What US Recession? – Yen Surges Triggered US Stock Uptrends – A Warning to Russia and its People – The “Digital Ruble” – A Return to a Communist Money System? Beware - [08- 13 -24]

Direct from BOOM Finance and Economics at the links below

Hat Tip to my colleague at  BOOM Fin4ance and Economics Substack (Subscribe for Free) - also on LinkedIn and WordPress. Covid Medical News Network CMN News BOOM Blog and All Editorials (over 5 years) at  BOOM Finance and Economics | Designed for Critical Thinkers — UPDATED WEEKLY (WordPress.com)

BOOM Finance and Economics seeks out the very best information from authoritative sources and strives for consistency in its quality and trustworthiness. Over 5 years, BOOM has developed a loyal readership which includes many of the world’s most senior economists, central bankers, their senior advisers, fund managers, and academics.  If you want a real edge in understanding the complex world of finance and economics, subscribe to BOOM on Substack or as a Follower on LinkedIn.

BOOM EDITORIAL THIS WEEK

US RECESSION – WHAT RECESSION?  Early last week, as US stock markets experienced a short, sharp, well earned retreat from recent highs, the official narrative pushed by MSM all over the western world was that a US recession was coming. Fear ruled the airwaves and TV screens as every media outlet followed the exact same script. Sheep following sheep.

“A US Recession is Coming” they repeated, over and over again. A conga line of “journalists”, “economists” and “experts” was rolled out to reinforce the message. Some amplified the message to say “the recession is already here”. Most TV presenters stared wide-eyed at the cameras.  Little, if any, evidence was presented as justification. They had been given their narrative and they knew not to veer away from it if they wished to remain employed in the media.

Our mainstream media seems to know nothing except whatever agreed narrative explains the current issue. Clueless. And those narratives seem to come from somewhere unknown, on high. The journalists are devoid of curiosity. Impartiality and considered debate are nowhere to be found. Fear, fear, and more fear is the endless strategy, perfected over decades but especially since the scamdemic was launched in 2020, based upon little evidence. Narratives that support fear are always preferred.

What is the real situation in the US economy?  Here was the situation report on the US economy advance estimate as of July 25, just two short weeks prior to last week’s “stock market panic”. Source: Trading Economics: “The US economy expanded at an annualized 2.8% in Q2, up from 1.4% in Q1, and above forecasts of 2%, the advance estimate showed.

Consumer spending rose faster (2.3% vs 1.5%), led by a rebound in consumption of goods (2.5% vs -2.3%), mostly motor vehicles, recreational goods and vehicles, and gasoline while services slowed (2.2% vs 3.3%). Also, private inventories added 0.82 pp to the growth, after being a drag in the past two periods, led by wholesale trade and retail trade industries. Meanwhile, nonresidential investment accelerated (5.2% vs 4.4%), namely equipment (11.6% vs 1.6%).”

Does that sound like an imminent or “hidden” recession? BOOM thinks not.

Another “explanation” narrative, the Yen Carry Trade reversal, was also rolled out to explain the US stock market volatility. There may be some truth in this narrative. However, BOOM had a quick look at historical examples.

The narrative doesn’t hold much water if you look at previous occasions when the yen/USD suddenly appreciated during its long term decline. Surprisingly, the impact on US stocks was then decisive and positive. The (temporary) improvement in the yen was a signal that was soon followed by long uptrends in US stock indices.

The facts show that in October 2022, the yen began to suddenly appreciate and did so for about three months. And in November 2023, it appreciated for about two months. This is shown clearly in the chart below which shows the Invesco ETF for the yen (Stock Code: FXY):

The impact on US stocks was clearly positive. In October 2022, the S & P 500 turned upwards and ran higher, along with the yen. And in November 2023, the exact same thing happened:

If we consider these two charts carefully, we may conclude that short term, past appreciations in the yen/USD cross have actually been a net positive for US stock markets. If history repeats, the ‘Yen Carry Trade’ hiccup will soon pass and then the true nature of the US stock uptrends should re-assert, all other things being equal. If this hypothesis holds water, then perhaps a good “Buy the Dip” opportunity is here now or coming soon?

Readers can now sit back and watch the drama unfold with a better perspective. BOOM is always cynical of mainstream explanations for anything. Any search for the truth was abandoned a long time ago by the Fourth Estate. They do what they are told. They follow instructions. Objectivity and independence are no longer evident anywhere in the Western mainstream media. Thus, it is all akin to propaganda or, at best, entertainment.

BOOM ISSUES CBDC WARNING TO THE PEOPLE OF RUSSIA. Totalitarian Money to Replace The People’s Money — Beware — It’s The Return Of Communism.  The Russian Digital Ruble is it Coming Soon or Not?

There was an announcement last week from the Russian central bank Governor about the possible launching of the so-called “Digital Ruble”/CBDC (Central Bank Digital Currency) in 12 months time:  “MOSCOW. July 30 (Interfax) – The Central Bank of Russia plans to move from pilot mode to mass implementation of the digital ruble as of July 2025, Central Bank Governor Elvira Nabiullina said.

“In terms of our pilot project for the digital ruble, we will expand it in just a month for those banks that are already with us in the pilot mode. There will also be a series of expansions for the pilot project going forward,” Nabiullina said in the Federation Council.

“I can currently say that if everything continues to go according to our plan, then we will successfully implement the pilot projects. We will be able to move from the pilot mode to mass implementation of the digital ruble as of July 2025. We are aiming for these dates,” Nabiullina said.

BOOM will watch closely to see if the Russian “Digital Ruble” meets the same fate as the Chinese eYuan and the Nigerian CBDC. In other words, a solid rejection from The People.

BOOM is not a fan of Central Bank money issued directly to The People. That has not been done as conventional wisdom before in history, only in panic or crisis situations and, ominously, during Communism.

BOOM is firmly committed to the idea that Central Banks should only deal with their client banks in the banking system and not directly with the real economy. Representative Governments should deal with The People.

BOOM presumes these so-called “Digital Rubles” will be originated as Central Bank loans to its client retail/commercial banks. If those rubles are then loaned on to bank customers at no interest, then they must be re-callable at any time (in order to mimic physical cash).

Therefore, it cannot be credit money in the true sense. And each ruble must therefore have a Unique Identifier Number/Code attached for tracking purposes. Thus, from some basic principles of monetary history, BOOM can hypothesise that a “Digital Ruble” must be a tracked, recallable non-interest loan of digital code from the Central Bank direct to The People via the retail/commercial banking distribution system.

Where is the Contract of Trust element in all of this? Trust must always be embedded in all financial arrangements as legal contracts. The historical origination of money is almost always a debt contract that embodies mutual trust (an exchange of promises).

The only alternative explanation is that the “digital rubles” will be non-recallable gifts to The People. But surely those gifts would be expected to have some limitations imposed e.g. time limited or purpose limited?  No alternative money origination system based upon free gifts has ever been tested before.

BOOM advises the people of Russia and the Central Bank of Russia to take very serious note of the comments here. BOOM suspects that this “digital ruble” could cause big problems in Russia. Major attempts to hack it will be made both from within and outside the borders of Russia. If The People lose faith in their national currency, then hyperinflation risk becomes real if they were to begin using an alternative currency.

Availability and General Acceptance is all that is needed. I expect the US to flood local Russian communities with physical US Dollars in such an instance. If they are generally accepted, then the trap is set.

I doubt if Putin understands money. This concept of a digital ruble could destroy Russia faster than the Ukraine war if it is not handled well. It appears to be a desperate attempt by the Russian authorities to boost money supply volumes because bank loan demand has plummeted due to high interest rate settings. They already have a CPI inflation problem. And they just put their official interest rate up to 18%! to control it.

Here is a recent reference (from Tass), the Russian state-owned news agency. TASS is registered as a Federal State Unitary Enterprise, owned by the government of Russia. The reference is very short on details. Quote:

“Mass introduction of digital ruble possible starting July 2025 — Central Bank Governor.  Russian President Vladimir Putin said earlier that the platform of digital ruble showed efficiency and reliability as it was tested.

MOSCOW, July 30. /TASS/. If the digital ruble is successfully tested its mass introduction is possible starting July 2025, Russian Central Bank Governor Elvira Nabiullina said addressing the Federation Council (upper house of the parliament). “Now I can say that if everything goes as we plan further on, with pilots implemented successfully, we will be able to shift from tests to massively introducing the digital ruble from July 2025. We target those dates, though it will be a gradual process, a gradual process of using digital rubles,” she said.

Russian President Vladimir Putin said earlier that the platform of digital ruble showed efficiency and reliability as it was tested.  The Bank of Russia has been implementing a pilot project with real digital rubles since August 15, 2023. At the first stage, active operations are tested, such as opening wallets in digital rubles for banks and clients (individuals and legal entities), transferring digital rubles between clients, and payments at trade and service enterprises. Full Report HERE

But another, much more detailed article from Russia Beyond exactly 12 months ago is worth reading. (August 1, 2023). The article reveals and confirms all of BOOM’s suspicions. Russia Beyond is a newspaper published by the government of Russia. Quote: “A third form of the national currency will appear in Russia – along with cash and non-cash versions of the ruble, there now will also be a digital ruble. We explain what it is and about its potential upsides and downsides.

The digital ruble is a digital form of the Russian national currency, which the Central Bank of the Russian Federation (the Bank of Russia) plans to issue, along with the existing forms of money.

Digital rubles will be stored in citizens’ and companies’ digital wallets in the form of a digital code. One will be able to open such wallets on the platform of the Bank of Russia; all digital ruble operations will take place there, as well.

Unlike existing non-cash rubles, which are stored in various commercial banks, digital rubles will be stored in the Bank of Russia. This implies their safe storage (hackers notwithstanding). With that, you’ll be able to use them through usual bank mobile apps and through internet-banking. Every ruble will have its own unique code,  just like a typical banknote.

You’ll be able to make transfers in digital rubles like usual – only from a digital wallet to another digital wallet. You will also be able to pay for goods with it in stores – through a QR-code in the bank app on your phone and, in the future, with NFC contactless technology.

The decree on the digital ruble came into force in Russia on August 1, 2023. From that point onward, the Bank of Russia and a limited number of credit institutions and their employees will begin to pilot the first use of digital rubles. By the regulator’s estimates, regular citizens will be able to use digital rubles to their full extent in 2025-2027.

According to the head of the Bank of Russia, Elvira Nabiullina, the usage of the new currency will be voluntary. The digital ruble is a new option for the people. “If they want – they’ll use it, if they don’t – they won’t. No one is forcing anybody to use the digital ruble,” Nabiullina said.

The rapid growth of the number of digital currencies curbs the ability of the Bank of Russia, as the main financial regulator of the country, to influence the currency rate and inflation, thus creating risks for the stability of the financial system and the functioning of the entire state. Russia is not the only country that faces such a problem with the population’s growing interest in cryptocurrencies.

The digital ruble should become a centralized alternative to Bitcoins and Altcoins, which are not backed by anything. For the Bank of Russia (as the main economic management body in the Russian Federation), that means a more controlled circulation of money in the country.

In practice, this will allow for better control over budget spending – digital rubles, coded for specific use, will be harder to spend on bribes or other illicit purposes. The access to the information about businesses’ and individuals’ transactions should increase the transparency of the system, as well as allow for the tracking of the real size of the tax base and the legality of conducted operations.

On the technological level that will happen thanks to smart contracts – transactions executed automatically after predetermined conditions by the parties are met.  “A smart contract will contain the information about the transaction parties, its total sum and the conditions of its execution,” according to the ‘Concept of the Digital Ruble’, published on the Bank of Russia’s website.

“One of the additional variants of using smart contracts may also be marking digital rubles, which allows for the establishment of conditions for their spending (for example, determining particular categories of goods and services, which could be purchased with digital rubles) and for the tracking of the entire chain of the marked digital rubles’ flow.”

It’s also expected that the digital ruble, just like the non-cash ruble, will be protected by the Bank Secrecy Act, with the exception of providing information to government bodies to resist money laundering and financial terrorism.  Benefits of the digital ruble:

• Digital rubles will be stored on the platform of the Bank of Russia, not in a commercial organization, which could potentially cease to exist. Digital rubles will be backed by gold and foreign exchange reserves and by other assets of the state.

• You will not need the Internet to use the digital ruble. For now, the technology is being finalized, but the concept of the digital ruble states that, to perform offline transactions, the client, aside from a digital wallet, will have another wallet in digital rubles opened directly on their device. You’ll be able to top it up with a regular digital ruble transfer from your online wallet when you have access to the Internet.

• In the case of theft or loss of digital rubles, the unique digital code will help track them faster and restore the violated rights of their owners.

• For Russian citizens, transfers and payments in digital rubles will be free of charge. The maximum top-up sum of the digital wallet and the maximum size of a transfer will amount to 300,000 rubles ($3,300) per month. This is three times as high as the current 100,000 ruble ($1,100) limit of free-of-charge transfers in the Fast Payment System (‘SBP’ in Russian; it works with a mobile phone number).

• For Russian businesses, the usage of the digital ruble will reduce fees; it’s expected that they will be no higher than 0.3%. Currently, they can reach 3% of the payment amount.

• It’s also expected that the implementation of digital rubles and the national currencies of other countries will allow for conducting cross-border transfers without SWIFT (from which the largest Russian banks were disconnected in 2022).

“Over 30 regulators are currently working on national digital currencies,” Olga Skorobogatova, the first deputy chairwoman of the Bank of Russia, reported. “I think that this speed, with which the regulators have delved into this field, speaks volumes about the fact that, in 5-7 years, several countries surely will step forward with their own national digital currencies. Then, we can discuss the questions of direct integration. In that case, we no longer need SWIFT, since these are different technological interactions.”

Currently, Nigeria is already actively using a digital currency; many other countries have launched their pilot projects (China, South Africa, Thailand, Singapore, Kazakhstan, Saudi Arabia) and more than twenty countries are developing their digital currencies (India, Germany, France, Italy, Spain, Brazil, Canada, Turkey, Australia).  Drawbacks of the digital ruble:

• There will be no interest on the digital ruble balance or cashback for purchases; meaning that digital rubles will be impacted by inflation. You also won’t be able to open a deposit in digital rubles or take a loan.

• There’s no 100% guarantee of the digital ruble’s safety: hacker attacks and fraud are still possible. But, it’ll be easier to get your money back with a code.

• Theoretically, the code will allow the state regulator to impose restrictions on the usage of digital rubles; but, for now, there’s no such goal.” Unquote. Full report HERE.

Carefully Note the use of the following terms: “… hackers notwithstanding … “

“Every ruble will have its own unique code” - “that means a more controlled circulation of money. “…  “digital rubles, coded for specific use.” “…access to the information about businesses’ and individuals’ transactions.”

“There will be no interest on the digital ruble balance or cashback for purchases – meaning that digital rubles will be impacted by inflation. You also won’t be able to open a deposit in digital rubles or take a loan”

“There’s no 100% guarantee of the digital ruble’s safety: hacker attacks and fraud are still possible. But, it’ll be easier to get your money back with a code.” “… the code will allow the state regulator to impose restrictions on the usage of digital rubles; but, for now, there’s no such goal.”

To BOOM, this appears to be a blatant return to a Communist money system, where there are (eventually) no privately owned retail/commercial banks and only a central bank that issues all money in traceable, trackable form.  The next step on that Stalinist road is the loss of all private ownership of property. “YOU WILL OWN NOTHING AND YOU WILL BE HAPPY” And then … you will eat ze Bugs.

A WARNING TO RUSSIA AND ITS PEOPLE.  Deep understanding of money origination (creation) and money supply volumes is rare.  BOOM is going to watch this money experiment very closely indeed. Russia cannot afford to make a mistake here.

Attempts to destroy a National Currency are well documented in history. The methodology employed is usually hyperinflation expressed in terms of the national currency and simultaneous hyper-deflation in terms of any competing, alternative currency. ‘The People’ are usually caught in the middle and suffer huge financial loss, starvation and destitution.

An adversarial foreign government or agency could easily distribute alternative foreign currency as physical cash in local communities inside Russia. If this was generally accepted and trusted by the people, then the trap would be set.

An alternative outcome is for ‘The People’ of Russia to yet again become enslaved to an elite, central command of their money, and their economy and, eventually the loss of any private property they may own. Don’t be fooled, COMMUNISM is the threat.

TURKEY AND YEMEN …AND ISRAEL.  BOOM is very concerned about current events in the Middle East, as are most observers. To date, the US, China, and Russia appear to be keeping the lid on the situation. However, that could change at any time. BOOM is mainly concerned about the possible role of Turkey and Yemen in the mix.

This statement is made on the website of the Ministry of Foreign Affairs, Republic of Turkiye (Turkey). It spells out the special relationship between Turkey and Yemen.

Quote: “Türkiye enjoys deeply rooted historical and cultural ties with Yemen, supports Yemen’s peace, stability and territorial integrity and exerts efforts at all platforms in this respect…..”  “Türkiye also closely follows the deteriorating humanitarian situation in Yemen and continues to provide humanitarian aid, in order to help alleviate the suffering of brotherly Yemeni people.”

As BOOM pointed out last week, Turkey has formidable armed forces (reputably the second largest in NATO) and Yemen has been recently attacked by Israel. Here is a quote from CNN on July 22^:

“For the first time, Israel has struck inside Yemen, following a deadly drone attack launched by Houthi rebels on Tel Aviv. Since the October 7 attacks by Hamas on Israel, the Houthis have been targeting shipping in the Red Sea in solidarity (they say) with Gaza. After Israel struck back on Saturday, the Houthis said they launched a fresh barrage of missiles towards Israel, promising a response that will be “huge and great.”

“Direct attacks on each other’s soil between the Israeli military and the Iran-backed rebel group now risk creating a new front in a conflict that has already threatened to spill over into the region, with Houthi spokesperson Mohammed Abdulsalam on Sunday describing the situation as “open war.”

And back in January, the US and British forces attacked Yemen, as reported by VOX, (Voice of America). The Headline read:  “Russia, Turkey, Iran Condemn Attack on Yemeni Houthis”

“Thursday’s retaliatory attacks by U.S. and British forces on Iranian-backed Houthis inside Yemen have prompted support and condemnation from the international community. The retaliation follows weeks of Houthi attacks against vessels in the Red Sea.”

And, “NATO ally Turkey’s President Recep Tayyip Erdogan called the strikes “a disproportionate use of force,” just as Israel is doing in Gaza, and accused the U.S. and Britain of trying “to turn the Red Sea into a sea of blood.” He accused both countries of escalating tensions in the region.”  Turkey has a population of 82 million. Israel has 8 million.  Their military capabilities can be compared. Such comparisons are available at https://armedforces.eu/ Turkey data versus (Israel):

• Active Personnel 425,000 (169,500)

• Reserve Personnel 200,000 (465,000)

• Available for Military 21,079,077 (1,797, 960)

• Tanks: 3,017 (1,650)

• Armoured Vehicles: 11,450 (6,135)

• Total Artillery: 2,521 (1,000)

• Rocket Artillery: 399 (48)

AIR FORCES: Total

• Aircraft: 1,573 (618)

• Helicopters: 676 (128)

NAVY: Total Ships 154 (74)

If Turkey became involved in a war with Israel, it looks obvious that they could dominate. The Turkish border is just one days drive to Israel. The threat of invasion could be enough to dictate terms in Tel Aviv. Any determined alliance between Turkey and Iran would be very hard to counter. Iran’s military forces are almost equal to Turkey’s.

The big unknown would be the USA. Would they get involved? Would they attack a NATO ally? Or would they make a token effort only, unwilling to sacrifice too many ships and personnel? After all, they are a long way from home.

Then there is Egypt to consider.  It has considerable military force which is almost as powerful as Turkey’s.  Egypt has been historically reluctant to get involved in any clash between the Palestinians and Israel. However, if Turkey formed an alliance with Iran and Yemen, the tables could be turned.

An alliance of Turkey, Iran, Egypt and Yemen would be a sizeable threat to Israel. And then Saudi Arabia, Qatar, Kuwait and the UAE nations would be forced to choose sides. Saudi Arabia has a far superior Air Force compared to Israel. They would make a huge difference.

BOOM has no confidence in Anthony Blinken, the US Secretary of State and Jewish by birth, or Joe Biden, the current US President, to settle such a situation.

The power balance would rapidly fall on the shoulders of Russia and China to find a way forward and impose a a Peace Agreement or allow matters to take their own course on the battlefield. BOOM hopes, as always, for a peaceful settlement.

COMING NEXT:

• The Financial Jigsaw Part 2 - Chapter 6 – OFFSHORE FINANCE – Saturday, August 17, 2024

• BOOM Global Financial Review, Tuesday August 20, 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:

DISCLAIMER:   All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice. The presence of a link to a website does not indicate approval or endorsement of that website or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any neither securities or investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources that are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. By Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.