BOOM as at 30th August 2020

GOOD NEWS IN THE US ECONOMY

Believe it or not, there is good news happening in the US economy. Both new and existing home sales are rising sharply after suffering a steep decline in March, April and May. It is only one month’s improvement but a V shaped rebound seems to be here. New home sales rose almost 14 % more in July than in June.

The Home Ownership rate is also rising to its highest level since the great financial crisis of 2008. Almost 68 % of Amercians now own their homes. According to the US Census Bureau, that number fell to just 63 % in 2014. So it has been rising for 6 years.

The other good news last week was the expected increase in US GDP. The GDPNow model estimate from the Atlanta Federal Reserve Bank for real US GDP growth (the seasonally adjusted annual rate) in the third quarter of 2020 is currently positive 28.9 percent. This is a forecast for the period from June to to the end of August. So, if it is correct, then we are seeing a strong rebound in economic growth in the United States after the collapse in the previous three months caused by the Covid 19 panic over-reaction.

Consumer spending in the US also seems to be recovering rapidly although there is doubt about whether or not this can be sustained over the next 12 months.

If these indicators of renewed economic health are correct, then we should soon see a healthier banking sector and a healthier real estate sector in the US. BOOM mentioned very early signs of improvement in those sectors two weeks ago. And those tentative signs are continuing so the economic outlook remains hopeful.

LOOK FOR PERSPECTIVE IN COVID 19

We are being deluged by intense negativity from the mainstream media on a daily basis designed to instill intense fear and anxiety. The media refuses to put the Covid 19 epidemic into perspective, preferring to stir the pot at every opportunity. If you don’t take care, it is all too easy to become convinced that the economic outlook is gloomy especially if you only listen to or read the mainstream media.

BOOM is here to provide some much needed perspective. BOOM’s analysis two weeks ago showed that the absolute death numbers occurring from Covid 19 in 2020 are no different to those experienced three years ago during the Influenza epidemic of 2017/2018. And there was no panic then, no masks, no lockdowns, no 24 hour “cases” reports from the TV news anchors, no alerts or states of emergency declared by politicians.

BOOM’s analysis was derived from the numbers provided by EuroMOMO from 24 European nations (including the UK). Hundreds of millions of people live in those nations so the statistics are statistically significant.   Reference:https://www.euromomo.eu/graphs-and-maps/

So you can relax. If you didn’t panic two years ago during the Flu epidemic , why should you panic now? This appears to be a contrived Panic-Demic as far as BOOM can tell.

Check out the numbers again here — https://boomfinanceandeconomics.wordpress.com/2020/08/15/boom-as-at-16th-august-2020/

Remember, a million people on average die every year from Tuberculosis and about 10 million become infected with that disease. Are you panicking about that? Has any politician warned you about your Tuberculosis risk? Has any mainstream media “news” outlet ever mentioned this to you?

KEEP ASKING WHY?

A BOOM reader keeps asking WHY? Why has the world gone mad? Why have our political leaders crashed our economies? Why are they demanding we all wear masks and stay away from each other? That reader knows that Covid 19 is no more fearful than a bad Influenza so the why of the mystery continues to evade him.

BOOM’s answer is always the same — here are some of the key elements (but not all) —
Politicians clearly are self selected individuals. They share a common greed for power over others and they are driven by the need to promise a utopia on earth to anyone who will listen. An out-of-control ego is their driving force. And hubris supports this force.

Hubris is a personality quality of extreme or foolish pride or dangerous overconfidence, often in combination with arrogance.

So the steps that almost all politicians fall prey to are easy to list because there are only three of them.

“I AM MORE IMPORTANT THAN OTHERS”  
“I DESERVE TO LIVE FOREVER IN A PERFECT WORLD”  …. and  ….
“ONLY I CAN MAKE THAT HAPPEN”.

Ego first ……. hubris second ……. then action to close the circle.

Think about your current Prime Minister, President, Governor or Premier — does this definition sound like them?  Narcissistic personality disorder — “one of several types of personality disorders — is a mental condition in which people have an inflated sense of their own importance, a deep need for excessive attention and admiration, troubled relationships, and a lack of empathy for others. But behind this mask of extreme confidence lies a fragile self-esteem that’s vulnerable to the slightest criticism.”

BOOM can immediately recognize these characteristics in some rather famous politicians who are currently leaders of advanced economy nations. Can you name them?

Referencehttps://www.mayoclinic.org/diseases-conditions/narcissistic-personality-disorder/symptoms-causes/syc-20366662

Narcissists always seek an audience. BOOM advises you to stop listening to them, stop believing in them, become skeptical of them. Best of all, ignore them. Deprive them of an audience.

FOLLOWING BOOM’S LEADERSHIP

The Coronado Potter Solution is an initiative from two senior economists who have previously worked for the US central bank.

Their solution is very close to what BOOM has been steadily promoting over the last few years which is called “Quantitative Boosting” (QB).  In BOOM’s opinion, QB is actually the obvious next step in the evolution of our monetary system. And it will have wide-ranging effects on our societies — making them much more egalitarian in the long run rather than the opposite (which is where we are heading at present). After 400 years, our money creation system needs a dramatic overhaul.

QB Explainedhttps://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/

CORONADO POTTER SOLUTION

As far as BOOM can tell from media reports, the Coronado Potter solution involves “Zero-Coupon securities” — called “Recession Insurance Bonds”. They would be Non-Interest Bearing Bonds issued by the Treasury direct to the people that can be activated (triggered) by some bad economic circumstances that may arise in the future. When such circumstances arise, the central bank would buy them off the people (with fresh new money created by the central bank).

So this is, in effect, interest free digital cash (just like QB) arriving in a citizen’s bank account from the central bank (not from the Treasury as it would in QB).

It allows the Central Bank to be in control of the process — so no direct political oversight would occur (except on issuance because the Treasury issues the bonds).

The proposers refer to avoiding price distortions in the bond market — which is also a key element of QB.  “The Fed could buy the bonds quickly without going to the private market”. In other words, the central bank would buy the bonds directly from the citizens by depositing funds into their bank accounts.

They are essentially creating digital cash here that is non-interest bearing and which is a digital form of Sovereign Money (which we usually call Cash).

The key features of this system (just like BOOM’s QB system) are —

    Digital, electronic cash injected directly into the economy
    Non interest bearing
    Avoidance of the asset markets (so no distortion of Bond Prices in the secondary market)

The people would then be encouraged to spend the money ariving in their bank accounts as soon as possible to boost the real economy.

I know all of this is complex — and you probably won’t “get it” at first. However, the end result is that the supply of fresh new money grows in the real economy (not in the asset economy) and without having to grow the volume of bank loans in an economy. It is an alternative to BOOM’s Quantitative Boosting system — not quite as good — but good nonetheless.

Reference: https://www.bloomberg.com/news/articles/2020-08-01/two-ex-fed-officials-offer-a-faster-way-to-make-stimulus-payments?sref=MqXWNJU8 

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 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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