BOOM as at 22nd March 2020

ARE WE OVER-REACTING TO CORONAVIRUS TEST RESULTS?

EACH DEATH HAS COST $ 2.5 BILLION OF CAPITAL
 

In regard to the new Coronavirus, we must all start asking some key questions about the test that we are relying upon. What is the False Positive Rate of the test? What is the False Negative Rate? Are we focused more on tracking an epidemic of test results rather than an epidemic of disease? If we are over-reacting  to an epidemic of test results then we could be destroying our economies and financial system over a relatively small number of deaths, bearing in mind that over 70 million people die on planet Earth from multiple causes each and every year.

The World Health Organization definition of a Confirmed novel coronavirus case is this —

“A confirmed case is a person with laboratory confirmation of infection with the COVID-19 virus, irrespective of clinical signs and symptoms”

WHO Case Definitions Download Source:  https://www.who.int/publications-detail/global-surveillance-for-human-infection-with-novel-coronavirus-(2019-ncov)

So a “confirmed case” is actually anyone with a positive test.

There are also “Suspected Cases” — people with symptoms but no positive test yet. And “Probable Cases” are defined as suspected cases for whom the report from laboratory testing for the COVID-19 virus was inconclusive.

Currently, the reported global death rate  is 12,984 out of 304,336 total cases.  BOOM is going to assume that the word “cases” here means confirmed cases under the WHO definition.

What is the current percentage of those who are not showing any symptoms in which case they are simply positive test results? And what percentage of the 12,984 number have died from other co-existent causes such as well established metabolic diseases or cardiovascular disease?

It is reported that 9,381 of the total figure are currently in a “serious condition” — 3%. That leaves 294,955 who are not in a serious condition — 97%.

If the test turns out to be a relatively unreliable indicator of prognosis (the future outcome), then it may be mis-leading us a great deal as to the ultimate potential disease load and impact. And that could cause massive, excess financial and economic damage.

Statistical Sources — (as at time of writing  22nd March 2020 Sunday morning AEST)
https://virusncov.com/    and      https://corona.help/

THE COST EPIDEMIC — EACH DEATH HAS COST $ 2.5 BILLION OF CAPITAL

The Global economy has probably been weakened by approximately 2 – 3 % already which would amount to a contraction of about US$ 2 Trillion in global transactions annually.

The total global stock market losses so far are probably in the order of 30% which would equate to about US$ 22 Trillion of capital value lost. And BOOM estimates that global Bond market capital losses could be perhaps up to $ 10 Trillion.

So the stark cost equation (to date) is this — we have 12,984 deaths and we may have lost $ 32 TRILLION of stock market and bond market value globally. This amounts to $ 2.5 Billion of capital value lost for each Coronavirus death to date.  A staggering number.

In 6 months time, we might wake up to look out over a devastated economic and financial wasteland and find less total deaths from this new coronavirus than what we experience each year from common Influenza virus. If that happens, we will regret it and wonder why we reacted so dramatically.

DEATH RATE COMPARISONS

There are some other comparisons to think about in regard to the new Coronavirus epidemic.

The current preliminary death rate being reported in Italy is about 9 % of total cases. Such calculations cannot be rendered certain until the epidemic is over. However, we must deal with the event in real time and that death rate is already twice the rate that occurred in China.

In the neighboring nation of Austria, it is 0.27 %. In neighboring Slovenia, it  is 0.26 % and in Germany, it is 0.37 %.  In Switzerland, it is 1 %. However, the death rate in France is 3.8 % — 10 times the rate in Germany. And in Spain, the death rate is over 5 %.

How can all these major differences in death rates be explained? Are we dealing with different viruses or different forms of the same virus? Some suspect that is the explanation. If so, that begs a lot of new questions.

Or is the data false or unreliable? Can all of this be explained by national differences in testing policies or in health care?  Many questions but few answers. The mainstream media, of course, does not provide any effective service in providing such answers. They simply want to generate more and more fear.

WE NEED FRESH NEW MONEY IMMEDIATELY

ALL economies are now being starved of fresh new money because the credit creation process has slowed considerably but the demands for money are growing rapidly. This is at the root cause of our current economic and financial crisis but it was certainly brewing long before the new virus arrived.

Our governments, central banks and commercial banks in each nation need to sit together NOW and agree on a Quantitative Boosting (QB) program to boost the money supply equal to at least 2.5% of GDP immediately.

QB may save the banks, the government and the people. Its action is not mediated via asset prices, it will increase the money supply immediately and boost the economy immediately.  All it needs is a meeting between the three parties — EASY — and a decision to go ahead.
This is a real economy crisis. Lowering interest rates won’t work — too slow. Quantitative Easing (QE) which involves the central bank buying Government Bonds (assets) works (eventually) via boosting asset prices and new bank loan creation but this methodology is way too slow in the circumstances we are in.

The advanced economies need FRESH NEW MONEY NOW and we can’t wait for the credit creation process to do that. It takes too long to have an effect. The economies are fragile from dis-inflation and deflationary forces which have been progressively weakening them for the past decade.

Bond issuance money will NOT increase the money supply sufficiently or fast enough.  We must do QB — Quantitative Boosting.   QB is far superior to bond issuance in the situation we find ourselves in today.

QB is also far superior to MMT  — Modern Monetary Theory — which gives the power of money creation over to the Political Class. That effectively generates a communist monetary system eventually in BOOM’s estimation. BOOM is not a fan of MMT. To hand over the power of money creation to the oversized egos in charge of our governments would be extremely dangerous in the long term.

Quantitative Boosting Explained.  Read the Link: — SAVE THE PLANET

https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/

GOOD NEWS ITEMS

The US Sovereign Bond Yield Curve now looks a LOT better. It has lost the spoon shape that formed just before the crash which the Fed should never have allowed. That is good news.

Mortgage applications in the USA are still strong. That is also good news.

And China’s coronavirus epidemic has reportedly slowed dramatically. The Chinese economy appears to be re-awakening. More good news.

THE NATURE OF MONEY

A reader asked BOOM a question last week —  Does BOOM agree that the ideal form of money must contain four key attributes: durability, portability, divisibility, and intrinsic value?

The quick answer is no.  But this is a complex subject.

Cash is a form of money. We can all agree on that  — but it is not very durable (wears out and has to be replaced), it is not portable (in large quantities), it is not divisible (no-one will accept a $ 100 Bill cut in half or quarters) and it has no intrinsic value (just a scrap of paper or metal).

Money can take many forms.  It is all about Trust — trust between individuals, corporations, governments and society at large.

Dogshit can be money used as a medium of exchange as long as it is generally accepted by (most) merchants as settlement for trade and by the taxation authorities as settlement for taxation liabilities. General acceptance is the critical feature of money.

Sea shells have been money. So have scratches on a piece of wood (called a Tally Stick). Both have been used in history and trusted.

https://en.wikipedia.org/wiki/Tally_stick
https://en.wikipedia.org/wiki/Shell_money

Money is just a promise shared between parties (a dual IOU) and acknowledged by the community as trade-able itself.  It represents the value of Labor and Energy.

This is why credit is invented one minute after barter fails to build a complex, robust economy — which happens very quickly. Barter can never last long.

Most money is a credit contract and always has been. We store almost all our money now as digital entries on electronic ledgers. Commercial/Savings Banks create it out of thin air when they create a loan contract but they cannot do that without a Willing Borrower (except in China which has another monetary system — called communism — where the State plays a major role in guaranteeing the supply of money).

Money must be flexible because the other key elements for an economy to expand and achieve complexity are the ability to grow (and reduce) its money supply over time. Money must be born and must die.

Bitcoin and Gold can never be money.  Because they are commodities. Some would say worthless commodities. I can use a commodity to effect a single trade. “I will give you some Bitcoin and/or Gold for those plants” but that does not make it a generally accepted form of settlement  and neither will the Taxman accept it.

Commodities are not an efficient way to run a monetary system. They are hard to find/create/expand and they do not die (unless used in manufacturing) — thus they cannot be money in the long run.  You can run a very inefficient, primitive monetary system with commodities but as soon as people discover credit, it is doomed.

Credit is the miracle of money. It allows money to be created when a loan is made and destroyed when a loan is paid off.

In an advanced credit money system, banks create the vast majority of fresh new money (97% these days). But there is also Sovereign money — money created by the Government (or King in a monarchy). Only 3% of our money supply is currently created in this form as cash — notes and coins. We are over-exposed to credit money and we must restore balance to our money system.

If we adopt Quantitative Boosting, we will create a new form of electronic, sovereign cash with the quantities controlled by the central bank. They will then have two prime levers of money control via interest rates for credit and volume for electronic, sovereign cash.

SAVE THE PLANET — Read the Link — and send it to your politicians and central bankers. Quantitative Boosting Explained 

https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/

 

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 {at} 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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