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THIS WEEK’S EDITORIAL
GLOBAL ECONOMIC REVIEW
The Covid 19 epidemic continues to have a huge economic impact during the first half of 2021. Economic recovery after the global recession of 2020 has generally been swift but the unknown now is whether or not that recovery will be sustained, leading to continued economic growth.
Globally, there is poor economic growth, static or falling CPI inflation (dis-inflation), outright deflation, poor wages growth and poor credit demand in the advanced economies ever since the Global Financial Crisis in 2008.
During the last 12 months, global central banks in the advanced economies have continued to expand the money supply with Quantitative Easing Programs buying large amounts of Federal Government Bonds and allowing the financing of record government budget deficits. The aim is to increase CPI inflation rates and to stimulate the real economy. This is being achieved to different degrees in different nations.
The US Federal Reserve’s balance sheet has doubled in size since the pandemic began, and has now swelled by 800 per cent since 2007.
The Gross Domestic Product (GDP) in the United States expanded by just 0.4 % in the first quarter of 2021 over the same quarter of the previous year.
The US economy shrank by an annualized 31.7 percent in the second quarter of 2020. This was a huge shock to the largest national economy on the planet. Total US GDP has now been static for three consecutive years. The US economy is estimated as being approximately 18.5 % of Global GDP.
The Eurozone economy has suffered 5 consecutive quarters of contracting annualized GDP. Their GDP annual growth numbers for those 5 quarters have been – 3.3 %, – 14.6 %, – 4.1 %, – 4.7 % and – 1.3 %. Total GDP in US Dollar terms in the Eurozone has fallen for 4 consecutive years.
Total GDP in US Dollar terms in the UK has fallen for 14 years since a peak in 2007. It is more than 10 % below its all time peak that occurred in 2007 — 14 years ago. Consumer spending has fallen by almost 15 % since its peak in late 2019. Meanwhile Household debt compared to GDP has surged from 85 % to 90 %. Households are increasing their debt loads while the economy as a whole is in a long term decline. Government Spending to GDP has exploded from around 40 % to 52 % since 2019, a massive increase. And that spending has been financed largely by the central bank.
Japan’s economy, in US Dollar terms, peaked in 2012 and has since fallen by 16 %. Their Gross Domestic Product (GDP) Annualized Growth Rate has been negative on a Quarterly basis for 6 consecutive quarters.
US Dollar Index: A possible criticism of this analysis is that these comparisons sometimes use US Dollar Terms. However, a review of the US Dollar Index over the long term reveals that the US Dollar has not appreciated or depreciated against a basket of currencies since 2010. There have been ups and downs but the US Dollar Index is currently around the exact same levels that it was in 2007 — 14 years ago.
The U.S. Dollar Index (USDX, DXY, DX) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies. The Index goes up when the U.S. dollar gains “strength” (value) when compared to other currencies.
The index is designed, maintained, and published by ICE (Intercontinental Exchange, Inc.), with the name “U.S. Dollar Index” a registered trademark.
It is a weighted geometric mean of the dollar’s value relative to following select currencies:
Euro (EUR), 57.6% weight
Japanese yen (JPY) 13.6% weight
Pound sterling (GBP), 11.9% weight
Canadian dollar (CAD), 9.1% weight
Swedish krona (SEK), 4.2% weight
Swiss franc (CHF) 3.6% weight
FOCUS ON AUSTRALIA
The Australian economy advanced 1.8% QoQ in the three months to March 2021, after an upwardly revised 3.2% growth in the previous Quarter. This was the third straight Quarter on Quarter expansion, amid continued monetary and fiscal stimulus. However, looked at in annualized growth rates, the Australian economy has expanded by just 1.1 % in the first quarter of 2021. And that poor result followed three consecutive quarters of negative annualized GDP Growth of – 6.2 %, – 3.7 % and – 1%.
This has been the first official recession in Australia since the early 1990’s (where two consecutive quarters show a negative number).
However, the Australian economy has not grown in size for almost 10 years if measured in US Dollars. This is a major concern. Until the Covid epidemic hit, the Australian government was attempting to limit its spending in order to achieve a Budget Surplus. Since the epidemic hit, that unwise policy has been abandoned and the budget has blown out to a significant Deficit. However, Australia can easily cope with such an increase as its government’s bonds are keenly sought after on international bond markets.
Australia is now clawing its way out of the official recession of 2020 — the first for 28 years. Government Expenditure has increased markedly.
The Annual Inflation Rate has turned positive (barely) after being negative in the second quarter of 2020 and the Consumer Price Index in Australia has gone back into positive growth.
The Reserve Bank of Australia has lowered official interest rates to a record low level of 0.1 %. This is 40 % lower than it was 12 months ago.
Data Reference: http://www.tradingeconomics.com/australia/indicators
COVID OUTBREAK IN VACCINATED INDIVIDUALS – 74% occurred in fully vaccinated persons.
Outbreak of SARS-CoV-2 Infections, Including COVID-19 Vaccine Breakthrough Infections. Massachusetts, USA. CDC Press Release July 30TH 2021
“In July 2021, following multiple large public events in a Barnstable County, Massachusetts, town, 469 COVID-19 cases were identified among Massachusetts residents who had traveled to the town during July 3–17; 346 (74%) occurred in fully vaccinated persons. Testing identified the Delta variant in 90% of specimens from 133 patients. Cycle threshold values were similar among specimens from patients who were fully vaccinated and those who were not.”
CHANGES TO CDC PCR TEST FOR SARS-CoV2 to DIFFERENTIATE BETWEEN SARS-CoV2 and INFLUENZA VIRUSES
Level: Laboratory Alert —- 21st July 2021
United States Center for Disease Control and Prevention
After December 31, 2021, CDC will withdraw the request to the U.S. Food and Drug Administration (FDA) for Emergency Use Authorization (EUA) of the CDC 2019-Novel Coronavirus (2019-nCoV) Real-Time RT-PCR Diagnostic Panel, the assay first introduced in February 2020 for detection of SARS-CoV-2 only. CDC is providing this advance notice for clinical laboratories to have adequate time to select and implement one of the many FDA-authorized alternatives.
In preparation for this change, CDC recommends clinical laboratories and testing sites that have been using the CDC 2019-nCoV RT-PCR assay select and begin their transition to another FDA-authorized COVID-19 test. CDC encourages laboratories to consider adoption of a multiplexed method that can facilitate detection and differentiation of SARS-CoV-2 and influenza viruses.
75 % OF INDIANS OVER 45 YEARS AGE IMMUNE TO COVID 19
A TRIUMPH OF NATURAL IMMUNITY
In India, 36,227 people have been checked for SARS-CoV2 Antibodies in 21 States. The Indian Council of Medical Research conducted the studies.
They found that over 77 % of people over 45 years age had Antibodies.
From 18 – 44 years age, 66.7 % had Antibodies.
From 10 – 17 years, 61.6 % had Antibodies.
85.2 percent of the surveyed healthcare workers had antibodies.
India, home to 1.3 billion people, has only vaccinated about eight percent of eligible adults.
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.
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.
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”.
Quarterly Bulletins Index
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).”
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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