BOOM as at 21st June 2020

IS THE EURO CURRENCY AN AMERICAN PROJECT?

The fact that so many European nations have surrendered their national currencies and adopted the Euro as a shared currency is highly suspicious. In fact, it makes no economic sense whatsoever. Some have suggested that many European politicians agreed to this from a position of corruption. In other words, the accusation is that the promoters of the Euro currency somehow bribed those politicians to look favorably on the Euro project. But how and why?

BOOM regards the act of surrendering your sovereign currency as unwise, ignorant and arguably treasonous. Nineteen European nations have done this using Euro notes and coins since 28th February 2002. However, the electronic forms of the currency such as bank ledger entries and transfers were introduced on 1st January 1999.

Thus, in effect, the Euro has been in circulation electronically (digitally) to settle transactions inside the Eurozone region for 20 years. But there is more to learn about this strange phenomenon.

There were two precursors to the Euro. The European Unit of Account began in 1975 and was then replaced by the European Currency Unit which began in 1979. Then that was replaced by the modern Euro in 1999. All three were linked at par value so the common European currency has actually been in operation for 45 years.

In that time frame, the European currency has ranged up and down against the US Dollar. It has appreciated by more than 40% against the US Dollar at one time and it has depreciated by a similar amount at another time. But currently, it is almost back to where it started in 1975 which sounds extraordinary over such a long period.

Some people point to this and say that it is evidence of control in relation to the US Dollar. In other words, they say that it is an American project. That hypothesis begs the next question. If the Euro Currency is an American project (initiated and controlled from Washington DC) then what does that make the European Union? Could the European Union also be an American project? An interesting hypothesis indeed.

In order to attempt an answer to that question, you need a deep understanding of European and American pre and post World War Two history. BOOM is not a publication focused on history so each reader will have to dig deep into history archives to satisfy themselves as to the correct answer.

However, the answer is very important in regard to the accuracy of any global financial and economic macro-analysis from 1945 onward. If it is true then one could argue that the Euro is just some sort of proxy for the US Dollar and thus, it is a clever extension of US Dollar dominance over world financial affairs. That would be a key consideration in any serious attempt at a Geo-political and Geo-economic analysis of world affairs.

FOREIGN CURRENCY RESERVES EXPLAINED

Some readers may be mystified when BOOM refers to “US Dollar dominance”. Dominance  means that most central banks around the world hold more US Dollars on their books than they hold of other foreign currencies. And that makes it easier to settle international trades with US Dollars rather than with other currencies (such as the Chinese Yuan, for example, or the Australian Dollar). US Dollars are more available so it is more convenient to use them.

The term “the reserve currency” in relation to the US Dollar is a little confusing because all currencies are actually held in reserves at all central banks. It is more appropriate to call the US Dollar “the major reserve currency” or the “dominant reserve currency”.

All central banks hold a range of foreign currencies on their books. Why? Because central banks trade (manipulate) their own currency every day to either keep it in a trading range relative to other currencies or to lower its value (or increase its value) against the US Dollar.

If a nation’s currency is rising against the US Dollar, then that will decrease their export income as expressed in their own currency. It will also be CPI dis-inflationary in that nation, via the effect of lowering the costs of imports.

What else happens?  When a central bank raises the value of its currency against the US Dollar, it benefits its national importers. When it lowers the value of its currency against the US Dollar, it benefits its national exporters. And if it wants to create CPI inflation inside its national borders, it will effect a lowering of its currency.

All central banks manipulate their currency in these ways as a major tool of economic management. Once you know this, you can see that it makes absolutely no sense for a nation to join a common currency project such as the Euro. If a nation does this, it is surrendering one of its major economic tools. You would be right to ask — why would any nation do such a thing?

Bear in mind that of all global currencies held as reserves on central bank balance sheets, 80% are held in either US Dollars or Euros. Now that is real dominance.

SCIENTISTS ARE NOT POLITICIANS

SCIENCE IS NOT DEMOCRATIC

The mainstream media now refers to “The Scientists” or “Scientists” as if a select group of carefully selected individuals with expert knowledge has some meaningful consensus opinion about a controversial subject. This media approach was perhaps first seen in regard to the climate change debate. Prior to that debate being heavily politicized by the media and the political class, vigorous scientific debate and dis-agreement was seen as normal. And scientific consensus (whatever that phrase means) was seen as abnormal, even suspicious.

But, clearly, journalists working for our mainstream media outlets were unhappy with that. So during the last 20 years or so, they moved decisively towards presenting us with a “right” view of any technical subject. And thus, any such “right” view naturally brands opposing views as “wrong”. In other words, the media has decided that technical matters should be decided by a majority view — a democracy in action occurring within an amorphous group of media appointed science “experts”.  Some would call this a Technocracy.

This is the politicization of science, an effort to render science into a democracy.

Unfortunately, that is NOT how science works. In the long run, scientific progress is not decided only by consensus or votes. It is decided either by deductive proof or by extensive anecdotal evidence and conclusions based upon probability analysis and abductive logic. One man or one woman can change the course of science through the process of experimentation and discovery revealing a deductive conclusion. If that discovery can also be reproduced by other scientists independently in different locations, then it becomes generally accepted. All conclusions based upon probability analysis and abduction must also stand the test of time to reach general acceptance. It is a slow process, aimed at revealing ultimate truth.

CLINICAL MEDICINE IS OFTEN NOT  “SCIENTIFIC”

In clinical Medicine, science is often used as a means of support for good decision making when caring for a patient. However, science is definitely NOT the be all and end all of good medical practice. For example, there is no need to run a double blind clinical trial on over 1,000 patients (a statistically significant sample size) in multiple locations to determine whether or not to remove plugs of troublesome ear wax from a patient’s ear canals to improve their hearing. And a surgeon does not need to conduct large double blind clinical trials to decide whether or not to remove a badly infected appendix. He just does it, based upon his clinical experience. Such knowledge is intuitive, handed down from generation to generation.

 Lately, the mainstream media has started telling us that “The Scientists” have consensus opinions about Covid-19 and its cause, the SARS CoV2 virus. For example, because Donald Trump said that he favored the use of Hydroxychloroquine as a therapy or preventative in early stage Covid-19, then his political opponents in the media decided that they must demonize Hydroxychloroquine and even attempt to stop its use in medical practice by finding and promoting an alternative “consensus”.

This back-fired big-time when the huge scandals broke out involving the small company Surgisphere and the medical journals The Lancet and The New England Journal of Medicine.

In the very early days of the outbreak in mid to late February, BOOM asked a friend who is an expert in clinical toxicology what the best possible treatment could be for the new virus. He answered immediately and without hesitation — “we know from what happened in the SARS epidemic that Hydroxychloroquine combined with Zinc and Vitamin C are probably the best possible therapy”. He had even taken the step of securing for himself a personal supply of Hydroxychloroquine, just in case.

CHOOSE YOUR ADVISERS WELL

BOOM suggests that readers consider this choice — you can have your medical care determined by politicians,  journalists, main stream media outlets and “famous” epidemiologists, all of whom are not medical practitioners engaged in patient focused clinical medicine on a day to day basis. Such determinations could perhaps be described as a “democratic consensus” (whatever that means) by non experts in clinical medicine.

Or, alternatively, you can take the advice of your most trusted medical adviser who works hard every day in caring for patients as their clinician and monitors the outcomes carefully.

To BOOM, the correct choice seems obvious.

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.

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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