China Finance Boost — US Falling Behind Dramatically — UK Corporate Bankruptcies Surge — Gold, Silver, Bitcoin Falling — Douglas Macgregor: “Ukraine Regime at an End”- [02-12-2023]

Direct from BOOM Finance and Economics at the links below

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THIS WEEK’S EDITORIAL

CHINA FINANCE BOOST - US FALLING BEHIND DRAMATICALLY:  2023 is the Chinese Year of the Water Rabbit. It began with a determined surge in the supply of fresh new money.  6 Trillion Yuan was injected into the Chinese economy in January. That is equal to 880 Billion US Dollars. The increase occurred mainly in fresh new bank loans which made up 83% of the total and is the largest monthly increase in China’s history.

Commercial bank loans in China in total, expressed in US Dollars, now amount to US $32.3 Trillion. The United States total is $12 Trillion. This stark difference is very much worth noting. The gap has been growing ever since 2010 when the Chinese bank loans total first exceeded that of the US total.

That change occurred with the emergence of Barack Obama as President of the United States and the trend has continued ever since. China’s reliance on bank loans to finance their economy is a key strength and it demonstrates clearly that the Chinese understand the mechanics of money supply far better than the Americans.

As bank loans increase, the supply of fresh new money increases which fuels economic growth and entrepreneurship. If CPI inflation is low and productivity is high, this can continue for many years. China’s annual CPI inflation rate is now around 2%, close to its historical average over the last 20 years.

By comparison, in the United States, much financing of the economy occurs through equity issuance and bond issuance. No fresh new money is created in such financing. US companies rely upon bond issuance for their debt financing needs 74% versus bank loans 26%.

Even municipal bodies in the United States issue bonds to finance their budget deficits. The key lesson here is this: bond issuance and equity issuance attracts money that is not fresh. Thus, it does not increase the supply of new money. The US is falling further and further behind China in understanding this stark difference. Also, much of the new money that is freshly created in the US economy tends to be put into speculative endeavours that are not productive in the long run.

What does Facebook, Instagram or Twitter produce? This means that the Chinese economy will continue to outperform the US economy in the years ahead. Non-inflationary economic growth in productive enterprises is the bedrock of the Chinese economic miracle, fuelled by fresh new money as loans from the banking sector.

Unless America wakes up and re-configures its debt raising predominance away from bond issuance and towards bank loans, then this trend will continue and the United States economy will continue to fade in comparison with the Chinese economy.

US LAGGING CHINA BADLY:  Since 2010, in just 12 years, China’s total annual GDP has almost tripled in size (as measured in US Dollars) from around US$6 Trillion to $17.7 Trillion. In the same time frame, the US annual GDP has grown from US$15 Trillion to just $23 Trillion. If the US had kept pace with China, its GDP would now be almost double its current total, certainly above $40 Trillion.

In that time frame, the US Purchasing Power Parity per Capita/Consumer (PPP) measured in US Dollars has grown by16%. In China, it has grown by over 110%.  This is a stark comparison.

The US has lost its way dramatically since Barack Obama came to office in 2009 and the problem was not recognized or corrected during the Trump Presidency.  BOOM expects the Biden Presidency to be even worse in grasping what the problem is and how to correct it.

Unless America begins to understand what has happened to its money supply and its economy, it will soon fall behind China as the world’s major national economy. This is inevitable and will have occurred due to American ignorance – which seems to be the only thing growing in the US over the last 12 years.

Governmental emphasis on wokerism, weapons, war, imagined “health threats” and imagined “climate threats” will not help. The obsession with such virtual signalling has contributed nothing to the health of the economy.

In a report on the US economy dated 2021, the biggest contributor to GDP came from Wall Street – finance, real estate and insurance – the so-called FIRE sector. That amounted to 20% of the economy. By comparison, manufacturing was only 11% while agriculture, mining, utilities, and construction accounted for 8% of GDP. Agriculture was less than 1%. The American economy is now close to 80% services-based and only 20% goods-based. The fastest-growing industries—information; professional and business services; trade, transport, and warehousing; educational services, health care, and social assistance—belong to the services industry.

UK BANKRUPTCIES:  Company bankruptcies are surging in the UK. Over the last 2 years, they have almost tripled in number from 2374 per quarter to almost 6,000 in the last quarter of 2022. This trend is extremely worrying for the UK economy. Annual business insolvencies in the UK surged to 22,109 in 2022, up 57% on the previous year. The British economy is heading into a stagflationary mess with GDP growth at Zero.

Meanwhile, the politicians in the UK government seem more concerned (again) with wokerism, weapons, war and imagined “health threats” and “climate threats”. That’s why they are not partying hard at Number 10 Downing Street.

REAL WAGES PLUMMET IN GERMANY:  Over in Germany, it is no wonder that personal spending is falling. Real wages (after inflation) are plummeting. Real earnings in Germany decreased by an average of 4.1% in 2022 compared with 2021. Wage increases are unable to keep up with rising inflation, thus reducing spending power. Last year was the third consecutive year in which real wages declined in Germany.

Meanwhile, the politicians in the German government seem more concerned with wokerism, weapons, war and imagined “health threats” and “climate threats”.  Is there a theme here or is this just coincidence? 

The US, UK and German governments appear completely captured by these virtuous narratives which are being imposed by external, unelected Non-Government Organizations (NGOs) such as the UN and World Economic Forum (WEF) and the mainstream media. Management of the economy seems to be of secondary importance.

GOLD AND SILVER FALLING & BITCOIN FALLING:  BOOM said last week … in regard to Gold and Silver prices:  “falls on Thursday and Friday in the precious metals suggest further steep falls to come.”  Since then, the US Dollar prices of Gold and Silver held their ground in trading ranges until Friday. Then, they fell again with Gold ending the week down 0.11% and Silver down 1.47% over the week. However, to BOOM’s jaundiced eye the prices still look technically weak. BOOM is expecting steeper falls to come in these precious metals in the not too distant future.

Notably, the digital commodity called Bitcoin has fallen by 10% in the last 10 days. On 2nd February, it was priced at US$24,157. It is now at $21,670. The publicly listed Grayscale Bitcoin Trust fell by 13.4% during last week’s trading on the OTC Market in the US. The Bitcoin Strategies ETF (Stock Code: BITO) fell by 7.4% on the AMEX Exchange. Further short term weakness seems likely.

DECEMBER SHIPPING WEAK IN USA:  The Cass Freight Index includes all domestic freight modes in the United States and is derived from 37 million invoices and $37 billion in expenditure. The companies involved represent a broad sampling of industries including consumer packaged goods, food, automotive, chemical, medical/pharma, OEM, retail and heavy equipment.

BOOM watches the index closely as an indicator of past US economic performance. In December, shipments YoY fell by 3.9% while expenditures fell by 4.3%. These numbers sound bad, especially for the Christmas period. However, they are well within monthly variances.  BOOM will watch closely for the release of January numbers to see if a downtrend is developing. Further weakness would suggest a slowing of the US goods economy.

COLONEL DOUGLAS MCGREGOR: RUSSIA IS WINNING THE WAR IN UKRAINE:  Douglas Macgregor, aged 70 years, is a retired US Army Colonel, an author, consultant, and television commentator who left the US military in 2004. He is a veteran of the1990-91 Gulf War.

On 7th February last week, in an interview with Judge Andrew Napolitano, he made some strong statements concerning the war in Ukraine. These statements may have significant geopolitical, economic and financial consequences and must therefore be seriously considered.

Notably, the Western mainstream media has almost stopped reporting on the war in Ukraine over the last month. They report on the movements of Volodymyr Oleksandrovych Zelensky, the President, as he begs for more money and more weapons from compliant western nations.

However, the balance of the war on the field is not being reported.  Douglas Macgregor reported that the Ukrainian government is now sending 16 year old boys to the war zone. He states that Ukraine is losing the war and has lost 257,000 dead in total, including 157,000 troops. The nation has also lost 10 Million people who have fled across various borders to neighbouring countries plus 2 Million who are working in other far flung European nations and the UK.

 4 Million are now living in the Eastern regions of Ukraine controlled by Russia. And 1 Million have fled into Russia. Plus 400,000 Ukrainian men are wounded, most severely. The tally, if true, seems to point to a much weakened nation with a very uncertain future.

Here are some more of Colonel Macgregor’s comments.“The Ukraine regime is at the end” - “The war cannot be sustained” - “The Russians are winning. Ukraine is crumbling – on the verge of collapse” - “The Russians have no incentives to negotiate at present” - “If you are going to fight, will you win?” - “If not, then don’t fight the war”. He also discussed the prospect that Western Ukraine may become a Polish Protectorate.

On the balloon fiasco in the US, he said: “China has 300 satellites in space – they don’t need to use a weather balloon.” So what was the balloon fiasco all about?  Was it just a huge distraction?  BOOM contends that the war must end this year, preferably in the first half. There is no alternative to a negotiated settlement between Russia and Ukraine. An end to the war will be a strong positive for the world 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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BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY: LOANS CREATE DEPOSITS — that 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 this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how global banking systems really work.

AND Watch for 4 minutes, this Bank of England explanation: Money is essential to the workings of a modern economy, but its nature has varied substantially over time. This video describes what money is today.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.  EMAIL: gerry{at}boomfinanceandeconomics.com

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