Elon - America will NOT go "BANKRUPT" - Communism Versus Capitalism? - Good Financial Management vs Bad? - China's Financial System is not Communist
ELON -- AMERICA WILL NOT “GO BANKRUPT”
On three occasions now, BOOM has watched Elon Musk state categorically and publicly that “America will go bankrupt” if it continues to run a Budget Deficit. That statement is untrue.
The American economy is huge. $ 27.7 Trillion of transactions occur annually in an economy where 330 million people reside. The US government can easily continue to fund its budget deficit through the issuance of Treasury securities. The money flow from taxation revenues and the sales of Treasuries cannot and will not suddenly stop. To make such a statement is irresponsible in the extreme.
HOW LONG can the Secretary of the Treasury, Scott Bessent, stay seated and allow these false statements to be made by America’s unelected richest man while standing beside the President?
The Treasurer should make a public statement that the American Government is not close to bankruptcy and can never “go bankrupt”.
However, BOOM can understand Elon’s concerns. In the last year of the Biden Presidency, when a nuclear war with Russia was being provoked, the US Government went on an equally mad spending spree of mammoth proportions. As BOOM has pointed out in previous editorials, US Government Obligated Expenditures for 2024 reached a ridiculous figure of $ 9.7 Trillion. However, it is important to understand that Obligations to Spend do not have to be met within the year. They can carry over into the next year as liabilities and be expended then or in following years.
So what is the actual Treasury data for 2024? To quote from the Treasury National Deficit website:
In FY 2024 total government spending was $6.75 trillion and total revenue was $4.92 trillion, resulting in a deficit of $1.83 trillion, an increase of $138 billion from the previous fiscal year.
US DEFICIT 2024 – There are no secrets -- https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/
An increase in the Budget Deficit of $ 138 Billion over the previous year is peanuts in regard to a US GDP of $ 27.7 Trillion. In fact, it is an increase equivalent to just 0.5 % of the Annual GDP.
OBLIGATED SPENDING 2024 = $ 9.7 Trillion
ACTUAL SPENDING 2024 = $ 6.75 Trillion
This leaves an ongoing Liability of approximately $ 3 Trillion (as of 31st December 2024)
If readers go to the US Government Spending website right now, they will see the following graphic – Note that the Obligated Spending calculation is “as of December 31, 2024” and is $ 3.0 Trillion.
Please note the following --
The Federal Funding Accountability and Transparency Act of 2006 (FFATA) was signed into law on September 26, 2006. The legislation required that federal contract, grant, loan, and other financial assistance awards of more than $25,000 be displayed on a publicly accessible and searchable website to give the American public access to information on how their tax dollars are being spent.
The U.S. Department of the Treasury, Bureau of the Fiscal Service is committed to providing open data to enable effective tracking of federal spending. The data on this site is available to copy, adapt, redistribute, or otherwise use for non-commercial or for commercial purposes …..
The following chart of the US Federal Government Deficit shows that, since 1930, the US government has almost never run a Surplus (a profit) on its annual budget. And you will see that the US government tends to increase its Budget Deficit when recessions occur (the grey areas). And they reduce the Deficit when the recession has recovered. Why is this?
US DEFICITS SINCE 1930
THE US GOVERNMENT IS NOT A PROFIT MAKING ENTERPRISE
The answer is that the US Government is NOT a household and it is NOT a business and therefore it should NOT and does not seek to make a profit on its revenues. If a government makes a profit, then it is not maximising its potential for impact upon the economy.
There are two consequences to governmental over spending. They are out of control CPI inflation and currency collapse.
It is important to understand that Hyperinflation (Currency Collapse) cannot occur when there is no alternative currency available inside an economy. And in America’s case, there is no alternative currency in circulation inside its borders. And there is no real alternative outside its borders either (due to the huge volume dominance of offshore Eurodollars – Dollars that exist on the balance sheets of foreign, offshore banks and central banks).
NO NEW MONEY IS (GENERALLY) CREATED TO FUND THE BUDGET DEFICIT
There is a very important observation to be made about where the money comes from to fund the purchase of US government Treasury Securities (which funds the Federal Deficit). In almost all circumstances, it is NOT new money. It is old money that has been created some time previously and has either been in circulation or previously trapped in holding and trading real and financial assets. There is one exception to this and that is when a QE Program is in place from the central bank. But that is a rare situation, not common at all.
NO NEW MONEY is created to fund the Budget Deficit (except in QE). PRIVATE DEBT IS POTENTIALLY A PROBLEM
So – if government “debt” is not a problem as long as CPI inflation and Asset Price inflation is not rampant and if Hyperinflation/Currency Collapse cannot occur, then what about Private Debt?
Private Debt is another matter altogether. The vast majority of it is generated by Commercial/Retail Bank loans which are collateralised by the real assets of a nation. When a bank loan is made, FRESH NEW money is created and this is the major source of such new money in a modern economy. The other source is Notes and Coins (Physical Cash) issued by the Treasury and distributed via the banking system in response to demand from the real economy. FRESH NEW money is necessary to replace the destruction of money that occurs when bank loans are paid off. And that occurs everyday. In other words, FRESH NEW money is like water for the economic garden and it has to be applied every day.
In our advanced economies, we DO have a potential problem with our fresh new money creation and that is in regard to the fact that most of it (97%) is interest bearing, credit money generated as a bank loan and collateralised with real assets.
We do have non-interest bearing money and we can generate and use more of it. It is called physical CASH and can be created by the Treasury (not by the banking system) at any time in response to citizens’ demand. Because it is non interest bearing, it is a natural buffer to interest bearing credit money and is therefore naturally non inflationary.
Here is a chart of America’s Private Credit Money compared to its Nominal GDP over the last 10 years. You can see the huge surge created by the Covid Panic-Demic in 2020.
To put that into context, we must look at the Private Debt as a percentage of Nominal GDP since 1951. Please NOTE that the Private Debt levels were VERY low in the Post War period until 1980. This means that Physical Cash was being used much more to settle transactions in the economy. During that period, the US economy was stable, with steady growth, low CPI inflation and low Asset Price inflation. The secret weapon then was PHYSICAL CASH in large volumes – non interest bearing, Government issued money, responsive to citizen demand.
The Peak of Private Debt can be seen in 2008. That was when the US banking system neared collapse due to huge amounts of US banking fraud. The Global Financial System almost collapsed due to this from knock-on effects of banking stress. The good news is that we can see the decline in Private Debt to Nominal GDP since then. There was an increase during the Covid Panic-Demic from 2020 to 2021 but the debt has again declined since then.
There is still a long way to go for the US to achieve a lower, more suitable Private Debt to Nominal GDP ratio (around 100 – 120 %). We can hurry that process by increasing the use of non-interest bearing physical cash. Citizens need to be encouraged to use cash to settle as many transactions as possible. As citizen demand increases, the Treasury must instruct the Bureau of Engraving and Printing (BEP) to create more US Dollar Notes and the Mint to create more coins. Every increase in physical cash in circulation will replace credit money in the total money supply. Thus, the US government Budget Deficit will decline quite naturally and the deficit to GDP ratio will collapse.
A REVOLUTION AWAITS IN THE US ECONOMY
Using more physical cash would create a revolution in the structure of the US economy. The US Government (and all State governments) could begin by paying all of their employees with physical cash every week or second week – just like they did in the 1950’s and 1960’s.
VELOCITY OF MONEY WILL INCREASE
The velocity of money is the frequency at which one unit of currency is used to purchase domestically produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.
Let’s look at three measures of Money Supply in the US economy – MZM Money, M2 Money and M1 Money.
VELOCITY OF MZM MONEY - The broadest measure of Money supply, MZM has been falling since 1980. It is money that is available for immediate spending and consumption.
The velocity is calculated as the ratio of quarterly nominal GDP (GDP) to the quarterly average of MZM money stock.
MZM Money is with zero maturity. It measures the supply of financial assets redeemable at par on demand. Money Zero Maturity (MZM) serves as a vital indicator of the liquid money supply within an economy, encompassing readily available funds such as physical currency, checking accounts, and money market funds. Excluding time deposits like certificates of deposit (CDs), MZM offers a more accurate portrayal of money available for immediate spending and consumption.
MZM encompasses various forms of funds:
To qualify for inclusion in MZM, money must be redeemable at par value.
This series has been discontinued and will no longer be updated. The institutional money market funds component (IMFSL) used to calculate MZM has been discontinued by the Board of Governors and is no longer available in the H.6 statistical release, Money Stock Measures.
VELOCITY OF M2 MONEY -- The Velocity of M2 Money has been falling since 1997. The velocity is calculated as the ratio of quarterly nominal GDP to the quarterly average of M2 money stock
Before May 2020, M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000) less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market funds (MMFs) less IRA and Keogh balances at MMFs. Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.
VELOCITY OF M1 MONEY -- The Velocity of M1 Money has been falling since 2008 (the Peak of US Banking Fraud) and it fell off a cliff in 2020 when the Covid Panic-Demic erupted.
The velocity is calculated as the ratio of quarterly nominal GDP (GDP) to the quarterly average of M1 money stock.
Before May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions. Beginning May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts). Seasonally adjusted M1 is constructed by summing currency, demand deposits, and OCDs (before May 2020) or other liquid deposits (beginning May 2020), each seasonally adjusted separately.
These changes in Velocity of Money are worthy of note. Please remember that Private Debt levels were comparatively VERY low in the Post War period until 1980 (as illustrated in the charts above for Private Debt as a % of nominal GDP).
As Private Debt growth accelerated after 1980, the Velocity of MZM Money started falling almost immediately and continued to fall for 45 years. The Velocity of M2 Money started falling in 1996. And the Velocity of M1 Money began its descent in 2008 as the US banking fraud peaked and the Global Financial Crisis began.
There is another discussion to be had here on this matter. However, that is a subject for another day and involves a discussion on the formula for velocity.
The lesson to be learnt here is that, from 1980 onwards, we have seen the rise and rise of credit money creation and use in the settlement of daily transactions and a corresponding fall in the use of creation of physical Notes and Coins. This can be reversed and the economy will then benefit from the circulation of more non-interest bearing money.
COMMUNISM VERSUS CAPITALISM? OR GOOD FINANCIAL AND ECONOMIC MANAGEMENT?
BOOM has written many editorials that have focused on the huge success of the modern Chinese economy. It would be easy to miss-interpret this as support for communist ideology. However, that is not the case. BOOM is certainly not a fan of communism. BOOM feels strongly that western, democratic capitalist societies have slowly but surely lost sight of good economic and financial management which should benefit all citizens. This has resulted in poor economic performance for the last 25 – 30 years. During that period, China has determinedly generated historical economic growth and output which has rescued their 1,500 Million people from lives of drudgery and poverty. This chart shows the unquestionable rise of China’s economy. It shows GDP data that is adjusted for inflation and differences in living costs.
It is obvious that China has performed some sort of economic miracle this century, since the year 2000. But this miracle is not due to its communist political system. It is due to better financial and economic management, especially better management of the supply of money throughout the vast nation and populace of China. Yes – communist China understands money better than the capitalist West. They understand that money is like water on an economic garden and they concentrate on watering their garden in a disciplined manner in response to demand and a national plan of development.
Meanwhile, the Western economies simply cling on to their slogans of “free market and financial capitalism” and avoid careful management of the money supply. This is akin to a farmer who ignores irrigation to manage his/her crops.
Unfortunately, such a system allows the rich citizens who own real and financial assets first access to fresh new money created as bank loans. And they tend to use that fresh new money in asset price speculation which creates increased wealth disparities over time. This is why many (most ?) young adults in the West can now no longer afford to buy a home. And every year, it gets harder for them to do so. In economics, this is called The Cantillon Effect.
THE ANSWER IS NOT COMMUNISM
The answer is NOT communism. It is to acquire a better understanding of money dynamics, how money is created (born), how it is distributed and how money dies. We need a revolution in capitalism and money supply management by governments in the West. Encouraging and using non-interest bearing physical cash (paper Notes and Coins) is the key, the first step. This is not rocket science.
Look closely at the chart again and observe economic history. China is winning and the West is losing.
GLOBAL GDP 30 YEARS
Gross domestic product (GDP) is a measure of the total value added from the production of goods and services in a country or region each year. The currency used in this chart are International dollars (int.-$). They are not US Dollars.
Much economic data that we use to understand the world we live in is expressed in currencies without adjusting for inflation over time. This is known as being in “current prices”, or in “nominal” terms. Before these figures can be meaningfully compared, they need to be converted into common units.
International dollars (int.-$) are a hypothetical common currency that is used for this. It is the result of adjusting both for inflation within countries over time and for differences in the cost of living between countries. The goal of international-$ is to provide a unit whose purchasing power is held fixed over time and across countries, such that one int.-$ can buy the same quantity and quality of goods and services no matter where or when it is spent. The price level in the US is used as the benchmark so that one 2021 int.-$ is defined as the value of goods and services that one US dollar would buy in the US in 2021. Converting data in local currencies to international-$ means dividing the figures by a set of “exchange” rates, known as Purchasing Power Parity (PPP) rates. Unlike the exchange rates between currencies you would see at the foreign exchange counter, these account for differences in the cost of living between countries.
The chart shows the revolution in living standards that the Chinese people have experienced since 1990. They must be doing something right.
THE CHINA FINANCIAL SYSTEM IS NOT A COMMUNIST FINANCIAL SYSTEM
So what is the cause of this under-performance of the West when compared to the high performance of the Chinese economy? It’s all about money supply management – water for the economic garden.
The Chinese financial system is NOT a communist financial system. That observation is the starting point to a better understanding of what is happening. Pure communism as it was practised in the USSR for 70 years depended upon a centralised supply of money from the central bank. There was no other source of money. There were no commercial banks making loans to willing borrowers. By strict communist law, there was no private property which meant that there was no collateral upon which to base such loans. The USSR was hamstrung and unable to compete with the West because of this. Its collapse was inevitable and it happened “unexpectedly” in 1989/1990 after 70 years of sub-par and outright poor money supply management. The economic garden of the USSR progressively died. This was best summed up by the workers in the USSR -- “We pretend to work and they pretend to pay us”.
China has a financial system that contains a distributed banking sector. It has private property and that property can be used as collateral for bank loans to be made to willing borrowers.
The Property Law introduced in 2007 protects the interest of private investors to the same extent as that of national interests. Ownership rights are protected under Article 39 of The Property Law of the People's Republic of China, which gives the owner the right to possess, utilise, dispose of and obtain profits from the real property. However, this right has to comply with laws and social morality. It can harm neither public interests nor the legitimate rights and interests of others. Foreign investors are not allowed to buy land in China. The land itself in China always belongs to the State and the collectives.
For a more extensive analysis of this subject – please go to BOOM’s Editorial on 2nd June 2024 : COMMUNIST USSR VERSUS COMMUNIST CHINA — A COMPARISON
DID TRUMP MAKE A BILL GATES DEAL? OR WAS IT A WHO DEAL?
Last week, BOOM wrote -- “Trump needs better information, better advice, better advisers and a more sober approach to the problems of the world.”
Perhaps we now know why Bill Gates spent three hours with Donald Trump prior to his inauguration as President? Was there a “deal” done?
It has been announced recently that Trump has appointed a "One Health"/WHO/Bill Gates man, Dr Gerald Parker, to be the Director of the Office of Pandemic Preparedness and Response Policy. Parker is an “expert” in the “One Health Approach” and is deeply ingrained in the Global Health Security Strategy. This is WHO language for a Global Governance of health matters – controlled by unelected staff in UN offices, not from elected national governments.
Parker was the Associate Dean for Global One Health at the School of Veterinary Medicine and Biomedical Sciences and Director, Pandemic Preparedness and Biosecurity Policy Program at the Scowcroft Institute of International Affairs.
He is a veterinarian and a career federal health bureaucrat. Parker has worked for the Departments of Defense, Health and Human Services and Homeland Security.
“One Health” is defined by the World Health Organisation WHO. Here is the definition, full of motherhood statements that hide the true purpose of shifting power from elected governments to the non representative WHO.
“One Health is an integrated, unifying approach that aims to sustainably balance and optimize the health of people, animals and ecosystems.
It recognizes that the health of humans, domestic and wild animals, plants, and the wider environment (including ecosystems) are closely linked and interdependent.
While health, food, water, energy and environment are all wider topics with sector-specific concerns, the collaboration across sectors and disciplines contributes to protect health, address health challenges such as the emergence of infectious diseases, antimicrobial resistance, and food safety and promote the health and integrity of our ecosystems.
By linking humans, animals and the environment, One Health can help to address the full spectrum of disease control – from prevention to detection, preparedness, response and management – and contribute to global health security.
The approach can be applied at the community, subnational, national, regional and global levels, and relies on shared and effective governance, communication, collaboration and coordination.
Having the One Health approach in place makes it easier for people to better understand the co-benefits, risks, trade-offs and opportunities to advance equitable and holistic solutions.”
So have the Globalists, via Gates, done a “deal” with the Deal Maker in Chief?
What we don’t know is what the people of America gained from the Gates meeting with Trump. And the other 7.5 billion people on Earth were clearly not represented in the room where Trump and Gates had their meeting.
So, will Parker be in charge of MRNA technology and “innovative vaccines”, “countermeasures” against biological threats, while Robert Kennedy will be in charge of ensuring that Americans eat an apple a day to Make America Healthy Again? MAHA, MAHA indeed.
FUNDING OF THE WORLD HEALTH ORGANISATION AND BILL GATES
The World Health Organisation gets its funding from a variety of sources. Voluntary Contributions are shown in the diagram for the year 2022 – 2023. For this period, voluntary contributions made up 81% of total funding, while assessed contributions accounted for 12%. The remaining 7% came from other sources.
Upon taking Office, President Trump issued his Ninth Executive Order to (again) Withdraw the US from the WHO. TRUMP first withdrew from the WHO in 2020 in response to the organization’s handling of the COVID-19 pandemic. President Biden retracted this decision when taking office in 2021, bringing the US back into the fold.
For the year 2022 – 2023, the USA provided about $ 1 Billion of the “Voluntary” contributions. The USA “Assessed Contribution” was for a further $ 218 Million and $ 46.7 Million for the Contingency Fund for Emergencies.
USA Total = $ 1.284 Billion (equivalent to 0.02 % of US Annual Government Spending 2024)
The Bill and Melinda Gates Foundation is next on the list and provides $ 826 Million of “Voluntary” funds. However, that is not all that Bill Gates provides. He also funds WHO through his GAVI Alliance to the tune of $ 480 Million. Thus, his total annual contribution amounts to 20.1 % of the Total Voluntary Contributions.
Bill Gates = $ 1.306 Billion
China’s voluntary contributions in 2022-23 totalled $ 41 Million, representing 0.6% of total voluntary funding. But China also contributed $ 114.88 Million of “Assessed” contributions and $ 934,579 for the Contingency Fund for Emergencies.
China = $ 157 Million
The Grand Total of “Voluntary Contributions” amounted to $ 6.4 Billion. The WHO also received “Assessed Contributions” of $ 957 Million and “Other Funding” of $ 536 Million.
Thus, the Grand Total Funding for that year amounted to $ 7.89 Billion
So, if the USA pulls out of the WHO as announced by President Trump, the WHO will lose 16 % of its funding and the US Government will save only 0.02 % of its budget obligations. This was clearly not an economic decision.
After witnessing the global debacle of both the Covid so-called “Pandemic” and the bizarre governmental responses to the contrived panic, the decision to remove the US from the so called World Health Organisation was probably one of Trump’s easiest and best decisions.
GERMAN ELECTION RESULTS
Last week’s election results from Germany are startling if you look at this geographic map of the results. It shows that the former states of communist East Germany voted for the conservative Alternative for Deutschland (the AfD) party. The AfD vote (20 % of the total federally) is represented by Blue regions. Those States were previously operated under centralist communist control as a part of the USSR until 1989. Now, the citizens who live there have voted overwhelmingly for Conservatism. This can be seen as a total rejection of socialist and communist ideology. The Left in politics is slowly dying in Germany.
In economics (and finance), things work until they don’t. Do your own research. Make your own conclusions. BOOM does not offer investment advice.
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