In the world of finance and economics, there often exists a chasm between reality and perception. Knowledge, or rather the monopoly over knowledge, can significantly tilt the balance in favor of a select group of elites, often obfuscating simple truths while complicating them with jargon and technicalities. This phenomenon is not new; throughout history, those who wielded knowledge have also wielded power, leading to the famous quote by Francis Bacon: "Knowledge is power." But the question looms: Does this saying still hold weight in our contemporary society, particularly in relation to the financial markets?
To dissect this notion, let’s begin with the strengths of the U.S. stock market, which has shown a remarkable upward trajectory over decades. Many may argue that this is attributable to American values such as contractual spirit and the superiority of its financial systems. However, the reality is far more complex and, in part, counterintuitive. The core reason for the sustained growth of U.S. equities can be traced back to a critical observation: a staggering 50-60% of American households' wealth is tied up in the stock market. Furthermore, over half of corporate financing in America is raised through equities, with another significant portion coming from bonds—essentially, all roads lead back to the stock market that serves as the life source for the economy.
This interconnectedness highlights an essential point: the health of the U.S. economy is now inextricably linked to the stock market's performance. When stock prices plummet, the ramifications extend far beyond Wall Street—companies struggle to secure financing, production falters, and consumer confidence plummets. The result is a swift descent into economic turmoil. Such has been the mandate of the Federal Reserve; in times of crisis, the urge to intervene and revitalize the market overrides other major considerations like employment rates and inflation. The stakes are simply too high—the potential collapse of the stock market could lay waste to the American economy.
Conversely, when the stock market flourishes, corporations can seamlessly access capital for innovation and growth, households see their wealth increase, and consumers become more inclined to spend, thus creating a positive feedback loop that propels economic expansion. In this sense, the stock market and the U.S. economy function symbiotically, illustrating a principle of mutual gain and loss. As long as the empire maintains its foundation, drastic downturns in the stock market remain unlikely.
Now, why has the stock market taken center stage as a primary avenue for corporate financing and individual savings? The answer lies in its history. Established in 1811, long before many of today’s commercial banks came into existence, the U.S. stock market had ample opportunity to craft sound institutional frameworks. It also had earlier access to competing over deposits and corporate capital, both of which have been instrumental in shaping its landscape.
Shifting our lens to the domestic stock market in China, we see a starkly different backdrop. One might wonder why the A-share market exhibits such volatility, declining during prosperous economic times and plummeting further during downturns. The answer is straightforward: the A-share market has never established itself as a primary financing channel for domestic enterprises or as a reservoir for household wealth.
Upon its inception in 1990, the A-share market faced stiff competition from a robust banking system that had already permeated even rural areas. The ambition for the stock market to wrest control over corporate funding and individual savings was a tall order. Moreover, the early intentions of the A-share market were not aimed at fostering sustainable investment, but rather at providing incentives for entrepreneurs and state-owned enterprises to address fiscal deficits—essentially, it emerged from a framework steeped in compromise and expedience.
Fast forward to today, and the A-share market still struggles to engage meaningfully with the national economy, representing less than 10% of corporate financing as of 2023. The banking system continues to dominate, with approximately 80% of businesses relying on loans, while individual household wealth predominantly resides in tangible assets like real estate and cash deposits. The stock market accounts for a mere 6% of individual savings—far from a robust foundation.
This disconnection means that fluctuations in the A-share market hardly resonate with the broader economic landscape, falling into the realm of mere statistical noise. For many involved in active trading, these market movements can induce panic or despair, but for the average citizen, life remains largely unchanged. The impact of A-share volatility on everyday income and living standards appears negligible, leading to a sentiment akin to "This doesn't concern me." In essence, while the financial landscape can be tumultuous, the realities of ordinary life remain grounded.
Herein lies a broader observation: one sector thrives under the umbrella of banking omnipotence, while another flails under the shadow of the stock market's impotence. The disconnect between investment structures reflects deeply rooted differences - a dragon in the banking system versus a falcon within the stock market. The contrasting investment dynamics create a mismatch, rendering the coherence between economic growth and stock performance an illusion.
As we navigate these complexities, the journey through the terrain of knowledge—whether it be power or merely a tool for interest—reminds us that understanding finance and economics is critical for informed citizenship. It reduces the monopoly some wield over information and empowers more individuals to engage with, and not just observe, the intricate dance of market forces and economic realities. In the end, the dialogue demands clarity: both the simplicity of knowledge and the intricacies of its practical applications must converge for a more informed populace.