GLOBAL GROWTH SLOWING
US GROWTH SLOWING
There is great concern about the global slowdown in economic growth, especially in the advanced economies. The Donald of Trump has boasted that the USA has been spared from this phenomenon, often stating that he has personally been responsible for strong economic growth in the US. After all, he rates himself as a “stable genius” and his nation as “the exceptional nation”, so what else would you expect?
But last week, the figures for US GDP Growth for last year 2018 were revised downwards below 3% annualized. Trump had previously trumpeted that the US growth for 2018 was in excess of 3%. But the revision now shows us that only 2.5% growth was achieved. This is a worrying result, especially for our stable genius.
GDP growth in the US in the last 3 months has also slowed considerably falling from 3.1 % in the first quarter to just 2.1% in the second quarter. These are horrible results for the genius in Washington DC and we can expect that the team at the BEA which prepares the results will soon be the subject of attacks. The Director of the BEA will almost certainly be called to the White House to explain why he should keep his job.
For those who don’t know, the BEA is the Bureau of Economic Analysis at the US Department of Commerce and the latest announcement on GDP Growth can be found here.
The graph shows clearly the big dip in Real GDP Growth in the US that occured in the last quarter of 2018 and the decline that has happened from April to June this year.
A good source to see all nations GDP Growth is to be found at the IMF — (although IMF figures are often regarded as being notoriously unreliable).
A NEW ENGINE OF GROWTH EMERGING
With this slowing in the US economy and in other major economies worldwide, you would expect to see a slowing in world trade. However, BOOM has just checked his most trusted source for this and that source shows no slowing whatsoever. In fact, it shows healthy growth in world trade. That healthy growth began strongly in January after the huge liquidity surge injected into the Chinese banking sector and it shows no sign of slowing. At the time, BOOM wrote extensively about this surge of liquidity and its expected impact.
If this is proven to rekindle a surge in global GDP growth in the second half of this year, then you can reach the conclusion that the US is no longer the engine of growth for the world economy. That role will have been stolen definitively by China. That nation will become the undisputed, clear “engine of growth” for the world economy.
And there will be nothing that The Donald will be able to do about it.
MOST BITCOIN TRADE IS FAKE
To keep the surprises coming, a report on the legitimacy of the so-called Crypto-“currency” markets was issued last week and it revealed that 95% of trades on the unregulated, online markets are fake. They are mainly wash trades.
The report was released by Bitwise and they looked at the top 81 Crypto exchanges by reported volume. The global Head of Research at Bitwise stated the facts bluntly — the “data was manipulated”. The report announced that “substantially all of the volume” on 71 of the 81 exchanges was wash trading.
A wash trade is where the same person simultaneously sells and buys something on an unregulated exchange. This gives the impression of volume but it is false volume.
On those 71 exchanges, the volume reported on Bitcoin trades was $ 6 Billion daily average. But Bitwise found that only $ 273 Million of that was actually legitimate.
This report is a terrible blow to the Crypto world. It shows clearly how much fraud is occurring on these unregulated, online exchanges. Then you have to consider the amount of funds lost through theft as well at the exchanges because of inadequate cyber-security. It is a very large total indeed.
The promise of these so-called Crypto-“currencies” as alternative currencies, new stores of wealth and innovative utilities now seem far fetched to say the least. As BOOM writes this editorial, the price of Bitcoin has fallen by over 6% during the prior 24 hours. It is approaching its last significant level of technical support at US $ 9,187. If it falls hard through that price, it may have a hard time defying gravity. By the time you read this, the future of Bitcoin may well have been decided by the “markets”.
Most of the so-called alternatives to Bitcoin, the “Alt Coins”, are heading South in price rather rapidly during the last 24 hours. This could well be it — the ultimate test may be coming for this bizarre experiment where pieces of binary code wrapped in a digital packet created by anyone on a whim will finally head towards their real price. In this regard, please consider that all emails are just the same thing — a piece of binary code wrapped in a digital packet, created by anyone. Has anyone ever offered to pay you $ 10,000 for sending them an email?
ENTIRE SWISS CURVE GOES NEGATIVE
In regard to interest rates, it is worth noting that the entire interest rate yield curve on Swiss Government Bonds went negative last week all the way out to 50 Year duration. Right at the end of trading, however, the 50 year bond yield just tipped back into positive territory to achieve a positive yield of 0.04% as reported by BOOM’s data supplier. If you buy a 50 year Swiss Government Bond on the secondary market now, that is the return you will get each year — just 0.04%. That is a 4 cent annual return per $ 100 of capital invested.
And if the Swiss government still exists in 50 years time, you will receive your capital back in full, having earned $ 2 of yield in that period. Wow — $ 2 over 50 years. That is a heady figure. It will probably buy you a very, very small sip of champagne to celebrate your patience — or perhaps just a whiff.
There is now $ 13.7 Trillion of global bonds in total issued with negative annual yields. There is only one comment to make here. YIKES. This has never happened before. We are certainly in uncharted waters from a financial viewpoint.
STAR MARKET IN CHINA
The new stock exchange for tech companies started in China last week. It is called the Star Market and it certainly was the Star. On the first day of trading, the top 25 companies listed surged an average of 140 %. The Star Market is being called the “Chinese Nasdaq”.
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.
Return to the BOOM Main Website – BOOM Finance and Economics at http://boomfinanceandeconomics.com/
EMAIL: gerry [@]
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
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”.
Quarterly Bulletins Index
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).”
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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