bottom up, which directly led to the country issuing more currency to make up for the debts, and ultimately led to the financial and economic crisis, as well as inflation.
Therefore, this logic of currency issuance is also a double-edged sword. Currently, no country can replace this logic of currency issuance, but some countries take advantage of the bugs in this logic to achieve their own goals.
Tools are not good or bad. The difference comes from the people who use them.
