BOOM as at 10th February 2019

BANKING INQUIRY ENDS

The Australian banking sector is often referred to as “the best, the most profitable on the planet”.

In Australia last week, the Royal Commission inquiry into the banking sector was completed with the release of the final report. The inquiry lasted 12 months and dealt with 10,000 submissions and 130 witnesses. It is entirely possible that this was insufficient to reveal the full scale of banking crimes and misdemeanors in Australia. The Commissioner made 76 recommendations to the federal government and specifically named two banking executives, both of whom have subsequently resigned their positions as Chairman and CEO of the National Australia Bank (NAB). The NAB is one of Australia’s Big Four commercial banks, is the 21st largest bank in the world based on market capitalization and has a revenue in excess of A$ 20 Billion. So their resignations are, indeed, significant to some degree.

Interestingly, this is not the first time that the CEO and Chairman of NAB have had to resign in a single event. In 2004, the exact same thing happened due to a foreign exchange trading fraud when a loss of A$ 360 Million was covered up. To add insult to injury, NAB’s foreign currency traders had falsified profits over a number of years to trigger bonuses. In 2006, two NAB foreign currency options traders were sentenced on charges brought by the Australian Securities and Investments Commission (ASIC) and incurred jail terms.

This time, however, during the 2018 Royal Commission, all of the Big Four banks have been revealed as untrustworthy. Many people in Australia will not be satisfied until many bank executives have been charged with criminal offenses, prosecuted under criminal law and sentenced to long jail terms plus ordered to personally pay restitution to the customers that were damaged during their management.

The banks effectively stole $ Hundreds of Millions of customers’ funds by charging fees for no services and some of those customers were not even alive (!). This behavior in banking is often euphemistically referred to as “misconduct”, “mis-selling and “mis-invoicing”. But the fact is that it is crime and the crime is often sophisticated robbery involving fraud.

So, the questions that must be asked are these ……… where are the Police? The Fraud squad? The State and Federal Solicitor’s General? The hand cuffs?

The famous criminal Willie Sutton was once asked why he robbed banks, and his response was simple, eloquent, and humorous: “Because that’s where the money is”.

Willie sounds very wise but, in reality, if he had been just a little more clever, he could have sought employment in the managerial class of a large commercial bank and committed his crimes while receiving a large salary and huge annual bonuses.

For many years, BOOM has often told people that banks are potential crime scenes, criminogenic environments. Most people simply cannot understand this criticism as they have watched thousands of bank advertisements that promulgate the eternal lie that banks are completely trustworthy, fine upstanding corporate citizens and “solid” places to store wealth.

By way of comparison, let’s look at organized crime gangs. They sit around large tables, dressed in suits while they coldly plot their business operations and terror for profit. They provide goods and services but those are socially negative in their impact.

Commercial bankers also sit around large tables, dressed in suits while they coldly plot their business operations for profit. But they don’t supply any goods. Their services involve the creation of fresh new money in the form of loans. They seek extensive contractual documentation of those loans utilizing the law of the land to the full extent and they also seek the right to seize collateral assets if the loan is not repaid. Then they charge the borrower a special form of fee called an interest rate which applies during the course of the loan. The higher the interest rate, the higher the profit as long as the loan repayment schedule continues to be met by the client borrower.

NEW MONEY OUT OF THIN AIR

The myth that banks can just magically create money “out of thin air” is untrue ……… but only due to a technicality. In truth, they CAN create money out of thin air but only if they have a borrower ready to borrow. The new loan is effectively new money. That new money creates a “deposit” in the borrower’s ledger account (a liability) and immediately an asset in the bank’s ledger account. Bingo — the money supply of the nation increases by the amount of the loan.

Mainstream economists (and many bankers) have argued for decades that banks are just lending on the savings of the nation when they make a loan. They refer to banks as “just intermediaries” between borrowers and savers, responsibly placing precious saved funds into the hands of reliable borrowers. They repeat this because this is what they have been taught by mainstream economists in the mainstream, prestigious universities. But it is not actually how banks operate.

Sometimes, they attempt to twist narratives in the media by talking about their “increased cost of funds” as interest rates rise, suggesting that such a calamity will lead to lower bank profits and a decrease in the availability of credit. The implication here is that they have to borrow their loanable funds or attract deposits to create bank loans. However, although banks do borrow funds to loan onward on the margin of their loan books, the vast bulk of their loans are actually made “de novo” — out of thin air.

DON’T BELIEVE BOOM?

From the Bank of England (the UK’s central bank) 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”.

The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government’s banker, it is the world’s eighth-oldest bank.

NOT SURE YET?

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

“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, i.e. 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 Deutsche Bundesbank is the central bank of the Federal Republic of Germany and as such part of the European System of Central Banks (ESCB). Due to its strength and former size, the Bundesbank is the most influential member of the ESCB.

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

EMAIL: gerry [@] boomfinanceandeconomics.com

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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”.

Youtube Video —  https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction

and

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy

Paper:  Money in the Modern Economy  PDF —  CLICK HERE

Quarterly Bulletins Index

http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2014/qb14q1.aspx

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).”

Reference: https://www.bundesbank.de/Redaktion/EN/Topics/2017/2017_04_25_how_money_is_created.html

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.”

PRICE PULSE DOMINANCE CHANGES DURING LAST WEEK Ended 10th February 2019:

1. HANG SENG — Changed to UP Arrow Dominant
2. NATURAL GAS (SPOT PRICE) — Changed to DOWN Arrow Dominant

HONG KONG

NATURAL GAS SPOT PRICE

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 10th February 2019.  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. 

PLEASE NOTE — Many charts are ETF’s from NY Market  (not the base commodity or currency etc). The NY Stock Code is in the Top Left Hand Corner of each chart.
Charts are produced from http://www.stockcharts.com

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

PRICE PULSE RISING — (RED ARROW UP DOMINANCE)

# HANG SENG — UP Arrow Dominant
# RWR (US Real Estate REIT Fund) — UP Arrow Dominant
# RUSSIAN RTSI STOCK INDEX — UP Arrow Dominant
# US HIGH GRADE CORP BONDS (LQD) — UP Arrow Dominant
# EMERGING MARKETS ETF (EEM) — UP Arrow Dominant
# YUAN (AGAINST USD) ETF (CYB) — UP Arrow Dominant
# US LONG BOND PRICE (TLT) — UP Arrow Dominant
# AGGREGATE US BOND PRICES (BND) — UP Arrow Dominant
# GOLD PRICE in USD — UP Arrow Dominant
# GOLD PRICE (in Aus Dollars) — UP Arrow Dominant
# INDIAN STOCKS — UP Arrow Dominant
# BRAZIL STOCK INDEX — UP Arrow Dominant
# PALLADIUM PRICE — UP Arrow Dominant
# ARGENTINA STOCKS — UP Arrow Dominant
# US INFLATION PROTECTED BOND PRICES — UP Arrow Dominant
# US UTILITIES STOCKS — UP Arrow Dominant
# RIO STOCK (Iron Ore) — UP Arrow Dominant
# US 3 MTH T BILL YIELD — UP Arrow Dominant
# LIBOR — UP Arrow Dominant

PRICE PULSE FALLING — (RED ARROW DOWN DOMINANCE)

# NATURAL GAS (SPOT PRICE) — DOWN Arrow Dominant
# SWISS STOCKS — DOWN Arrow Dominant
# US DOW STOCK INDEX — DOWN Arrow Dominant
# US BIOTECHNOLOGY INDEX — DOWN Arrow Dominant
# JAPAN STOCKS — DOWN Arrow Dominant
# WEST TEXAS OIL PRICE — DOWN Arrow Dominant
# US TRANSPORT INDEX — DOWN Arrow Dominant
# US INSIDER SENTIMENT (KNOW) — DOWN Arrow Dominant
# SOIL (POTASH ETF) — DOWN Arrow Dominant
# QUAL (Quality ETF) — DOWN Arrow Dominant
# MTUM (Momentum ETF) — DOWN Arrow Dominant
# RUSSELL 2000 INDEX — DOWN Arrow Dominant
# TRIM TABS US FLOAT (TTAC) — DOWN Arrow Dominant
# FINANCIAL SECTOR ETF (XLF) — DOWN Arrow Dominant
# US KBW BANK INDEX — DOWN Arrow Dominant
# NASDAQ COMP INDEX — DOWN Arrow Dominant
# COMMODITIES INDEX (USCI) — DOWN Arrow Dominant
# SWISS FRANC (AGAINST $US) — DOWN Arrow Dominant
# FRANCE STOCKS — DOWN Arrow Dominant
# AUSSIE ALL ORDS INDEX — DOWN Arrow Dominant
# THAI SETI INDEX — DOWN Arrow Dominant
# GERMAN DAX — DOWN Arrow Dominant
# TAIWAN STOCKS — DOWN Arrow Dominant
# FVL — VALUE LINE — DOWN Arrow Dominant
# YEN (AGAINST $US) — DOWN Arrow Dominant
# DENMARK STOCKS — DOWN Arrow Dominant
# COAL ETF (KOL) — DOWN Arrow Dominant
# COPPER PRICE — DOWN Arrow Dominant
# INDUSTRIAL METALS ETF (DBB) — DOWN Arrow Dominant
# SOUTH KOREA STOCKS — DOWN Arrow Dominant
# AUSSIE DOLLAR AGAINST US DOLLAR — DOWN Arrow Dominant
# CANADIAN DOLLAR AGAINST USD — DOWN Arrow Dominant
# BRITISH POUND AGAINST USD — DOWN Arrow Dominant
# EURO (AGAINST $US) — DOWN Arrow Dominant
# NOMURA HOLDINGS — DOWN Arrow Dominant
# PLATINUM PRICE — DOWN Arrow Dominant
# SHANGHAI STOCKS — DOWN Arrow Dominant
# BITCOIN INDEX $NYXBT — DOWN Arrow Dominant
# DEUTSCHE BANK SHARES — DOWN Arrow Dominant
# FOOD INPUT PRICES (DBA) — DOWN Arrow Dominant
# EURODOLLAR INDEX ($XED) — DOWN Arrow Dominant

PRICE PULSE UNCERTAIN NON-DOMINANCE OF RED ARROW –

# US JUNK BOND PRICES — NO Arrow Dominant
# TED SPREAD — NO Arrow Dominant
# SINGAPORE STOCKS — NO Arrow Dominant

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.

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MOLS   Denmark


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