Rebirth in 1985

Chapter 433 Financial Crisis (Part 1)

Liu Mingzhang has been following Soros in hype ever since he blocked the British pound last time. His passion is limited, so he is always eager for the big move to come. He also wants to stretch his fists and do a big thing to add a highlight to his life and bring more glory.

After confirming that there was a big action, Liu Mingzhang wanted to know the goal of this action at the first time. He knew that since Lu Shaohua dared to say that there was an action, there must be a goal. With a goal, Liu Mingzhang could study the goal in advance and evolve a set of his own plans in his mind.

Yes, Liu Mingzhang always had his own set of plans, but the plans were never used. Everything was carried out according to the plan made by Lu Shaohua. However, this did not affect Liu Mingzhang's enthusiasm. He planned his plans, and when implementing them, he followed Lu Shaohua's plans. This did not seem a bit contradictory.

Lu Shaohua had no idea that Liu Mingzhang was eager to know who the target was. According to previous practice, Lu Shaohua would not tell it. But this time was different. Lu Shaohua did not intend to use the phrase "the secret cannot be revealed" to fool Liu Mingzhang.

"Mexico!" Lu Shaohua said the name of a country lightly.

"Mexico?" Liu Mingzhang frowned. He only knew the name of this Western country, but he had no contact with the Phoenix Group and did not know the situation of this country.

"Yes, it's Mexico." Lu Shaohua confirmed again.

As far as I remember, at the end of 1994, the Mexican government introduced a 15% devaluation of the peso, which eventually triggered a market panic. Foreign investors frantically sold pesos and rushed to buy dollars, causing the peso exchange rate to fall sharply.

Of course, this is just the surface situation. In fact, no one knows the real reason. The policies introduced by the Mexican government are indeed wrong, but this is just a fuse. The real reason is that problems have already occurred in Mexico’s domestic situation.

According to the data, during the period of 1989-1994, Mexico's exports increased by 2.7 times, while imports increased by 3.4 times. As a result, in 1989, Mexico's current account deficit was US$41 billion, and in 1994 it had expanded to US$289 billion. In theory, as long as the capital account in the balance of payments can maintain a corresponding surplus, then even if there is a large deficit in the current account, it does not mean that the national economy is facing a crisis. The key to the problem is that the foreign capital that keeps the capital account surplus should not be short-term foreign capital with strong speculative nature. However, the capital account surplus that Mexico uses to make up for the current account deficit is precisely this kind of capital. In the late 80s, the net amount of indirect investment flowing into Mexico each year was about US$50 billion, and by 1993, the net inflow of such foreign capital had reached nearly US$300 billion. It is estimated that in the period of 1990-1994, indirect investment accounted for as much as two-thirds of the total foreign investment flowing into Mexico.

In addition, there are three other reasons for the financial crisis in Mexico. The first reason is that the financial market was opened too quickly and the country was overly dependent on foreign investment. From 1992 to 1994, the annual inflow of foreign investment was as high as 250 billion to 350 billion US dollars. However, foreign trade exports did not increase significantly, and the proportion of foreign trade imports in GDP increased from 1987% in 9 to 4% in 1993. As a result, the deficit of the international balance of payments was hovering at a high level of 31 billion US dollars, making the entire Mexican economy overly dependent on foreign investment.

The second reason is that the political instability has hit investor confidence. In the second half of 1994, armed peasant riots were launched one after another in Mexico, and the ruling party's candidate was assassinated. The power struggle within the ruling party and between the ruling party and the opposition party was very fierce, which led to investors losing confidence and withdrawing their capital. The Mexican government had to use foreign exchange reserves to fill the huge foreign trade deficit, causing foreign exchange reserves to drop from US$1994 billion at the end of October 10 to US$170 billion on December 12, a drop of 21% in less than two months.

The third reason is that the linkage between the foreign exchange market and the stock market was ignored, and the financial policy was focused on one and lost the other. The government's announcement of currency devaluation was intended to prevent capital outflows, encourage exports, and curb imports in order to improve the country's international balance of payments. However, in the context of social and economic instability, it is very easy to cause inflation, and foreign capital invested in the stock market will suffer losses due to the devaluation of the peso, which will lead to a fall in the stock market. The fall in the stock market in turn exacerbated the devaluation of the Mexican currency, which eventually intensified and led to the occurrence of this danger.

Having a good memory is Lu Shaohua's advantage. The unprecedented financial crisis in Mexico had already gathered at this time and was expanding step by step. How could Soros, a keen financial speculator, not smell that a crisis was brewing?

Therefore, Lu Shaohua did not feel strange at all that Soros was accumulating funds. On the contrary, Lu Shaohua felt that it was very reasonable. Soros was preparing to do something big, so he accumulated more funds so that he could make some money in Mexico.

"Mexico, Mexico? Well, Mexico's exports have increased a lot recently. And the peasants' armed uprising is getting more and more intense. It seems that many foreign investors have begun to withdraw their capital." Liu Mingzhang muttered to himself, and then, as if he realized something, he said, "Could it be these two reasons that caused the financial crisis?"

Liu Mingzhang is the general manager of Phoenix Financial. He spends his days paying attention to the situations in countries around the world. Although he is not familiar with Mexico, it does not hinder his interest in this country. When the name of this country was mentioned by Lu Shaohua and set as a target, a series of information naturally appeared in Liu Mingzhang's mind.

"These two reasons certainly won't cause a financial crisis." After a pause, Lu Shaohua continued. "As you said, many foreign investors are withdrawing their capital from Mexico, so how will the Mexican government fill the foreign trade deficit?"

"Even a three-year-old child can answer this question. Of course it is foreign exchange reserves," Liu Mingzhang said with a smile.

Yes, even a three-year-old child can answer this question, let alone Liu Mingzhang, the person in charge of Phoenix Financial. Without even thinking about it, Liu Mingzhang can answer it according to normal logic.

"Then how much foreign exchange reserves does the Mexican government have to fill the gap?" Lu Shaohua asked again.

"Well, that's a problem." This time Liu Mingzhang was speechless.

Liu Mingzhang was speechless, but that didn't mean Lu Shaohua was speechless. "You know, the Mexican government is very dependent on foreign investment. Now that foreign capital is withdrawing, do you think this gap can be filled with foreign exchange reserves?"

Over-reliance on foreign capital. Now foreign capital is withdrawing. We try to use foreign exchange reserves to block the problem, but foreign capital is still withdrawing, like a vortex that is getting bigger and bigger. After all, the Mexican government's foreign exchange reserves are limited.

As the saying goes, there are only nine lids for ten big pots, so how can they cover them? There is always one lid missing. This is the situation in Mexico now. The vortex is getting bigger and bigger, the foreign exchange reserves are limited, and the outbreak of financial crisis is on the verge of breaking out.

"Yeah." Liu Mingzhang nodded. He was not a fool. Lu Shaohua had made his words so clear. If he didn't listen, he could really buy a piece of tofu and kill himself. "It seems that the outbreak of the financial crisis is only a matter of time."

At last, Liu Mingzhang got the confirmation, suddenly came to his senses, and asked, "Should we take action now?"

According to Lu Shaohua's previous practice, after selecting the target, he would make plans in advance, and then wait for the outbreak before actually taking action. It was like fishing, first casting the net, and when the time was almost right, he would pull the net up to finish.

Lu Shaohua shook his head and said, "It's too early now. On the surface, it looks like the crisis is on the verge of breaking out, but there's still a fuse missing. This crisis won't break out so quickly."

Lu Shaohua has a good memory and knows exactly when the Mexican financial crisis will break out. Knowing the exact time, he is naturally not in a hurry.

The saying goes that even if the emperor is not in a hurry, the eunuchs are. Just because Lu Shaohua is not in a hurry doesn't mean that Liu Mingzhang is not in a hurry. Over the years, Liu Mingzhang has become sick from being depressed. Now he finally has a chance to take action, but the time has not come yet, which means he has to wait. But how can Liu Mingzhang wait?

"How about this, I'll go to Mexico first to prepare and arrange everything, and when the time is almost right, you notify me and then I'll take action?" Liu Mingzhang couldn't help but suggest.

Lu Shaohua glanced at Liu Mingzhang, and was very amused, and said unhappily, "Why are you in such a hurry? It's not like I'm not going to stop you from going."

"No, that's not what I meant. No, I just think, hey!" Liu Mingzhang muttered for a long time, but couldn't express his original intention. In the end, he could only sigh, pause for a moment, reorganize his words, and then said, "I mean, I will go there first to prepare, so that I won't be afraid of going too hastily and affecting our plan."

"Oh?" Lu Shaohua answered loudly, looking at Liu Mingzhang with a playful look, and asked, "When you gave birth to your son, were you as anxious as you are now?"

"Oh!" Liu Mingzhang was stunned. He didn't know why Lu Shaohua involved him in the matter of having a son, but he still answered honestly. "It was much more urgent than it is now."

"Haha!" Lu Shaohua couldn't help but burst into laughter.

When Liu Mingzhang's wife gave birth, Lu Shaohua had heard some rumors that Liu Mingzhang was walking back and forth anxiously in the hospital. From the time his wife entered the delivery room to the time the child was born safely, he did not stop for a whole hour and kept walking back and forth, looking extremely nervous.

Liu Mingzhang scratched his head in embarrassment, realizing that Lu Shaohua was teasing him on purpose. He shook his head with a wry smile and cursed the big mouth in the company in his heart for reporting the situation to Lu Shaohua.

However, Liu Mingzhang overlooked one point, that is, the gossip in his heart was actually his wife. Only his wife knew the situation at that time, and the rumor that Lu Shaohua heard was exactly what Liu Mingzhang's wife had mentioned inadvertently once.

Therefore, the person Liu Mingzhang was scolding was his wife, but he just didn't know it. Fortunately, Liu Mingzhang was scolding in his heart. If he dared to scold her publicly, it would be strange if he was not scolded by his wife.

"Okay, my boss, stop changing the subject and tell me whether you agree that I should go to Mexico right now to pave the way." Liu Mingzhang felt very unhappy after being teased, but he did not say anything. Instead, he changed the subject to the main topic.