BOOM as at 17th May 2020

400 MILLION MAY STARVE

260 million people will face starvation by the end of this year according to a report from the United Nations World Food Programme. That is double the number that was subjected to the threat of starvation in 2019.

Politicians have over-reacted to the threat of Coronavirus to such an extent that global food supply chains have now been severely affected. Plus, the global contraction in economic activity has reduced the number and amount of transactions that will occur during 2020 which further endangers the supply of food.

World Food Programme director David Beasley recently said — “We could be looking at famine in about three dozen countries. There is also a real danger that more people could potentially die from the economic impact of COVID-19 than from the virus itself”.

If the Global GDP falls by a further 5%, then they estimate that another 147 million people will suffer extreme poverty and deprivation. That’s more than 400 million people starving. Think about that because it’s clear that no politician has considered it.

The so-called “expert” technocrat advisers to the advanced nation economy governments may well have over-estimated the threat by such a substantial amount that they have inadvertently caused millions of deaths from other causes. And, remember, almost all of those technocrat advisers never care for a single patient. They are not clinicians. They just play with spreadsheets and computer models. This is decision making in a vacuum.

The original “worst case” estimates of potential death numbers in the UK were 500,000 deaths. However, the actual UK death total to date is only 34,000 and the Deaths per Day numbers are clearly declining since their peak on April 21st.  If the epidemic continues to disappear, then the actual number of UK based deaths may eventually be just one tenth of the “worst case” expert estimate.

If 400 million face starvation, then the event will have possibly been the greatest example of political foolishness in history. The mainstream media who have driven the panic demic should hang their heads in shame.

Professor Michael Levitt from Stanford Medical School and winner of the 2013 Nobel Prize in chemistry, recently stated, “There is no doubt in my mind that when we come to look back on this, the damage done by lockdown will exceed any saving of lives by a huge factor.”

THE REAL FACTS OF THE MATTER

BOOM has been at the forefront of the demand for perspective in regard to the Coronavirus mass panic event. Here is (at last) a short mainstream media show that attempts perspective. Four minutes of sanity.

https://www.youtube.com/watch?v=AzFb1nq4X08&feature=youtu.be

GLOBAL NUCLEAR WEAPONS SPENDING

Meanwhile, the western advanced economy nations are expanding their expenditure programs on Nuclear Weapons. Last  year, they spent $ 73 Billion on these weapons with the US contributing almost half that figure — $ 35 billion. More Madness from politicians and their technocrat advisers.

“It is sometimes an appropriate response to reality to go insane.”
 Philip K. Dick, Author.

STOCK PRICES CAN DOUBLE

When economies collapse, sometimes stock markets roar upwards.

The Argentinian stock market index is called the MerVal Index. It has almost doubled in the last 2 months, an extraordinary price advance in the current circumstance. It has risen from around 22,000 to 40,000, after a 50% plunge from late February to mid March. So it has almost managed to recover all of those losses due to the global mass panic event.

Does that represent a huge vote of confidence in the future of Argentina’s companies? Or is it a reaction to the fact that Argentinians are fearful of the future and desperate to find anything of value to invest in?

In that time frame, the Argentinian currency – the Peso — has dropped in US Dollar terms from 0.168 to 0.148.  The fall has been steady but, in percentage terms, it is only a 12 % drop in relative value. So that can’t account for the spectacular rise on the stock market. Over the last 10 years, there has been a steady devaluation of the Peso to the US Dollar. In total, it has amounted to a 50 % decline in US Dollar terms in that time frame. So, there is clearly a backdrop of loss in confidence in the currency but it is equally clear that this is not a new phenomenon.

However, it is not as simple as that. There are two conversion rates in Argentina for the purchase of US Dollars. The official exchange rate is about 68 Pesos to the Dollar.  But the so-called “parallel blue chip swap rate” is 120 Pesos per US Dollar. That is the rate that most Argentinians have to pay.  However, they can only buy US $ 10,000 worth per month.

Argentinians were placed under capital control measures by their government in October 2019 which means they cannot easily move funds offshore. Any excess wealth over and above the family home or business has to remain invested inside the nation. In such a situation, investors can only buy Argentinian based real estate, commodities, bonds or stocks. Or they can keep cash on hand at a bank if they wish but that may be unwise if there is distrust of individual banks or of the banking system as a whole.

So the citizens of Argentina are left with limited investment options. Real estate is expensive, usually requires large bank loans and is illiquid. That is clearly not so attractive when the economy is experiencing great uncertainty. Bonds are issued by the government and the government defaulted on its bonds last year so that investment option sounds unattractive. What is left?  Commodities and stocks. In such a situation, some commodities such as precious metals could be an option. But, if you purchased some physical gold or silver, where could you store it safely?  So the only option left is stocks, even in a declining, contracting economy.

That possibly may explain the strength of the MerVal Index. But there is one other possible source of strength in stocks. And that is foreign investment flows heading into Argentina, driving stock prices higher. Imagine foreigners feasting on the assets of a nation like vultures on a carcass.

A COLOSSAL MUDDLE

Today, it is worth thinking again of what John Maynard Keynes said about The Great Slump of 1930.  Quote: “…… to-day we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time.”

We live in a world of great uncertainty. So what are the causes?  From the Wikipedia page on The Law of Unintended Consequences —  “Possible causes include the world’s inherent complexity, perverse incentives, human stupidity, self-deception, failure to account for human nature, or other cognitive or emotional biases”.

Robert K. Merton, an American sociologist, listed five possible causes of unanticipated consequences in 1936):

⦁    Ignorance, making it impossible to anticipate everything, thereby leading to incomplete analysis
⦁    Errors in analysis of the problem or following habits that worked in the past but may not apply to the current situation
⦁    Immediate interests overriding long-term interests
⦁    Basic values which may require or prohibit certain actions even if the long-term result might be unfavorable (these long-term consequences may eventually cause changes in basic values)
⦁    Self-defeating prophecy, or, the fear of some consequence which drives people to find solutions before the problem occurs, thus the non-occurrence of the problem is not anticipated

Take your pick.

Reference — http://https//en.wikipedia.org/wiki/Unintended_consequences

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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