BILLIONAIRES GAINED WEALTH DURING THE ECONOMIC SHUTDOWN, During the pandemic, the wealth of the world’s billionaires grew by 13 percent to reach $10.2 trillion, topping $10 trillion for the first time, according to a study by UBS and accounting firm PwC.
The previous record was $8.9 trillion at the end of 2019.
Between 7 April and 31 July this year, billionaires grounded in health care, manufacturing, and technology led the gains, seeing their riches grow by 36 to 44 percent. Billionaires in all economic sectors saw their wealth swell by double digits during the period.
From 2018 through July 2020, tech billionaires gained 42.5 percent, to $1.8 trillion; health care billionaires got 50.3 percent richer, amassing $658.6 billion.
In 1995, the combined wealth of the world’s billionaires was about $1 trillion, the report noted.
The study surveyed more than 2,000 billionaires representing about 98 percent of the world’s billionaire class.
TREND FORECAST: This is a new millennium trend that continues to accelerate across the globe. And as it does, so too will the “Off With Their Heads,” 2.0 trend.
As we have forecast, workers of the world will again take to the streets, reigniting the protests against poverty, government corruption, inequality, crime, and violence that were raging across the globe before governments launched the COVID War and prohibited demonstrations.
CENTRAL BANKS SELLING GOLD RESERVES. For the first time in 18 months, central banks are selling gold, 12.3 tons in August alone.
Gold prices peaked at $2,070 in August and since have fallen as much as 8 percent.
The price drop has persuaded central banks that gold prices have peaked, at least for now, making this a moment to turn gold into badly-needed cash to cover costs related to the COVID economic shutdown.
Uzbekistan has led the sell-off, unloading $5.8 billion worth of gold from January through August.
Central banks bought a record 651.5 tons of gold in 2018 as Russia, Turkey, and other countries shifted away from the dollar as a reserve of value. In 2019, central banks bought another 650 tons.
The banks have bought only 200 to 300 tons in 2020, when demand for gold was driven chiefly by gold-backed exchange-traded funds, which have collected more than $60 billion from investors this year.
High gold prices have quelled demand from India and China, traditionally reliable buyers. Also, the stronger dollar has made gold more expensive in other currencies.
“Now is not the time to hoard gold,” said Nataxis commodities analyst Bernard Dahdah. “Hospitals need the money,” he told the Financial Times.
TREND FORECAST: While we do not provide financial advice, despite gold’s down drift, we maintain our forecasts that gold and silver will spike to new highs as more governments inject more digital cash backed by nothing and printed on nothing into their failing economic systems.
Moreover, in an attempt to keep their economies from sinking lower and going deeper in debt, the reason nations are selling gold is that they need the money. Thus, they are selling the safe-haven precious metal not because they want to, but because they need to.
EUROPEAN CENTRAL BANK ADVANCES PLAN FOR DIGITAL EURO. The European Central Bank (ECB) has published a 50-page study of the concept of a digital euro, including scenarios that would require the bank to create electronic money, as the ECB begins a six-month public comment period on the idea.
The bank said the digital euro would be available from the ECB to “all parties.”
“Europeans are increasingly turning to digital in the ways they spend, save, and invest,” said ECB president Christine Lagarde. “Our role is to secure trust in money. This means making sure the euro is fit for the digital age. We should be prepared to issue a digital euro should the need arise.”
The needs that might call for a digital euro include greater demand for electronic payments that “increases the need for a risk-free form of digital payment” rather than a digital currency operated by a private party, such as Facebook’s proposed Libra.
Also, a cyberattack or other disaster could disrupt existing payment systems, in which case the ECB’s digital euro could be a back-up.
The ECB offered two possible ways to manage a digital euro.
The first would record all transactions in the ECB’s ledger. The second would settle and record the digital transactions through appointed intermediaries acting under ECB rules.
Central banks around the world are at various stages of researching or creating a digital currency. The work was spurred by Facebook’s initiative, raising the specter of money controlled by a private company.
China may be ready to release a digital renminbi in as little as two years, the ECB believes, now that the country has carried out wide-scale experiments.
Creating a digital currency “poses challenges but by following appropriate strategies” in its design, “the Eurosystem can address these,” the bank said.
TREND FORECAST: Again, this is old news to Trends Journal subscribers.
For what the digital future looks like and what to expect, see our article, “FROM DIRTY CASH TO DIGITAL TRASH.”
TREND FORECAST: As central banks and governments flood systems with digital money backed by nothing and printed on nothing to pump up overvalued equity markets and sinking economies, the value of their currencies will continue to decline while gold, silver, and even digital cryptocurrency prices will rise.
GERMAN AUTO INDUSTRY SHEDDING MORE WORKERS. As it seeks to pare costs by more than 20 percent by 2025, Daimler AG’s Mercedes division will cancel as many as 30,000 of its jobs worldwide, about one in ten workers.
The company hopes the cost-cutting measures will bring profits up to the “mid- to high single digits,” said Daimler CEO Ola Källenius.
Last month, Volkswagen slashed 9,500 jobs in its MAN truck subsidiary in Germany and Austria. More than 4,000 other MAN jobs will disappear as the company shifts and outsources some production to Poland and other lower-wage countries, it said.
The truck company needed “restructuring with plant closures and staff reductions of around 9,500 in order to restore competitiveness,” said Herbert Diess, VW’s board chair.
BMW had announced in June its plans to cut 16,000 jobs and negotiate lower prices from suppliers.
Earlier this month, vehicle parts maker Continental announced plant closures in Germany and elsewhere, displacing 13,000 German workers and another 17,000 worldwide.
In late September, parts supplier Mahle announced that two of its German plants would close, turning out 375 employees. The move follows a mid-September announcement that an additional 7,600 workers will be terminated.
CHINA TAKES GREATER SHARE OF WORLD’S GDP. China’s GDP will grow 1.6 percent in 2020, the only major economy to expand this year as the global economic output will shrink 5.2 percent, the World Bank has predicted.
China’s economy will produce about $14.6 trillion by the end of 2020, about 17.5 percent of global GDP, the bank estimates. That growth will expand China’s share of global GDP by about 1.1 percentage points this year, according to World Bank data, more than triple its advance in 2019.
Europe and the U.S. are expected to lose a fraction of their share of the world’s GDP this year.
TREND FORECAST: China’s institution of dual circulation economy – relying less on exports as the global economy slides deeper into the “Greatest Depression” and more building a self-sustaining domestic economy – will accelerate its GDP higher than other major nations.
RENMINBI SURGES MOST IN 15 YEARS. On 9 October, the renminbi, China’s internal currency, jumped 1.45 percent against the dollar to 6.693, its biggest one-day rise since 2005.
The currency’s value was strengthened by a wave of foreign demand for Chinese assets, relatively high bond yields, and investors’ growing certainty that Joseph Biden will win the U.S. presidency and ease trade tensions between the two nations.
The view in the market is that the way a Biden administration approaches U.S.-China relations “is probably going to be less confrontational and certainly using trade less as a tool or weapon against China,” said ANZ foreign exchange strategist Daniel Been.
The prospect of a Biden victory “opens up more room for more renminbi appreciation,” said Lu Sun, a strategist at Citi. “A Biden victory would be positive for the currency and a Trump win or contested result negative.”
Demand for Chinese assets also is fueled by the country’s quick economic rebound from the pandemic-inspired economic shutdown.
China is the only major economy that will grow instead of contract this year, according to forecasts by the International Monetary Fund. Also, the U.S. economic stimulus program has flooded the world with cheap dollars, sending investors in search of venues that promise higher returns.
More than $13.4 billion has flowed into China’s equities markets this year.
TRENDPOST: Over the weekend, the Chinese government took measure to stop the yuan’s rise by making it cheaper to bet against the currency by cutting the forex risk reserve ratio for forward contracts from 20 percent to zero.
“Overall, what this tells us is that… they’re definitely trying to give a signal that maybe they’re unhappy with the current pace of appreciation,” said Rohit Garg, a Director at Bank of America Merrill Lynch.
CHINESE ARE TRAVELING AND SPENDING, BUT CAUTIOUSLY. During the first few days of the eight-day Golden Week holiday that began 1 October, Chinese travelers made 425 million trips around the country, spending about $46 billion.
In contrast, only 115 million trips took place during May’s five-day Labor Day vacation.
With no locally transmitted COVID cases reported since August, the government has lifted most pandemic-related restrictions. With international visitors still banned from the country, China’s travel-oriented businesses have offered discounts and premiums to get their countrymen moving again.
In recovering from its economic shutdown, China’s government funneled support to manufacturing, especially companies that export, and sparking business investment.
The strategy left retailers and consumer spending behind, but now those sectors are reviving as well, government figures show.
During this month’s holiday, overall spending was 31 percent less than last year’s and spending per trip was off 12 percent, indicating Chinese tourists are being cautious in their purchases.
The positive trends are encouraging but tight-fisted travelers show that “getting all the way back to normal will be a longer journey – even in China,” noted the Wall Street Journal.
AUSTRALIA UNVEILS RESCUE PACKAGE. The Australian government has announced an economic rescue package intended to drive unemployment down from the 8 percent expected at the end of 2020 to below 6 percent within three years, officials said.
The plan involves running a deficit of 11 percent in 2021, 5.6 percent in 2022, and 4.2 percent in 2023. Deficits will continue into the out-years, officials said, but will be outpaced by economic growth.
Tax cuts are a centerpiece of the program. Also, businesses will be allowed to deduct the full price of capital investments immediately instead of having to depreciate them over the life of the purchase.
Australia’s economy will contract a modest 4.5 percent this year, the International Monetary Fund predicts, compared to 8 percent in Germany and 10.2 percent in the U.K.
DEVELOPING NATIONS URGED TO SINK DEEPER INTO DEBT. Emerging nations should take on more debt to survive the damage done by the global economic shutdown, even though that would set the countries on a course of dire debt crises and major restructurings, said Carmen Reinhart, the World Bank’s new chief economist.
“What else are you going to do?” she argued. “First you worry about fighting the war, then you figure out how to pay for it.”
Calling the crisis in the developing world worse than that of the 1930s, she urged nations and international financial organizations to write off some or all of the debt of developing nations.
Even before the pandemic, emerging nations faced a wave of rising debt. However, most of that debt was taken on by corporations, not government, a study by the International Monetary Fund (IMF) discovered.
The number of emerging nations seeing both corporate and government debt downgraded by ratings agencies has reached record levels, Reinhart acknowledged.
The G20 nations are expected soon to announce that they will continue a moratorium on debt repayments by the poorest countries.
Pressure from borrowers, economists, and global organizations such as the IMF and World Bank is growing for wealthier countries to do more to prevent financial collapse among poor nations.
TREND FORECAST: The emerging market financial crisis will not be avoided. As already weak economies sink deeper into the “Greatest Depression,” social unrest will escalate to civil wars. Governments will be overthrown and millions will flee their economically and socially depressed nations for safe haven nations. This will in turn increase support of populist/nationalist/anti-establishment political parties.
REPORT: VATICAN INVESTED DONATIONS IN CREDIT DEFAULT SWAPS. In 2015, the Vatican used part of a €528-billion investment portfolio derived from parishioners’ donations to buy credit default swaps as part of a gamble that car rental giant Hertz would not default on its debts by April 2020, the Financial Times reported.
Hertz declared bankruptcy in May 2020, days after the Vatican’s bet paid off.
The investment was made on behalf of the Vatican’s Secretariat of State, which administers donations made to the Catholic Church.
The secretariat also invested in luxury homes in London, securities involving the Italian state’s debts to Vatican-controlled hospitals, and helped fund the film “Rocketman,” a biography of Elton John.
The investments were made by Cardinal Giovanni Becciu, second in command at the secretariat from 2011 through 2018.
In September, Pope Francis stripped Becciu of his rights as a cardinal, charging him with “misappropriation.” Becciu insists he did nothing wrong.
Credit default swaps “encouraged the growth of a finance of chance and gambling on the failure of others, which is unacceptable from an ethical point of view,” Francis said in 2018, calling the swaps “a ticking time bomb.”
There is no evidence the pope knew of the unusual investments.
DANISH BANK CUTS COSTS, JOBS IN FALLOUT FROM SCANDAL. Dansk Bank, Denmark’s biggest lender, will eliminate about 1,500 jobs – roughly 7 percent of its workforce – as it cuts costs to deal with the consequences of a €200-billion money-laundering scandal and eight years of negative interest rates.
Employees will be offered voluntary buyouts through the end of this month, then firings will begin.
The bank’s cost-to-income ratio reached 65.7 percent during the first half of this year. The bank will work to bring the ratio into the low 50s by 2023 and raise the return on equity from its current 0.9 percent to 9 or 10 percent during the same time, the bank said.
CLOSING SCHOOLS COULD COST SOUTH ASIA $622 BILLION. The eight countries of South Asia could lose at least $622 billion in future GDP due to the closure of its schools since March during the pandemic, the World Bank projects.
The regional loss could rise to $880 billion if the closures are prolonged beyond current expectations.
India alone could lose $400 billion or more.
The shutdowns have kept 391 million primary and secondary students out of school for a half-year, the bank’s analysis notes, “further complicating efforts to resolve” the traditional low levels of education throughout the region,” the bank’s report said.
“Being out of school for that long means that children not only stop learning new things, they also forget some of what they have learned,” it noted.
The bank derived the dollar value of school closures by using an algorithm to combine the length of time in school and the rate of successful grade-level education into a single measure.
Applying that figure to the half-year of schooling lost to the shutdown, the average South Asian child missing that time in school will earn about 5 percent less over a lifetime, or the equivalent of about $4,400.
Across the region’s population, that amount swells to $622 billion lost under current conditions and as much as $880 billion if schools remain closed indefinitely.
“South Asian governments spend only USD $400 billion per year in total on primary and secondary education,” the bank’s report pointed out. “The total loss in economic output from the current closures is hence substantially higher than what countries currently spend on education,” the World Bank said.
The World Bank’s South Asia region includes the countries of Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka.
SOUTH ASIA’S ECONOMY TO SHRINK 7.7 PERCENT THIS YEAR. After growing more than 6 percent annually during each of the last five years, South Asia’s regional economy will contract by 7.7 percent in 2020, the Word Bank predicted on 8 October.
The damage is driven by India’s 9.6-percent loss to GDP this year, casting the country into an unprecedented economic crisis, the bank said.
India faces “a very dire outlook,” said Hans Timmer, the bank’s chief economist for South Asia.
On March 25, Narendra Modi, India’s prime minister, mandated one of the world’s most stringent lockdowns. It abruptly shut most factories and businesses, grounded flights, stopped trains, and halted as much as 70 percent of the country’s economic activity. When the lockdown was lifted in June, the virus raged across the country anyway.
India’s economy had been slowing before the pandemic arrived, growing 8.3 percent in fiscal 2017, 7 percent in 2018, 6.1 percent in 2019, and 4.2 percent in 2020.
The region’s per-capita income will languish at 6 percent below 2019, the bank said, which means that, due in part to population growth, the 4- or 5-percent economic rebound expected for the area in 2021 will not balance the shutdown’s damage.
India and the other seven countries in the region lack social safety protections, especially for the millions of people working in the informal economy. As a result, the number of people living in poverty in the region has increased by 33 percent this year, the bank said.
The World Bank’s South Asia region includes the countries of Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka.
TURKEY RAISES INTEREST RATES. On 9 October, Turkey’s central bank raised the cost of changing dollars into lira, the country’s currency, after the lira’s value sank toward eight to the dollar.
The bank added 1.5 percentage points to the cost of foreign currency swap transactions, allowing the lira to hold at 7.9350.
With inflation running above 11 percent, the bank also raised its benchmark interest rate by two percentage points in late September, even though the move runs counter to the wishes of Recep Erdoğan, the country’s authoritarian president.
The move is unlikely to slow the lira’s decline, which feeds inflation, analysts say. The currency’s troubles reflect investors’ larger concerns about Turkey’s involvement in an ethnic conflict in Nagorno-Karabakh and the NATO member’s purchase of an air defense system from Russia.
The collapse of Turkey’s tourism industry during the economic shutdown also has robbed it of revenue and foreign currency.
The lira’s steady slide is “merely an acceleration of an already-existing trend driven by an unsustainable economic policy,” said SEB strategist Per Hammarlund. “The key unknown is where the pain threshold is for the Turkish central bank.”
INDONESIAN CENTRAL BANK INDEPENDENCE THREATENED. Politicians seek to bring Bank Indonesia, the nation’s central bank, under greater political control as the nation struggles to right its economy after the global shutdown.
The bank was separated from political influence by a 1999 law supported by the International Monetary Fund. The law also created the rupiah, the nation’s present currency.
Instead of autonomy, a group of legislators are calling for the bank to have “coordinated independence,” which would give the government a voice in setting monetary policy.
The bank “should have a role in economic growth and job creation,” said Achmad Baidowi, the legislator who drafted the bill to exert greater control over the bank.
The reforms would include allowing legislators to vote in the bank’s decisions about interest rates and establishing a committee of cabinet ministers to “oversee” the bank.
The bank also would be allowed to buy government bonds, raising the risk of creating digital money to finance deficit spending.
The proposal called up memories of former president Suharto, who took control of the bank in the 1970s. The government controlled the bank until the nation’s economy collapsed in 1998.
Indonesia has been particularly hard-hit by the shutdown, entering a recession after the economy contracted 5.3 percent year-on-year during the second quarter, the worst performance since 1999.
TRENDPOST: As we wrote in the article in this issue, “PROTESTS BREAK OUT IN INDONESIA OVER WORK LAW,” massive protests broke out last Thursday across Indonesia after the passage of a statute that critics say hang workers and the environment out to dry while enriching the country’s elite. Thus, the deeper the economy sinks, the greater the protests will grow.
