Canada CB Dumps CBDC - China Stocks Roar Up – Russia to Use Tether? - Trump Tempted by Crypto Casino – Average American Cannot Afford Average House - [10-01-24]

Direct from BOOM Finance and Economics

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BOOM EDITORIAL THIS WEEK

CENTRAL BANK OF CANADA DUMPS THEIR CENTRAL BANK DIGITAL CURRENCY – THE DIGITAL LOONIE (CBDC) – WHICH WAS A BAD IDEA RIGHT FROM THE START.  This is huge news in the world of money and finance.

BOOM has steadfastly explained for many years that dreams of electronic “digital” cash in any format are always intellectually bankrupt.

But the matter is worse than that. All global central banks and their associated armies of economists while “researching” CBDC’s, have failed to see the huge economic advantages that accrue when large amounts of physical cash are in circulation, acting as a natural buffer to money created as credit.

The Bank of Canada last week made the following statement about their five years of planning — “The Bank has undertaken significant research towards understanding the implications of a retail central bank digital currency, including exploring the implications of a digital dollar on the economy and financial system, and the technological approaches to providing a digital form of public money that is secure and accessible”.

And the conclusion? Abandonment of the entire concept. They could have just asked BOOM at the outset. That would have saved them a lot of effort, expense and embarrassment.  BOOM gave them a model in 2019!  Over the last 6-7 years, BOOM has been a strong opponent of the concept of so called Central Bank Digital Currencies, along with Prof Richard Werner as explained in his 3 minute video:

Alternatively, BOOM has recommended increased issuance and usage of Physical Cash and has urged central banks to look afresh at the huge advantages that cash brings to any economy. What is good about Physical Cash?

Cash is interest free when it is created. And it remains cost free of interest charges throughout its useful life. It is anonymous when used. It is very hard to counterfeit. It is entirely fungible (every $5 or $50 Dollar bill is identical) which embodies trust. It is an easy and trustworthy way to settle transactions. It speeds transactions in local economies. Physical cash can circulate quickly outside the banking system and thus provide an increased velocity of money. It is national money created for the people under the instructions of their representative, national government.

Thus, it is sovereign money. But, most importantly, it is a strong natural buffer to money that has been created as a bank loan – credit money – which carries interest costs (because it is created as a loan) and which dominates the money supply in most modern economies.

In the USA, for example, credit money is now 98% of the newly created money supply with physical cash only comprising 2%. This dominance of credit money dramatically favours the asset rich wealthy who always have more physical assets to offer as collateral for more bank loans compared to the asset poor middle class and working class.

This causes enormous societal and economic tension. Physical cash in large volumes relative to credit money volumes is also a natural buffer against asset price inflation and CPI inflation. Holders of physical cash can see and react to price rises immediately if they have to hand over more notes and coins to settle every day transactions. This creates reluctance to accept price rises.

If you think clearly about all of the advantages to society that accrue from the circulation of physical cash, then it is obvious that all central banks and representative governments should promote and encourage increased use of physical cash. What is bad about CBDC’s?

For a start, CBDC’s are fraudulently promoted as being innovative, special and long overdue because they are “digital”. This is dishonest, misleading and a false representation. Almost all money in circulation has been digital since computers were first used in banking way back in the 1960’s. We have had electronic, digital money for over 60 years now. It is not something “new” or “innovative”.

The next problem with CBDC’s is trust. The people who live and work in the real economy, where goods and services are transacted, never interact with their central bankers. Most have no idea who their central bankers are or what they do. Central banks have commercial/retail banks as their clients, not the people in the real economy. So, trust between the people and the central banks simply does not exist to any significant extent.

And, believe it or not, almost all central banks are prohibited by law from issuing money into the real economy and from dealing directly with the people. Last but not least, the people do not want all of their transactions tracked in real time by any central banker or by their governments. They are suspicious of surveillance. And they are becoming increasingly suspicious of the intentions of both politicians and central bankers in that regard. When there is suspicion and lack of trust, a CBDC simply cannot work.

The people of Nigeria rejected their CBDC experiment wholeheartedly. The people of China have also rejected theirs.

On July 30, 2023, BOOM reported that the central bank governor of China, Yi Gang, admitted publicly while in Singapore that total transactions settled with the E-Yuan (e-CNY) amounted to just 1.8 trillion yuan since August 2022. He was then attending a meeting organised by the Monetary Authority of Singapore.

His statements could not have been more public and honest. Expressed in US Dollars, that is equivalent to only US$257bn in just under 12 months. The Annual GDP of China is about $US18,000bn. So, this is roughly equivalent to 1.4% of total GDP transactions.

Yi Gang also said that e-CNY in circulation was equivalent to only 0.16% of China’s M0 money supply, or cash in circulation. The people of China have essentially rejected the idea.

The Nigerian CBDC experience, called the eNaira and launched in October 2021, was much worse. During a 12 month period, the average total value of eNaira transactions was 923 million Naira per week. That sounds a lot but was only 0.0018% of the average amount of M3 Money. The Nigerian CBDC experiment was such a disaster that the governor of the central bank, Godwin Emefiele, was eventually arrested (although there were other issues as well).

On June 18, 2023, BOOM wrote: “If a central bank wanted to destroy trust in its management and create economic collapse, then this would be a perfect plan. It begs investigation. The central bank seemed to be obsessed with the idea of a “cashless” economy. And yet most Nigerians use cash every day and more than 50% do not have a bank account.”

BOOM is now calling for all central banks to abandon all efforts to introduce Central Bank Digital Currencies.  CBDC’s are an intellectually bankrupt idea and legally untenable. The whole CBDC “experiment” has been a fiasco right from the get go.

Cashless economies are not something that governments or bankers should ever consider or aspire to. In fact, they are a dangerous gamble which could ultimately lead to the disruption of civil society and cause economic chaos.

CHINA STOCKS ROAR UPWARDS IN VALUE EXPLOSION. BOOM has noted for some time now that the Chinese stock markets have become very under valued in long term downtrends and that this simply could not continue. BOOM also showed readers the rather dramatic divergence in price action that has occurred between the markets of Shanghai and Hong Kong since early August.

On the 18th February, BOOM wrote: “China’s government is communist. However, they must now encourage all of their citizens to become buyers of shares in Chinese companies.  If they don’t, the Chinese stock markets will be at risk of progressive slow melt down with no end. And if that were to happen, the ownership of corporate China will become locked into fewer and fewer hands, creating an elite class of citizens who own the productive assets of China.

This elite class would become the robber barons of China by default, capable of exerting great influence. China’s communist ideals could then become corrupted by the financial power of an organised group of oligarchs. None of that is compatible with communist ideology. Therefore, the best way forward is for the central government of China to encourage its citizens to start buying shares as soon as possible.”

“BOOM is expecting such a direction from the Chinese government soon. It is actually inevitable because the consequences of not doing this are too great to ignore.”

Last week, both the Shanghai and Hong Kong stock markets exploded upwards, just as BOOM had been expecting. The Shanghai Composite Index finished the week up by 12.81%. The chart is rather dramatic. The Hang Seng stock index in Hong Kong finished the week up by 14.44%. Its chart is even more striking:

RUSSIA TO USE TETHER TO SETTLE FOREIGN TRANSACTIONS?  Tether is a Crypto Stablecoin Token which is designed to mimic the US Dollar on Crypto exchanges. It allows Crypto gamblers to leave the Crypto casino and head back into the safety of a US Dollar Proxy. They can then decide to either leave the Crypto crime world by exchanging their Tether Tokens for real US Dollars or they can head back into the casino via the purchase of yet more speculative Crypto tokens.

Stablecoins are a bridge between the Crypto world of speculative digital assets (tokens) and the real world of fiat currencies.

Last week, BOOM read a disturbing article about Russia’s intention to possibly use Tether as a settlement mechanism for foreign trade and capital transactions. BOOM found the article to be disturbing because no central bank should ever consider such an extraordinary mechanism and because of deep concern about the clouded origins of Tether.

That article was a report on a report from a Russian newspaper called Vedemosti which has both a very low number of Russian readers (estimated in Wikipedia to be less than 65,000) and an interesting history with connections to Washington DC.

However, returning to the disturbing article which stated “Russia’s financial authorities are reportedly moving towards adopting crypto-currency for international trade, the Vedomosti business daily has reported, citing sources. A focus group comprising selected importers and banks has been established to pilot international trade settlements using digital currencies, according to the outlet.” 

Earlier this year, the Russian government passed legislation allowing the central Bank of Russia to authorise selected companies to use digital currency for international payments in trade. The head of the Russian central bank, Elvira Nabiullina, (reportedly) said at the time that the regulator would conduct the first cross-border Crypto payments by the end of the current year. However, the measure came into force on September 1.

BOOM has previously read some reports of Russian companies using Tether’s stable coin for cross-border transactions with Chinese partners, bypassing restrictions tied to the US dollar. If those reports are false, then so be it. However if they are true, then BOOM would advise the Bank of Russia to take great caution in regard to using Tether or any other Crypto mechanism.

Why? Because, as BOOM has explained in numerous editorials, the Crypto world is a casino where financial criminals roam. And that is not a place where national central banks should conduct business or encourage commercial entities of their nation to conduct business. Nuff said.

BOOM suggests strongly that the Central Bank of the Russian Federation re-consider its actions in this regard.

TRUMP TEMPTED BY THE CRYPTO CASINO — MONEY FOR NOTHING. The reported Russian moves towards the Crypto Casino World, which may or may not be true, are disturbing enough. BOOM will watch with interest but suspects that the Bank of Russia will soon reach the same conclusions on the matter as BOOM has.

However, we have recently seen the former and possible future President of the United States, Donald Trump, display interest in somehow engaging with the Crypto Casino world where global financial criminals roam if he is elected in November. In BOOM’s opinion, this is unwise in the extreme.

Back in July, it was reported that Trump had outlined a plan to “turbocharge Crypto growth” and make the US “a Crypto mining powerhouse” in his keynote address to the 2024 Nashville Bitcoin Conference. Apparently, Trump announced that if elected, he would create “a strategic Bitcoin reserve” in the US. “It will be the policy of my administration to keep 100 percent of all Bitcoin the US government currently holds or acquires in the future … as a core of the strategic national Bitcoin stockpile”.

There are reports that the US government currently owns more than 210,000 Bitcoins that were seized from illegal Silk Road operations and the BitConnect ponzi scheme.  In that statement, Trump is merely stating that his government will not sell the Bitcoins it holds but will continue to own them. No big deal there.

But he also says that it may acquire more. BOOM cannot understand why the US government would want to become known as a speculator in Crypto or in any other investable asset. Governments should not engage in speculative investments.

There are now over 2.4 million Crypto “assets” to choose from if the US government wanted to increase its Crypto holdings or to diversify its holdings away from just Bitcoin. BOOM would advise Trump strongly that the US national government should not buy more Bitcoin or any other Crypto.

Trump also announced plans to appoint a Bitcoin and Crypto advisory council, whose task would be to “design transparent regulatory guidance …… to the benefit of the Crypto “industry” in the first 100 days of his next presidency. Not to just regulate it independently but to do so to benefit the “industry”. BOOM would be happy to be appointed to such an advisory council although the “industry” may not wish to see BOOM there.

Trump pledged to create “a framework for ensuring the safe expansion of Stablecoins”, (BOOM is not sure what he means by “safe”), “allowing us to extend the dominance of the US Dollar to other places around the world”. He also committed himself to stopping any efforts to create a Central Bank Digital Currency (CBDC) or “digital dollar”, saying “there will never be a CBDC while I’m president of the United States.”

BOOM applauds the end of any CBDC plans. However, a US government led expansion of the “Crypto industry” and the “safe expansion of Stablecoins” (whatever that means) plus a plan to increase US Dollar dominance globally is not something that BOOM can support.

BOOM is not a fan of currency dominance by any nation State. And the last time BOOM checked, the US government was not registered as a Hedge Fund on Wall Street.

TRUMP SUPPORTER IN SENATE WANTS TO PAY OFF NATIONAL DEBT

There is a US Republican Senator, Cynthia Lummis of Wyoming, who enthusiastically supports Trump in all these plans. She has reportedly said “Over five years, the United States will assemble one million Bitcoin,” she added, “Five percent of the world’s Bitcoin, and it will be held for a minimum of 20 years and can be used for one purpose—reduce our debt.”

This is an example of irresponsible leadership and magical thinking. She is proposing that the US Government become large accumulators and speculators of Bitcoin, increasing their stake five fold, holding it for two decades and then (presumably) selling them to buy back its issued Treasury securities from investors with the (presumably) windfall gains in capital value of the Bitcoin.

Hey Presto, the end of US Government Treasury markets. That “plan” requires a very active imagination. If the Bitcoin price went to US$1 million and the US Government owned 1 million Bitcoin, then the investment would be worth US$1 trillion. This sounds impressive but $1 trillion would not make a dent in the current US national “debt”/Treasury Issuance program of almost US$34tn, let alone the total in 20 years time.

Ten days ago, Trump became the first US President to finalise a transaction in Bitcoin. He paid for some hamburgers at a bar. He is reported to have said “If Bitcoin is going to the Moon — as we say — it’s going to the Moon, I want America to be the nation that leads the way.”

That statement would be appropriate from a schoolboy in a display of ignorant chutzpah but it is not a responsible statement one would expect from a past and possibly future US President. BOOM cannot be the only person on Earth who has made this observation.

Can a non criminal adult please explain to Donald Trump that all Bitcoins in the first instance have to be purchased with US Dollars (or some other national currency)? Thus, if their price rises, more (and more) US Dollars (or other fiat currencies) will be needed to complete the transactions. This means that more US Dollars will have to (ultimately) be created as credit money (bank loans) to pay for the increased value of the Bitcoins.

All of that increase in money supply will contribute to increased CPI inflation. BOOM can advise that the Federal Reserve, the US central bank, will certainly not be happy with such proposed speculative US government actions. The US government has no place in the world of financial speculation.

At some stage in such a scenario, with the US government becoming speculative buyers and holders of Bitcoins, it will become obvious to EVERYONE on the planet that the price must rise and stratospherically. At that juncture, EVERYONE will begin to buy Bitcoins.

In other words, everyone normally engaged in providing all the goods and services in all our various national economies will cease such work and simply become speculators in Bitcoin and other Cryptos.

BINGO – the whole world can become rich, indolent and narcissistic. Is that the Trump Utopian dream of Nirvana? What (exactly) is this Trump enthusiasm for a criminal casino all about? Can an adult American please explain?

AN AVERAGE AMERICAN CANNOT AFFORD THE AVERAGE HOUSE.  Meanwhile, back in the real world where the wild dreams of speculative Crypto riches don’t exist, the average American cannot afford to buy an average house. This excellent graphic from Statista shows the problem from early 2022 as surging CPI inflation and high interest rate settings from the Federal Reserve drove housing prices higher than the Median Household Income.

On April 16, 2023 BOOM wrote: “This suggests that US house prices may soon begin to rise in price”. At the time, nobody else was making such statements. BOOM saw the future.  [The Red Arrow shows when BOOM made the call for higher US house prices].

At the time, BOOM brought readers attention to the US Home Construction ETF (Stock Code: ITB). Again, the small red arrow shows where BOOM made the call. The price of ITB has almost doubled since then.

COMING NEXT:

• The Financial Jigsaw, Part 2 Chapter 6 (30) – THE WAR ON TERROR – Saturday, October 5, 2024

• BOOM Global Financial Review, Tuesday October 8, 2024

In economics, things work until they don’t.  Make your conclusions and do research.  BOOM does not offer investment advice.

CLICK HERE FOR PODCASTS:   OUR BRAVE NEW ECONOMIC WORLD

BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY: LOANS CREATE DEPOSITS — this is how almost all new money is created in the economy (by commercial banks making loans). https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy.  Watch the short 15-minute video and see Professor Richard Werner brilliantly explaining how global banking systems work.

In 2014, Richard Werner provided the first empirical evidence that banks create credit out of thin air.  They do this whenever they issue a loan or, more specifically, purchase a promissory note. This is a walk-through of exactly how they do it.

Many economists are unaware of this and even ignore the banking & finance sectors in their econometric models. Prof Richard Werner explains how things are going now with CBDCs:

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