BOOM SWITCHES PLATFORMS
BOOM is available on three platforms — on the Paper.Li platform, on LinkedIn and on WordPress (where all BOOM editorials are available) at https://boomfinanceandeconomics.wordpress.com/
BOOM will continue to be published on LinkedIn and WordPress. However, the Paper.Li platform will no longer be available from 20th April. BOOM will soon launch on Substack to ensure that three platforms continue to be available. You will be kept informed.
GLOBAL TRADE RECOVERY
BOOM constructs a key indicator in-house that is correlated to both world trade prospects and global stock market performance. The indicator flattened in October 2021 for a year and then went into steep decline during August/September 2022, indicating severe weakness in global trade settlements. When the decline began, BOOM again warned about a possible economic recession (or significant slow down in growth) beginning in late 2022, especially in the United States.
However, readers should take note that the indicator stopped declining during February, this year. And during March it began rising steadily. In the past, strength in global trade as signalled by this indicator has usually been accompanied by significant strength in global stock markets. This recent strengthening in global trade should now (theoretically) underwrite the financial market strength that we are currently seeing in financial asset prices. BOOM is expecting history to repeat.
In October last year, while expecting a significant slowdown in the US economy, BOOM forecast a turnaround in key US stock and bond markets. That forecast has proven to be accurate. BOOM was the lone commentator on the planet who predicted a resurgence of stock market strength at the time when doom and gloom was rampant.
On 16th October last year, BOOM wrote — “the inflation statistics and retail sales figures were a good result, offering some firm evidence that the peak of CPI inflation may be in the past. If we are past the peak, then the prices of stocks and bonds should start to rise from here”. US stock prices started rising 2 days later and US bond prices started rising 5 days later.
Since BOOM’s forecast in October, the Nasdaq Index has risen by 20%. The S & P 500 Index has risen by 18.5%. And the Dow Jones Index has risen by 19.2 %. The German DAX Stock Index is up by 31.25%. The French CAC Stock index is up by 32 %. Readers who noted BOOM’s forecast in October should be happy with their stock portfolio performance since then.
Just 2 weeks ago, BOOM’s Editorial on 2nd April stated — “In the US last week, despite considerable Doom and Gloom, there was notable strength in the prices of Junk Bonds and in regard to Insider Buying of stocks. When these two combine, it usually indicates that asset prices will gather in strength. BOOM has been forecasting this strength in asset prices since October last year. “
US BOND PRICES CONTINUE TO RISE
CPI INFLATION CONTINUES TO FALL IN THE US
All US bond prices continue to rise since October last year. The US Yield Curve is still mildly inverted which concerns many commentators. However, BOOM feels that the steepness of the curve is not sufficient to cause panic, especially if the observer is looking for an end to the Fed’s aggressive tightening at the short end. That will hinge on clear evidence of CPI dis-inflation (falling rates of CPI inflation).
BOOM called “we are past the Peak of CPI Inflation in the US” in October last year. In retrospect, we can now look at the Annual CPI inflation numbers to see that the June reading of 9.1 was actually the Peak. The Monthly series, beginning with the June 2022 number reads – 9.1, 8.5, 8.3, 8.2, 7.7, 7.1, 6.5, 6.4, 6 and 5.
The annual inflation rate in the US slowed for a ninth consecutive period to 5% in March of 2023, the lowest since May of 2021 from 6% in February, and below market forecasts of 5.2%.
The Month on Month CPI inflation rate fell from 0.4 % in February to 0.1 % in March.
The US Bureau of Labor Statistics released this last Friday 14th — “The Producer Price Index for final demand in the United States increased by 2.7 percent from a year earlier in March 2023, easing from an upwardly revised 4.9 percent rise in the previous month and below market expectations of 3 percent. The rate of inflation was the lowest since January 2021, adding to signs that inflationary pressure in the world’s largest economy might be cooling following the policy tightening delivered by the Fed over the past year.”
Most importantly, services inflation in the United States eased to 7.3% year-on-year in March 2023, the lowest in four months, from 7.6% in the prior month.
The US Treasury 10 Year Bond Yield peaked at 4.338 % during the week ended 16th October 2022. Mortgage rates on offer in the US have now begun to fall over the last 5 – 6 weeks. This suggests that US house prices may soon begin to rise in price.
THE FEDNOW
The US banking system has been using the Automated Clearing House (ACH) for almost 50 years to transfer money between bank accounts. However, ACH transactions can take up to two business days to complete, causing inconvenience for customers who require faster payment.
In July, a change is coming in the United States with the introduction of FedNow as a method to transfer funds between financial institutions. The US Federal Reserve has a website dedicated to this initiative. It is FRBservices.org and this is its explanation of FedNow —
“The FedNow Service is a new instant payment infrastructure developed by the Federal Reserve that allows financial institutions of every size across the U.S. to provide safe and efficient instant payment services.
Through financial institutions participating in the FedNow Service, businesses and individuals can send and receive instant payments in real time, around the clock, every day of the year. Financial institutions and their service providers can use the service to provide innovative instant payment services to customers, and recipients will have full access to funds immediately, allowing for greater financial flexibility when making time-sensitive payments.
The FedNow Service will be deployed in phases, with the initial launch taking place July 2023.”
Instant transfer of funds between financial institutions is long overdue in the US. The term used to describe this is Instant Payments. Some readers may assume that the US Federal Reserve is the leader in instant payments. However, this is not the case. They lag the rest of the world in regard to such an obvious service.
In Australia, their instant payments system is called the “New Payments Platform” (NPP) and the “Fast Settlement Service” (FSS). It was initiated in 2019 and is now heading towards 5 years of use. Together, the NPP and FSS enable Australian customers of more than 90 financial institutions to make fast payments 24 hours a day, every day of the week (‘24/7’). Customers can send detailed information with a payment and nominate the payment recipient in a simple way. While the rollout of the NPP has been gradual, usage grew rapidly over the second half of 2019 and compares favourably with other successful fast payment systems introduced in other nations. NPP payments made between customers of different financial institutions are settled finally and irrevocably in real time (instantly) in central bank funds through the FSS, a settlement system built by the Reserve Bank of Australia (RBA) – Australia’s central bank.
Other nations have also developed and launched Instant Payment systems for their inter-bank transfers and funds transfers between other financial institutions (such as credit unions). In the UK, the system is called the Faster Payments Service (FPS) which has been in operation for over 5 years. In Denmark, they called their system MobilePay. It was launched in Denmark in May 2013 and in Finland later that year. In Sweden, the instant payments system is called Swish. It has been in operation since 2012. Swish is a member of the EMPSA. The European Mobile Payment Systems Association (EMPSA) is an association that aims to foster collaboration and to enable the use of different mobile payments systems internationally – between nations. EMPSA is headquartered in Zurich, Switzerland.
In the European Union, all instant credit transfers denominated in Euro are based on the European Payments Council’s SEPA Instant Credit Transfer scheme (SCT Inst), which was launched in November 2017. The key features of SCT Inst include the service being consistently available (24 hours a day, 365 days a year); and it taking no more than ten seconds for the recipient’s payment service provider (PSP) to inform the payer’s PSP whether the money has been received and, in the case of a successful transaction, to make the funds available to the recipient.
So, the US central bank, the Federal Reserve, is definitely not an innovator in the matter of instant payments. It lags other nations by many years.
USE CASH
Of course, some commentators worry that FedNow will enable “the Fed to see all my transactions” and that is true. However, other third parties have been able to see such transactions for over 60 years when credit or debit cards have been used. If you don’t want the banking system to see your transactions, BOOM advises that you use physical cash for as many transactions as possible. BOOM is a strong supporter of physical cash. It is sovereign money, non-interest bearing, issued by the Treasury (in most nations) and distributed by the banking system for no profit. Use it or lose it.
Physical cash must be printed if demand for it rises. That is a fact. So use it and encourage others to do so as often as possible. Cash money is our buffer in the monetary system to credit money (interest bearing money created as a bank loan to a willing borrower). That buffer is a monetary stabiliser which reduces our dependence on credit and the costs associated with credit. It also dampens CPI inflation.
THE RIPPLE CONTROVERSY
Ripple Labs, Inc. is an American technology company which developed its Ripple payment protocol and exchange network. Originally named Opencoin and renamed in 2015, the company was founded in 2012. Ripple offers similar technology for money transfers to FedNow and has gained popularity in the Crypto world for offering cheap cross-border payments using the XRP token. However, Ripple has an ongoing case with the Securities and Exchange Commission (SEC) over whether XRP is an unregistered security.
The SEC initiated a lawsuit in December 2020, claiming that Ripple illegally sold its XRP token as an unregistered security. Ripple disputes the claim, arguing that XRP doesn’t constitute an investment contract under the Howey test — the legal test used to determine if a transaction qualifies as an investment contract. The test was established in 1946 by the US Supreme Court in the SEC v. W.J. case. The Howey Test refers to the case for determining whether a transaction qualifies as an “investment contract,” and therefore would be considered a security and subject to disclosure and registration requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934. Under the Howey Test, an investment contract exists if there is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” The test applies to any contract, scheme, or transaction. As the legal battle between the SEC and Ripple continues, whether XRP is a security remains unresolved.
The XRP token trades on various Crypto exchanges globally and is currently priced at US$ 0.52 on Coinmarketcap. Its price in US Dollars has varied a great deal since its launch almost 10 years ago in 2012. To BOOM it is clearly a digital asset, a digital commodity. Whether it is also a security will be decided by the US courts.
QB Explained
and BOOM’s Perfect Economy
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.
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.u/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction
and https://www.youtube.com/watch?v=ziTE32hiWdk
Paper: Money in the Modern Economy — CLICK HERE
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/en/tasks/topics/how-money-is-created-667392
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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