BOOM as at 24th November 2019

THE DOOM AND THE GLOOM

One of the persistent themes in the DOOM and Gloomers arsenal is the threat that the “US Dollar will soon collapse” and somehow that is supposed to cause severe Hyperinflation inside the borders of the United States. There is never any mention of what currency the people of America will suddenly switch to domestically as they rapidly lose faith in their official US currency. And there is never any mention of what currency the world will suddenly switch to in order to settle most international trades.

But one common message that the DOOM and Gloomers persist with is that “foreign holders of US Treasury securities (bills, notes and bonds) will suddenly sell out of their holdings and therefore flood the market causing a collapse in US Dollar demand. Thus, the “US Dollar will soon collapse” is supposed to happen via this mechanism.

BOOM just checked the TIC Data for the last 12 months which shows the amounts that each foreign holder nation holds of US T Bills, T Notes and T Bonds. Facts often spoil narratives. They can be inconvenient. So what has happened over the last 12 months? The amount of Treasury securities held by foreign nations has increased from US$ 6.22 Trillion to US$ 6.77 Trillion.

There does not seem to be any significant loss of international confidence in the US Dollar recently, quite the contrary. And BOOM cannot detect any loss of domestic confidence in the US Dollar either. But BOOM can point you to numerous DOOM and Gloom analysts that continue to state that the “US Dollar will collapse”.  It is an old game and a good one for the perpetrators. Scare the reader until they hand over their money for the newsletter, the “special reports”, the upcoming conference, the new book. Then collect the money and continue ever onward while sitting on the beach drinking Pina Colladas.

BOOM has been reading these scare mongering DOOMers for about 30 years. The themes are always the same.

GOLD BUGS GALORE

Another theme they use is the idea that “Gold is the only real money” so you must buy gold NOW in order to benefit from the huge rise in gold price that will occur when everyone loses faith in the US Dollar. Of course, they never mention that if the US Dollar collapses, then all other currencies must (by definition) rise in popularity. This means, of course, that the price of gold expressed in those currencies will FALL dramatically.

Some more sophisticated DOOM and Gloomers have realized that this is a problem, so lately they have started to say that “all currencies will collapse” against the price of Gold. For this to happen, everyone on the planet would have to suddenly develop a dramatic thirst to own gold and to buy everything with gold, even toothpaste, presumably using gold bars. This may, of course, represent a problem at  the local bar when you arrive with a gold bar to purchase a cold beer. But that is a practical detail that the DOOMers just don’t want to discuss.

Then there is the problem of how to buy gold. Again, the more sophisticated DOOM and Gloomers have (finally) realized that counterfeit gold bars exist and that it may be difficult to determine if the “gold bar” you possess is actually 100 % gold (and not just a paperweight covered in gold paint). Then there is the problem of security. How the hell are you going to protect your caches of “gold” bars as the financial world collapses around you?

Finally, there is the inconvenient truth that the price of gold just won’t rise despite the very best efforts of these promoters of its “outstanding value”.

Let’s look at the real price of Gold over the long term — using historical data for real (inflation-adjusted) gold prices per ounce back to 1915. The price series is deflated using the headline US Consumer Price Index (CPI) with the most recent month as the base.

Over the last 10 year period, the real inflation adjusted price of gold has declined from a high in September 2011 of US$ 1,920 per ounce to today’s price around US$ 1,450.  The lowest price during that period was US$ 1,046.  It has not been a stellar performer in the investment stakes.

In the previous 10 year period from 1999 – 2009, the real price of gold moved from US$ 450 to a low of US$ 380. Then it moved up steadily to around $ 1,300. So, during that period, there was an inflation adjusted capital gain. That sounds good but BOOM is aware of many stocks that increased 10 fold in share price in that period. So, in comparison, the surge in gold price was not outstanding.

And in the previous 10 year period from 1989 – 1999, the real gold price declined from around $ 800 to the $ 400 range. That represented a 50 % drop in adjusted capital value.

If you had bought gold in January 1980 at the real adjusted price of $ 2,200, and held on, you would have had to endure a twenty year decline to $ 380 in early 2001.  YIKES.

Of course, the Gold promoters around the globe never discuss the CPI inflation adjusted reality of the gold price over time. They only show nominal price charts.

But hope springs eternal and the DOOM and Gloomer Gold bugs simply redouble their efforts when the nominal price falls which is what they are doing at present while predicting (as always) that the great economic collapse is surely just around the corner.

IS BITCOIN DIGITAL GOLD

Bitcoin seems to have failed as a generally accepted currency. Its price in US Dollar terms is just way too volatile for merchants to continue accepting it as settlement of trades for goods and services. So the promoters of Bitcoin have turned to the argument that Bitcoin is a “digital gold” which will (one day) realize its potential and surge to unimaginable levels in US Dollar terms. Some of the promoters suggest that all you have to do is buy one Bitcoin and wait for it to rise in price to $ 100,000 or even $ 1 Million.

The same old tricks are being pulled. “The US Dollar will collapse”, “the US economy is on the brink of collapse”, “the IMF will take over and issue its own currency”, “the Chinese economy/banking system/government is about to collapse”.

The newsletters, seminars, conferences and “special reports” are easy to find all over the Internet. Of course, you have to pay for all of these with your currency (in US Dollars if you are a US citizen). If you want to actually buy Bitcoin instead, you will have to hand over more US Dollars (or any other well accepted currency).

Why? Because the promoters want a really useful currency in their hot little hands.  And that is usually US Dollars or British Pounds or Euros or Yen or Australian Dollars or Canadian Dollars.

Meanwhile the US Dollar price of Bitcoin has fallen from US$ 12,691 to US$ 7,351 since late June. That is a capital loss of 42 % in just 5 months. If that rate of decline continues, Bitcoin will be priced near Zero within 12 months.

US RECESSION FORECAST 2018

This time last year, Larry Kudlow, President of the US National Economic Council said “In my personal view, our administration’s view, recession is so far in the distance I can’t see it”.

Meanwhile, many professional economists were forecasting a US recession beginning either in late 2019 or in early 2020. For example, Larry Summers, a Harvard economist and former treasury secretary during the Clinton Administration, is reported to have said “there’s a nearly 50% chance of recession by 2020”.

So far, it looks like Larry Kudlow has won this argument. But we are yet to enter 2020. Real US gross domestic product (GDP) increased at an annual rate of 1.9 percent in the third quarter of 2019 according to the estimate released by the Bureau of Economic Analysis 3 weeks ago. The Atlanta Federal Reserve through its GDPNow website is now forecasting a 2019 4th Quarter Real GDP Growth of just 0.4 percent. At least it is a positive number. In early 2020, when we get the official figures, we shall see what really transpires.

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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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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