BOOM as at 23rd February 2020

STOCK MARKET DISCONNECT WITH CORONA VIRUS

The world is being bombarded with mainstream media messages of Corona Virus attacks in many nations especially in China with 76,000 cases and 2,236 deaths.

Other nations affected include South Korea 204, Japan 105, Singapore 85, Hong Kong 68, Cambodia, Thailand 35, United States 34, Taiwan 26 , Malaysia 22, Italy 20, Australia 19, Iran 18, Vietnam 16, Germany 16, France 12, Macau 10,  UAE 9, UK 9, Canada 9, Philippines 3, India 3, Russia 2, Spain 2, and one case each in Egypt , Israel, Lebanon, Nepal,  Sweden, Cambodia, Sri Lanka, Belgium, Finland.

The data is up to date at the time of writing on 22nd February and can be seen at a website called Corona.help, but the caravan seems to be moving on quickly, especially in South Korea —  https://corona.help/

These are clearly alarming and very sad statistics. Meanwhile, the head of the World Health Organization (WHO) has expressed concern at the number of coronavirus cases with no clear link to China or other confirmed cases.

“Dr Tedros said the number of coronavirus cases outside China was “relatively small” but the pattern of infection was worrying.
“We are concerned about the number of cases with no clear epidemiological link, such as travel history to or contact with a confirmed case,” he said.

The new deaths and infections in Iran were “very concerning”, he said.

Source:  BBC https://www.bbc.com/news/world-asia-51591091   —

But this is a finance editorial. So BOOM asks what impact has this had on the stock markets of the world?

The Chinese stock markets were initially hit hard. The Shanghai Composite Index fell 13% in just 2 weeks in late January. But then it bounced up strongly and the index recovered very sharply. It is now just 2% below the peak it reached in mid January.

The SZSE Index in Shenzhen, Southern China, also fell hard initially by about 13.8% but is also now rising strongly and has gained 22 % over the last 3 weeks. That is an amazing performance, considering the blanket negative media coverage of the viral epidemic.

The South Korean stock market index, the KOSPI, fell by 1.5% last week but previous to that fall, it too had regained its previous trading range from a steep initial fall in early February.

Stock market indices in Taiwan, Malaysia, Japan, India and Singapore markets have also all shown a strong bounce since early February. However, the Thailand and Indonesian stock markets have not shown any significant recovery from the initial impact and continued to fall through last week.

The major European markets in Germany, France and Italy have been very resilient and have shown good investor demand since early February. Of those three, believe it or not, Italy has been the standout performer.  And the US stock indices have all performed well since the beginning of February.

So — what’s happening?

There seems to be a big disconnect between the official disease numbers, the mainstream media panic and the world of stock market performance. Investors in many nations have obviously been unimpressed by the virus.

Maybe they don’t listen to the television news shows or read newspapers?

ANOTHER DISCONNECT — COBALT AND LITHIUM — ELECTRIC CARS

The current rage is electric cars and the promise is that they are the future, replacing conventional cars and trucks along the way. Such vehicles require Cobalt for their batteries. So it makes sense to take a look at the price chart for Cobalt. It is certainly revealing.

The price of Cobalt is now US$ 33,750 per MT. In early 2016, it began a meteoric rise and went from $ 23, 000 to just above $ 95,000 within 12 months. The price had tripled and more. Then it proceeded to collapse back to US$ 23,000 in July 2019. The round trip was completed in three and a half years. At present, the price is trading in a relatively tight trading range and does not appear to be subject to any huge demand pressures. The hype surrounding electric cars has presumably passed.

Lithium prices tell a very similar story. They started rising in early 2016, reached a peak around late 2017/early 2018 and have been falling ever since. Lithium is in abundant  supply on planet  Earth, so this is probably to be expected. However, with the current “huge” demand for batteries, its fall from grace is a little surprising.

Then there is Graphite. The Flake Graphite price also shot up in early 2016 then reached a peak trading range for quite some time but it has been steadily falling over the last 12 months.

The reality of these metals prices does not seem to match the hype of a future driven by batteries. Something doesn’t add up. Investors in most nations have obviously been unimpressed by the battery powered future promised by mainstream journalists.
Perhaps they don’t listen to the television news shows or read newspapers either?

CHINA IMPORTS

Regular BOOM readers will know that BOOM watches imports into China closely, especially a special indicator that has been extremely reliable in the past for correlating well with financial market performance. That indicator has been in a holding pattern during the Coronavirus outbreak. Last week, it started falling below the holding pattern. However, it is a fall of rather small magnitude when the long term perspective is taken into consideration. It has now fallen just 6.4% (slowly) from its recent high point way back in October last year. That is not a big fall over a 5 month period. So this indicator is saying “be mildly alarmed but certainly don’t panic”.

CHINA TOTAL SOCIAL FINANCING

China’s monetary system is different to the money systems used in the advanced economies. It pretends to be the same but, in practice, it is much more centrally controlled. Last week, the Total Social Financing figure was released for January. It rose by 5.1 Trillion Yuan. In Dollar terms, that is an increase of US$ 733 Billion in just one month.  Think about that for a moment. It amounts to almost 75% of a Trillion Dollars in just a single month.

Clearly this new money supply was not generated by fresh new borrowers lining up at Chinese banks in the freezing January cold and enthusiastically applying for bank loans.  But it was, at least theoretically.

The official bank loan number is part of the Total Social Financing number and it was US$ 504.5 Billion of that total figure, much the same as last year. A January peak in bank loans has become the norm in China over the last 5 years so this is quite “normal”. Apparently, the Chinese people like to line up in large numbers in deep winter and borrow to kick off the new year.
The other sources of Total Social Finance that did increase significantly from last year were in Foreign Currency Bank Loans which were at the highest level since 2015 and in Equity Financing in the Domestic Stock Market by Non Financial Enterprises. The latter figure shows that Chinese companies are investing heavily in either their own shares or in other Chinese company shares. The former figure suggests that they are also borrowing in foreign currencies more than they have done since 2015. But that number is not a big one — only US$ 9 Billion in January (after being a negative number for most months over the last 5 years).

CHINA BANK LOANS

But, let’s go back to bank loans. The China numbers show that the total amount of bank loans outstanding is equivalent to US$ 22.6 Trillion while the same total in the US is just US$ 10 Trillion. And the Chinese number has doubled in the last 7 years since 2013. US bank loans have increased very slowly in comparison in the same time frame, despite a “booming” US economy (according to Donald Trump).

This mismatch sounds “dangerous” but it can be explained by looking at the bond market in the US. The United States has a very deep, active bond market and it is where companies, municipal bodies and government bodies go to seek much of their financing. They do not use bank loans as much as the Chinese. This is critical to understanding the difference in performance between the US economy and the Chinese economy.

If American corporate and institutional borrowers used bank loans more in preference to the bond market, then the US economy would be growing as impressively as the Chinese economy. Why? Because bank loans increase the money supply while bond issuance does not. It’s as simple as that.

Please note that the US corporate bond and municipal bond market totals US$ 14 Trillion outstanding. That explains the so called “dangerous” gap outlined above between China bank loans and US bank loans.

As BOOM always says, the supply of fresh new money is critical to an economy’s health. New money (in the form of bank loans) is like fresh new water to a garden. The Chinese have worked this out and the Americans have not.
However, BOOM will (yet again) refer to Winston Churchill’s famous comment —

“The Americans will eventually do the right thing after exhausting all other alternatives”

SAVE THE PLANET — Read the Link — and send it to your politicians and central bankers. Quantitative Boosting Explained —
https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/
In economics, things work until they don’t. Until next week …………  Make your own conclusions, do your own research.  BOOM does not offer investment advice.


CLICK HERE FOR PODCASTS:
   OUR BRAVE NEW ECONOMIC WORLD

EMAIL: gerry [@] boomfinanceandeconomics.com

Return to the BOOM Main Website –  BOOM Finance and Economics at  http://boomfinanceandeconomics.com/

=======================================================================

HOW MOST MONEY IS CREATED

BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR (but they always need a Borrower to do so)

THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS

BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how the banking system and financial sector really work.

https://www.youtube.com/watch?v=EC0G7pY4wREhttp://

How is Most New Money Created ?

LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).

From the Bank of England Quarterly Bulletin Q1 2014    —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.

On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —

“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”

The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
======================================================================

Disclaimer:   All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

========================================================================

MOLS Denmark

 

BOOM as at 16th February 2020

PREPARE TO MEET THY DOOM — US PRIVATE DEBT SITUATION — FEAR IS NOW A PRODUCT

In financial newspapers, journals and online blogs, especially in the United States, there are many, many articles bemoaning the amount of debt in the US economy. They usually end with a conclusion such as “this cannot continue, the economy must collapse” and then they usually suggest that the reader should do something drastic to prepare for the inevitable — “sell stocks, buy Gold, store canned food, buy a rural property, get a gun, buy our newsletter, buy our books” (!) — or even a combination of all.

The DOOM and Gloom analysis often surrounds so-called government debt without ever pointing out that governments don’t borrow from banks, they issue bonds. So readers are often mislead into thinking that governments can easily “go broke”, get hit with hyper-inflation and see their currencies and their economies collapse. Thankfully, all of these events are extremely rare in history and they are due to clearly identified triggers, none of which are ever  mentioned.

The whole phenomenon is called “Prepping” and the adherents are called “Preppers”.  The Preppers are preparing for the “inevitable” collapse of the economy and the societal chaos to follow. They live in a state of perpetual panic while they stack.  “Stacking” involves the storage of canned food, guns and ammo, clothing, water, fuel, precious metals in physical form and anything else they can think of including alcohol.

The American Preppers Network tells us that the 6 key elements to “stack” are — water, food, security, power, first aid and evacuation. On their website, they reference the Top 50 Survival Blogs on the Internet. Most of the scenarios involve the assumption of economic collapse and  point to excessive debt as being the epicentre of instability.

Governments are immortal so their peculiar form of debt (Government Bonds) is unique because it is not bank debt — more on that later. So let’s look at the private debt situation in the US because BOOM sees that form of debt to be the most critical in financial and economic terms.

US PRIVATE DEBT SITUATION

In the 5 year period from 2003 to 2008, Total American Household Debt grew from around $ 7 Trillion to $ 13 Trillion. That is a 70 % increase in just 5 years.  Note that figure — historically, a 70% increase in just 5 years is a very rapid increase in private debt for such a short period of time. Then the Global Financial Crisis hit due to bank frauds and banking crime of unprecedented proportions — most of which had occurred in that previous 5 year period.

After the Global Financial crisis in 2008, total US household debt fell from around $ 13 Trillion to $ 11 Trillion in the next 5 year period. Then it started to rise again and over the last 5 years up to 2019, it increased from $ 11 Trillion to $ 14 Trillion. That is an increase of 27 % in five years (way below 70%).

No matter how hard BOOM tries, that current rate of increase just does not induce panic. It seems to BOOM to be a slow and steady increase, not something that will destabilize the whole economy and result in a sudden collapse.

Also in that period, the annual GDP of the United States grew from around $ 17 Trillion to  $ 21.5 Trillion — an increase of about 27 %.  Coincidence?

So — let’s pause and think carefully —  there has been a slow steady 27 % increase in the size of US GDP (total economic activity measured in dollars) while there has been a slow and steady 27% increase in the size of total US Household Debt.  Shock, horror — is that the signal to panic? Is this excessive indebtedness? BOOM does not think so.

The source of BOOM’s numbers is the US Federal Reserve Consumer Credit Panel. It includes Mortgage Debt, Credit Card Debt, HE Revolving Debt (debt loaned against Home Equity), Auto Debt and Student Loans. The total amounts to about $ 100,000 per household. Surely that is cause for concern?  Mmmmmm. Not if it generates an interest component of average 5% — that is equal to $ 5,000 of interest per household. In other words, about $ 100 per week — about 8 % of average household income. Again, BOOM can’t get to a panic over such a figure.

MORTGAGES ARE THE KEY

The bulk of Household debt involves mortgages — bank loans used to purchase homes — and bank loans that are tied to home equity. Those loans are about 70% of the total household debt. They are also the key component in the fresh new money supply for the economy. So it  makes sense to watch the mortgage originations occurring in the US economy. At present both mortgage originations and mortgage refinancings are growing strongly in the US and that is happening during winter which is unusual. This is a sign of faith in the future and is a strong positive for the US economy going forward.

MORE POSITIVES IN THE US

What else is happening in the US economy that is a positive input? The US Federal Government Budget Deficit is growing strongly under Trump. This fuels increased US government spending. That also helps the economic performance but, because it is fueled by bond issuance and not by fresh new bank loans, it does not boost the supply of new money. Thus, it helps support the economy to some extent but deficit spending by governments is always limited in its “stimulatory” impact because the money supply is not affected.

And, finally, US companies are engaging in share buybacks aggressively. BOOM watches this phenomenon closely and there is no sign of wavering even during the so-called threat from the Coronavirus epidemic. This puts cash back into the hands of shareholders who wish to sell and they can then choose to invest that cash elsewhere (for example into better performing shares, bonds or property) or they can spend it on consumption items.

COMBINE ALL THREE

Let’s combine all aspects of the US economy that we have looked at. Total household debts and the economy as a whole have grown slowly and steadily in the last 5 years by 27% with no sign of an excess rate of growth. The Budget Deficit has doubled in size under Trump (nothing slow and steady about that). And there is no sign of the corporate share buyback phenomenon faltering.

If you consider all three acting in tandem, then there is no surprise that the US economy is growing and that their stock markets are running hot.

Panic, economic collapse, currency collapse, stacking, societal chaos may come sometime in the future but, at present, there appears to be no sign of those various disaster scenarios.

Like everyone, BOOM speculates about the future but BOOM is very wary of making predictions. The future is inherently uncertain with multiple complex interactions occurring between multiple variables. BOOM prefers to look closely at the past and the present (what we know for sure), always keeping a watchful eye on any significant economic, monetary or financial changes. At present, there appears to be a static situation in the US economy and in its financial markets.

So, let’s stop stacking and relax. Let’s not panic. We can worry if the dynamics change but, at present, that is not happening even with the global threat of the Coronavirus epidemic. Not to mention the permanent Tuberculosis epidemic which causes one Million deaths and 10 Million new cases per year. Oh — and then there is the common Influenza virus threat that comes every year and that killed 61,000 Americans last year from 800,000 hospitalizations.

FEAR IS NOW A PRODUCT

Fear is the product produced by mainstream media outlets. They produce fear day in, day out with no perspective given. They know that fear creates anxiety and that anxiety makes their customers more suggestible to their advertisements. It is important not to be swayed too much by the mainstream media or the DOOM and Gloomers, stacking in their basements. Keep a level head and read BOOM.

SAVE THE PLANET — Read the Link — and send it to your politicians and central bankers. Quantitative Boosting Explained —
https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/

In economics, things work until they don’t. Until next week …………  Make your own conclusions, do your own research.  BOOM does not offer investment advice.


CLICK HERE FOR PODCASTS:
   OUR BRAVE NEW ECONOMIC WORLD

EMAIL: gerry [@] boomfinanceandeconomics.com

Return to the BOOM Main Website –  BOOM Finance and Economics at  http://boomfinanceandeconomics.com/

=======================================================================

HOW MOST MONEY IS CREATED

BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR (but they always need a Borrower to do so)

THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS

BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how the banking system and financial sector really work.

https://www.youtube.com/watch?v=EC0G7pY4wREhttp://

How is Most New Money Created ?

LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).

From the Bank of England Quarterly Bulletin Q1 2014    —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.

On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —

“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”

The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
======================================================================

Disclaimer:   All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

========================================================================

MOLS Denmark

BOOM as at 9th February 2020

CORONAVIRUS AND TRADE

Global trade in goods amounts to about US $ 32.4 Trillion and US$ 3.6 Trillion of that trade is conducted with China. So, if the Coronavirus slows the Chinese ability to trade by 20% over a one year period, then Chinese trade will fall by about $ 700 Billion. That equates to a reduction of 2% of global trade.

If the Coronavirus slows the Chinese ability to trade by a disastrous 50% over a one year period, then Chinese trade will fall by about $ 1,800 Billion. That equates to a reduction of about 5% of global trade.

Global trade is about 37% of Total Global GDP, so that disastrous situation would result in a reduction in Total Global GDP by about 1.8% – 2.0%.  The IMF is forecasting Global Growth of about 3.3% in 2020 so this figure would then be reduced to about 1.3 – 1.5% growth. That would probably be a worst case scenario.

A best case scenario would result in a reduction of Global GDP Growth in 2020 by only 0.3 – 0.4%. And this would leave Total Global GDP Growth at around 3%. No big deal.

The economic world will not end in such scenarios. It will slow in its growth trajectory a little but it will not die. The numbers here are big ones but we must all keep it in perspective. Panic is not the correct approach.

THE FED TO THE RESCUE

On 15th December, the BOOM Editorial stated  —

“Since September, the US Federal Reserve has been increasing liquidity into the banking sector fast via the repo market. BOOM strongly suspects that this is due to the rescue of a foreign bank.”

That comment was triggered by a whole host of DOOM and Gloomers writing panic articles in many financial publications about what was then happening in the US Repo market (Repurchase Agreements). They were all predicting “a crisis of mammoth proportions in the US banking sector”. Most even said it would all come to a head on 1st January with a major calamity — presumably a market collapse of some kind. But BOOM stood steadfast. A foreign bank rescue appeared to be the most likely explanation.

So — guess what?  The shares of a major foreign bank, famous for being a bank in great distress over many years, suddenly surged UP last week by 13.77%. And overall, those shares have appreciated by 48 % since early December.

BOOM stands firm. The US Federal Reserve appears to have just rescued a foreign bank. That is good work and it is what central banking was designed to do. The alternative would have been unthinkable. So BOOM says — Don’t End the Fed — Reform It (!).

ENERGY IN THE ECONOMY

BOOM read a strange statement last week made by an economics expert.

” …. the economy is an energy system, not a financial one, and money plays a secondary role”.

The statement sounds convincing but it cannot be true. Energy does not leap out of the ground by means of magic. Primitive human societies function for only a very short time using the energy available from each individual’s muscle power. Then the idea of money quickly emerges. Money is embodied in a promise. “I promise to help you with your garden if you will help me build my house”, “I promise to hunt rabbits if you promise to grow me some vegetables”. These are credit contracts and they are the early building blocks of money. The contractees enter into the contract first and then, with the future assured and trust enshrined, they look for the energy to deliver on their promises. That is how an economy emerges and grows in complexity. Each human agent plays a different role but each agent needs to trust in the future and then find sufficient energy to complete that role. However, the energy is not found or used until the promises are made, so finance always comes first.

Of course, there is a complex interaction between finance and energy required to create and sustain an advanced economy. And Banks have evolved to assist in creating credit contracts (promises) as a business in itself. This speeds economic activity, creates more money and generates more economic  complexity. Trust is a key part of this stage of economic development because banks trust their borrowers to pay back their loans. And borrowers trust banks to keep the details of this relationship confidential.

Interestingly, mainstream economists ignore almost all of these essential elements when they build their macro-economic models. They exclude banks, debt, energy and money. Whenever BOOM explains this to a non-economist, the answer is always the same — “how can they do that when everyone knows that banks, energy, money and debt are clearly the basic building blocks of any economy?” “Is that why economists never know what is happening?”

So, to get back to the subject of energy, it is clear that money digs energy out of the ground …. not vice versa. There is one exception to this rule but BOOM will let the reader guess what that is.

OUR CURRENT PREDICAMENT

At present, there is no shortage of energy worldwide. There is abundant coal, oil, natural gas, sunshine, wind, hydro, nuclear, tidal and waves. So energy is not the cause of our economic problems.

Our current economic difficulties lie inside the financial system which is reaching its limits in providing enough money. How can this be so?

Our current system of finance evolved rapidly during the 16th century in Venice. Since then we have had expanding populations, expanding trade, expanding credit, abundant and expanding energy, expanding labor. All of that created economic growth and a virtuous circle of financial expansion followed by economic expansion followed by financial expansion followed by economic expansion followed by financial expansion followed by economic expansion.

But that whole expansion phenomenon is slowing in the advanced economies and aging demographics is certainly a major cause. Old people clearly engage in fewer originations of financial contracts. So an aged demographic economy with a low birth rate must result in a lower rate of money creation. Less promises, less money creation. Our major economic problem is now, for the first time in history, a permanently decreasing rate of fresh new money supply leading to low wages growth, low CPI inflation and lower rates of GDP growth.

So far, the (correct) response from our central banks and governments has been to try to expand the money supply via Quantitative Easing, Lower Interest Rate Policy, Zero Interest Rate Policy, Negative Interest Rate Policy and by boosting Deficit Spending.  But clearly, not enough has been done because our system of new money supply depends principally upon willing borrowers applying for bank loans and those low interest rate policies are not enticing enough borrowers. Also, deficit spending, by definition, does not affect the creation of fresh new money.

Without sufficient willing borrowers in the advanced economies, those systems must slow and then eventually contract. The alternative is to find new ways to expand the fresh new money supply (that is where Quantitative Boosting comes in).

So we are facing two possible long term options  — 1. Persistent economic slowdown   Or  2. Quantitative Boosting (an effort to increase our Sovereign Money supply in digital form as opposed to our Credit Money supply).

MONEY IS WATER

Money can be thought of as water (not energy). In this analogy, we must choose between watering our economic garden or not.

“Mavis, the garden is dying in the drought. Let’s not turn on the tap. We’ll see if it can grow without water”.

BOOM would expect Mavis to reply — “Don’t be stupid Harry, turn on the tap (!)”.

It’s that simple.

SAVE THE PLANET — Read the Link — and send it to your politicians and central bankers. Quantitative Boosting Explained —
https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/

In economics, things work until they don’t. Until next week …………  Make your own conclusions, do your own research.  BOOM does not offer investment advice.


CLICK HERE FOR PODCASTS:
   OUR BRAVE NEW ECONOMIC WORLD

EMAIL: gerry [@] boomfinanceandeconomics.com

Return to the BOOM Main Website –  BOOM Finance and Economics at  http://boomfinanceandeconomics.com/

=======================================================================

HOW MOST MONEY IS CREATED

BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR (but they always need a Borrower to do so)

THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS

BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how the banking system and financial sector really work.

https://www.youtube.com/watch?v=EC0G7pY4wREhttp://

How is Most New Money Created ?

LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).

From the Bank of England Quarterly Bulletin Q1 2014    —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.

On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —

“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”

The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
======================================================================

Disclaimer:   All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

========================================================================

MOLS Denmark

BOOM as at 2nd February 2020

PANIC, PANIC CORONAVIRUS
SOME INCONVENIENT FACTS

Let’s look at the Influenza group of viruses.

In the USA alone, during the year 2018, there were 61,000 deaths from Influenza (more than 800,000 people were hospitalized). In the previous year, there were 38,000 deaths and in the year before that, there were 23,000 deaths.  But there was no panic, no “global public health emergency” announced by the World Health Organization. No planes were cancelled.

Then there is Tuberculosis — one Million deaths globally per year and 10 Million new cases.
This Coronavirus panic looks like a media created sensation, designed to create fear. And it seems like a very well coordinated one, a carefully designed media program of sensationalism. Anyone remember the Zika Virus?

HOT AIR TO THE RESCUE

Maybe we can run the whole global economy on the energy from hot air?  There seems to be an abundance of that. A new energy source — readily available at all mainstream media outlets. Currently fueled by Coronavirus.

ENERGY PRICES FALLING SHARPLY

Coal prices have been falling steadily for two years now and dropped sharply last week. Natural gas prices have been falling sharply over the last 12 months. And now Oil prices and Gasoline futures prices have joined them in a downwards plunge that began in early January.

Aluminium producers are the biggest users of electricity (electrical energy) and in just under two years, the Dow Jones Aluminium Index has fallen from around 200 to below 50. Copper and other base metals have joined the party and plunged over the past week.

With energy prices and base metal indicators falling like this, there is no hope of increased CPI inflation so interest rates simply cannot rise. And the energy producers will be faced with steadily falling revenues. Bankruptcies are guaranteed to occur in that sector in the not too distant future.

GOOD NEWS AT LAST

Last week, the US Mortgage Bankers Association reported a 17% increase Year on Year for residential mortgage purchase applications. This is great news for the US economy because mortgage purchase applications have been falling consistently since March 2019. And new mortgages cause an increase in the money supply so they are very important. More new money supply, more economic activity. BOOM will watch this data set closely in the coming months.

Refinancing applications also jumped by 146% YoY.  More good news.

SO WHAT’S THE PROBLEM?

Because of our aging demographics, cheap energy, cheap Chinese goods and rapid technological innovation, we have low CPI inflation, low wages growth and low GDP growth in all the advanced economies. The critical impact of these dis-inflationary forces is that our money supply growth is too slow and relatively stagnant.

Record low mortgage interest rates, ZIRP, NIRP, QE and Massive Deficit Spending all help (a little). Those money policies are all quite natural responses and no one should be surprised by them. And any boost to home loan numbers will certainly help but, in the long run, it will probably not be sufficient to stir sustained economic growth.

BOOSTING THE MONEY SUPPLY
DON’T PANIC, DON’T PANIC

Most people, including economists, bankers and politicians, don’t understand money creation and money destruction. And they don’t understand the different types of debt that exist. They use money and debt every day. However, using it does not give them any deep understanding of where it comes from and to where it goes.

Thus — most people, including our leaders, have no real chance of getting anything right in economic analysis.

Economies are effectively built on Money Supply and Energy Supply (with some labor thrown in to effect change). The Money Supply must come first (for without money we cannot get oil out of the ground or build a solar panel). So understanding money fully is STEP ONE.

97% of fresh new money is created as a bank loan to a willing borrower (except in China where the system is a little different) so most money is debt.  Only 3% is sovereign (Notes and Coins), created by the Government’s Treasury Department.

Government Bond Issuance does NOT create any new money. It is almost identical to taxation systems. Bonds pull old money into the Treasury and the bureaucrats spend it straight back into the real economy almost immediately. This has no effect on the fresh new money supply (or the total money supply). This is why Keynesian spending programs funded from bond issuance programs have limited “stimulation” effects on an economy.

Government’s are immortal and can roll over debt obligations ad infinitum as long as their currency remains well accepted internationally and as long as they do not encounter severe CPI inflation growth. So many government’s have used bond issuance programs over decades and run budget deficits. It is easy to do and it boosts the government expenditure program. But it does not boost the money supply so it is clearly limited in its “stimulation” effect.

Government “Debt” is a Bond contract and is arguably not a debt in the normal sense because governments don’t borrow from banks. As one Bond matures and the capital is returned, then another Bond can be issued for the same amount. As long as there is investor appetite for that Bond, then the Treasury Balance Sheet is in a steady state.  As the economy grows nominally, then more “debt” can be issued. Japan has reached a Government Debt to GDP Ratio of 250% (and that is without having the global reserve currency) — so the US has a long way to go.  Don’t panic about government “debt”.

Private debt (household debt) is another matter because it is almost all bank loans and new bank loans always expand the money supply. They are absolutely critical to the sustainability of an economy over time. Our changing demographics is critical to consider here. As our advanced economies age, there is less demand for large household bank loans. Thus, the money supply growth slows and may even stagnate.

Corporate debt is a blend — 1. Bank loans  and 2. Corporate Bond issuance. In the US, most companies of size now fund their debt through bond issuance and not bank loans so no significant increase occurs in the money supply).

Financial Sector Debt is also a combination of bond issuance and loans — however, banks don’t borrow much — they borrow marginally on their balance sheets to expand their loan books (again only at the margin). We must remember that all deposits in banks are a loan from the depositor. And that all deposit moneys are almost all created initially as loans in the banking system.

So — Household Private Debt is the primary driver that DOES increase the supply of fresh new money in our current money system.  If a house loan is paid off, that money dies (and has to be replaced to maintain the status quo of overall total money). So there is a need to continually expand the money supply via mortgage originations.  If this process fails or if the assets underlying those loans fall in price (as in 2008), then the whole system implodes and bank failures can arise.

When there are insufficient borrowers (our current situation), we must innovate to boost the supply of fresh new money in other ways or else we are doomed to economic stagnation.  We just can’t wait for abundant fresh new borrowers to appear. We have done that for almost 12 years. The answer is Quantitative Boosting.

SAVE THE PLANET — Read the Link — and send it to your politicians and central bankers.

https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/

CHAOS IN PARIS

Last week, there were large scale protests in Paris conducted by the “POMPIERS” —  firefighters seeking better employment conditions and better pensions. This broke down into what looked like open warfare between the fire fighters and the riot police. The videos were extraordinary on the Internet but mainstream TV channels simply did not show them in most nations. BOOM wonders why? One reader suggested that protests, riots and fighting  on the streets was so commonplace now that it was probably not newsworthy.

In economics, things work until they don’t. Until next week …………  Make your own conclusions, do your own research.  BOOM does not offer investment advice.


CLICK HERE FOR PODCASTS:
   OUR BRAVE NEW ECONOMIC WORLD

EMAIL: gerry [@] boomfinanceandeconomics.com

Return to the BOOM Main Website –  BOOM Finance and Economics at  http://boomfinanceandeconomics.com/

=======================================================================

HOW MOST MONEY IS CREATED

BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR (but they always need a Borrower to do so)

THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS

BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how the banking system and financial sector really work.

https://www.youtube.com/watch?v=EC0G7pY4wREhttp://

How is Most New Money Created ?

LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).

From the Bank of England Quarterly Bulletin Q1 2014    —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.

On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —

“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”

The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
======================================================================

Disclaimer:   All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

========================================================================

MOLS Denmark

BOOM as at 26th January 2020

LIVING STANDARDS DECLINE IN THE UNITED KINGDOM — CAPITALISM IS DEAD — WE WILL RUN OUT OF BILLIONAIRES — MORE BANK CRIME? — US BANKER BANNED FOR LIFE

 

LIVING STANDARDS DECLINE IN THE UNITED KINGDOM

A regular BOOM reader recently wrote a letter describing life in the United Kingdom (the UK). He is retired and lives in an idyllic town in the countryside of England. It is a powerful letter.

“Here in the UK it is very different.  My wife took a long time to understand the drooping heads as they battle the wind and rain, the coughing and spluttering as the winter colds take hold.  The 8/9 months of winter are depressing in the extreme and the National Health System (the NHS) is barely managing.  The funding for social care for the old and sick has been cut so much that it’s putting immense strain on the NHS as elderly have to stay in beds which should be clear for others. We have to wait many months for non-urgent treatment – my wife has been waiting 9 months for a cataract op.  You have to wait weeks to see a doctor GP and even then they only allow 10 mins and mostly offer drugs which carry a prescription charge of £10 each.  Most people use the A & E at the hospital and that puts added strain on them – it’s a vicious circle.  The NHS is excellent for emergencies though.

Funding for libraries has been cut so much that most are run by volunteers.  Our local services are a shadow of our former state when rubbish was collected weekly – now it’s fortnightly and done by contractors at vast expense.  Local taxes are heavy, £1,500 pa for small 2 up/2 down cottage which is about 7% of average (median) gross income at £22k pa.   Eating out is rare and a treat (although we can manage twice a week) most do unhealthy Big Mac takeaways or some such.  They spend many hours in front of ghastly TV programmes (while drinking cheap beer from the supermarkets) which are dumbed down for the lowest IQs – the programming is so bad that I have emailed the BBC to say I won’t be watching them anymore.  The pubs used to be social gathering places in the 60s I remember them well.  Now most can’t afford to go there.  A pint is £5 and a glass of wine £7 and the cops are round the corner waiting for when you come out, so you need a taxi at £2.50 a mile, if you can get one. Uber doesn’t operate in the rural areas.  But everyone does have the average smart phone and spend their time on FB, Twitter and Snapchat – wasting most of their sad lives exchanging photos of their favourite takeaway.  The bus services are non-existent – only in cities.  70% of cars are ten years old – I watch them regularly just to see (the registration plates give the year) – mine is 2009 and I won’t change it now for a few more years.  Diesel is £1.35 litre. Holidays are important and many go into debt to get to some sun for 1-2 weeks.  City breaks are popular to Europe and relatively cheap for a long weekend.  Many jobs are part-time and in the Gig economy – lots are working 2-3 jobs in the famous ‘service’ economy making enough so they ‘just-about-manage’.  The consumer debt load is heavy and growing just so they can buy rubbish from China they don’t need with money they don’t have.”

He explained later to BOOM in a conversation that the great recession in 2009 triggered by the global financial crisis had irrevocably changed the United Kingdom. Ever since then, the living standard of the average Briton had been in serious decline. However, he felt that this decline was just an acceleration from a longer term decline that began with Margaret Thatcher and Ronald Reagan during the 1980’s. Social welfare spending had been reduced dramatically then and that trend apparently continues to the present day.

He felt that the “class system” that was fixed in place by the Normans after their invasion in 1066 was also a strong contributor to the decline. The “establishment”, he said, is in full control politically and is a big part of the problem. He implied that they rule for their own benefit to the detriment of the vast majority of the UK’s citizens. He felt that the First Past the Post voting system, combined with a lack of compulsory voting has allowed the “establishment” right wing political parties to take a strangle hold on the nation.

If you do not understand these terms, the Class System and First Past The Post Voting, you can read about them here —

Social Class in the United Kingdom
https://en.wikipedia.org/wiki/Social_class_in_the_United_Kingdom

First Past the Post Voting
https://en.wikipedia.org/wiki/First-past-the-post_voting

SOCIAL UNREST AROUND THE WORLD

Social unrest and protests are continuing all over the Planet — in France (the Yellow Vests), the UK, Germany and the Netherlands (the Farmers with their Tractors), Australia, Hong Kong, Iraq, Lebanon, Chile, Ecuador, Spain (Catalonia), Bolivia, Serbia, Ukraine, Albania, Egypt, Nigeria and Ethiopa. One recent report claimed that 47 nations are currently experiencing significant social unrest. Rising living costs, government corruption, lack of political freedom and inequality of wealth seem to be the four major causes.

Is this surprising when the world’s 26 richest individuals now own as much wealth as the poorest 3.8 Billion people on the planet? And the billionaires apparently increased their combined fortunes by $2.5 Billion per day during 2018 (over $ 900 Billion for the year), while the world’s poorest 3.8 billion people watched as their “wealth” declined (relatively) by $500 Million every day for 365 days.

CAPITALISM IS DEAD
WE WILL RUN OUT OF BILLIONAIRES

One of the Billionaires, Marc Benioff, CEO of Salesforce, said at Davos last week “Capitalism as we have known it is dead”. Yes, Marc, it is clear that our capitalist system has devolved towards oligarchy. The “Elites”, the “Technocrats”, the “Establishment”, the “Deep State”, the Oligarchs, the Bankers, the “experts”, the “Gliteratti” now rule over almost all nations that were once prosperous and where political freedom and egalitarian democracy was the norm.

Everyone is now aware of the fact that the financial system that we inherited from Venice in the 16th century is clearly designed to funnel wealth slowly but surely to the group of already wealthy and privileged at the very top of the pyramid.

But many think that “increased taxes” will solve the situation. This is far from the truth. That strategy will just make everyone equally miserable. The US currently has a Budget Deficit in excess of $ 1 Trillion per year ($1000 Billion). To replace that expenditure with extra taxes would require the Government to confiscate (“tax”) the wealth of 1,000 Billionaires. The next year, they would have to do the same. And the year after that. It is obvious that they would eventually run out of Billionaires.

Taxing Billionaires much more may help marginally but it will not solve the world’s problems. The problem lies in the financial system where almost all of the fresh new money created comes from fresh new bank loan creation. Banks are at the very core of our problem. BOOM suggests you read through last week’s editorial yet again to see where the real solutions lie.  Here is the link —

BOOM DESIGNS THE PERFECT ECONOMY, ECONOMIC BLUEPRINT FOR THE FUTURE

https://boomfinanceandeconomics.wordpress.com/2020/01/18/boom-as-at-19th-january-2020/

MORE BANK CRIME?
US BANKER BANNED FOR LIFE

Wells Fargo bank’s former CEO, John Stumpf, was fined last week $17.5 million in a civil penalty by the United States Office of the Comptroller of the Currency. He was also banned from the banking industry for life. This was related to the creation of (reportedly) millions of fake bank accounts by staff during his period as CEO. Wells Fargo is the world’s 4th largest bank.

The Office of the Comptroller of the Currency also announced that it was pursuing five other former Wells Fargo executives for $37.5 million for their roles in the bank’s poor practices. Two other executives agreed to pay Million Dollar fines.

The Office of the Comptroller of the Currency said “Bank management intimidated and badgered employees to meet unattainable sales goals year after year, including by monitoring employees daily or hourly and reporting their sales performance to their managers, subjecting employees to hazing-like abuse, and threatening to terminate and actually terminating employees for failure to meet the goals.”

On February 2, 2018, the US Federal Reserve Bank barred Wells Fargo from growing its nearly US$2 trillion-asset base any further, based upon years of misconduct, until Wells Fargo fixed its internal problems to the satisfaction of the Federal Reserve.

In economics, things work until they don’t. Until next week …………  Make your own conclusions, do your own research.  BOOM does not offer investment advice.


CLICK HERE FOR PODCASTS:
   OUR BRAVE NEW ECONOMIC WORLD

EMAIL: gerry [@] boomfinanceandeconomics.com

Return to the BOOM Main Website –  BOOM Finance and Economics at  http://boomfinanceandeconomics.com/

=======================================================================

HOW MOST MONEY IS CREATED

BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR (but they always need a Borrower to do so)

THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS

BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how the banking system and financial sector really work.

https://www.youtube.com/watch?v=EC0G7pY4wREhttp://

How is Most New Money Created ?

LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).

From the Bank of England Quarterly Bulletin Q1 2014    —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.

On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —

“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”

The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
======================================================================

Disclaimer:   All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

========================================================================

MOLS Denmark

BOOM as at 19th January 2020

BOOM DESIGNS THE PERFECT ECONOMY

ECONOMIC BLUEPRINT FOR THE FUTURE

A BOOM reader recently asked BOOM to describe “the perfect economy”. That is a very tall order and BOOM will take up the challenge in this week’s editorial. However, such a task is fraught with risk. It is too easy to overlook some critical element. Despite that risk, BOOM will outline an Economic Blueprint for the Future.  Read on ….

A BALANCE OF MONEY CREATION

The first element which a “perfect economy” should have (in BOOM’s humble opinion) is an equal balance between credit money (created by banks when they make a loan) and sovereign money (created by governments that are answerable to the people through a democratic process). At present, the balance of money creation in most economies is 97:3 — that means that 97% of fresh new money is created by banks when they make a bank loan to a borrower (there must always be a borrower) and 3% is created when a government creates fresh new banknotes and coins. That money then circulates in the real economy and is destroyed when the bank loan is eventually paid off. The notes and coins are destroyed when they are taken out of circulation on a regular basis by the central bank.

To create the 50:50 balance in the digital age, there needs to be a system of “digital cash” and BOOM has designed such a system involving cooperation between the banking sector, the central bank and the federal government. BOOM has called it Quantitative Boosting and explained it in the BOOM editorial on 15th December 2019.

Link: — https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/

A BALANCED BANKING SYSTEM
WITH GLASS STEAGALL SEPARATION

Another element which a “perfect economy” should have is a range of commercial (retail) bank ownership models. Commercial banking licenses should be granted to shareholder owned banks, community owned “mutual” banks and State owned banks. The mix would have to be given careful thought and regulation. But this aim is worthwhile as most economies are now much too reliant on shareholder owned banks. Such banks seek always to grow the money supply with little constraint in order to make more profit. The result is over “financialization” of an economy (too much private debt). The credit money creation function should be more evenly spread across these three ownership models in BOOM’s assessment.

BOOM would also like to see a form of Glass Steagall Act whereby commercial banks and investment banks would be separated in ownership and function.

CENTRAL BANKS OWNED BY THE STATE

In BOOM’s “perfect economy”, all central banks would be wholly government owned. This would make them answerable to the people through the democratic process of oversight by elected representatives. Many central banks are currently privately owned, principally by their client banks and this model is fraught with long term risk and lack of objectivity.

Central banks are necessary to moderate and manage the commercial banking system, especially for overnight reconciliations and to be the government’s banker. However, BOOM would like to see Monetary Policy controlled by a separate institutional entity. This separation would mean that the monetary policy settings would not be so sensitive to pressure from the commercial banking sector. It’s “separateness” or “independence” would then only have to be defined vis a vis its relationship to the government.

WISE BANKERS AND WISE POLITICIANS

For the “perfect” economy to remain “perfect”, we would need to have wise, incorruptible, prudent politicians and wise, incorruptible, prudent bankers.  That may be  the tallest order of all. There would also be a need for wise, incorruptible, prudent regulators of the banking system — another tall order.

REGULATED FREE MARKETS

Well regulated free markets for all assets and currencies would need to be established.

NO CURRENCY DOMINANCE

There would need to be global acceptance of all national currencies. In other words, there could be no global dominance of just one currency as we have today in the US Dollar. This is another tall order as such equivalence of opportunity would be difficult to manage over time without some sort of international regulator/agreement.

Currently, the US Dollar is dominant — it is about 62% of the global currency reserves held at the world’s central banks, available to settle international trade and capital transactions. The Euro is next at 20% and all other currencies are less than 6%. The Japanese Yen held in reserve amounts to about 5.6%, the British Pound is about 4.5%, the Australian Dollar, Canadian dollar and the Chinese Yuan are all around 2%. So, from this information, we can quickly see  that the US Dollar is truly dominant and more easily accessed to settle trade and capital movements. The myth of “Chinese money expansion” is just that — a myth.

LOCAL CURRENCIES

Local currencies that could operate in well defined geographical regions within national borders would be tolerated as they would give monetary policy flexibility to national governments inside their nation’s borders.

AN ECONOMICS KNOWLEDGE REVOLUTION

There would need to be an economics knowledge revolution. At present, there is an almost total dominance of such knowledge by the dogmas of conventional, mainstream economics. That knowledge dominance is maintained and rigidly controlled by the self appointed “best” university departments in economics. This is a very restrictive definition of economic behavior, relying strictly upon currency values (and no others) as the unit of account.

There are  many other broad measures of economic progress that could be used as well as using GDP figures, expressed in currency values. For example, here are just a few

Bhutan GNH Index
Disability-adjusted life year Index
Green National Product
Genuine Progress Indicator
Green Gross Domestic Product
Gross National Happiness Index
Gross National Well-being Index
Happiness economics
Happy Planet Index
Human Development Index
Index of Sustainable Economic Welfare
Progressive Utilization Theory Index
Legatum Prosperity Index
Leisure Satisfaction Index
OECD Better Life Index
Wikiprogress Index
World Happiness Report
World Values Survey

BALANCE IN MONEY SUPPLY, DEMOGRAPHICS, PRODUCTIVITY, ENERGY USE

Ideally, a “perfect economy” would be in balance in regard to demographics, energy use, money supply and productivity. In other words, it would be a non growth economy. The population would not increase — births would equal deaths. Energy use would not increase over time. The supply of fresh new money would be equal to the destruction of old money. Such an economy could not become “over financialized”. The financial sector would be relatively static over time. And productivity would neither increase or decrease, being sufficient to provide all the goods and services necessary to sustain the economy indefinitely.

NO FINANCIAL CRIME
NO FINANCIAL FRAUD

Finally, for a “perfect economy” to exist, there would have to be an absence of financial crime and fraud. Currently, we see such behavior erupt in almost all financial institutions and in almost all financial transactional settings. Banks, central banks, regulatory bodies, bureaucracies and governments all seem particularly prone to such aberrant behavior.

In economics, things work until they don’t. Until next week …………  Make your own conclusions, do your own research.  BOOM does not offer investment advice.


CLICK HERE FOR PODCASTS:
   OUR BRAVE NEW ECONOMIC WORLD

EMAIL: gerry [@] boomfinanceandeconomics.com

Return to the BOOM Main Website –  BOOM Finance and Economics at  http://boomfinanceandeconomics.com/

=======================================================================

HOW MOST MONEY IS CREATED

BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR (but they always need a Borrower to do so)

THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS

BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how the banking system and financial sector really work.

https://www.youtube.com/watch?v=EC0G7pY4wREhttp://

How is Most New Money Created ?

LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).

From the Bank of England Quarterly Bulletin Q1 2014    —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.

On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —

“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”

The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
======================================================================

Disclaimer:   All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

========================================================================

MOLS Denmark

BOOM as at 12th January 2020

THE BOOM CONTINUES

The BOOM continues. Most stock markets around the globe continue to advance while bond prices consolidate their gains achieved during 2019. Yield curves are also consolidating into more normal stances.

BOOM Finance and Economics began publishing in 2015 when no-one thought a boom was coming (except BOOM). In early 2016, the signs were appearing that the the Global Financial Crisis was slowly resolving. BOOM began noting positive signs of recovery then but Gloom and Doom was everywhere with almost no other commentator brave enough to call the end of the financial pain. The crisis had caused grave financial sector damage around the globe since late 2008 with many major banks failing or teetering on the brink of failure.

In the early days, some famous investment banks collapsed in New York, notably Lehman Brothers and Bear Sterns. Many global banks and insurance companies failed or had to be desperately rescued, including such household names as Northern Rock, Countrywide Financial, AIG Insurance, Roskilde Bank, Bradford & Bingley, Landsbanki, Kaupthing Bank, Bank West, Royal Bank of Scotland, LLoyds Bank, UBS, HBOS, London Scottish Bank, Indymac, Anglo Irish Bank, Dresdner Bank.

In the United States, there was carnage — banking fraud and crime had certainly been widespread.

In 2008, 25 US banks failed.
In 2009, 140 banks failed.
In 2010, 157 banks failed.

In 2011, 92 banks failed.
In 2012,  51 banks failed.
In 2013, 24 banks failed.
In 2014, 18 banks failed.
In 2015, 8 banks failed.
In 2016, only 5 banks failed. The crisis was ending.
In 2017, 8 banks failed.
In 2018, no US banks failed.
And last year in 2019, just two failed.

Massive interventions were necessary from central banks and governments to rescue the financial sector, especially in the advanced economies, but by mid 2016 BOOM could sense that the tide was turning. And, since then, relative stability has returned to the globe’s financial markets. We should all be thankful.

Note that the banks on that list were all commercial (retail) banks. The list does not include the failures of major US investment banks such as Lehman Brothers, Bear Sterns and MF Global.

The numbers in that list seem outrageous but it is worth knowing that well over 1,000 Savings and Loan institutions failed in the USA from 1985 – 1995 during a previous banking crisis. Savings & Loans institutions in the US are small mutual banks, building societies and finance cooperatives that principally make loans for house purchases in a geographic region.

Banking is a dangerous business, especially when fraud, mis-management and outright criminal behavior are allowed to run wild by slack regulators. This behavior is still going on today because banks attract such behavior. Their “product” is money so it makes sense that the worst humans and the worst of human behavior should manifest in them.

BOOM strongly recommends that  you watch this recently published short video where bankers are put under intense scrutiny by the author Ian Fraser of ‘Shredded’ (a book about  the collapse of the giant UK bank, Royal Bank of Scotland) and the Police & Crime Commissioner for Thames Valley, Anthony Stansfeld. You will be shocked.

https://www.rt.com/shows/renegade-inc/475859-british-bankers-financial-crisis/

ECONOMIES STILL STRUGGLING
US JOB NUMBERS AWFUL YET AGAIN

The advanced economies and emerging economies are still brittle with low GDP growth and low CPI inflation almost everywhere you look. In the US last Friday, the new job numbers were very disappointing. Nonfarm payrolls increased by only 145,000 in December and the numbers for November were downwardly revised to 256,000.

In the 1990’s, monthly job growth creation was double those numbers. It was common to see 350,000 – 400,000 new jobs being created each month. The Land of Trump can only dream of such numbers.

America has an unemployment rate of just 3.5% which is the lowest level since 1969 but many Americans choose not to work so the economy just can’t grow substantially. Trump is helping as much as possible with huge increases in Federal Government deficit spending but jobs are a much more effective way to boost an economy.

There has been no appreciable improvement in the Labor Force Participation Rate since 2013. That is 6 years of sideways movement in the statistic.  It is stuck in a tight range around 62 %, effectively going sideways. This means that 38 % of Americans cannot contribute significantly to the economic output (as measured in GDP terms) because they just don’t have a meaningful income earned from full time employment.  More than 40 Million need assistance to buy food under the Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program.

In 2000, the Labor Force Participation rate was 67.3 %, an all time high. The gap between 62 % and 67 % seems to be a bridge too far. So the US Economy is stuck in a rut as far as BOOM can see with Trump’s massive deficit spending in excess of 5 % of GDP holding it together.

GOING BOEING

The CEO of Boeing has reportedly been fired after the 737 Max debacle. Two plane crashes resulted in 346 people dying and the new aircraft being grounded indefinitely. He exited the company with over $ 80 Million in pay and benefits. Boeing put aside less than that for the families of the victims, just $ 50 Million.

WATCH THAT VIDEO

Remember to watch that video interview. It is riveting as the crimes of the British financial sector are laid bare for all to see.

Link:-
https://www.rt.com/shows/renegade-inc/475859-british-bankers-financial-crisis/

In economics, things work until they don’t. Until next week …………  Make your own conclusions, do your own research.  BOOM does not offer investment advice.


CLICK HERE FOR PODCASTS:
   OUR BRAVE NEW ECONOMIC WORLD

EMAIL: gerry [@] boomfinanceandeconomics.com

Return to the BOOM Main Website –  BOOM Finance and Economics at  http://boomfinanceandeconomics.com/

=======================================================================

HOW MOST MONEY IS CREATED

BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR (but they always need a Borrower to do so)

THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS

BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how the banking system and financial sector really work.

https://www.youtube.com/watch?v=EC0G7pY4wREhttp://

How is Most New Money Created ?

LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).

From the Bank of England Quarterly Bulletin Q1 2014    —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.

On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —

“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”

The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
======================================================================

Disclaimer:   All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

========================================================================

MOLS Denmark