BOOM Finance and Economics 25th February 2024 -- a Global Review
WEEKLY -- On Sunday -- All previous Editorials are available at LinkedIn and at Wordpress https://boomfinanceandeconomics.wordpress.com/
UNWISE POLITICIANS AND THE UNFORESEEN CONSEQUENCES OF THEIR ACTIONS
ARGENTINA INFLATION ABOVE 250 %
CURRENCY COLLAPSE IN ARGENTINA
JAPAN AND UK FALL INTO ECONOMIC RECESSION
ISRAEL ECONOMY CONTRACTS BY 20% -- ANOTHER ECONOMIC DISASTER
IMF WARNS AGAINST CONFISCATION OF RUSSIAN ASSETS
BUENOS AIRES STREET SCENE
UNWISE POLITICIANS AND THE UNFORESEEN CONSEQUENCES OF THEIR ACTIONS
One of BOOM’s major themes has always been the incompetence of current leadership in the advanced Western economies. BOOM has focused on Ursula Von Der Leyen at the European Commission, Jens Stoltenberg in NATO, Emmanuel Macron in France, Olaf Scholz in Germany and Boris Johnson in the UK. Jacinda Ardern in New Zealand and Scott Morrison in Australia have deserved special mention when they were Prime Ministers of their respective nations.
And then, of course, there is Justin Trudeau who stabbed his nation in the heart when he locked some citizens out of their bank accounts over the Truckers protests. That is perhaps the ultimate financial sin that any government can commit against individual citizens, unwise in the extreme. In previous editorials, BOOM has detailed the dramatic loss of trust that Canadians now feel for their institutions of government, central banking, finance and technology. However, sadly, there are many other examples. Joe Biden is one. Benjamin Netanyahu is another and so is Anthony Albanese, the new Prime Minister of Australia.
The advanced economies are mostly being led by fools who adopt the narratives and policies handed to them by unelected, unrepresentative, foreign non government organisations such as the Un-United Nations, the Non World Non Economic Non Forum WEF (the so called, private World Economic Forum), the World Not for Health Organisation, Non Think Tanks and Non Charitable Non Philanthropies funded by a conga line of secretive billionaires. Secret Non-Intelligence organisations also seek to disproportionately influence both government policies and national discourse. The mainstream media dutifully plays its role as a paid-for megaphone of distorted narratives. Integrity is sadly lacking everywhere.
The problem is this — governments prefer to be influenced by these corporatist organisations. They call them “stakeholders”, which is a word invented for hiding disproportionate, non-democratic influence. They do not listen to The People. Corruption of government and poor policies are the result.
The politicians dress up this merger of corporate and state fascism with fancy terms such as “Public Private Partnerships”, “Corporate Partnerships”, “Advisory Groups”. They hope that no-one notices. Then they seek jobs with those corporate “stakeholders” after they have left office.
For example, Scott Morrison, the previous Prime Minister of Australia has recently left politics for a job in the United States “defence industry”. Media reports have said he will “take up a role” with a “leading Washington think tank” as an adviser to the Centre for a New American Security. CNAS is described by Wikipedia as specializing in United States national security issues, including terrorism, irregular warfare, the future of the U.S. military, the emergence of Asia as a global power centre, war games pitting the U.S. against the People's Republic of China, and the national security implications of natural resource consumption, among others. The CNAS website explains its modus operandus.
“We have a track record of attracting the best and brightest scholars and practitioners to lead our research programs, and our board members, founders, leaders, scholars, and interns have held or gone on to prominent positions in the U.S. government, at the departments of Defense and State, the White House, and the Central Intelligence Agency as well as in Congress and the private sector.” Of course, CNAS is a 501(c)3 tax-exempt nonprofit organization.
Its major sponsors include —
Northrop Grumman Systems Corporation, Open Philanthropy (Dustin Moskovitz/Facebook founder), U.S. Department of Defense, Secretary of the Air Force Concepts Development and Management (SAF/CDM), Office of Commercial and Economic Analysis (OCEA) and the Schwab Charitable Fund.
Other funding sources include Google.org, James Murdoch, Korea Foundation, Open Society Foundations (George Soros), Amazon Web Services (AWS), Inc., Carnegie Corporation of New York, Goldman Sachs Group, JPMorgan Chase & Co. (JPMC), KKR & Co. Inc., Lockheed Martin Corporation (LMCO), Meta Platforms Inc., (Facebook), Microsoft Corporation, BAE Systems, Inc., Booz Allen Hamilton Holding Corporation, BP America, Inc., Chevron Corporation, Emergent BioSolutions Inc, European Union (via the German Marshall Fund of the United States), Government of Australia, Department of Defense, Strategic Policy Division, Intel Corporation, The Boeing Company, U.S. Department of Defense, Office of the Secretary of Defense, Office of Net Assessment (ONA), U.S. Department of Defense, U.S. European Command, Russia Strategic Initiative (via Huntington Ingalls Industries (HII), Inc.), U.S. Department of Energy, National Nuclear Security Administration, Savannah River National Laboratory (via Longenecker & Associates, ExxonMobil Corporation, General Dynamics Corporation (GD), Mitsubishi Corporation (Americas), NEC Corporation of America, Norwegian Ministry of Defense, SoftBank Group International, Sumitomo Corporation of Americas, Temasek International (USA) LLC, American Rheinmetall Defense, Inc, Embassy of Finland to the United States of America, Finnish Ministry of Foreign Affairs and many more. Readers will get the drift ……..
Today, BOOM is turning the spotlight onto the economies of Israel, Argentina, Japan and the United Kingdom. All four are showing signs of economic and societal breakdown which could easily accelerate into an unstoppable cascade of failure. If this were to happen, the consequences could rapidly become unimaginable for their comfortably numb populations. Poverty is a hard pathway to wisdom.
The lesson that will be learned here is that leadership incompetence and mismanagement has its consequences.
ARGENTINA INFLATION ABOVE 250 %
Unemployment Up, Poverty Up, GDP Down, CPI Inflation Up
plus Currency Collapse = AN ECONOMIC AND SOCIAL DISASTER
Argentina is an economic nightmare that has lasted for almost 100 years. Early in the twentieth century, Argentina had one of the ten highest per capita GDP levels globally. It was on par with Canada and Australia, rich in resources and with a great future. From 1880 to 1905, the economy grew dramatically, averaging around 8% annually.
During the first three decades of the 20th century, Argentina actually outgrew Canada and Australia in population, total income and per capita income. By 1913, Argentina was among the world's ten wealthiest nations. However, after the great global stock market Crash of 1929, the nation was taken over by the military and the long economic decline began. Since independence from Spain in 1816, the country has defaulted on its debt nine times with currency devaluation and collapse being a recurring theme.
From 1945 to 1955, the government of Juan Perón nationalised the central bank, the railways and other strategic industries. Inflation became a chronic problem, averaging 26% annually from 1944 to 1974.
Today, it is hard to imagine what it must be like to live in Argentina. The annual CPI inflation rate in Argentina increased to 254.2 % in January. In December, it was 211.4 %.
The chart illustrates the roller coaster ride of CPI inflation since 1944.
ARGENTINA CPI INFLATION FROM 1944 to 2023
The new President, Javier Milei, has now subjected his nation to what he calls a necessary “shock therapy”. He has devalued the currency by 50 % against the US Dollar, sacked many public servants, cut government spending by 30 % and increased the key interest rate to 133 %. This is more than shock therapy. It is the ultimate test of resilience for the Argentine people. Milei has apparently stated that things will get worse and that it may take 2 years before inflation comes “under control” – whatever that means. Monthly inflation in January was above 20 %.
The New York Post last week praised his management with the headline – “Javier Milei’s Argentine Success is Paving the Way for Freedom and Prosperity”. That is a brave prediction indeed, given Argentina’s history. All of this is reminiscent of what happened when the USSR fell in 1990. BOOM expects at least a decade of economic turmoil before the dust settles. Foreign robber barons and their Argentine agents will emerge to take control of Argentina’s productive assets. We will see the rise of another set of Oligarchs fuelled by foreign capital as happened in the USSR. This process is already happening.
In January, Argentina's poverty rate shot up to 57.4%, the highest rate in two decades, as revealed in a recent study by the Catholic University of Argentina. About 27 million people out of Argentina's 46 million population are poor and 15% of those (4 million) are living in "destitution,” meaning they cannot adequately cover their food needs, according to the study released last week. Poverty is expected to rise above 60 % in March.
If over 20 % of those become “destitute” under Milei’s new “shock therapy”, then perhaps 5 Million people may be starving soon in a nation renowned for its agricultural output. Think about that for a moment – 5 MILLION people in starvation in a land with the potential for abundant food production.
BOOM expects a flood of economic migrants will also soon leave to find a better future elsewhere. And most of those will be energetic, resourceful, middle class people, not the destitute. Such an exodus, were it to happen, would cause persistent economic contraction over and above what is happening already under Milei. It would become baked into the cake.
The cost of food in Argentina increased by 296.18 % in January of 2024 as compared to the same month in 2023. Food Inflation in Argentina has averaged 68.83 percent from 2017 until 2024.
ARGENTINA FOOD INFLATION OVER 25 YEARS
The Unemployment rate is expected to rise sharply due to the “shock therapy”. At the end of 2023, it stood at just 5 %. However, BOOM expects that number to rapidly rise above 10 % % very soon and to exceed 15 % by the end of 2024. In response to the so-called Covid “threat” in early 2020, the unemployment level rapidly rose to 13 %. That target will be easily achieved in the next few months.
Argentina’s exports are holding at historic levels around US $ 6 Billion per month. Sounds OK? Compare that number to Australia where exports are US$ 47 Billion and the population is only 26 Million.
Imports are also steady around US $ 6 Billion per month. Again the comparison with Australia shows imports there of US$ 36 Billion per month.
Argentina’s trade potential is chronically under-performing.
Consumer Confidence is plunging already, as expected due to despair in such dire circumstances. This chart shows the latest numbers for January. BOOM expects updated data will soon show a further dramatic collapse in this measure of economic health as 2024 unfolds.
The Argentinian stock market that has been surging up for 18 months has now begun to fall. It has risen tenfold in the last 12 months in an unsustainable exponential trajectory. Gravity will soon take effect as reality strikes. The inevitable fall to Earth is ahead of us.
THE MERVAL STOCK INDEX CHART OVER 5 YEARS
CURRENCY COLLAPSE IN ARGENTINA
Javier Milei was elected as President on 3rd December. On December 13th, just 3 months ago, Argentinians could buy a US Dollar with 366 Pesos.
The Argentinian Peso has collapsed from parity with the US Dollar 23 years ago to just $ 0.0012c. In other words, one Dollar now costs 837 Pesos. Four years ago, in January 2020, they could buy a US Dollar for 60 Pesos. This means that in 4 short years, the purchasing power of an Argentinian measured in Pesos has collapsed over 10 fold.
For those holding US Dollar savings, it is a bonanza. For those holding the national currency Pesos, it is a disaster. This is what (always) happens in Hyperinflation events. One currency is abandoned while the other skyrockets in purchasing power. A small group of citizens become super rich while the majority are rendered destitute. Asset prices will soon collapse due to a lack of borrowers/purchasers. Commercial bank failures will then follow as sure as night follows day. Their loan books will be in tatters. Severe social unrest is the inevitable next step and then violence will erupt.
None of this should ever happen. No government should ever allow free circulation and acceptance of a foreign currency. If it does, it is committing treason against its own people. This is what has happened in Argentina for many decades. The People have been robbed by their political class. Corruption at the highest levels of government mixed with dreams and promises of a socialist nirvana have effectively destroyed the nation. Gross mismanagement of the money supply is at the very heart of the tragedy.
The Chart shows the dramatic fall of the Peso against the US Dollar since the year 2000.
Currency collapse can only occur if there is an alternative currency available in circulation and if the people have lost all faith in their political class and government. The US Dollar is usually the alternative currency and that is the case here in Argentina. BOOM visited the nation about 10 years ago and even then it was apparent that US Dollar circulation was tolerated by the government – a terrible mistake revealing either gross monetary incompetence or a corrupt core at the central bank and governmental level.
The new President must crack down on this and ban all US Dollars from use. However, his stated plan is to do the exact opposite. He plans to abandon the Peso and adopt the US Dollar as the national currency. He is also planning to close the nation’s central bank. If he were to do both, he would effectively hand over monetary control to the US Federal Reserve (America’s central bank).
BOOM has not heard either announcement and is unlikely to. Why? Because if this was done, the numbers of people suffering destitution and starvation would rapidly exceed the predicted 5 Million and could explode to 10 Million. An urgent airlift of food supplies would be necessary to feed the people and Argentina is in a distant location. Such an airlift would have to be put in place for many months, possibly years.
On Friday, Milei made this statement – (as reported by Reuters) --
"The IMF (International Monetary Fund) is very satisfied with what we're doing." Milei said this after a meeting with the IMF’s Gita Gopinath.
Gopinath said in a statement that the Milei administration's "initial actions are starting to bear fruit, although the path ahead remains challenging."
"Consistent and well-communicated monetary and (foreign-exchange) policy will be necessary to continue to bring down inflation durably, rebuild reserves, and strengthen credibility," Gopinath said.
Gopinpath has previously served as chief economist of the IMF in Washington DC between 2019 and 2022. Prior to joining the IMF, she had a two-decade-long career as an academic including at the economics department of Harvard University and earlier as an assistant professor at the University of Chicago Booth School of Business (2001–05). Gopinath has been the co-director of the international finance and macroeconomics program at the National Bureau of Economic Research, a visiting scholar at the Federal Reserve Bank of Boston and a member of the economic advisory panel of the Federal Reserve Bank of New York.
As far as BOOM can tell, Gopinpath has never had a job in the real economy, having spent her entire working career in academia and government offices. She was born in 1971 which makes her 52 years of age.
Javier Milei was born in 1970. As far as BOOM can tell, he has also never had a job in the real economy (where goods and services are produced). At school, he was apparently nicknamed el Loco ("The Crazy One") for his outbursts and aggressive rhetoric. Milei has been a professor of macroeconomics, economics of growth, microeconomics, and mathematics for economists.
So, the economic and social future of 45 Million Argentinian people is now in the hands of two people with essentially no significant experience outside of academia.
As far as BOOM can tell, this is unlikely to end well. The people of Argentina will bear the long term consequences while Javier Milei and Gita Gopinpath will disappear and be given “roles” in some “think tank” funded by “stakeholders”, probably in Washington DC.
JAPAN AND UK FALL INTO ECONOMIC RECESSION
Japan’s GDP has officially declined by an annualised 0.4% in the fourth quarter of last year, following a 3.3% slump in the previous quarter. Two quarters of contraction are the definition of economic recession. Meanwhile, Japan’s stock market has continued to surge upwards. It is starting to look like Argentina’s market.
NIKKEI STOCK MARKET INDEX OVER 5 YEARS
The Japanese currency, the Yen, has continued to collapse as measured in US Dollars.
The British economy also fell into recession in the final quarter of 2023, according to official figures released last week.
GDP dropped by 0.3% in the fourth quarter following a 0.1% decline in the previous quarter, the Office for National Statistics (ONS) has said. Again, a technical recession is typically defined as two successive quarters of contracting output. All three main sectors of the economy; services, production and construction, posted declines in the fourth quarter, according to the ONS.
In contrast to Japan, the British stock market has not risen. In fact, the GB 100 stock index is currently desperately trying to hold at levels achieved in 2017. The long term view is even worse. It has risen by only 7 % since the end of last century, in December 1999.
GB 100 STOCK INDEX
The British currency, the Pound, has almost halved in value against the US Dollar since 2007 — from 2.1064 to 1.0519 (Peak High to Peak Low) in that time frame.
Both Japan and the UK have intractable demographic, social and economic problems that can only lead to stagnation at best and contraction at worst. The only unknown is the speed of decline as far as BOOM can tell.
ISRAEL ECONOMY CONTRACTS BY 20% -- ANOTHER ECONOMIC DISASTER
Israel’s Central Bureau of Statistics has revealed that the country’s GDP slumped by a seasonally adjusted 19.4% in the final three months of 2023. This is the first quarterly drop in Israel’s economy in two years.
The war in Gaza has caused a severe disruption to Israel’s economy, leading to a sudden crash in manufacturing, consumption and construction. Investment in Israel has collapsed. Government spending has skyrocketed by 88.1% due to increased military spending.
The politicians involved in waging this war appear to have no understanding of the impacts of their actions on the viability of the supply chains inside their economy. Power, fuel, water and food disruptions could lead to a cascade of negative effects and feedback loops. Mass starvation may start to occur without strenuous support from external sources. If airports and power stations become inoperable, those last lines of support could be damaged beyond repair.
IMF WARNS AGAINST CONFISCATION OF RUSSIAN ASSETS
Meanwhile, the IMF has warned that confiscation of Russian foreign assets is not a good idea.
BOOM also warned against this recently as being anathema to the principles of democracy and private property that are at the very core of capitalist ideology.
The IMF stated that any steps towards seizing Russia’s frozen reserves should be backed by “sufficient legal support” (whatever that means).
The US and the EU have blocked an estimated US$ 300 billion in assets belonging to the Russian central bank since the beginning of the Ukraine conflict in 2022. Of that amount, 196.6 billion Euros ($ 211 billion) is being held by the Belgium-based clearinghouse Euroclear, which last year accumulated nearly €4.4 billion in interest on the funds.
Earlier this week, the European Council took steps toward the potential seizure of that interest income. Later, the US State Department revealed that Washington continues to be “in active conversations with our allies and partners, including the G7” on potential ways to seize the Russian assets.
BOOM sees this as piracy – plain and simple.
The IMF joined in the discussion, trying to bring some sanity to the table. “The decision of what to do with Russia’s frozen assets rests solely with the countries that are holding these assets and the negotiations among them”.
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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By Dr Gerry Brady
BOOM has developed a loyal readership over 5 years which includes many of the world’s most senior economists, central bankers, fund managers and academics.
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By Dr Gerry Brady
BOOM has developed a loyal readership over 5 years which includes many of the world’s most senior economists, central bankers, fund managers and academics.