BOOM as at 24th March 2019

ITALY TURNS TO CHINA

An event of great Geo-political and economic significance took place on Saturday 23rd March. The Italian Prime Minister Giuseppe Conte signed a Memorandum of Understanding (MoU) with President of China Xi Jinping in Rome that links Italy and China in the Belt and Road Initiative (the BRI). Growth in trade and investment is the aim for both parties.

America is furious as they do not wish to see cooperation with China growing anywhere in the world and especially not in Western Europe. Trump, Pence, Pompeo and Bolton must be fuming and plotting in the White House but there is little they can do except watch. The Italians are defiant and determined to find a better future as the EU experiment (promoted by the US) has simply failed them. They are turning East just like Turkey has recently done and, to some extent, Germany. These three critical NATO nations are slowly but surely turning their backs on the US strategy of complete dominance that has existed since the end of World War Two in 1945. Increased cooperation with China and Russia beckons. And as BOOM recently explained, even Saudi Arabia is tentatively doing the same.

In earlier editorials, BOOM has emphasized the importance of the BRI. China has already purchased investment positions in three large Italian sea ports of Venice, Trieste and Genoa and it owns 51% of the major Greek port of Piraeus. Italy wishes to sell more “Made in Italy” goods not just to China but to all the nations along the Belt and Road routes. Cheap energy supply from the East is also a key part of the equation. The Turkstream natural gas pipeline bringing Russian gas to nations South of the Black Sea was finally completed just 3 days ago on 20th March.

This connection between China and the nations West of China promises more direct trade routes to Eastern Europe, Western Europe, Africa and South East Asia. The Belt and Road Initiative (BRI) is also sometimes referred to as One Belt One Road or The Silk Road. It is a development strategy adopted by the Chinese government in 2013, just 5 short years ago involving infrastructure development and investments in at least 68 countries and international organizations.

The BRI stretches across the Eurasian landmass and is estimated by some to include 65% of the world’s population and 40% of the global gross domestic product. Some estimates of total expenditure by all participating nations are as high as $ 1 Trillion per year for 10 years. That money will be spent on BRI infrastructure, education, construction materials, railways and highways, automobiles, aircraft, real estate, energy grids, iron and steel. That should have huge influence on the economies involved – in Russia, India, Kazakhstan, Belarus, Poland, Singapore, Myanmar, Pakistan, Afghanistan, Iran, Iraq, Krygistan, Turkmenistan, Tajikistan, Uzbekistan, Syria, Lebanon, Jordan, Turkey and on to all the nations of Eastern Europe and then Western Europe where Germany, Italy and France await.

The Maritime BRI Silk Road, also known as the “21st Century Maritime Silk Road” involves the sea route corridors. This is a complementary initiative aimed at promoting collaboration in Southeast Asia, Oceania, and North Africa, through the South China Sea, the South Western Pacific and the Indian Ocean.

Despite Western mainstream media efforts to paint them as an “expansionist threat to world trade”, China certainly does not want to see any blockade of trade in the South China Sea or anywhere else on the high seas.

Finally, please note that the BRI initiative includes Africa. Djibouti and Ethiopia are the key Eastern entry points for the BRI there. Rail and road connections have begun and will eventually spread South and West across the vast continent of Africa with its 54 nations.

THE US – CHINA TRADE DEAL

So, to China, does the US China Trump Trade deal really matter in the long term?  Not really. They can lose some trade with the US while expanding into Eurasia. It’s as simple as that.

A recent study by the US Chamber of Commerce shows how the deterioration in the trade dispute between China and the US principally caused by higher US tariffs will drastically affect the American economy.

“Escalation of bilateral tariffs results in lower GDP, lower employment, lower investment, and lower trade flows for the United States,” said the study, which was conducted jointly by the commerce chamber and research firm Rhodium Group.

Due to the tariffs, United States IT and communications goods exports to China will decrease by up to 20 % in the five years ahead. And the country’s IT and communications imports from China will drop up to 9 % during the same period.

Those tariff taxes established by Trump will have to be paid by long suffering American tax payers. China has already cancelled its imports of US soybeans and is rumored to be considering the cancellation of Boeing aircraft orders as they expand their own manufacture of aircraft. No other country has more demand for aircraft than China, which is estimated to need over 7,000 new planes worth $1.2 trillion in the next 20 years. China was previously the biggest export market for American soybean growers. Prices have collapsed 10 – 20 % as US Soybean stockpiles grow.

MAPS OF THE BELT AND ROAD

There are excellent maps of the Belt and Road Initiative including oil and gas pipelines to be found here —

Maps of the Silk Road 

http://beltandroadcenter.org/2017/12/15/maps-of-the-silk-road/

They spell it all out with great clarity, better than the written word. Please take a look. The Belt and Road Center in Hungary has an excellent website for more information. Hungary is clearly having major doubts about its membership of the EU and is logically looking Eastward.

Belt and Road Center Hungary

http://beltandroadcenter.org/

IRAN VISITS IRAQ

Another very significant Geo-political event took place last week with the visit to Iraq by President Rouhani of Iran. He was warmly welcomed because Iran assisted greatly in the defeat of ISIS inside Iraq. Rouhani met with every major political and religious figure in Iraq during the week. The two countries agreed to new economic projects set to swell bilateral trade to $20 billion from the current $12 billion.

This is another snub to the United States. Iraq has decided not to play the US game of isolating Iran.

Again, Trump, Pompeo, Pence and Bolton in the White House can only watch from afar. Their influence in Iraq is now much diminished. A small US military presence will remain in Syria but probably not for long. It cannot be justified under any international law. The US base in Iraq will remain for much longer but, again, it is hard to see its survival if Iran and Iraq strengthen their ties.

The US empire is clearly in retreat, slowly overcome by events. This description warrants consideration — from Study.com —  “In 2015, Harvard political scientist and professor Graham Allison identified a scenario he calls the Thucydides Trap. Basically, the Thucydides Trap says that as a rising power challenges the dominance of an established power, that dominant power is likely to respond with violence. It’s a model for predicting when warfare is likely between two nations, but also a way to propose alternative solutions meant to prevent warfare. After all, the whole point of identifying a trap is to avoid it.”

Reference for more reading at Study.com:-  https://study.com/academy/lesson/thucydides-trap-definition-theory-historical-examples.html

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

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

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 23rd March 2019:

1. TAIWAN STOCKS — Changed to UP Arrow Dominant
2. US LONG BOND PRICE (TLT) — Changed to UP Arrow Dominant

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 23rd March 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)

# TAIWAN STOCKS — UP Arrow Dominant
# US LONG BOND PRICE (TLT) — UP Arrow Dominant
# SHANGHAI STOCKS — UP Arrow Dominant
# COPPER PRICE — UP Arrow Dominant
# SWISS STOCKS — UP Arrow Dominant
# SOIL (POTASH ETF) — UP Arrow Dominant
# SINGAPORE STOCKS — UP Arrow Dominant
# US JUNK BOND PRICES — UP Arrow Dominant
# 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
# 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)

# TED SPREAD — DOWN Arrow Dominant
# NATURAL GAS (SPOT PRICE) — 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
# 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
# FVL — VALUE LINE — DOWN Arrow Dominant
# YEN (AGAINST $US) — DOWN Arrow Dominant
# COAL ETF (KOL) — 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
# 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 –

# DENMARK 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.

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MOLS   Denmark

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