INTEREST RATES RISING — CPI INFLATION RISING — THE MONEY MERRY GO ROUND — BAKED INTO THE CAKE
INTEREST RATES RISING
Last week, the Bank of England raised its key interest rate by 0.25%. The central banks of the Czech Republic and India also raised their key interest rates by the same amount. And the US central bank (the Federal Reserve) indicated a willingness to continue raising their key interest rates later this year. The previous week, the Bank of Canada raised its key interest rate.
Meanwhile, in regard to CPI inflation, the Belgium inflation rate rose to a 15-month high, the Italian inflation rate reached a 15-month high, the Euro Area inflation rate reached a 6 year high, the Portugal inflation rate hit a 15-month high and the French inflation rate jumped to a 6 year high. The Swiss Inflation Rate moved to an 8-year high and the Turkish inflation rate rose to its highest level since since 2004.
The next set of US official figures for CPI inflation will be released on Friday 10th, this week.
BOOM readers will know that BOOM has recently often said that “rising CPI inflation is baked into the cake”. It looks like that is currently still the case and it appears to be a global phenomenon.
NOT INCLUDED IN GDP
What is included in GDP calculations? Well, only goods and services produced domestically are included in GDP figures. In the European Union, GDP values must now contain estimates for the value of prostitution, illegal drug sales, and the sale of stolen property. But not many other nations include those elements of the so-called “black” economy.
So what is normally excluded from GDP Numbers? The answer is very interesting indeed.
The following are NOT included — sales of foreign goods, sales of used goods, illegal sales of goods & services, transfer payments made by government (inc welfare, unemployment, social security), intermediate goods (goods made to assist in producing final products), most financial transactions e.g. buying stocks and bonds and securities, unreported legal transactions (mainly cash transactions), goods produced overseas by domestic companies and all unpaid labor. US companies produce a lot of goods overseas so that is a significant omission in regard to the US official GDP numbers.
The lesson is that lots of transactions are not included. The GDP can rise or fall regardless of these other transactions rising or falling. So what use is GDP? And why do the “professional” economists and the mass media pay so much attention to it?
There are some alternatives to GDP — the Index of Sustainable Economic Welfare (ISEW), the Genuine Progress Indicator, Genuine Savings, the Inclusive Wealth Index, the Unity Well Being Index, the Well Being Index, Gross National Happiness, the Human Development Index, the Happy Planet Index and the Better Life Index.
And yet, politicians continue to say over and over again — “we need growth in GDP”. Why? The answer lies in our financial system which has evolved over the last 500 years. Banks create 97% of new money in our current system as bank loans. Money is destroyed when bank loans are paid back or if they are defaulted upon.
Governments create the remaining 3% of new money in notes and coins. Notes and coins are removed from circulation when they become worn or aged.
Banks need to grow the supply of money at a rate at least equal to the rate of money destruction, otherwise the money supply would contract. They also need to grow the supply of money if they want to grow their businesses and their resultant profits. Shareholder dividends are paid out of bank profits so dividend growth would be impossible if revenue growth stopped.
Yes — you got it. We are on a Money Merry Go Round. And have been for over 500 years during which time many, many bank failures have periodically occurred in many nations. The definition of madness is doing the same thing over and over again and expecting a different outcome.
BOOM suggests the following initiatives be seriously discussed and considered in all nations —
We need a 100% government owned commercial bank that competes with privately owned commercial banks.
We need governments that understand how to establish local currencies separate from their national currency but dedicated to local purposes. Such currencies can be established in preferred industries or regions. Governments could control the volume of supply and the time of longevity because these currencies would not be created as loans in the normal sense (there would be no interest charge) and would have a limited pre-determined lifespan.
We need more community owned banks that operate more like clubs or co-operatives (that pay no dividends because they have no shareholders) and relatively less privately owned national and international banks.
In summary, we need to move steadily towards a 50:50 new money supply system — 50% supplied by the private commercial banks and 50% supplied by government owned commercial banks and community banks plus we need government sponsored highly targeted local currency initiatives aimed at boosting key sectors or geographical regions.
Governments need to understand how fresh new money is created and destroyed, the differences between different types of debt and how banks operate (for the betterment of their shareholders). Then and only then can a better monetary system be planned and instituted that can benefit everyone.
In our present system, Governments essentially govern for the banks and not the people. And they protect the banks if they become insolvent beyond repair. That is crystal clear. Banks are not like normal commercial companies and should not be regarded as such. Banks play a key role in the assessment of credit risk and the distribution of fresh new money across a broad geographic spread. Those are valuable services. So BOOM does not wish to see the end of private banking as that would effectively result in a communist money system. However, we do need to move to a 50:50 system of new money creation to create a more stable economy. Such economies would be more resilient to CPI price inflation risk and national currencies would be more stable in relation to each other.
The central bankers need to bring these matters to the attention of our governments and become champions of change because our elected politicians simply have no clue about how our unstable 500 year old money system actually works. Economists do not understand it (in almost all cases) and neither do ordinary citizens. BOOM calls upon the central bankers to think more about the system as a whole and how to change it rather than simply being pre-occupied with the survival of their client commercial banks.
If we don’t do this, then we will continue to see our financial system taking a more and more dominant position in our economies. Profligate, unwise loan creation will inevitably grow because that is how our money system is designed to function and eventually loan defaults will skyrocket resulting in yet another global financial crisis or collapse where many people are hurt economically by bank failures. As banking becomes more intertwined around the planet, our risk of global crisis grows due to the complexity of these connections.
A more robust money system will benefit bankers and non-bankers in the long run.
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.
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PRICE PULSE DOMINANCE CHANGES DURING LAST WEEK Ended 4th August 2018:
NO Changes in Price Pulse Dominance for week ended 4th August 2018
NOTE — RED ARROWS INDICATE BOOM PRICE PULSE DOMINANCE in the present moment (as indicated by the date of the chart and taking into account the 3 year time frame shown). The charts are now arranged in PRICE PULSE RED ARROW DOMINANCE. NOTE: All Charts are WEEKLY Charts over the last 3 YEARS time frame. Arrows indicate PAST price action (not future). No predictions are implied from past action.
Comments refer to past PRICE PULSE (Red Arrow DOMINANCE) over the last 3 years, the week ended 4th August 2018. You can RIGHT CLICK a chart and OPEN in a New Tab. Make your own conclusions, do your own research. BOOM does not offer investment advice.
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NOTABLE PRICE PULSE CHANGES OVER THE LAST WEEK ENDED 4th August 2018:-
NO Changes in Price Pulse Dominance for week ended 4th August 2018
PRICE PULSE RISING — (RED ARROW UP DOMINANCE)
# DENMARK STOCKS — UP Arrow Dominant
# US INFLATION PROTECTED BOND PRICES — UP Arrow Dominant
# US UTILITIES STOCKS — UP Arrow Dominant
# AGGREGATE US BOND PRICES (BND) — UP Arrow Dominant
# US LONG BOND PRICE (TLT) — UP Arrow Dominant
# RWR (US Real Estate REIT Fund) — UP Arrow DominanT
# AUSSIE ALL ORDS INDEX — UP Arrow Dominant
# INDIAN STOCKS — UP Arrow Dominant
# VALE STOCK (Iron Ore) — UP Arrow Dominant
# US BIOTECHNOLOGY INDEX — UP Arrow Dominant
# WEST TEXAS OIL PRICE — UP Arrow Dominant
# TAIWAN STOCKS — UP Arrow Dominant
# US DOW STOCK INDEX — UP Arrow Dominant
# RUSSELL 2000 INDEX — UP Arrow Dominant
# US TRANSPORT INDEX — UP Arrow Dominant
# US INSIDER SENTIMENT (KNOW) — UP Arrow Dominant
# NASDAQ COMP INDEX — UP Arrow Dominant
# US JUNK BOND PRICES — UP Arrow Dominant
# US 3 MTH T BILL YIELD — UP Arrow Dominant
# LIBOR — UP Arrow Dominant
# FRANCE STOCKS — UP Arrow Dominant
PRICE PULSE FALLING — (RED ARROW DOWN DOMINANCE)
# GOLD PRICE (in Aus Dollars) — DOWN Arrow Dominant
# COPPER PRICE — DOWN Arrow Dominant
# INDUSTRIAL METALS ETF (DBB) — DOWN Arrow Dominant
# YUAN (AGAINST USD) ETF — DOWN Arrow Dominant
# HANG SENG — DOWN Arrow Dominant
# GOLD PRICE in USD —DOWN Arrow Dominant
# SOUTH KOREA STOCKS — DOWN Arrow Dominant
# SINGAPORE STOCKS — DOWN Arrow Dominant
# THAI SETI INDEX — DOWN Arrow Dominant
# AUSSIE DOLLAR AGAINST US DOLLAR — DOWN Arrow Dominant
# CANADIAN DOLLAR AGAINST USD — DOWN Arrow Dominant
# BRAZIL STOCK INDEX — DOWN Arrow Dominant
# ARGENTINA STOCKS — DOWN Arrow Dominant
# BRITISH POUND AGAINST USD — DOWN Arrow Dominant
# NOMURA HOLDINGS — DOWN Arrow Dominant
# EURO (AGAINST $US) — DOWN Arrow Dominant
# SWISS FRANC (AGAINST $US) — DOWN Arrow Dominant
# PLATINUM PRICE — DOWN Arrow Dominant
# SHANGHAI STOCKS — DOWN Arrow Dominant
# US HIGH GRADE CORP BONDS (LQD) — DOWN Arrow Dominant
# PALLADIUM PRICE — DOWN Arrow Dominant
# BITCOIN INDEX $NYXBT — DOWN Arrow Dominant
# SWISS STOCKS — DOWN Arrow Dominant
# DEUTSCHE BANK SHARES — DOWN Arrow Dominant
# FOOD INPUT PRICES (DBA) — DOWN Arrow Dominant
# EURODOLLAR INDEX ($XED) — DOWN Arrow Dominant
PRICE PULSE UNCERTAIN NON-DOMINANCE OF RED ARROW –
# COMMODITIES INDEX (USCI) — NO Arrow Dominant
# YEN (AGAINST $US) — NO Arrow Dominant
# JAPAN NIKKEI STOCKS — NO Arrow Dominant
# TED SPREAD — NO Arrow Dominant
# RUSSIAN RTSI STOCK INDEX — NO Arrow Dominant
# TRIM TABS US FLOAT — NO Arrow Dominant
# COAL ETF (KOL) — NO Arrow Dominant
# FVL — VALUE LINE — NO Arrow Dominant
# US KBW BANK INDEX — NO Arrow Dominant
# NATURAL GAS (SPOT PRICE) — NO Arrow Dominant
# GERMAN DAX — NO Arrow Dominant
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