STRANGE DAYS INDEED
Donald Trump declared a National Emergency on Friday due to the Coronavirus crisis. The President can only declare a National Emergency to deal with an unusual or extraordinary threat if it has its source (or substantial part) outside the United States.
In BOOM’s editorial on 29th December (two months ago), the prospect that Trump could call a State of Emergency was discussed in some detail. It is worth reading again in light of the current crisis. BOOM expected that such an event could occur sometime during 2020.
SILVER DOWN 27% — GOLD DOWN 11.75%
The Gold Bugs are Gold promoters. They also sell Fear. They tell us that Gold and Silver will be the ultimate safe haven to hold as an investment when the (apparently inevitable) global economic collapse occurs as per their predictions. They promise enormous profits to be made in owning those precious metals. Some Gold Bugs are famous and have best-seller books to prove it.
Over the last few weeks of financial market panic, the Gold Bug Theory was put to the acid test and it failed. Miserably.
Gold finished the week down 9.31 % from its open last week. Overall, from its recent peak to low, it has fallen 11.75 %. But Silver is where the real action took place. Silver finished the week down 16 % from its open last week. Overall, from its peak (in September last year) to its low this week, it has fallen 27 %.
Ouch (!) — not good results for the “ultimate safe havens”.
US DOLLAR RE-ARRANGEMENT
The other “safe haven” investment destination is supposed to be the US Dollar. After all, it is the global reserve currency. However, there were dramatic movements on the foreign currency markets over the last 2 weeks. The idea that the US Dollar is the “ultimate safe haven” took a battering — but only against certain currencies (and not others).
It fell sharply against the Euro, the Yen, the Danish Krona, the Swedish Krona, the Polish Zloty, the Hungarian Forint and the Swiss Franc when global stock markets plunged. But by the end of last week, this crash of the US Dollar against those currencies had been largely reversed. All very odd indeed.
Meanwhile, the opposite move happened in regard to the the Australian Dollar, the Canadian Dollar, the Norwegian Krona and the Russian Ruble which all fell sharply against the US Dollar throughout the market turmoil. However, there was no reversal seen against these currencies at the end of the week.
So we have witnessed strange days over the last 2 weeks in regard to the International Reserve Currency — the US Dollar — in response to the turmoil in the global financial markets. There is an apparent mystery here to be solved. It appears that some market participants took the opportunity to re-arrange the chairs on the currency deck. One must ask why?
BOOM has made many references in the past to the need to stop the US Dollar advance in order to slow dis-inflation inside the borders of the US. But selective de-valuation is an unexpected turn of events.
A LONG SQUEEZE — THEN A SHORT SQUEEZE
There is such a thing as a Short Squeeze in the markets. This is not a loving embrace. It is when prices fall dramatically and then suddenly reverse direction when speculators who are short sellers have to frantically reverse their positions and become buyers. Such events cause huge volatility and unexpected changes in direction from down to up. There is a correspondent phenomenon called a Long Squeeze which is the exact opposite. But it is a much rarer event.
Over the last 2 weeks, we have witnessed the most dramatic Long Squeeze in history and perhaps the beginning of the most dramatic Short Squeeze. It has been a wild ride with many long term investors sitting firmly on the sidelines, waiting for the fall to end.
It appears that the Short Squeeze has only just begun on Friday. Next week will be fascinating to watch to see if the prices continue to rebound and to what degree.
Global oil prices have dropped sharply to around US$ 35 per barrel. Russia is very comfortable with these price levels. Saudi Arabia is not. But the circumstances will cause many bankruptcies in the United States oil sector. Their “tight oil” producers who use massive amounts of debt and massive fracking techniques to access oil in “tight” situations will suffer enormously from such low oil prices. This crisis has been brewing for a very long time. The US has many Zombie oil producers and their debt loads will kill them as their revenues quickly dry up.
Such falls in energy costs will help the global economy a great deal. However, they are a strong cause of dis-inflation (falling CPI inflation rates) and deflation (negative CPI inflation rates). Dis-inflation and deflation are the major economic phenomena that are impacting on the advanced economies since the global financial crisis 12 years ago in 2008. Thus, central banks will now have to work a LOT harder to maintain CPI inflation. They are already doing more Quantitative Easing but this just supports asset prices (bonds, stocks, real estate).
MEANWHILE MNUCHIN MEETS RUSSIAN AMBASSADOR
Last Monday, during one of the big stock market plunges, the US Treasurer, Steven Mnuchin made an unusual trip. He went to see the Russian ambassador in Washington DC. The visit was an unscheduled one. Think about that — during a stock market collapse, the US Treasurer went to see who? Russia’s representative, Anatoly Antonov. Of course, the other thing that happened that day was a huge drop in the price of oil.
The meeting was reported by one mainstream media organization as an opportunity to “talk about potential for trade and investment”. It appears that the US was asking Russia for help.
Russia’s follow up Tweet read — “The two sides discussed the current state and future prospects of Russia-U.S. relations, implementation of the arrangements reached by Russian President Vladimir Putin and U.S. President Donald Trump during the summits in Helsinki in 2018 and Osaka in 2019“. All very discrete.
Later in the week, Mnuchin stated a commitment to keep liquidity strong in the US financial system and to keep markets open. He forecast an economic rebound by the end of the year.
He also said “For long term investors, this will be a great investment opportunity”.
MAINSTREAM MEDIA MANIPULATION MACHINE
The mainstream media manufactures anxiety and fear. They are so used to scaring people that they now think it is their principal job. They no longer consider themselves as part of a balanced societal discussion. They have left the sideline and entered the playing field and they did that a very long time ago.
This leaves us with a lack of trust in them and that lack of trust is being re-enforced every day.
They offer no perspective, no facts (or minimal facts) and concentrate on narratives that generate the most attention, the fearful ones. It’s all about getting attention.
The political class has been seduced into this realm as well. They do not generally discuss facts. If they do, they use minimal facts. They also concentrate on narratives. Fearful ones are preferred because they generate the most attention. And they seek to create conflict as a political weapon.
This leaves us with a lack of trust in them and that lack of trust is being re-enforced every day.
So we are left to watch conflicted, fearful people who have lost their ability to think rationally fight over toilet paper in supermarkets. Violence is almost always the default of the human race when subjected to such psychological terror.
Manufacturing fear creates anxiety which makes many people more suggestible. That makes them more willing to believe messages and to take instructions.
“Various types of belief can be implanted in many people, after brain function has been sufficiently disturbed by accidentally or deliberately induced fear, anger or excitement. Of the results caused by such disturbances, the most common one is temporarily impaired judgement and heightened suggestibility. Its various group manifestations are sometimes classed under the heading of “herd instinct,” and appear most spectacularly in wartime, during severe epidemics, and in all similar periods of common danger, which increase anxiety and so individual and mass suggestibility.”- from Tavistock Institute psychiatrist Dr. William Sargant’s 1957 book, Battle for the Mind.
We now have millions of people who have been subjected to the daily manufacture of fear by the mainstream media over very long periods of time. They are now extremely fearful of global epidemics, the weather, foreign spies, “adversarial” nations, financial market chaos, fossil fuels and the global climate.
Return to the BOOM Main Website – BOOM Finance and Economics at http://boomfinanceandeconomics.com/
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
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.“
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).”
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