BOOM as at 1st November 2020

US HOME PRICES RISING
CHINA HOME PRICES ALSO RISING

BOOM wrote about the Case Shiller US Home Price Index last week. New figures have just been released showing a further, steady increase in prices. This is a positive sign for the US economy going forward because any increases in mortgage lending immediately boost the total money supply with fresh new money. Home prices are rising at an average rate of 5.2 % over last year. However, if the US economy fails to grow from here due to the Covid 19 effect then housing prices may come under pressure as unemployment grows. Bear in mind, however, that despite the mass media doom and gloom regarding Covid 19 in the US, at this point in time, the US economy seems to be in recovery mode.

The average fixed 30-year mortgage rate in the United States is 3.02 percent, remaining close to the previous week’s all time record low of 3 percent. Building Permits are rising strongly and have now reached a level that is the highest in a decade. Existing home sales are literally skyrocketing upwards with the home ownership rate surging back to 68 %. New home sales and pending new home sales are strong.

So what is happening in China? Average new home prices in China’s 70 major cities increased by 4.6 percent year-on-year in September 2020, following a 4.8 percent rise in the previous month.

In Australia, the dollar value of home loan lending is skyrocketing to record high levels.

However, in the UK, net mortgage borrowing is at one third the levels that occurred in 2004 – 2008. This is ominous news for the UK supply of fresh new money. Thus, the UK economy appears doomed to wallow in recession as far as BOOM can see. A garden cannot grow without water. In France, new home sales, building permits and new housing construction starts are all failing to recover. Thus, the French economy seems doomed to follow the UK into a prolonged recession.

Elsewhere in Europe, building permits in Germany appear to be recovering well and house prices in Italy are rising for the first time since 2015. Poland continues to show steady price rises in houses, a trend that started in 2015. And Sweden continues to show steady price rises, a trend that started in 2013.

So the UK and French economies are the apparent future basket cases in the advanced Western economies. Japan is the special case where they have had a money supply problem for over 25 years now. Their economic garden no longer grows — it is on life support. Their economy, measured in US Dollar terms has not grown in 25 years.

RUSSIA REPORT

Russia suffered a mild recession in 2015 – 2016.  It has since recovered and was growing until Covid came along early this year. Then its GDP shrank by 8% YoY in the second quarter due to a 32% drop in exports. Over the last 12 months, its oil exports have dropped by 27 % in US Dollar terms and they have reduced by 50 % since 2012. However, the Russian currency has fallen 50 % since then against the US Dollar and that devaluation has helped enormously.

Their home ownership rate has grown steadily over the last 10 years and is now one of the highest on the planet at almost 90%. However, despite that, bank loans to the private sector are still growing steadily at around 7.2 % per annum over the last 10 years. Thus, it can be assumed that this fresh new money must (theoretically) now be going into more productive investments in the economy and into consumer spending — rather than into the housing sector.

The Russian Government 10 Year Bond Yield is at 6.03%.  The Overnight Benchmark Rate is set at 4.25 %. A year ago, the Yield Curve was starting to look very flat but, since then, it has acquired a more normal shape with short term yields falling considerably. The Russian Government issues bonds from 1 Week duration right out to 20 Years. The 20 Year Yield is currently 6.435 %. This Yield Curve repair should help the private banking sector as the future unfolds. The Government Debt to GDP ratio is just 13 % — room for a substantial increase.

Consumer credit is growing strongly but total household debt to GDP is only 20 % — incredibly  low by international comparisons. Consumer spending is rather flat but has potential to grow.

The Russian MOEX stockmarket Index has doubled over the last 6  years. This shows that private investors are willing to put their money at risk in Russian companies. Confidence in the future is critical to any economy.

The population of Russia is 145 Million.  The GDP of Russia is about the same as Australia’s. However, the population of Australia is only 25 Million. So, if policies can be established to fuel consistent economic growth, the Russian economy must surely have the potential to be 6 times larger. Current unemployment level is 4.8%. The CPI Inflation rate is 3.7 %.

In summary, this is an economy with huge untapped potential. It has enormous resources, a large population, talented people and has stabilized itself lately with a lower currency, low inflation, low unemployment, low interest rates and high home ownership. There is huge potential for increased private debt to boost consumer spending and improve the living standards of the average Russian. And the Government can issue more bonds and boost deficit spending into improved infrastructure. Exports of energy should underwrite that improvement but the other sectors of the economy urgently need boosting especially in the domestic economy. It could become a $ 10 Trillion GDP economy if it were to realize its potential.

SOUTH KOREA FLU VACCINE DEATHS

Influenza vaccine deaths in South Korea have become a major concern. There have been 83 deaths recently after Influenza vaccinations. Apparently, these have mostly been in elderly people over the age of 70 years. The first death occurred on October 16th. Singapore and Malaysia have both now banned the use of two Influenza vaccines. There are seven other vaccines available. The Korean Medical Association has called for a halt to the Influenza vaccination program. There is no evidence that Influenza vaccine gives any protection against Covid 19.

This article is dated 31st October:

https://www.thestar.com.my/aseanplus/aseanplus-news/2020/10/31/s-korea-govt-says-that-83-deaths-reported-among-people-who-received-flu-vaccine

COVID DEATH RATES IN THE UK

An examination of Daily New Case Numbers and Daily New Deaths from Covid 19 in the UK reveal that the case numbers in the so-called “second wave” are five times greater than in the first wave. But the death numbers are almost four times less. Thus the death rate of cases is now actually 20 fold less than what happened in the first wave.

The Prime Minister, Boris Johnson, has just imposed a nation-wide lockdown for one month. The entire nation is now a jail. So why are the lockdowns so harsh? Is the Government watching the epidemiology? Or not? Are the “expert” epidemiologists watching the epidemiology? What is the quality of the so-called “scientific” advisers? What is the quality of the UK leadership when WHO doctors have now advised against lockdowns? WHO envoy Dr. David Nabarro recently said that such tight restrictions cause significant harm.

BOOM thinks that yet another huge over-reaction to Covid is occurring which will cause severe harm to the UK economy. That will have knock-on effects in regard to business failures, supply chains, bankruptcies, suicide, depression, anxiety and increased deaths from other diseases that are being neglected in terms of medical attention. Starvation may soon erupt in the UK. It is already a huge problem in the third world, especially in Africa and India, where supply chain disruption is having a big adverse effect.

MASS STARVATION IN AFRICA AND INDIA

A recent article in The Telegraph shows the grim statistics in India. It details how over 400 Million Indians are being pushed into severe poverty with deaths growing from starvation. All of this is happening while the nation’s food stocks are full after a record harvest this year. This demonstrates clearly that starvation is an economic system problem — not a food problem.

India: First coronavirus, now starvation: hunger stalks millions of Indians plunged into extreme poverty

Link: https://www.telegraph.co.uk/global-health/science-and-disease/first-coronavirus-now-starvation-hunger-stalks-millions-indians/

Meanwhile, food riots are occurring in Nigeria as people become more and more desperate.

Nigeria: Sharp increase in food prices caused by COVID-19 raises fear of hunger

Link:  https://www.icrc.org/en/document/nigeria-sharp-increase-food-prices-caused-covid-19-raises-fear-hunger

BOOM warned of this in the Editorial dated 17th May 2020

400 MILLION MAY STARVE

Link:   https://boomfinanceandeconomics.wordpress.com/2020/05/16/boom-as-at-17th-may-2020/

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 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”.

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.html

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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