BOOM as at 21st July 2019

GEO-POLITICS GONE MAD
PLANET OF THE APES

ALL RATHER CONFUSING

Geo-politics has dominated during the last week. The United States said they had shot down an Iranian drone that was flying too close to a US warship in the Persian Gulf.  Iran denied that they had lost a drone and subsequently accused the US of inventing the story or having mistakenly shot down one of its own drones.

Iran seized a UK oil tanker in retaliation for the UK seizure of an Iranian oil tanker near Gibraltar some weeks ago.  So the UK announced that this was “unacceptable”.

Meanwhile, to the North of those incidents, Turkey took delivery of a sophisticated Russian S400 anti-aircraft missile defense system. One must wonder who is the enemy that Turkey wishes to defend itself against?

In retaliation, the US halted delivery of their new F 35 fighter jets to Turkey. That move is complicated by the fact that Turkey manufactures key components of the new US jet and had planned to purchase 100 of them. To make things even more interesting, Turkey has been reported as saying that they will now build weapons with Russia in future.

These developments are worth noting because Turkey is a NATO ally of the US and, in fact, has the second largest military force in NATO (after the US). NATO stands for North Atlantic Treaty Organization. There are 29 members including the US, Canada, Turkey, Albania, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg, Montenegro, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, United Kingdom.

NATO was formed in 1949 to protect Western Europe from the USSR which had been an ally of the US and UK just 4 years previously and during the Second World War. In fact, the USSR was arguably the critical force that allowed the allied nations to defeat Germany and win peace in Western Europe. And in that quest, Russia claims that 20 million Russian lives were lost in the effort.

After the war and the defeat of Germany, however, the US decided that a new “adversary” was developing and that became the communist threat from the East, the Union of Soviet Socialist Republics (the USSR), led by Russia.

In 1946, the USSR had not agreed to ratify the Bretton Woods Agreement whereby the US Dollar would become the dominant global currency with which to settle international trade. As a result, the USSR never joined the IMF or the World Bank and never accepted the US Dollar as the dominant currency for international trade settlements. That was deemed further sufficient cause to label it an “adversary” of the US and NATO.

IS PUTIN A COMMUNIST

Last week, BOOM saw an article that described President Vladimir Putin of Russia as a “communist leader”.  It seems that some people, including the author of that article, still think that the USSR exists and that Russia is still the leader of a communist group of nations. That is odd because the USSR has not existed for almost 30 years, since it collapsed on Christmas Day in 1991.

So, let’s think this through. The Russian Federation is no longer a communist nation, no longer leads a group of communist nations. It joined the global Bretton Woods Institutions of the IMF and the World Bank in 1992 plus the World Trade Organization in 2012.  It may (or may not) be a democracy — depending upon your definition of democracy — but Russia is also now clearly a capitalist economy driven by a large private banking system. Private banks are banned in communist systems as they are seen as capitalist.

A list of private Russian banks can be found here —

https://en.wikipedia.org/wiki/List_of_banks_in_Russia

So why is Russia still seen as an “adversary” of NATO by some NATO states? Perhaps it has nothing to do with communism versus capitalism or communism versus democracy.

Perhaps all of this is linked with the manufacture and sale of military equipment? And the sale of oil? And, if so, could it have something to do with the fact that Russia does not buy any military equipment or any oil from outside sources? Or could it be because Russia is not so keen on the use of the US Dollar as the dominant global trade settlement currency?

BOOM suspects all of the above. If a nation refuses to buy military equipment and oil from external sources with US Dollars used as settlement, then it appears that such a nation may be deemed as an “adversary” of the US and NATO.  This is the circuitous logic against Russia that is promoted by many political leaders, placing millions of lives at risk as NATO stands against Russia in Western Europe.

Turkey would appear to now be at risk of being named an “adversary” of NATO and yet, it is a key member of NATO.  Go figure. All rather confusing.

BUT CHINA BUYS OIL WITH US DOLLARS

Then there is China — now that is clearly a communist, non-democratic nation but it claims to be “one country, two systems”  which implies that communism and capitalism can co-exist. Clearly, they choose not to buy weapons from external sources and they are not in favor of a single currency dominance in trade settlement. However, they are the world’s largest importer of oil, by far. They import $ 240 Billion of oil which is 20% of all oil imported on the planet. And, because of convenience and TINA (there is no alternative), they do accept the use of US Dollars for many, if not most, of their trade settlements  — both for imports and for exports.

So can they be an “adversary” of the US and NATO?  Go figure again. All rather confusing. It appears that the definition varies depending upon the circumstance.

PLANET OF THE APES

Last week, BOOM watched the old movie “It’s a Mad, Mad, Mad, Mad World” and had some trouble differentiating the events portrayed in the film as any different to the world of Geo-Politics we all live in today.

Perhaps we should make a new movie called “It’s a Sad, Sad, Sad, Sad World” which will be a comedy based on the fact that some people are prepared to fight and die (and presumably kill millions of others) to preserve a system of currency dominance and trade settlement that has evolved into a rather confused mad, mad, mad, mad world.

But wait, such a film has already been made way back in 1964. It was called “Dr. Strangelove: How I Learned to Stop Worrying and Love the Bomb”.

MMMmmmmmm…………

Is it too optimistic to think that we can all negotiate our way forward in a civilized manner using well established diplomatic channels? Or are we not far removed from The Planet of the Apes?

VON DER LEYEN TAKES OVER

Ursula Von Der Leyen was officially confirmed the new President of the European Commission last week. Note that she was “confirmed”, not elected. The top job in the European Union is not an elected position.  It is somewhat mysteriously “appointed” and then “confirmed”.

Von Der Leyen is keen on military spending and hopes to form a Pan European Army. She wasted no time in this regard and was soon photographed beside a fighter jet last week.

More imported weapons, more US Dollar settlements — one must ask — is that why she was appointed?

NETFLIX SHARES PLUNGE

Netflix shares plunged 15.58 % during the week. This was apparently caused by a loss of subscriber numbers in the US. This appears to be an over-reaction as far as BOOM can see. But it is worth noting as Netflix is a key part of the FANG stocks, made up of Facebook, Amazon, Netflix and Google.

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.

CLICK HERE FOR PODCASTS:   OUR BRAVE NEW ECONOMIC WORLD

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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