EU Bankruptcies — European Power Explained — Swiss Referendum on Cash — US Dollar and Putin — Hong Kong Crypto - [02-26-2023]

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THIS WEEK’S EDITORIAL

EU BANKRUPTCIES:  Two weeks ago, BOOM noted that corporate bankruptcies are surging in the UK, almost tripling in number in the last quarter of 2022. The European Union is now registering a similar increase.

According to Eurostat, the number of corporate bankruptcies in the EU registered in the last quarter of 2022 was the highest since records began in 2015.

Compared to the previous quarter, they rose by 27%. And the number of business failures increased in each quarter throughout the year. Meanwhile, new company formations were stagnant. All economic sectors registered increases in the number of bankruptcies. Especially hard hit were the sectors of transportation, food and accommodation, presumably due to increases in the cost of energy.

The EU political class seems oblivious to all of this, preferring to wage war against a virus which has proven to be no more dangerous than a bad bout of influenza and against Russia which is also no significant threat to them. This poor leadership has consequences and the people of Europe are having their patience severely tested. Soon, they will lose their patience and social upheaval will manifest in large demonstrations against all the various levels of the EU control apparatus.

However, the institution which has the most power, the European Commission, is comfortably unaffected by what the people think as its members are not elected to office. They are appointed, carefully selected and promoted for their allegiance to anonymous power brokers.

EUROPEAN POWER EXPLAINED:  The European Commission is made up of 27 “members” called European Commissioners and over 32,000 staff.  It operates just like a Government Cabinet in a democracy with each member holding a different portfolio. Members are not called Ministers but they are essentially that. The Commission President (currently Ursula von der Leyen) is “proposed” by the European Council (the 27 heads of state/governments) and then “elected” by the European Parliament. The Council of the European Union then “nominates” the other members of the Commission in agreement with the nominated President, and the 27 members as a team are then subject to a “vote of approval” by the European Parliament.

All of this looks and sounds like a democratic process but it is not. The people of Europe have no real say in the matter. In BOOM’s opinion, this was all carefully structured by the founders of the European Union to distance the real rulers of Europe from the people. It is effectively a dictatorship of carefully selected operatives who are not answerable via any election process to the people.

Ursula Von Der Leyen’s father, Ernst Albrecht, was one of those founders. Albrecht was a prominent German politician and a senior public servant member of the European Commission in the post war period of the 1950’s. He is often regarded as one of the key founders of the European Union which emerged from the European Coal and Steel Community.

SWISS REFERENDUM ON CASH:  A referendum is proposed in Switzerland to preserve physical cash in circulation as an essential part of the money supply. The referendum is proposed by the Swiss Freedom Movement with 157, 422 signatures. In Switzerland, if more than 100,000 signatures are assembled in support of a cause, then a national referendum must be held. Cash is held by citizens in Switzerland more than in any other European country.

The President of the Swiss Freedom Movement, Richard Koller, recently said — “We need to change the constitution so we can retain cash as freedom for the next generation”. Cash in Switzerland is still used for most transactions. According to the Swiss Payment Monitor study, 29% of transactions are settled with physical money. This is regarded as the highest percentage in Europe but it has declined from 48% in 2019. Thus, there is a perceived need to protect the circulation of cash in the economy.

The central bank of Switzerland, the Swiss National Bank (SNB), is a strong supporter of physical cash. Its Vice President, Martin Schlegel, has reportedly said that the shift toward cashless payments worldwide bears risks and that the SNB sees the supply and distribution of physical money as one of its key responsibilities. BOOM agrees wholeheartedly.

Physical cash is non-interest bearing. It is the People’s money, sovereign money traditionally issued by the sovereign and distributed by the banking system. It can be recalled at any time and replaced by fresh new cash. The volume of cash produced is determined by demand so the People have a strong say in its production. Because it is non-interest bearing at its source, physical cash is a strong buffer to interest bearing Credit money which is created as a bank loan for a willing borrower.

Thus, the demand for credit from borrowers and the demand for cash from non-borrowers is the key component in determining the mix of cash to credit in the supply of fresh new money.

It is the People’s responsibility to demand physical cash in order to ensure its continued production and circulation in the real economy. The people of Switzerland will hopefully soon pass a referendum which enshrines this process in the Swiss Constitution.

BOOM is looking forward to that happening and advises all other nations to follow the Swiss. Every citizen must understand the importance of using Cash in as many transactions as possible.

US DOLLAR AND PUTIN:  The war in Ukraine, which has its origins in November 2013, is not really about “freedom” or “democracy” as promulgated by many western politicians. It is actually all about something that began way back in 1944 at Bretton Woods in New Hampshire in the United States — the US Dollar’s dominance in the settlement of global inter-national trade and capital transactions. The US sees Vladimir Putin as a major threat to that dominance and thus, they see that the US Dollar Empire is being placed at risk. So, seen through this lens, the war in Ukraine is not even about Ukraine.

Vladimir Putin recently stated that the share of ruble transactions in Russia’s foreign trade had doubled since the beginning of 2022, and now accounted for one third of the country’s settlements. He projected that the use of national currencies in place of the US Dollar and Euro in trade with Russia’s international partners would continue to grow.

The process of de-dollarizing the Russian economy started back in 2014, when Western nations introduced the initial sanctions against Moscow over the reunification of Crimea with Russia. The seizure by the US and its allies of US $300 billion in Russian foreign exchange and other assets is a decision that has dramatically added fuel to the fire.

So, in the Ukraine, we are now seeing the kinetic battle for and against US Dollar Dominance. That is what the Ukrainian and Russian soldiers are dying for on the front lines. They do not know this. They are not informed of this. It is all shrouded in the language of war. And in war, it is always said that the first casualty is Truth.

HONG KONG CRYPTO:  Last week, BOOM was surprised by a sudden, unexpected increase in demand for Bitcoin and the entire Crypto market. However, BOOM was skeptical of this surprise price rise and held firm that it would probably not last long. Since then, over the last 7 days of trading, the Bitcoin price expressed in US Dollars has fallen by 6.2%. Ethereum has fallen by 6%.  And the entire market capitalization of the Crypto market has fallen 7% back towards US$1 Trillion.

This unexpected and short lived surge in demand may have been caused by Hong Kong. On Feb. 20, Hong Kong’s Securities and Futures Commission outlined a new crypto license regime that proposed that all centralized exchanges that operate in the region must be licensed with the regulator. It called for “public consultation” on the matter (which means they are testing the matter with the ruling Central Committee in Beijing). It also proposed allowing retail traders access to licensed cryptocurrency trading platforms, saying “public feedback” highlighted that denying access to crypto markets may push Hong Kongers to trade on unregulated overseas platforms.

The new license regime will entail approved license holders to ensure the safe custody of assets, to put in place 'Know Your Customer' requirements and to ensure safe cybersecurity, secure accounting and auditing, risk management, Anti-Money Laundering provisions, the counter-financing of terrorism and the prevention of market misconduct.

Despite all this, BOOM expects Beijing to reject the proposal. Why? Because the entire Crypto market is simply a US Dollar Proxy operation, one which boosts global demand for the US Dollar. And that, quite simply, does nothing for the people of China. 

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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