Fed Ignores BOOM’s Advice - Germany Stagnates - China Economy Stalled - Chinese CBDC Unpopular - Blinken, Yellen, Kissinger Go Begging – Paraguay: Failed Australian Utopia - [07-30-2023]

Direct from BOOM Finance and Economics at the links below

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THIS WEEK’S EDITORIAL

FED RAISES RATES AGAINST BOOM’S RECOMMENDATION Concerning the US Federal Reserve, BOOM wrote on July 16^th, “BOOM cannot see any reason for further interest rate increases from the Federal Reserve. And companies must soon start to actively lower prices to ensure that their sales and revenues don’t start collapsing.”

However, Jerome Powell did not take the advice. The US Federal Reserve unnecessarily raised their key interest rate last week by 0.25% and so did the European Central Bank (ECB). They both continued to slam on the brakes while the car is sliding backwards towards a cliff. This is risking recession in the current circumstances. Prudence would have been a better course of action.

In both the US and in Europe, PMI (Purchasing Manager Indices) are now falling fast, suggesting a significant slowdown in CPI price pressures may be next. And demand for bank loans is also falling fast in Europe as per the ECB’s latest Bank Lending Survey while loans to the private sector in the US have been falling every month this year. This sharp drop in demand for money is ominous.

Christine Lagarde, the head of the ECB appears to now possess a magical crystal ball into the future. As she raised the interest rate, she said ““Inflation continues to decline but is still expected to remain too high for too long…Future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to the 2% medium-term target.”

Maybe she has made an effort to look into the future because of criticism that the ECB continually looks in the rear view mirror?  BOOM prefers to look at the current economic facts rather than trying to envisage the future.

So, let’s look at some facts.

GERMANY IS SLIDING TOWARDS STAGNATION. Voith GmbH is a large German mechanical engineering company. The Company offers braking systems, drives and transmissions, hydraulics, pneumatics, cooling, and hydropower components, as well as robotic solutions. It serves clients globally in the energy, automotive and paper industries. The CEO of Voith, Toralf Haag, expressed his concern last week regarding Germany’s direction in terms of its competitiveness, energy policy, and attractiveness for foreign investment.

He described Germany’s aggressive energy transition away from traditional energy production such as coal and nuclear to renewables as problematic. He said, “what we need is less bureaucracy, faster approval procedures and faster implementation… Investment decisions in Germany are becoming increasingly difficult.”

“To be honest, at the moment we tend to choose Eastern Europe, Asia, or the USA when it comes to new production facilities because the costs for energy and personnel are particularly high in Germany while, at the same time, bureaucracy and regulation are increasing.”

Haag described the danger of German de-industrialization as “very great… We now see almost every day that industrial companies are no longer investing in Germany but in other regions of the world."

These are ominous words indeed from the CEO of a major German industrial company. But smaller companies are also struggling to see a positive future inside Germany. BOOM is aware of a poll that showed 26% of all medium-sized company directors across Germany have recently considered shutting down their business, while 22% have expressed interest in moving their operations abroad. That is also ominous and, quite frankly, shocking. According to the poll, a third of directors believe that Germany has become too bureaucratic to do business in. Meanwhile, more than 25% reported higher taxes and customs duties as their biggest obstacle.

German politicians appear to be mesmerised by the “threat” of the Ukraine situation and the “threat” of climate change while they push their nation slowly but surely towards an inevitable economic decline. The question must be asked: who are they really working for? Are they more focused on external sources of advice? The people of Germany won’t tolerate this for much longer.

CHINA’s ECONOMIC RECOVERY HAS STALLED - BOOM has previously written about a leading economic indicator that has been a reliable predictive tool for China’s economy. That indicator turned upwards in early March this year following a steep decline from August last year. Since March, it rose consistently until early May. BOOM brought this to the attention of readers at the time. However, it reached a plateau during May and has now been falling for the last two months. The conclusion is that the Chinese economy seems to have lost momentum and is struggling again to recover its vitality.

Exports from China shrank 12.4% Year on Year in US Dollar terms to US$285bn in June, the steepest drop since February 2020, following a 7.5% fall in May. As China is an exporting nation, this is another indication of failure in economic momentum. However, shipments to Russia jumped by 90.9%. Thus, measuring its exports in US Dollars may now be misleading.

Imports to China declined by 6.8% Year on Year to USD215bn in June 2023, compared with market expectations of a 4.0% drop and after a 4.5% drop a month earlier. This was the fourth straight month of falling purchases. However, again, the currency being used to measure this is possibly misleading if the US Dollar is declining as a means of trade settlement.

The Chinese economy is largely a mercantile one. It depends very much on the global economy for its continued growth. BOOM is watching closely for an expected turnaround in the leading indicator and will inform readers if and when that happens.

CHINESE CBDC IS NOT POPULAR IN CHINA. On another note, the Chinese experiment with a CBDC (Central Bank Digital Currency) seems to be failing. The E-Yuan has not been adopted by many citizens. As reported by Reuters, the central bank governor, Yi Gang, recently said that total transactions settled with the E-Yuan (e-CNY) amounted to just 1.8 trillion Yuan since August last year. Expressed in US Dollars, this 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 was attending a meeting on July 19^th, organised by the Monetary Authority of Singapore. He also said that e-CNY in circulation accounted for only 0.16% of China’s M0 money supply, or cash in circulation.

These appear to be the cold hard facts concerning the Chinese Central Bank Digital Currency CBDC as reported by the head of the Peoples Bank of China.

So why do so many people in Western financial blogs and in Western mainstream media consistently report that “the Chinese CBDC has terrible social controls and has enslaved the Chinese people”?

BOOM cannot answer that question. But the answer surely involves the current fashion for paranoia and delusion in the West.

The facts tell a completely different story with the dreaded CBDC barely being used. But as the old saying goes – “don’t let the facts get in the way of a good story”.

BLINKEN, YELLEN AND NOW KISSINGER GO BEGGING - Over the last month or so, China has welcomed visits from the US Secretary of State, Anthony Blinken, the US Treasury Secretary, Janet Yellen and last week, the old warhorse of US foreign relations, Henry Kissinger, who is 100 years old. Apparently, over the last 50 years, Kissinger has made 100 trips to China so he is well known there.

Xi Jinping, the Chinese President said “The Chinese people never forget their old friends, and Sino-US relations will always be linked with the name of Henry Kissinger.” He was clearly referring to the past. Kissinger replied by saying that he was a “friend of China.”

Apparently, Kissinger was travelling as a private person according to the US State Department. If you believe that, BOOM has a bridge to sell you.

This appears to be an even more desperate attempt to patch up relations with China as the US has suddenly realised that they are fully dependent on China for many essential goods. They are also (clearly) seeking to turn China against Russia. If you think they have any chance of that, BOOM has another bridge to sell you.

Anthony Blinken chimed in nicely on a trip to Tonga last week by saying in a Press conference that China’s activities in the Pacific were “predatory” and “problematic.”

There are reports that he warned against Chinese investments, claiming Beijing was behind “some predatory economic activities, and also investments that are done in a way that can undermine good governance and promote corruption.”

This is called the pot calling the kettle black. The US is expanding its own presence via the Indo-Pacific Strategy released in February 2022 which calls for the US to expand its diplomatic and military presence in the Pacific Islands and Southeast Asia. The old saying about the goose and gander springs to mind. However, BOOM suspects that China would have thought “with friends like that who needs enemies?”

The US is desperately talking but China and Russia have stopped listening, along with many other nations who are now rapidly shifting their attention towards the economic cooperation being offered by the BRICS and the Shanghai Cooperation Organisation. The use of economic sanctions by America, the capture of offshore Russian assets, the weaponization of the US Dollar, their conduct in the Ukraine war since 2014 plus the attack on the Nordstream pipeline and recent attack on the Kerch Bridge in Crimea are taking a serious toll on the credibility of the United States in diplomatic circles.

Geopolitical reality is changing forever and America seems clueless to understand what is happening. Soon, even the people of Western Europe will wake up and force their nations away from kowtowing to US influence. BOOM thinks that will happen during the next 5 years as Europe suffers persistent economic stagnation and growing social unrest. Most of the Middle East, Africa and much of South America has already done so.

Anthony Blinken and Joe Biden will go down in history as the men who lost an Empire.

UTOPIANISM IS AN INFECTIOUS DISEASE - BOOM often refers to Utopianism as a cult or, better still, as an infectious disease that began with Thomas More 500 years ago. The Father of Utopian Socialism however was the Frenchman Charles Fourier who wrote his books and articles in the early 19^th century, drawing inspiration from Thomas More’s book called “Utopia” published in 1516 in England during the reign of Henry VIII.

Fourier invented the term “Feminism”. He invented Communes. He inspired Karl Marx’s Communism and Adolf Hitler’s National Socialism. He inspired Charles Netter and Edmund James de Rothschild to found the first kibbutz, established in Tel Aviv, Palestine in 1870 as a Utopian Socialist communal farm. He wrote about climate change. In other words, Charles Fourier is the father of much more than Utopian Socialism. Way back in the early 1800’s, he literally invented all by himself many of the modern obsessions that we see around us today.

FAILED AUSTRALIAN UTOPIA IN PARAGUAY - Throughout the 19^th century, there was great upheaval. People sought new homes far from the warfare, feudalism and religious persecution of the United Kingdom and Europe. One great migration was to Australia. However, 19^th century Australia was a difficult place. Drought, starvation, strikes, stern colonial governments, bank failures and economic depressions all added to the mix of desperation.

One man, in western New South Wales decided that Australia was a failed British experiment. He decided to lead a Utopian Socialist adventure to South America. His name was William Lane and he was a committed socialist. He wanted to live under what he thought would be a fairer socialist or communist ideal, where everything was shared, and everybody worked for the common good. His dream was highly reminiscent of Thomas More’s Utopia “where you owned nothing, there was no money and everyone was happy” and also the Utopian Socialism of Charles Fourier.

In 1893, Lane decided to lead a group of Australian settlers all the way to Paraguay. He planned to take advantage of an offer by the Paraguayan government to give 75,000 hectares of free land to migrants. The government was attempting to repopulate Paraguay after up to 90% of the nation’s male population had been killed in a war against Brazil, Uruguay and Argentina.

However, the settlement was far from a Socialist Heaven on Earth. Lane became a dictator. He insisted on strong Christian ideals as well as socialist ideals. Despite the fact that many Paraguayan women were widows, he forbade any fraternisation between the Australian men and the Paraguayan women. He also forbade alcohol. And the environment they found themselves in was extremely harsh.

The Paraguayan “Utopia” fell apart within 3 years, just like many other Fourierist communes that had been established in many other nations during the 19^th century, including the United States, the UK and Europe. Lane gave up and formed another smaller commune with more dedicated Christians. He called that Colonia Cosme but that experiment failed as well.

After 5 years of failure, William Lane left Paraguay and ended up in New Zealand working as a Right Wing journalist. He had clearly abandoned all his Utopian Socialist dreams. Many of the Australians returned to western New South Wales and their descendants are still there today, living in modern Australia.

BOOM always warns anyone who will listen to beware of idealist Utopian dreams, especially any which promise a Utopia on Earth. It is not just socialists who are infected. Americans are particularly infected with this disease, promising a Capitalist Utopia dressed up as a promise of “freedom and democracy”. Unfortunately, as the Paraguayan adventure demonstrates, such promises and endeavours often devolve towards tyranny.

There is no Utopia to be found on Earth, neither capitalist nor socialist. We must beware of such promises, especially if they are based upon an idealistic view of the future and are delivered by leaders with a tendency towards tyranny. Careful social evolution based upon a shared trust in each other is a better dream, one based upon calmness, knowledge, compassion, mutual respect and a commitment to cooperation and slow, steady improvement in our various national identities.

There is one final twist to the tale. Many of Hitler’s Utopian National Socialists fled Germany after World War Two and escaped to the jungles of South America. There is strong evidence that some arrived in Paraguay, very close to where William Lane’s Australian group failed in the 1890’s. Just 50 years on from the departure of the Australians, the region was beset by desperate Germans attempting to escape their tyrannical past.

BOOM’s QUANTITATIVE BOOSTING EXPLAINED: https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/  AND BOOM’s Perfect Economy: https://boomfinanceandeconomics.wordpress.com/2020/01/18/boom-as-at-19th-january-2020/

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.

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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