BOOM as at 28th June 2020

HUGE SURGE IN US MONEY VOLUMES
US GDP COLLAPSING

In the three months from early March to late May, the Supply of Money (fresh new money)  in the United States rose sharply with no increase in GDP. 

The M2 Money Supply and the MZM Money Supply numbers show this clearly. If you Google “FRED M2 Money Stock” and “FRED MZM Money Stock”, you can access the graphs which show this phenomenon. Note the recent steep, almost vertical rises.

https://fred.stlouisfed.org/series/M2       and   https://fred.stlouisfed.org/series/MZM

The graphs show that on March 2nd (before Covid-19) the M2 Money Supply in the US was $ 15,598 Billion (just below $ 16 Trillion). It surged rapidly upwards to $ 18,252 Billion on June 8th. That is almost a $ 3 Trillion increase in just 3 months. Unprecedented.

The MZM Money Supply rose by $ 3.7 Trillion in the same time frame. That’s $ 3,700 Billion or $ 3.7 Million Million. Being a broader measure of money supply, it would naturally be a greater number than M2. But the key thing to understand is that it previously took 5 years for the MZM money supply to rise by that amount from 2015 to 2020.

The graphs, published by the Federal Reserve Bank of St Louis, show this HUGE increase in money  supply over the last 3 months in dramatic fashion. The line representing MZM money goes from a steady rising line to a vertical line as the money supply accelerates much, much faster than ever before in history.

M2 Money Supply is defined as M1 money plus: (1) savings deposits (which include money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds.

M1 includes funds that are readily accessible for spending. M1 consists of: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler’s checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts.

MZM Money Supply is M2 less small-denomination time deposits plus institutional money funds.

So — if the fresh new money of $ 3.7 Trillion did not boost the real economy, where did it go?

Answer — to the only place it can  — into the trading of pre-existing assets. That means stocks, bonds, precious metals and property.  That is ASSET PRICE INFLATION writ large.

Logical – because large amounts of fresh new money from a central bank or from bank loan creation designed to buy assets can clearly only push asset prices higher. It cannot push fresh new money into the real economy which desperately needs it. This is a Bonanza for anyone who understands this (like central bankers).

Most conventional economists worldwide cannot work this out. They have little to no understanding of money — the different forms of money, where it comes from, where it goes and how it is destroyed.

US DEFICIT SPENDING

While the US central bank and commercial banking system have been creating $ Trillions of fresh new money and using it to buy pre-existing assets, what has the US Government been doing?

Answer — they have been issuing bonds like crazy and spending the money raised in massive deficit spending programs. In fact, they have increased their “Debt to the Penny” by almost $ 3 Trillion in the same time frame. And spent it.

Check it out here — https://treasurydirect.gov/govt/reports/pd/pd_debttothepenny.htm

or here — https://www.transparency.treasury.gov/dataset/debt-to-the-penny/table-view#!

Debt to the Penny is the total Federal government public debt outstanding reported daily. It is made up of intragovernmental holdings and debt held by the public, including securities issued by the U.S. Treasury (bills, notes and bonds).

That money does go into the real economy and is supposed to boost CPI inflation. However, it is not fresh new money being spent (most of the time), it is old money being re-circulated (similar to the government spending taxation revenues). So, deficit spending even on a massive scale does not easily cause CPI inflation  — because it usually does not increase the total money supply volume in circulation. And its effect on boosting GDP performance will hinge on where it is spent.

So this is classical “Keynesian spending” by the US government that is supposed to boost CPI inflation and GDP growth. But, in fact,  it probably won’t boost CPI inflation and it may not boost GDP growth much either (if it is directed to inappropriate destinations).

THE WRAP UP

So — we are witnessing massive, unprecedented deficit spending by the US Federal Government (funded by bond issuance) and massive unprecedented US central bank & banking sector credit money creation. All of which is supposed to boost CPI inflation and GDP growth (in theory).

However, as BOOM has explained, this may not happen in practice.

Can you figure out what is really happening here? It’s either incompetence or it’s corruption — both on a grand scale. That’s what is happening. BOOM can’t think of a third possibility.

And ALL of the advanced western economies are currently doing the exact same thing — the UK, the European Union, Japan, Canada and Australia. They have a combined GDP of about US $ 60 Trillion. The entire planet has a GDP estimated at about $ 88 Trillion. So 68 % of the globe’s economy is being run by incompetent or corrupt fools (or both).

How come the lights are still on?

SEND MONEY INTO THE REAL ECONOMY

We are faced with terrible economic consequences from the Covid-19 governmental and mainstream media Panic. The real economy where goods and services are provided needs an injection of fresh new money ASAP. But the capitalist system which we have operated since banking began in medieval Venice can only deliver most of such money via bank loans, applied for by borrowers and then granted by the banks. And the bulk of bank loans are usually linked to asset purchases. This is a slow, laborious process.

A central Government can send money straight into the real economy and increase the total supply of money almost instantly by paying all its bills with CASH. Cash is sovereign money; that means it is created without an interest component.

However, in regard to Cash, what have we got? We have a strong push by governments and bankers to decrease Cash in our economies (or even eliminate it).

What did I say about incompetence and/or corruption?

However, there is a way to effectively create sovereign money in digital form via a Tripartite Agreement between the commercial banks, the central banks and federal governments.

BOOM has explained this in many previous articles. It is a money volume solution and it would create an instant fresh new money injection into the real economy. BOOM calls it Quantitative Boosting — QB.

Read about QB here –– https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/

The US, in particular, needs to inject fresh new digital QB money immediately into its real goods and services economy (not into the asset markets) and it needs to do QE for the rest of the world (Quantitative Easing) to boost US Dollar volumes offshore.

Donald (Trump) and Jay (Powell), are you reading BOOM?

US GDP COLLAPSING

The US economy shrank by 5 % in the first quarter of 2020. It is the biggest drop in GDP since the last quarter of 2008. However, the GDPNow estimate by the Federal Reserve Bank of Atlanta of real GDP growth is – 39.5 %  for the second quarter (April – June).  If that estimate is half accurate, then an economic crisis is certainly heading our way, like a giant, unseen Tsunami. Millions of people will be rendered destitute in America unless the economy is supported adequately by better central bank and governmental policies.

GDPNow Estimate Link:  https://www.frbatlanta.org/cqer/research/gdpnow

CHINA RECOVERING

BOOM has mentioned previously that he watches two key indicators for the Chinese economy.  One is more meaningful than the other and both have been reliable over the long term. Two weeks ago, BOOM saw the more significant of the two indicators turn upwards for the first time since mid-January. That was great news. And last week, it rose even higher. That was even better news. On that basis, the Chinese economy appears to be turning the corner towards stability and growth.

BOOM’s less significant key China economy indicator has not yet shown any signs of rising. It has been in the doldrums since March 1st. But last week, it did not fall and that is another promising development.

The Chinese stock markets are charging ahead which is also good news for the global outlook although the Hong Kong market is more subdued. The markets in Taiwan, Korea and Japan have regained their pre-Covid panic levels. Investor confidence in the future of those economies appears to be strong.

BAYER PAYS OVER $ 10 BILLION

Bayer-Monsanto have announced a payment of US$ 10.1 Billion to settle some of the litigation concerning their herbicide, RoundUp (Glyphosate). This involves over 100,000 Non-Hodgkin’s Lymphoma sufferers in the USA. Non-Hodgkin’s Lymphoma is a very serious and potentially life threatening cancer of the lymphatic system. RoundUp is used all over the planet to kill weeds and also to “dessicate” large crops such as wheat, oats and beans. This dries the crop for improved ease of harvesting.

The mainstream media has not seemed too bothered by this report, preferring to concentrate on Covid-19. There is no Glyphosate Panic Propaganda Program being launched on every news and current affairs show worldwide. No one is wearing masks as they approach farmers’ fields. No government is demanding the cessation of Glyphosate use. BOOM has not seen any real concern from news presenters as they announce the settlement.  Go figure.

If you are concerned, here is a link to a summary but there are many other articles to be found by simply searching  —
https://sustainablepulse.com/2020/06/24/bayer-settles-glyphosate-cancer-lawsuit-for-10-9-billion/

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.

CLICK HERE FOR PODCASTS:
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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 LOANSBANKS 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”.

Youtube Video —  https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction

and

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy

Paper:  Money in the Modern Economy  PDF —  CLICK HERE

Quarterly Bulletins Indexhttp://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2014/qb14q1.aspx

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).”Reference: https://www.bundesbank.de/Redaktion/EN/Topics/2017/2017_04_25_how_money_is_created.htmlThe 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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