Consume less, invest less, and use all income to repay loans and save.
This was Japan in the 90s, and it is us today.
Once upon a time, Japan was just like us.
Before the 1990s, Japan had enjoyed a continuous economic growth for 45 years, which made the Japanese and businesses firmly believe that the future would only get better.
Based on this belief, they borrowed more money from banks to invest and buy houses, always believing that housing prices would rise and investments would always bring high returns.
But the process from investing in housing to repaying loans can take just an instant.
The normal mechanism of economic operation is that some people choose to deposit money in banks, while others borrow and spend it.
An economy achieves growth in this way; assets and liabilities initially maintain a certain delicate balance.
However, with the bursting of the real estate bubble, assets that were once worth billions on the balance sheet are now worth only hundreds of millions, while the liabilities of six or seven hundred million are still there.
As a result, people can only passively choose to repay debts or deposit money in banks, because funds cannot find better investment channels; over time, no one is willing to consume or borrow to invest.
The macroeconomy begins to shrink.
The only thing we can do is to find ways to ensure that everyone pays off their debts, only in this way can we maintain the balance of the balance sheet and allow the economy to move forward again.
When everyone and every business is still heavily indebted, repaying debts in advance will become an economic phenomenon, and it will affect the consumption and expenditure of the macroeconomy from the bottom up.
Back to reality, our real estate industry does indeed show some characteristics similar to Japan.
In the past three years, the average annual decline in our country's real estate prices has been 10%, and it has already fallen by 30%, with some areas even experiencing a halving of housing prices.
In the past, we said that houses like those in Hegang would only appear in the Northeast; but today, more and more cities across the country are experiencing a "Hegangization" of housing prices.
In this situation, individuals may still be able to grit their teeth and persist, even though some families have lost half of their life savings and are heavily indebted, but as long as they can cut expenses and reduce consumption, they can still barely get by, but many businesses have actually gone bankrupt.
For example, a company has a debt of 20 million, and its assets are mainly 2 million in working capital, 1 million in office equipment, plus some factories and office buildings, with a total estimated value that could reach 30 million in the past.
But once housing prices fall, the price of office buildings will first plummet by half, and factories and equipment will be even less valuable in the face of such a wave of corporate bankruptcies, resulting in the company's assets, which could have been worth 30 million in the past, now possibly only being worth 10 million.
With a valuation of 10 million and a debt of 20 million, the company is actually on the verge of insolvency; if it operates properly, the company can still barely repay its debts and get by with its monthly output.
What about the future?
Companies and individuals are the same; individuals take out a 30-year mortgage to buy a house, originally worth 5 million, with a debt of 3 million, and there is no debt problem; but once the house falls to 2 million, with a debt of 3 million, then the individual is equivalent to being in debt by 1 million.
At this time, whether it is a company or an individual, the only thing they can do is to increase income and reduce expenses, work hard to earn money and then use the money earned to repay debts.
When the asset prices in almost all cities across the country are falling, most companies and individuals will face a situation of asset shrinkage, and this panic will spread, further intensifying the decline in asset prices.
And those families and companies that are not in debt will also reduce investment and consumption due to the poor "overall environment"; and those families and companies that are heavily indebted will have to use most of their income to repay debts, rather than consume and invest.
In this process, it depends on the growth of income and the level of debt, as long as the debt is not paid off, then the consumption and investment at the macro level will be difficult to recover.
This is the terrible consequence of the balance sheet recession.
In the past, many people thought that the decline in housing prices would affect families, which is correct, but how would it affect companies?
In fact, the answer is very simple.
Not long ago, one of the most luxurious hotels in Shanghai, the Bulgari Hotel, was sold for 2.4 billion, did it lose money?
It must have lost a lot, but why did the company still sell it?
The answer is that there is not enough cash flow.
In addition to the Shanghai Bulgari, in order to repay debts, Overseas Chinese Town has sold or transferred the equity and assets of dozens of subsidiaries in recent years.
Earlier, Wanda's sale of buildings was for the same reason; it must have lost money, but in the era where cash is king, companies even at the risk of huge losses have to sell these assets, otherwise they will face the risk of bankruptcy.
Why is cash king?
Because the consumption and investment of the entire society are not as expected, this is a comprehensive recession of an economy, which also means that the revenue of many companies in the future is likely to decrease.
And cash and debt are the key factors that determine how long a company can survive in such an environment.
Companies are like this, and individuals are the same.
In the first half of this year, the six major banks have reduced their loans by more than 300 billion, and the trend of repaying loans in advance is still continuing.
When the balance sheet begins to decline, debt is the biggest uncertainty.
Of course, if you really can't repay, the bank will not make it difficult for you, but will also try to help you.
This time, the central bank has made a big move, reducing interest rates and reserve requirements, and also benefiting the stock market and reducing mortgage interest rates, which are essentially to reduce the debt pressure on enterprises and families.
If a company is allowed to go bankrupt, it's over, the bank's claims will be the first to fall, and then dozens of people will face employment difficulties, how to solve it?
The best way is to support, reduce interest rates, and reduce the financial pressure on companies.
Individuals are the same, many people can't afford their mortgages recently, can banks negotiate?
Of course, negotiation is an opportunity, if there is no negotiation, many people will be determined not to pay, and it will be difficult for the bank, the risk of bad debts is something that banks are unwilling to bear.
Compared with this, banks are more willing to give you a few months to repay slowly.
However, can the bank's interest rates be reduced indefinitely?
Of course not; when the bank's interest rates are infinitely close to zero, it will fall into a liquidity trap.
This means that monetary policy begins to fail.
At this time, no matter how much the interest rate is reduced, even if it is negative, it may be difficult to stimulate companies and individuals to borrow and invest.
This is not a fantasy, Japan was like this at that time, even if the central bank's interest rate was negative, Japanese companies and individuals were still unwilling to borrow.
Take a step back, even if the interest rate is reduced to zero, because the cost of using funds is very low, many people even if they get the money, are not very willing to choose to invest, because the economic cycle is very bad, the return on investment is too low.
Get the money, they are more willing to repay the debt, as long as the debt is cleared, no interest is also a benefit.
At this time we will find that both the consumption side and the production side have begun to shrink; the shrinkage of consumption means the shrinkage of corporate profits, and the shrinkage of the production side means the shrinkage of employment.
The combination of the two together will only make the macroeconomy fall into a spiral decline.
The phenomenon of repaying loans in advance occurs against this background.
The times are changing, and so are people's concepts and ways of thinking.
Today we look at Japan, their corporate culture, management methods, and the backwardness of the industry, these are their shortcomings.
Is this innate to Japan?
Of course not possible.
If Japan is born like this, then there will be no miracle in the history of the world economy after World War II, from a defeated country to a developed country, Japan only took a few decades, which itself shows the strength of Japan.
So why did Japanese thinking and culture become what they are today?
The answer is the bursting of the real estate bubble, the lost thirty years.
Thirty years, two or three generations, enough to change their cognition and way of thinking.
A negative attitude towards the future, a low-desire society, an aging society, and a low return on investment, etc., will change Japanese companies and young people over time.
This also made Japan miss the opportunities for the development of the Internet, mobile Internet, and even AI.
Today's market economy, to put it nicely, is driven by exports, investment, and consumption, but in reality, it is driven by debt.
Almost every economic crisis in history is closely related to debt.
The Internet bubble in 2000, the subprime mortgage crisis in 2008, and the bursting of the Japanese real estate bubble in the 1990s, all behind are debt issues.
We, due to per capita income, social security system, aging, and the problem of being old before being rich, also lead to our balance sheet recession, which is more severe than Japan in the 1990s.
If we add the trade friction with Europe and America, then this problem will be even more serious.
From a global perspective, the 1990s were still the rising phase of the global economic cycle, and what we are facing now is the depression phase of the global economic cycle.
From a horizontal comparison, when the Japanese economic bubble burst, it was when we decided to take the road of a market economy.
At the time when the Japanese economic cycle fell into bankruptcy, the global economy was rising, but even so, it still could not stop the long-term recession of the Japanese economy for thirty years.
The power of time, the power of the cycle, interweave and superimpose each other, and the final evolution and direction of the situation, all beyond the imagination of the vast majority of people.
Looking at the standard leverage ratio of the balance sheet recession, our leverage ratio has long surpassed the peak before the Japanese bubble burst.
Leverage ratio is debt, it directly determines the impact of the residents and enterprises facing the economic cycle.
At present, the leverage ratio of our country's resident sector is 63.5%, among which the unemployment rate of young people aged 16 to 24 is also as high as 18.8%, both figures are relatively high.During that period, Japan had already completed its social welfare and labor benefits.
Don't underestimate these things; they may seem insignificant during periods of rapid economic growth.
However, during economic downturns, this system becomes the minimum living guarantee for many "young unemployed vagrants."
As for us, we have yet to adequately address various issues such as age, leave, resignation, and overtime for employees.
These problems were easier to solve in the past, are more difficult now, and may become even more challenging in the future.
After all, when enterprises are still bearing the double decline of revenue and profit, they are barely able to take care of themselves, let alone be asked to improve labor laws and pay attention to employee rights.
That is very unrealistic.
So, what should we do?
Koichi Hamada has already provided the answer: "Endless fiscal stimulus, using administrative means to borrow money from banks and invest in infrastructure.
When growth can still be sustained, we should fully support economic development.
When an inevitable recession comes, at least the citizens will still have a decent foundation for life."
"If we miss such an opportunity, there is not much we can do.
When the recession comes, young people lose their ambitions, and it is unlikely for them to regain confidence.
We can only wait for 'another generation.'
Japan has waited for nearly thirty years for this generation.
And the average mortgage is also thirty years.
A thirty-year repayment cycle, thirty years of confidence cultivation, though late, it has arrived; for Japan, they at least preserved the basic living standards of their citizens, allowing Japanese youth the opportunity to become 'Heisei hermits' for life.
But we cannot afford to wait thirty years.
Our population is larger, the employment situation is more complex, and correspondingly, our social security system is not sufficiently developed.
It's important to note that when Japan's bubble burst in the 1990s, the youth unemployment rate was less than 10%, but what is our youth unemployment rate today?
It's 18.8%.
And this is the result after excluding students; if we don't exclude them, it's almost certainly over 20%.
The severity of the employment situation, at least from a data perspective, has already far exceeded that of Japan at that time.
Imagine a young person who cannot find a job after graduation, goes home to rely on their parents, and the parents are facing the pressure of mortgages and mid-life unemployment.
Without more security, how should they live?
Therefore, thirty years is too long; we cannot afford to wait, nor can we wait.
In comparison, we prefer to seize the day.
But what exactly should we do?
I think no one knows the exact answer.
Humans are like this, eager to find the basic logic from everything that has happened, then give a perfect answer, and solve all potential problems.
But the real world, especially the economic cycle, is not a neat mathematical problem; there is no standard answer, nor is there a perfect answer.
We can only find the best path through continuous trial and error and continuous pilot programs.
The development of the economy is nothing more than a balance of supply and demand.
Today, there is an imbalance of supply and demand, and a disequilibrium between consumption and debt.
We need to repair it, and what we may need the most is still time.
Even if it takes another generation, the balance sheet will always be repaired.
But our generation, especially those born in the 80s and 90s, may be destined to face more difficult things.
