Original | Liu Jiaolian
The last time I wrote the 10-year agreement series, I wrote "The Japanese Yen Attacked Pearl Harbor", which was the 29th article. Today, "What is the Central Bank Purchasing Bonds for?" is the 30th article.
Today is another day of infinite retracement. In August, BTC had a long lower shadow and closed down at 59k. This morning, when it just fell below 59k, Jiaolian did the 21st time of adding positions when it fell in the past ten years. In the afternoon, BTC continued to fall to 58k.
The holdings after this investment increased to 9.4 million satoshis, and the holding cost increased to 43.8k. The post-investment yield was 32% based on the last increase in holding price. Now the position is fully invested.
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There is still more than half a month until the next interest rate meeting of the Federal Reserve, which is scheduled to be held on September 17-18. The market is currently in a game period before the implementation of the interest rate cut. However, the focus of the game has changed from whether to cut interest rates to how much to cut. Will it be 25bp or 50bp?
There is a view that the Fed is eager to cut interest rates sharply and quickly because the economy really can't bear it anymore. However, if it starts too aggressively, the market may feel the Fed's panic, confirming speculation of a US economic recession, which may easily cause a market stampede. Therefore, if the Fed cuts interest rates by 25bp, it will be conducive to market recovery. If it suddenly cuts interest rates by 50bp, it will show the Fed's panic in its eagerness to save the market, which may trigger a market crash.
Facts – observations – data – decisions – interpretations – psychology – games, stacked up layer by layer, linked together. The logic of the financial market has always been chaotic. So chaotic that a butterfly flapping its wings could cause a hurricane and tsunami with heavy casualties.
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Away from the spotlight of the Fed’s interest rate cut game, the central bank quietly but publicly did something big at the end of August. What big thing? It was buying and selling Treasury bonds in the open market, or the secondary market.
This is the "Treasury Bond Trading Business Announcement [2024] No. 1" published on August 30, 2024.
The announcement said, "In August 2024, the People's Bank of China carried out open market treasury bond trading operations, buying short-term treasury bonds and selling long-term treasury bonds from some primary dealers of open market operations, with a net purchase of bonds with a face value of 100 billion yuan for the whole month."
Here is a question. I have seen many people talking about the special treasury bonds that are the sequel to the "Open Market Business Transaction Announcement [2024] No. 173". In fact, there is nothing special about that. I suspect that they have collectively lost their way and found the wrong focus.
First of all, these two things are not of the same type in the central bank's open market business classification. The latter is placed under "Open Market Business Transaction Announcement", while the former is placed under "Open Market Treasury Bond Trading Business Announcement".
It can be seen that these two things are not only not the same thing, but not even the same kind of thing.
Here is a brief introduction to the renewal of special government bonds. In fact, this is a regular extension operation for the 1.55 trillion RMB special government bonds issued in 2007 to establish China Investment Corporation. At that time, the 1.55 trillion RMB was not actually printed, but converted into US dollars to inject capital into China Investment Corporation as initial capital. In the past few years, several parts of this batch of special government bonds have also matured, and all of them have undergone the same "renewal" treatment.
In other words, the 1.55 trillion RMB was never put into the domestic market from the beginning to the end, and it never even existed. It didn’t exist at the beginning, and it doesn’t exist now.
On the contrary, if the central bank does not extend the maturity of the bonds at all, it will lead to a reduction of up to 1.55 trillion RMB in the domestic market (treasury money is also money) (treasury bonds are denominated in RMB and should be repaid in RMB), resulting in huge deflation. This is obviously very bad for the current "hypoglycemia" of the domestic economy.
As we all know, the issuance mechanism of RMB has always been mainly supported by foreign exchange deposits, and among foreign exchange, the US dollar or US dollar assets are the absolute majority. It is very clear from the balance sheet of the central bank. Friends who have forgotten can review the article "The "Secret" of the Central Bank" on October 31, 2023 in Jiaolian.
At that time, the Ministry of Finance borrowed US dollars worth 1.55 trillion RMB from the central bank, and the central bank just kept a record of it, which was called "special government bonds". After these US dollars were injected into CIC, CIC went overseas to invest and acquire various assets, which was equivalent to flowing back to the global market. If they were not borrowed for overseas investment, they might be used as foreign exchange reserves to issue base currency RMB in China, and the maximum amount that could be issued in China was 1.55 trillion RMB. This is actually "printing money".
After listening to what Jiao Lian said, do you understand that this special national debt in 2007 actually reduced the possibility of printing up to 1.55 trillion RMB (which is often called "imported inflation") into the country?
In addition, some people say that this is unanchored money printing. This is just nonsense. It can be said that the four words "unanchored money printing" are a pair of wrong words. It is neither "unanchored" nor "printing money". This 1.55 trillion RMB had an equivalent US dollar as the underlying asset, so how can it be called "unanchored"? And the teaching chain above has explained that this 1.55 trillion RMB has not even been printed, so how can it be called "printing money"?
There are also people talking about QE (quantitative easing), which is even more ridiculous.
Well, that's all I have to say about the sequel Special National Debt. I was going to give a brief introduction, but I ended up saying quite a few words.
In fact, the more important news is the other announcement mentioned by Jiaolian above, which is the 2024 No. 1 Treasury Bond Trading Business Announcement.
The announcement said to sell long-term government bonds and buy short-term government bonds.
This is easy to understand, it means replacing long debt with short debt.
What is the purpose of this operation? The main function is to regulate the market of long-term and short-term bonds.
Yesterday, on August 31, 2024, Jiaolian wrote an article titled "The Strange Correlation between China's Long-term Treasury Bond Yield and BTC". Readers who have read it should at least get the following two points:
First, buying government bonds will increase their prices, thereby lowering their yields; conversely, selling government bonds will depress their prices, thereby raising their yields.
Second, the current yield on China’s long-term government bonds (long-term Chinese bonds) is at a low point.
Of course, the overall purpose of yesterday's article was to bring out an amazing research finding, that is, from the perspective of the three BTC cycles in the past decade, the long-term rise in Chinese bond yields and the BTC bull market are highly synchronized.
Okay, please put these two points you have got together with the operation of replacing treasury bonds in the Central Bank’s No. 1 Announcement.
Connect the dots into lines, interweave the lines into planes, and upgrade the planes into volumes. Most people can only see lines, which is 1 dimension. But once you can reach a higher dimension, you can see things that others cannot see from the cross-correlation. Now, we only need 2-dimensional interweaving.
Selling long-term Chinese bonds will push down their prices, thereby raising the yields of long-term Chinese bonds. Buying short-term Chinese bonds will push up their prices, thereby suppressing the yields of short-term Chinese bonds.
This is clearly a signal from the central bank to regulate the treasury bond market. This is consistent with what I said in yesterday's article, that the central bank warned against blind speculation in long-term treasury bonds.
Three further questions to consider:
The first question: Is the central bank's suppression of the price of long-term Chinese bonds a temporary whim, or will it become a basic policy for a longer period of time?
The second question: If the central bank decides to suppress the price of long-term Chinese bonds for a relatively long period of time, will this lead to a period of rising (rebounding) yields on long-term Chinese bonds?
The third question: Does it have the ability to achieve this regulatory goal?
OK, let's review the above. Interweave them together. If the answers to these three questions are all "yes", if yesterday's amazing research findings reflect an internal law, then what will happen when they are added together? This should not require further explanation, right?
Anyway, on September 19, 2023, Jiaolian said in the article "Shooting the Bull from Across the Mountain: The Great Financial Collapse" that if the central bank resolutely resisted the Fed's interest rate hike and defended the exchange rate, it would lead to the rise of gold and BTC. Facts have proved that a year later, the central bank really has the strength to defend the exchange rate, and the result discussed in the article at that time has come.
This time, the central bank is going to start raising the long-term Chinese bond yields again. Do you believe the central bank has the strength to do so this time?
That's it for this question. Let's look at another more important but less obvious question.
I went back and read the announcement again, even though it was only a short sentence.
There is another half sentence in the announcement, which says that the net purchase of bonds is 100 billion RMB. In other words, the replacement of long-term bonds with short-term bonds was not 100% replacement, but an additional 100 billion RMB of short-term bonds was purchased.
Jiaolian thinks that those people who are talking about "printing money without an anchor" and "quantitative easing (QE)" mentioned above should actually focus on the 100 billion net purchases.
This net purchase of 100 billion in bonds is truly the expansion of the balance sheet and printing of money using one's own national debt.
A small step for the central bank, a big step for the RMB.
Let’s review the RMB issuance mechanism mentioned above. Relying on US dollar foreign exchange to issue RMB, isn’t this still using US dollars to endorse the credit of RMB?
Where does the US dollar come from? The US dollar is mainly issued by the US Treasury's US Treasury bonds, plus real estate mortgage bonds (MBS) as the underlying assets.
Therefore, looking through, most of the RMB is issued based on US debt. Here we are talking about the base currency issued by the central bank.
So, the question is, why must we rely on US bonds to issue RMB, and why can't we rely on Chinese bonds to issue RMB?
As the RMB grows, one day it will have to break away from its dependence on the United States and achieve true independence.
The first step towards independence was officially taken in August 2024. Although, it was only an insignificant 100 billion. What a small step.
This is destined to be a historic moment.
(Official account: Liu Jiaolian. Knowledge Planet: reply “Planet” to the official account)
(Disclaimer: The content of this article does not constitute any investment advice. Cryptocurrency is an extremely high-risk product and there is a risk of it returning to zero at any time. Please participate with caution and be responsible for your own actions.)
