BOOM as at 10th May 2020

SUICIDE VERSUS CORONAVIRUS — USA EXPORTS COLLAPSE — EMPLOYMENT COLLAPSE — OIL COLLAPSE —  BUFFETT COLLAPSE — US DOLLAR  SHORTAGE — RE-INFLATE THE PLANET — US WITHDRAWING FROM SAUDI ARABIA

SUICIDE VERSUS CORONAVIRUS

A senior Australian psychiatrist has speculated that suicide rates will increase by at least 25 % as the economy deteriorates due to  Coronavirus lockdown effects. He also said that the suicide rates could increase by as much as 50 % in a worst case scenario. Those scenarios could therefore add 750 to 1,500 suicides to the annual average of 3,000 deaths from suicide.

He went on the explain that those increased rates of suicide could persist for up to five years. If that were to happen, the extra death toll would be 3,750 – 7,500 suicides caused by the economic consequences of the Coronavirus lockdown.  And if that happens, the extra deaths from suicide will swamp the current Australian death toll from the Coronavirus of just 97 deaths.

The equation is simple.  97 deaths versus up to 7,500 extra deaths.  Which one is the crisis?

But the mainstream media won’t care and the politicians won’t care. BOOM can be confident of that. The newsrooms and the party political rooms will move on to more pressing problems as they crave and seek out yet more attention and power. They pretend to care when it suits them.

Global suicide rates have been increasing even before the epidemic hit, approaching more than 800,000 per year, according to the World Health Organization.

USA   — EXPORTS COLLAPSE — EMPLOYMENT COLLAPSE — OIL COLLAPSE —  BUFFETT COLLAPSE

BOOM has pointed out time and time again in editorials over the last few years that the US economy is fragile and being propped up by massive, unprecedented deficit spending by the Trump administration. The “brilliant” economy that Donald Trump has continually referred to as “making America great again” has simply not materialized. And, by the way, it’s not really Donald’s fault. Obama left behind a fragile economy after 8 years of his Presidency. And he inherited his economic mess from the previous President George W. Bush. That represents 20 years of economic mis-management by the White House.

The United States economy is predominantly based upon the domestic consumption of services rather than the manufacture and export of goods. It has not been dependent upon the trade in goods for some considerable time. In the last 4 months, that trend has accelerated with a dramatic collapse of U.S. exports. In March, exports fell by a record amount — 10 % on the previous month’s number — and their imports declined by the most in 11 years as the coronavirus panic demic hit.

However, the virus is not the full explanation for those numbers because imports had actually been falling since the last quarter of 2019, long before the virus hit. And exports have been falling for two years after reaching their peak in early 2018.

Meanwhile, China reported that their exports actually rose by 3.5% in April this year compared to April last year. Since January, their exports have increased by 36 % (you read that right).  And Australia just recorded a sudden dramatic surge in exports to China to feed its demand for materials. Exports of goods and services from Australia soared 15 percent month-over-month to an 8-month high of A$ 42.42 billion in March 2020. China is by far and away Australia’s largest trade partner with exports to China almost 10 times those to the US.

So remind me, Donald, who is winning the trade war?

Back in the US, the ISM Business Activity Index for the services sector has just plunged to record lows. The chart shows that the index has literally fallen off a cliff.

So, Donald, how is that domestic services based economy doing?

The US once had a mighty energy sector but it is also falling into a very great hole. The price of XLE, a fund that specializes in investment into the US energy sector began falling in late 2018 — 18 months ago.  Since then, it has fallen from around $ 70 to a recent low point around $ 22.50 in March. At the beginning of that decline, the price of oil was over US $ 70 per barrel. It has since reached US $ 10.  The once mighty global oil & gas services company, Schlumberger, based in Houston Texas, has seen its shares fall from around $ 118 to just $ 15. And Chesapeake, the spectacular, ever hopeful, tight oil fracking company has seen its shares plunge from $ 14,000 to just $ 14  (yes, you read that right) since 2008.

Unemployment in the US is another area of concern with 30 million people registered as unemployed over the last 6 weeks. Yes, you read that right again, 30 million people. The U6 unemployment rate has surged from 8.9% in March to 22.4 % in April. The U6 rate is often called the “real” unemployment rate. It includes all classes of unemployed even those considered  “marginally attached” and/or part-time for economic reasons. In other words, those who would like a full-time job but can only find part-time work.

Then there is the loss of faith in their great guru of investment, Warren Buffett. The shares of his company, Berkshire Hathaway, fell 30% during March while the Great Panic raged. Since then, they have recovered a little but are now falling again as investors seem to have lost their passion for the great guru’s portfolio and his magic crystal ball.

BOOM contends that the US economy has seriously lost its way under woeful leadership at the highest levels in the White House, the Congress and the Senate. For decades, all Presidents have fought offshore wars endlessly for spurious reasons and neglected the structure and function of the domestic economy. Meanwhile, members in the Congress and the Senate have been concentrating on getting rich and not much else.

Meanwhile, the financial sector has looted the real economy and nobody in the White House has cared. Four companies have achieved market capitalization values of greater than $ 1 Trillion — Alphabet (Google), Microsoft, Apple and Amazon. Three of those companies have hoarded over $ 100 Billion in Total Cash (cash plus short term investments) and so has Berkshire Hathaway. That’s half a Trillion in Cash on just 5 Balance Sheets.  A Trillion is $ 1,000 Billion.

There are 585 Billionaires resident in the US and 12 Million millionaires. The people of America, numbering 330 million, are left to fend for themselves with millions now destitute.

THE US DOLLAR  SHORTAGE — RE-INFLATE THE PLANET

So what role does the US play in the global economy? The answer is — very little — except for the provision of the so-called reserve currency. The Global GDP in US Dollar terms is about  US$ 80 Trillion and the US contribution to that number is about $ 20 Trillion. But that statistic is misleading. US exports annually are only $ 2.5 Trillion and imports are only $ 3 Trillion. So its trade represents just 7% of the global economy. It runs a persistent trade deficit of about $ 600 Billion with the rest of the world which means that it exports those dollars.

However, the problem we have is that it does not export enough dollars to keep the global economy afloat. $ 600 Billion is only 1% of the global economy net of the US economy. That 1% annual growth rate is clearly insufficient as far as BOOM can see. That is causing a relative lack of US Dollars world wide which leads to a persistent lack of global CPI inflation. Thus, widespread CPI Dis-inflation and deflation are the result.

Sure, Eurodollar loans generated by the international banks can increase US Dollars offshore if there is sufficient demand but those dollars are inevitably used principally for the purchase of existing offshore assets. They are not used in trade settlement. Thus, the global real economy does not directly benefit from that Eurodollar expansion and especially so if it is an insufficient expansion.

It looks like the world needs more US Dollars, not for its asset economy but for its real trading economy. Clearly, the US does not need any more imports of goods and services. So how can it increase the US Dollars offshore to solve the global US Dollar shortage? Unfortunately, there is only one way forward if the US Dollar is to remain the dominant currency in circulation for the settlement of global trade. And, paradoxically, that way forward is via the offshore asset markets.

BOOM has constantly explained that the USA central bank must export more US Dollars FAST and HARD by buying foreign assets (bonds and stocks) in large quantities. This will relieve the US Dollar shortage that is happening all over the planet and it will lower the US Dollar exchange rate against other currencies. Let’s call it QE for the Planet.

Increased US Dollar swaps established by the Fed and between central banks certainly helps a lot but that methodology is demand dependent and cannot stimulate the global economy.

At the same time, the USA central bank must push huge amounts of US Dollars into its real domestic economy but not via their asset markets (bonds and stocks). The central bank needs to make large loans directly to the US Treasury for this to have immediate effect on the real economy (Quantitative Boosting).  Let’s call it QB for the US.

Quantitative Easing will not work in boosting a contracting economy because it is mediated via the asset markets which simply distorts US asset prices denominated in the reserve currency.

The longer the US central bank (the Federal Reserve) dilly dallies and does the opposite to what BOOM suggests, the worse the global economy and the US economy will get. And the decline of US Dollar dominance globally will just get worse and worse.

BOOM is watching the emerging markets for evidence that the Fed has woken up and worked it all out. And there is some preliminary evidence developing for this but it is way too early to tell.

Calling Jay Powell, can you please contact BOOM for advice as soon as possible?

US WITHDRAWING FROM SAUDI ARABIA

The Wall Street Journal has reported that the US is pulling Patriot Missile Defense Systems out of Saudi Arabia and that reductions in other military capabilities are being considered. Just a few days ago, there was a report published by Reuters headed “Special Report: Trump told Saudi: Cut oil supply or lose U.S. military support”.

Interestingly, Saudi Arabia is the world’s biggest importer of weapons. However, only 9 % of America’s oil imports come from Saudi Arabia.

On 20th October 2019, BOOM wrote “Meanwhile, last week Vladimir Putin, President of Russia, was welcomed by both Saudi Arabia and the United Arab Emirates on a State visit, the first in 10 years. He signed important business agreements and had extensive discussions with the leaders of those nations. There was even a performance by Russia’s Tchaikovsky Symphony Orchestra.”  And ……… “Russia is also developing close ties to Israel, a fact often overlooked. Israel has almost a million citizens of Russian descent.”

Think about Saudi Arabia selling oil to China in return for Yuan. THAT would be a financial revolution in an instant.

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

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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