BOOM as at 9th August 2020

CENTRAL BANK STATEMENT

The Reserve Bank of Australia (the central bank) released a statement last week from the Governor, Philip Lowe. BOOM brings this to readers’ attention wherever they may be because the exact same dynamics are present everywhere on the planet, regardless of where you may live. Here are the key sections. They highlight the extreme gravity of the economic situation we are facing in 2020 (and beyond) of which all readers should be fully informed.

“The global economy is experiencing a severe contraction as countries seek to contain the coronavirus. Even though the worst of this contraction has now passed, the outlook remains highly uncertain. The recovery is expected to be only gradual and its shape is dependent on containment of the virus.”

“International trade remains weak, although there has been a strong recovery in industrial activity in China over recent months.”

“The prices of many assets have risen substantially despite the high level of uncertainty about the economic outlook.”

” …. tomorrow the Bank will purchase AGS in the secondary market to ensure that the yield on 3-year bonds remains consistent with the target. Further purchases will be undertaken as necessary. The yield target will remain in place until progress is being made towards the goals for full employment and inflation.”

“The Australian economy is going through a very difficult period and is experiencing the biggest contraction since the 1930s.”

“Inflation is expected to return to positive territory in the current quarter. Beyond that, given the ongoing spare capacity in the economy, inflation is expected to average between 1 and 1½ per cent over the next couple of years.”

“The Board also considered other scenarios. A stronger recovery is possible if progress is made in containing the virus in the near future.”

BOOM thinks this RBA Statement is too optimistic. Viruses cannot be “controlled”, “contained in the near future”, “brought under control” or “eliminated” easily. This is magical thinking. The whole analysis seems underwritten by the assumption that this is a temporary event and that previous economic activity will return as a matter of course, sooner rather than later. False assumptions almost always lead to false conclusions.

For example, the medical research world has attempted for 50 years to create vaccines against Coronaviruses (and failed because they mutate too much). We still have no vaccine against the SARS-Cov-1 virus and that fearful epidemic was 18 years ago (and much more fatal than SARS- Cov-2). SARS-Cov-2 is the virus that causes the illness termed Covid 19.

New vaccines (especially for a mutating virus compared to a bacteria) usually take 10 years or more to develop to the point where they can be safely given to a population. Anything done sooner could be risking low effectiveness and serious unknown side effects not to mention the complex issues surrounding new vaccine methodologies such as Messenger Vaccines. (Messenger vaccines give commands to our immune system unlike traditional vaccines that simply challenge the immune system to respond).

Thus, BOOM feels that the statement is possibly projecting a false narrative because it may be based upon false assumptions about viral epidemics. And central bankers are certainly not experts in that subject.

By contrast, BOOM expects CPI inflation in all advanced economies will continue to stay below central bankers’ targets and increased GDP growth will be very difficult to attain for a very long time but not because of the virus itself. The cause is the extremely bizarre governmental reactions to the virus whereby whole economies have been subjected to forced, engineered contractions which will cause massive and intractable unemployment. The scale of business failure is also extremely hard to estimate accurately and may be much worse than politicians and bureaucrats can imagine from their ivory towers.

Link:    https://rba.gov.au/media-releases/2020/mr-20-18.html

FALSE POSITIVES FALSE NEGATIVES

The Spectator Magazine published an interesting article on 21st July by Professor Carl Heneghan who is professor of evidence-based medicine at the University of Oxford and director of the Centre for Evidence-Based Medicine. BOOM recommends that readers check out the article online at the link provided.

The article deals with the complex issue of accuracy in Covid 19 testing especially in regard to the thorny issues of False Positive Tests and False Negative Tests. BOOM suggests that readers should consider it carefully while remembering that so far worldwide, it is reported that tests have now detected more than 19 million cases of Sars-CoV-2.  Is that number true?

The key paragraphs to note in the article are these — read the bolded sections carefully.

“There are two issues about tests to get your head around. The first is the sensitivity of the test: the proportion of people who test positive, out of the population who have the virus. The second measure, specificity, is about the proportion of people who test negative, out of the population who should have tested negative. Finding out the actual values of these two measures is tricky. The Office for National Statistics admits they do not ‘know the true sensitivity and specificity of the test because Covid-19 is a new virus’.

And the last sentence in the article sums up the conundrum — even if Covid 19 disappears completely, testing will show that it hasn’t. Why? Because of False Positive results.

“This is why understanding the accuracy of tests in the population that they are applied to matters: going off current testing practices and results, Covid-19 might never be shown to disappear.

BOOM is not aware of any serious discussion in the mainstream media regarding these issues. It is just assumed that the Coronavirus Tests being conducted are absolute determinants of infection. That is clearly not the case.

LINK   https://www.spectator.co.uk/article/how-many-covid-diagnoses-are-false-positives-

TWO CHINA INDICATORS

From time to time, BOOM reports on two key indicators that are watched in regard to Chinese economic performance and that have been reliable indicators of the present and future outlook over long periods of time. At present, the chief indicator is continuing to show a strong resurgence by moving upwards and that began two months ago in early June. The secondary indicator is also now showing a persistent resurgence from early July. The Shanghai stock market index has responded positively and risen by almost 19 % since early June.

VENEZUELA AND ARGENTINA STOCKS

From time to time, BOOM also reports on the stock market performance in Argentina and Venezuela. Readers may be interested to know that both of these stock markets continue to show dramatic rises in price. The Venezuelan market index has risen by 280 % since the beginning of 2020. The Argentinian market has risen by about 24 % in that same time frame but it has actually doubled in price since the end of March (when the Covid 19 pull back ceased). That is a 100% gain in just 4 months.

SHOW BUSINESS NOT THE NEWS BUSINESS

BOOM recently saw a comment made about the mainstream media that readers may like to ponder upon —

The mainstream media is no longer in the news business. It is in Show Business“.

That statement contains a great deal of truth. The western mainstream media no longer seems concerned with accuracy, truth, perspective, relevance, balanced analysis. It is solely interested in sensation and appears biased towards the promulgation of particular political views.

In the 2020 American Views, Trust, Media and Democracy survey, Gallup and Knight polled more than 20,000 U.S. adults and found deepening pessimism in regard to the mainstream media. Many Americans felt that increasing bias was a problem.

Nearly 8 in 10 Americans (79%) said that news organizations were trying to persuade people to adopt a certain viewpoint. 43% said that it is difficult to sort out the facts because there is so much bias.

BOOM tries to avoid bias as much as possible and also tries to present facts as much as possible rather than narratives (story-lines). Facts can cause anxiety and distress, especially if they run counter to the official narratives being promoted by the mainstream media. But facts are facts and they are essential to establishing any sense of the truth.

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:   OUR BRAVE NEW ECONOMIC WORLD

EMAIL: gerry {at} boomfinanceandeconomics.com

Return to the BOOM Main Website –  BOOM Finance and Economics at  http://boomfinanceandeconomics.com/

=============================================================

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.”
================================================================

Disclaimer:   All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

==============================================================

MOLS Denmark

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s