BOOM as at 7th July 2019

NEGATIVE INTEREST RATES

Negative interest rates are now “normal” in many nations and they are probably heading your way. It is a fact that $ 13 Trillion of government bonds worldwide have negative yields. If you look at the entire universe of High Grade investment bonds, 25% of them have negative yields. And most of those bonds have been issued in Europe.

The entire Swiss bond yield curve is showing negative yields right out to 30 years maturity.  The yield on the 30 year bond is negative – 0.021 %. But if you buy the 50 year Swiss bond today, you will receive a huge positive annual yield of 0.088 % for those 50 years, presuming that the Swiss government exists that long.

There are some exceptions, of course. High positive bond yields do exist. The 9 Year government bond yield in Argentina is 24.255% and the Egyptian 10 year bond yield is 15.81%.

But the Great Grand Daddy of Yields is surely the 2 Year bond issued by the Venezuelan government. It is 92,571.43 %

The 5 year Venezuelan bond yield is 81.706 % and the 20 year yield is 7.894 %.

THE UNELECTED
THE LOVELY SECRETOCRACY

The people in the European Union don’t elect their leaders. They are “appointed” after back room deals are negotiated. This is how “democracy” works in the EU. This is how 512 million people wake up and find out who will be their leaders. The people have no say, they are powerless.

The most powerful body in the EU is called the European Commission and the new President of the European Commission is almost certainly going to be a German woman, Ursula von der Leyen, when her appointment is confirmed by the European Parliament in 2 weeks time.

Interestingly, Germany did not officially support her appointment and a poll conducted early last week showed that 56% of the German people do not support her. Despite this lack of official and unofficial support for her from her own nation, she will almost certainly be confirmed into the most powerful position in the EU.

The former leader of the European Parliament, Martin Schulz (a German), said “Von der Leyen is our weakest minister. That’s apparently enough to become Commission president”.

It is always worth looking at the background of people who achieve high office in Europe. Von der Leyen just happens to be a daughter of Ernst Albrecht. The Albrecht family historically were wealthy cotton merchants in Bremen in the North of Germany and were members of the Hanseatic League. The family is also part of the “Pretty Families of Hanover” group.

The Pretty Families (also known as the Lovely Families) are renowned for being appointed to administrative positions such as chancellors, councilors, bailiffs, stewards, mayors. In other words, they have been the creme de la creme of public servants in Hanover and the State of Lower Saxony for centuries. Some of these families have been in control of such positions since the late Middle Ages and they are sometimes referred to as the “Secretocracy”.

History can be very interesting but we have to decide what does it tell us?

THE PRETTY, LOVELY FAMILIES OF THE SECRETOCRACY – THE HUBSCHE

The German word Hubsche translates into Pretty or Lovely in English.

Quote: “The lovely families represented in the 18th and early 19th century electoral Hanover and the Kingdom of Hanover – in addition to the nobility and clergy – third estate, the bourgeoisie.”

“Some of these families have been gaining such positions since the late Middle Ages , gaining urban or rural land ownership, and occasionally receiving the title of nobility….. Since the pretty families in the hierarchy in the state service sought offices such as secret secretary or privy councilor, this booth was ironically also called “secretocracy”.”

Wikipedia: The Pretty Families — the Hubsche Families (In German — Use Google Translate)

https://de.wikipedia.org/wiki/H%C3%BCbsche_Familien

THE OTHER CHOSEN ONE

Now let’s turn our attention to another “appointment” that happened last week. That is the appointment of Christine Lagarde to become the President of the European Central Bank. She is not an economist, she is not a banker so why was she appointed to this most powerful banking role in Europe? Let’s look back into history again.

She is a French ex labor lawyer, an ex-politician and has been the Managing Director of the IMF (the International Monetary Fund) since 2011, based in Washington DC in the USA.

She has lived and worked in the United States previously. When she was aged just 17 years, she moved from France to become an intern at the U.S. Capitol building in Washington DC as congressional assistant to Representative William S. Cohen. Subsequent to that, Lagarde joined Baker & McKenzie, a large Chicago-based international law firm and eventually was appointed the first female Chairman of Baker & McKenzie.

Cohen subsequently became Secretary of Defense under President Bill Clinton and a Trustee of CSIS – the Center for Strategic & International Studies in Washington DC, strongly associated with Henry Kissinger.

That is the background of the incoming President of the European Central Bank. She has gone from being the President of the IMF to being the President of the European Central Bank. That is the second most powerful position in Europe. Is that a demotion or a promotion? Or neither?

GUILTY OF NEGLIGENCE

More information can be gleaned from Wikipedia on Ms Lagarde —

Quote: — “On 3 August 2011, a French court ordered an investigation into Lagarde’s role in a €403 million arbitration deal in favour of businessman Bernard Tapie. On 20 March 2013, Lagarde’s apartment in Paris was raided by French police as part of the investigation. On 24 May 2013, after two days of questioning at the Court of Justice of the Republic (CJR), Lagarde was assigned the status of “assisted witness”, meaning that she was not herself under investigation in the affair. According to a press report from June 2013, Lagarde was described by Stéphane Richard, the CEO of France Telecom (a former aide to Lagarde when she was Finance Minister), who was himself put under formal investigation in the case, as having been fully briefed before approving the arbitration process which benefitted Bernard Tapie. Subsequently, in August 2014 the CJR announced that it had formally approved a negligence investigation into Lagarde’s role in the arbitration of the Tapie case. On 17 December 2015, the CJR ordered Lagarde to stand trial before it for alleged negligence in handling the Tapie arbitration approval. In December 2016, the court found Lagarde guilty of negligence, but declined to impose a penalty.”

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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