BOOM as at 19th May 2019

THE FUTURE IS HERE

Many BOOM readers will have already seen the video of the 5G smartphone speedtest on the street in Chicago last week. The video which is all over Twitter shows a Download speed of 1,098 Mbps. Suffice to say, the Internet speed displayed is simply staggering. The future is here and it is a future that is going to change the world as we know it irrevocably. The video begs the question — who will bother with landline connections to the Internet when mobile speeds are so much faster? 5G Modems will soon be under heavy demand as will 5G phones.

CHINA ELECTRIC CARS

China has almost 500 electric car companies registered. In fact, it has 486 such companies, according to a Bloomberg report.

Yes, you read that right. And last year in 2018, 1.1 million electric cars were sold in China. Yes — you read that right too. Over one million electric cars were sold in 12 months in China while, in the US, just 358,000 were sold in the same period. Why have electric cars caught on so fast in China? The answer lies in the huge government subsidies boosting the industry as China desperately tries to reduce its terrible air pollution problems.

Another fact to digest is the total size of the Chinese car market (electric and non-electric). Over 23 million cars are purchased there per year which makes it the world’s biggest car market. The US car and truck market is only 17 million per year. So Trump may be causing irreparable harm to the US car industry by attacking China with higher trade tariffs. US manufactured cars could end up being effectively banned from the biggest national market on the planet. Think about that Donald, before you continue to “protect America”.

TRUMP IS WRONG

It may come as a surprise to some, but BOOM suspects that Donald Trump is not all that bright. You see, Trump thinks that the Chinese people pay the trade tariffs he places on products imported into the USA.

On May 12th, The Don said on Twitter “We are right where we want to be with China. …………. We will be taking in Tens of Billions of Dollars in Tariffs from China”. Also last week, he said “There is no reason for the U.S. Consumer to pay the Tariffs, which take effect on China today,”

Unfortunately that is not correct. The US consumer pays the Tariffs on goods imported from China. Tariffs are a tax paid for by the US based purchaser. But, somehow, Donald thinks that the Chinese will pay these taxes.

On May 10th, he tweeted “Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S.”

In December last year, he tweeted “It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN.”

Incredible but not true. Yes, it is a shock. The President of the USA does not understand tariffs while he is waging a tariff war. Let’s hope he doesn’t launch a nuclear weapon by pressing the red button on his desk to order a cup of tea from the White House kitchen.

And guess what? Trump’s chief economic adviser, Larry Kudlow, admitted last week that the US taxpayer pays the tariffs. He was put on the spot during an interview and he had no choice but to admit that his boss back at the White House was 100% wrong. It would have been interesting to be a fly on the wall during the next discussion at the White House between Trump and Kudlow.

US ISOLATIONISM

Chinese exports to the USA amount to about 18% of its total exports. So a 10% fall in such exports amounts to China losing 1.8% of its total exports. Over time, China can easily sell those finished goods to other markets at reduced prices. So BOOM does not expect China to be too much affected by Trump’s trade war in the long run. As BOOM is writing this editorial, China will be rapidly arranging for alternative destinations for its exported goods, building long term bilateral trade arrangements with other nations in the process and probably accepting currencies other than the US Dollar as settlement.

It is likely that China has lost considerable faith in its trade relationship with the US during these tariff wars. In a clear reference to the Unted States, the Chinese President Xi Jinping last week said “Civilizations will lose vitality if countries go back to isolation and cut themselves off from the rest of the world,”.

He went on to say “The people of Asian countries hope to distance themselves from being closed, and hope that all countries will adhere to the spirit of openness and promote policy communication, connectivity and smooth trade.”

TESLA PLUNGES
BUSINESS OR RELIGION

Shares in Tesla, the electric car company, plunged 11.9% last week. Since December last year, they have fallen by 44.4% from their top price range of around $ 380 per share. If you buy Tesla shares at the current price, you will need a gain of 80% to reach that top price level again. That may be a tall order considering some of the circumstances surrounding this company.

For example today, Elon Musk has been reported as saying that the company has only 10 months of cash left if it keeps spending at current rates. That would not be inspiring for the investors who just plugged another US$ 2.7 Billion of fresh cash into the company a few weeks ago.

One must ask — is this a business or is this a religion?

Recently, BOOM watched as Tesla executives explained that the Tesla car fleet worldwide was viewed by the company as a vast real time test bed for data collection in autonomous driving. The company seemed not overly concerned about potential risks to the human beings inside those test vehicles.

Are they being used as living, breathing crash test dummies? Perhaps not. In their defense, perhaps Tesla is very concerned for Tesla drivers and is just trying to build the safest car ever. And the reality is that all car makes are involved in many crashes daily worldwide.

But a Tesla crash report from the US National Transport Safety Board NTSB that came out last week is certainly worrying. It indicated that the driver was killed while the autonomous system was in play and that the system did not predict the dangerous situation. Thus, no evasive action was taken and the car crashed into a semi-trailer.

Preliminary Report: https://www.ntsb.gov/investigations/accidentreports/pages/hwy19fh008-preliminary-report.aspx

“Preliminary data from the vehicle show that the Tesla’s Autopilot system—an advanced driver assistance system (ADAS) that provides both longitudinal and lateral control over vehicle motion—was active at the time of the crash[1]. The driver engaged the Autopilot about 10 seconds before the collision. From less than 8 seconds before the crash to the time of impact, the vehicle did not detect the driver’s hands on the steering wheel. Preliminary vehicle data show that the Tesla was traveling about 68 mph when it struck the semitrailer. Neither the preliminary data nor the videos indicate that the driver or the ADAS executed evasive maneuvers.”

“The Tesla struck the left side of the semitrailer. The roof of the Tesla was sheared off as the vehicle underrode the semitrailer and continued south (figure 2). The Tesla came to a rest on the median, about 1,600 feet from where it struck the semitrailer. The 50-year-old male Tesla driver died as a result of the crash. The 45-year-old male driver of the combination vehicle was uninjured.”

In other words, the top half of the vehicle was sheared off during the crash with a semi trailer. Your imagination can re-construct the effect on the driver of the car.

There was an article published by CNBC on March 19th this year that outlines the dozens of lawsuits and investigations that Tesla is currently dealing with. It outlines 38 securities actions against them since 2010, the year the company went public. But there’s more ….. a lot more.

Quote: “Along with the securities litigation, Plainsite also found 43 workers’ rights cases, 14 deposit theft cases, and 20 vendor and government non-payment cases filed against Tesla since it went public in 2010. Of the 20 non-payment cases, 6 were from tax agencies in different states.

Tesla also faces dozens of lawsuits around specific car-related issues, including allegations that Bluetooth doesn’t work, that Autopilot has caused Tesla cars to swerve into the wrong lanes and more.”

Reference:
https://www.cnbc.com/2019/03/19/tesla-and-elon-musk-lawsuits-overview.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

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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.”

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MOLS   Denmark

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