BOOM as at 3rd November 2019

TURKEY — TRUMP FAIL?

Turkey’s stock market, currency and bond market have not suffered any “destruction” as promised by Trump three weeks ago. In fact, they all look rather strong with good demand showing through and the currency, in particular, is as solid as a rock. The 10 Year Bond Yield is actually heading lower over the last few weeks which means that there are plenty of buyers for Turkey’s government bonds and the stock market index is well within its recent trading range.

Of course, Trump would say that he has “won” in the confrontation by getting Turkey to cease its advance into Syria but the Turks did not plan to advance any more than 30 kms anyway. And Russia had to give the critical permission and cooperation to allow the advance.

So in regard to the Turkish economy which Trump had threatened to destroy, did China come to Turkey’s defense? Are they buying Turkish bonds and stocks? Or did the US simply try to bluff its way forward and fail? Does nobody believe Trump anymore? All talk and no action?

Coupled with an apparent abandonment of the Kurds and what looks like a desperate attempt to grab the Syrian oil fields which would have no basis in international law, it has been a terrible few weeks for international perceptions surrounding the US Dollar Empire.

RUSSIA, CHINA, INDIA SWIFT ALTERNATIVE

Meanwhile, in the media, it was reported that Russia, India, and China have decided to connect their financial messaging systems to (eventually) bypass the US dominated SWIFT international money transfer network that is based in Brussels.

It looks like Russia’s financial messaging system SPFS will be linked with the Chinese cross-border interbank payment system CIPS. India does not have a suitable domestic financial messaging system yet so it will have to develop a domestic service that links to the Russian and Chinese systems.

They will conduct trade settlements in Chinese Yuan, Russian Rubles and Indian Rupees. This will inevitably lead to strong cooperation between Russian, Chinese and Indian banks which will boost the creation of credit money in those three currencies.

India and China combined have a population of 2.8 Billion people. Russia has 148 Million people. So the combined population of the three nations is approaching 3 Billion.

Russia has a GDP of US$ 1.5 Trillion. China’s GDP is US$ 14 Trillion (doubling every 10 – 12 years) and India’s GDP is US$ 2.7 Trillion.  So the combined GDP of the three nations will soon be close to US$ 20 Trillion (as big as the US and EU economies).

But measured on a PPP basis (Purchasing Power Parity), the combined GDP of the three nations is already approximately $ 40 Trillion ( as measured in “International Dollars”) — twice the size of the US economy.

The Geary–Khamis dollar, more commonly known as the international dollar (Int’l. dollar or Intl. dollar) is a hypothetical unit of currency that has the same purchasing power parity that the U.S. dollar had in the United States at a given point in time. It is widely used in economics and financial statistics for various purposes, most notably to determine and compare the purchasing power parity and gross domestic product of various countries and markets. The year 1990 or 2000 is often used as a benchmark year for comparisons that run through time. The unit is often abbreviated e.g. 2000 US dollar (if the benchmark year is 2000) or 2000 Int’l$.

Reference: https://en.wikipedia.org/wiki/International_United_States_dollar

US DEFICIT SPENDING

BOOM’s calculations show that the US government is now spending at a prodigious rate, never matched previously in history. Trump has gone full blast and is going to move into election mode with all guns blazing in economic terms.

BOOM was not surprised to see the announcement last week that the US economy grew by an annualized 1.9 percent in the third quarter of 2019, beating market expectations of 1.6 percent.

The old style “capitalism” which the US pretends to promote and defend is now well and truly dead and buried in the past. If they keep issuing US Treasury T-Bills, T-Notes and T-Bonds at this rate, then the GDP growth will be strong leading up to the Presidential election in November next year and it will not be principally generated by any rapid rise in credit creation. They will probably drag the planet out of its recessionary tendency all by themselves as they suck in imports and boost domestic transactions.

And, in January, BOOM is expecting the Chinese to assist through further Repo operations, boosting the cash inside their banking system by many more Billions of Yuan.

If this all pans out as BOOM is expecting, there will be no global recession. And, if there is one, it will be shallow and very short lived.

THE OLYMPICS OF MONEY

We are entering The World of Japan in terms of deficit spending where the two biggest economies on Earth will now compete to see who can create the biggest surge in recycled and fresh new money supply without causing CPI inflation. This is shaping to be the Olympics of money re-circulation and supply. But they are certainly not Going for Gold.

A Brave New World of massive bond issuance will be the result. The old elements of capitalism (the banks) in the system will benefit but this is clearly not a capitalist system. It is a centrally planned and executed strategy where the US Government takes over center stage and drives the future economic consequences ahead at full speed.

If CPI inflation occurs, there is plenty of room to increase short term interest rates. The Federal Reserve central bank will also have a huge war chest of short term Treasury securities soon to sell hard back into the market  as 2020 unfolds and, if necessary, they can also increase the overnight rate any time they like through their regular overnight open market operations.

Have no doubt, this is a concerted and well organized effort by both the White House and the Federal Reserve to “Make America Great Again” before November 2020. The Treasury department is compliant and will assist as instructed. The Executive Branch of the US Government will take full control of the money flow dynamics inside the US economy.

Of course, all of this may not happen. Trump may instruct the Treasury to stop issuing new securities and cease the extra deficit spending.

But BOOM’s judgement is that this is as likely as pigs flying. Yes  — pigs might fly. But that would appear unlikely and it has never happened before.

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.

EMAIL: gerry [@] boomfinanceandeconomics.com

Return to the BOOM Main Website –  BOOM Finance and Economics at  http://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”.

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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MOLS Denmark

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