Taiwan Stocks Crash — US Tech Stocks Hit Again — More on Money — Covid 19 Cases and Deaths Falling Globally

BOOM FINANCE AND ECONOMICS

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THIS WEEK’S EDITORIAL

TAIWAN STOCKS CRASH, KOREA AND JAPAN STOCKS UNDER PRESSURE

Last week, BOOM discussed the recent warning issued by the US central bank, the Federal Reserve, that asset prices were too high. Two weeks ago, in an editorial headlined “HAVE WE RUN OUT OF BUYERS?” BOOM also alerted readers to the fact that the Russell 2000 Index and the Nasdaq Stock Index in New York had not gained any net ground since February.  And BOOM has also detailed how the Plunge Protection Team has been very active recently in protecting US stocks from falling.

On Tuesday, the Taiwan stock market dropped hard and continued to drop over the first three days of trading. At the worst point on Wednesday, it was down by almost 15 % from its highs in late April. Taiwan is the unmatched leader of the global semiconductor industry with Taiwan Semiconductor Manufacturing Company (TSMC) alone accounting for more than 50% of the global market. So falls in these stocks are noteworthy if you consider that semi-conductors are used in computers, smartphones, electrical appliances, gaming hardware, and medical equipment.

Technology stocks in the US and mainland China also came under sustained selling pressure early last week. The broad China technology ETF coded CQQQ has now fallen by 30 % since mid February.  Tencent Music Entertainment has dropped by 53 % in share price since late March and Baidu has fallen by almost 49%. These are large falls and could perhaps be described as a crash.

The topical Hedge Fund ARK Innovation that tracks many US technology companies (NY Code: ARKK) continued to fall and was down mid week almost 40 % since its recent highest point achieved in mid February.

The fragility continued in almost all the major stock markets around the globe.  On Friday, there was some rebound with buyers bidding prices up. But the bounce was not terribly convincing.

The question “HAVE WE RUN OUT OF BUYERS?” continues to be asked in regard to stocks but some observers are now asking “WILL WE WE RUN OUT OF SELLERS?”. Others are asking ‘HOW LOW CAN IT GO?” and wondering if all the non technology sectors will join in and start falling.

BOOM’s two major indicators that track the Chinese economy are still in strong uptrend so that bodes well for the immediate future of China, the globe’s leading economic engine. Total Social Financing in China fell in April but not significantly. Some reports concerning this have been exaggerated.

On 21st February, BOOM wrote — “…… in regard to the prices of Bitcoin and Tesla, BOOM suspects that their recent rises in price will soon be over and price declines should begin. And the FANGS plus maybe Apple could also weaken soon. This should allow other stock sectors in the US with more fundamental value to shine as investors rotate from fashionable sectors to other less fashionable ones.”

Since that date, Bitcoin has struggled to rise against the US Dollar. It has moved sideways in a trading range. However, it is now down 15 % in that timeframe.  The Grayscale Bitcoin Trust traded OTC has fallen by 35 %.

Tesla shares have fallen by about 37 % since late January. Apple and Netflix have fallen about 16 %.  But it has not all been one way traffic. Facebook has risen by 10% and Google has risen by around 20 % in the same timeframe.

BOOM sees all of these declines in technology stocks as healthy in the long run. Asset prices have been “too high” according to the US central bank so such corrections are to be expected.

MORE ON MONEY

This leads us to two key questions – “What is Money”? and “What is Wealth?”. Asset prices trap money out of circulation and embody wealth. These are complex phenomena to understand. Here is a short explanation.

Money is a contract of debt — a credit contract. These contracts exist in any primitive tribe. “I’ll help build your barn today if you help me harvest my corn crop next month”.  When such contracts become many and are generally recognized (accepted) in a social setting, the primitive society will inevitably move towards the invention of a generally accepted, convenient currency to assist in payment settlements. A currency is money in circulation such as salt or sea shells or (later) metal coins. When metal becomes inconvenient, cloth or paper comes next, then ledgers are invented to store the promises. Tally sticks are rudimentary ledgers. When computers arrived in the 1960’s, digital ledgers were invented. And since then almost all our money has been in digital form.

If it is kept in storage and is not circulating, a currency becomes a store of potential spending power (wealth).  If a society’s money is linked to Gold (or Silver), the price of the precious metal must be fixed against the prevailing currency. Then the only way to expand the money supply is via discovery (mining)  or theft in imperialist wars of conquest, murder and mayhem. If we ever return to a Gold backed currency, a very clever committee of economists will have to set the price of Gold from time to time. Very clever economists are extremely rare to find, let alone a committee of many (!).  Theft, murder and mayhem will return as certainly as night follows day. 

Credit contracts always have a term (a period of existence) thus credit money must always have a term. Credit money is born as a contract, exists in circulation (as currency) or is fixed for a period of time (as wealth) but then it dies when the contract is completed. This is why Bitcoin or Gold can never be money — because they are not created as contracts and are limited in volume. Bitcoin cannot be destroyed, Gold can never be destroyed, and both are limited in supply thus neither can ever be money or accepted as a currency. They can only be assets — either digital assets or commodity assets. Even sovereign money (cash) is a debt from the sovereign to its citizens. That debt can be (theoretically) recalled at any time.

Credit money (created as a bank loan) is interest bearing money. Cash is not. Our money now is 98% credit money and 2 % sovereign (cash). A 100 % sovereign money system is called Communism where there are no private banks and thus no creation of interest bearing money. That is what happened in the USSR. China is a mixed money system where the private credit money is private until it is public (you get the drift).  We need more sovereign money (created as non interest bearing cash) to provide balance to the credit money in existence. We should strive for a 50:50 system.  Banning credit money is called communism — not a good idea  (eventually everybody pretends to work and the government pretends to pay them with something of “value” which they pretend is a generally accepted currency). 

The Debt Jubilee referred to in last week’s BOOM editorial concerns the possible forgiveness of debts created as Reserve Assets between the commercial banks, the central bank and the government. Reserve Assets are special assets held by banks that cannot be used to create credit contracts to banking clients. BOOM has described previously how such reserve assets combined with debt jubilees could be used to create fresh new money that is effectively a form of non-interest  bearing electronic cash and which the government could spend into the real economy.

One more thing of some importance. Money can never be made “sound” by linking it to an asset such as gold . It’s value must always be derived from the quality of the trust embodied in the contracts of promise. And most often, that trust must be enforced because many human beings tend to be untrustworthy if given the chance. History reveals that in all its so-called “glory”. 

Money and wealth are often the obsession of human beings but few make the effort to understand them.

GOA HANDS OUT IVERMECTIN

The State of Goa in India is handing out the drug Ivermectin to all citizens above the age of 18 years. This is a preventative treatment aimed at slowing the effects of Covid 19. Surely all nations should consider this strategy in future for attentuation of any viral epidemic?

Health Minister Vishwajit Rane said “There have been studies in journals of therapeutics, there have been studies in the US, UK, Japan, Germany that when this (Ivermectin) is administered in advance, when the entire population is administered this treatment, their mortality rate fell and effects of Covid-19 on that individual were also less (sic). All our doctors and experts, the chief minister have unanimously decided to go ahead with this….We should go ahead and give it to the population. It’s a must.”

Goa and Covid 19: https://indianexpress.com/article/india/goa-prescribes-ivermectin-for-all-above-18-irrespective-of-symptoms-7310158/

COVID 19 GLOBAL CASES AND DEATH NUMBERS FALLING

The number of New Cases of Covid 19 globally is falling. The number of Deaths attributed to Covid 19 globally is also falling. Check these numbers for yourself at the Worldometers website.

The mainstream media will almost certainly keep this information from you. Why? Because they dislike facts, especially any facts that ruin their fear campaigns and their narratives. It is slowly becoming clear to anyone who can think that those mainstream narratives are not the result of any intense research. Sadly, the western world no longer has any large mainstream media outlets that vigorously seek to find truth by looking at facts in an unbiased manner. They certainly do not seek to conduct any balanced debate about topical issues. It seems that they have become nothing more than propaganda outlets for secret, hidden forces that wish to manipulate the public.

Worldometers — https://www.worldometers.info/coronavirus/

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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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 Index

http://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

2 thoughts on “Taiwan Stocks Crash — US Tech Stocks Hit Again — More on Money — Covid 19 Cases and Deaths Falling Globally

  1. Credit is money and money is credit — long before Gold was ever dug out of the ground. Promises are a natural and immediate consequence of social interaction. Credit Contracts are money, salt can be a currency, sea shells can be currency, tally sticks can record money obligations, money can be trapped in asset ownership. Money takes many forms. That is why so many are confused by it.

    Like

  2. “This is why Bitcoin or Gold can never be money — because they are not created as contracts and are limited in volume.”

    I remind this author that gold has been considered and used as money for thousands of years.

    Like

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