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THIS WEEK’S EDITORIAL
POOR LEADERSHIP HAS CONSEQUENCES: Boris Johnson has become the first Prime Minister of the UK to be found guilty and fined by the Metropolitan Police for breaking his own government’s laws. He, and his wife, along with the Chancellor of the Exchequer Rishi Sunak, were fined for ignoring the lockdown restrictions that they imposed on the British public at the height of the Covid-19 panic-demic.
The punishments relate to social events for the political “in-crowd” that occurred in May and June 2020 when panic began to rule the political class of many nations and when political leaders allowed external unelected, non-representative forces to effectively rule their nations. Predictably, the Chief of UK Panic apologized last week to the people after the fines were announced. But he did not resign. This is typical of the quality of leadership we now have in all Western democracies. Sadly, for the people, poor leadership has consequences. BOOM expects the United Kingdom to face great economic and social hardship in the near future due to its poor selection of leaders.
Then we learn that President Zelensky of Ukraine, a comedian who formerly played the role of President of Ukraine in a TV series before switching to real politics, has arrested the Opposition leader. He even shared a photo of his handcuffed rival Viktor Medvedchuk on social media. BOOM asks — why is a President doing such a thing on social media? It appears to lack all decorum for a head of State. The fact is that Medvedchuk heads the second largest party in the national parliament, the “Opposition Platform – For Life” party. And Ukraine is supposed to be a Democracy.
Zelensky endlessly looks outward, dressed as a military leader, begging for help from any external force or external government who will listen to his pleas. And this after the Ukraine has suffered years of political dominance from outside forces. The Wikipedia summary on Zelensky says “his communication style heavily uses social media, particularly Instagram”.
BOOM is concerned for the future of the people of Ukraine who appear to be faced with poverty and no hope of future prosperity despite being a nation with abundant natural resources and an inherent ability to feed itself.
SRI LANKA DEFAULTS — COVID PANIC IS CAUSING COVID CHAOS: If you look at the Wikipedia entry for “Politics of Sri Lanka” you will find this summary –“Civil society participation in decision-making and opinion-shaping is very poor in Sri Lanka. Professionals, civil society groups, media etc. do not play a significant role in Sri Lankan politics and, as a result, many aspects of the lives of ordinary citizens are politicized.” They should pay more attention.
Last week, Sri Lanka has reneged on its bond coupon repayments, effectively putting the nation into default on its sovereign bonds issued to foreign investors. The panic reaction to Covid in 2020 from the governments of many nations has caused this terrible predicament.
Over the last 2 years, since the Covid panic erupted, the Sri Lanka’s critical tourism industry has been devastated. Thus, it has been unable to earn sufficient foreign currency which it needs to repay its debt commitments to external investors. Its balance of trade, which has been in strong deficit for the last 20 years, has declined markedly this year. As well as being unable to repay its external debts, Sri Lanka cannot now pay for many essential imported items such as fuel, food and medical supplies. At least 50 % of its energy is sourced from external nations who expect and demand payment in currencies other than the Sri Lankan currency.
Recently, the governor of Sri Lanka’s central bank, P.Nandalal Weerasinghe said — “We need to focus on essential imports and not have to worry about servicing external debt. It has come to a point where making debt payments is impossible.” So Sri Lanka is now seeking a loan from the IMF (International Monetary Fund).
Poor leadership has consequences. Let’s look at the economic situation. Sri Lanka’s annual CPI inflation rate is rapidly rising and is now at 18.7 %. The central bank has had to raise its key interest rate from below 6 % to almost 14 % in the last month. Its foreign exchange reserves are falling rapidly towards Zero.
The country has foreign debt payments of around $4 billion due this year, including a $1 billion international sovereign bond maturing in July. A coupon payment of $ 78 million is due on Monday 18th April (tomorrow) for two of its bonds that mature in 2023 and 2028, (though there is a 30-day grace period). Its current Debt to GDP ratio is 100 %. Sri Lanka has never previously defaulted on its debt. Prior to the crisis, Sri Lanka’s annual GDP (expressed in US Dollars) was approximately US$ 82 Billion.
The government has run a budget deficit persistently for many years spending more than it receives in taxation revenues and covering the gap by issuing bonds to investors. So it has run a large budget deficit and a large trade deficit while borrowing endlessly. This would be OK if there was great confidence in its currency and confidence in the nation’s ability to generate better economic prospects in the future. So let’s look at confidence in its currency.
This is, as they say, where the rubber meets the road. The Sri Lankan currency, the SL Rupee known as the LKR, has been in steady decline against the US Dollar for over 40 years. In 1980, 15 Rupees purchased one US Dollar. Early this year, 200 Rupees were required in exchange for one Dollar. In the last month, it has dramatically collapsed by a further third in price due to devaluation by the Government. Now, 325 Rupees are required to purchase one US Dollar in the foreign exchange market.
The Sri Lankan share market has now ceased trading (presumably only for 5 days). The 22 Million people of Sri Lanka are now experiencing a dramatic collapse of their living standards. Lack of food, energy and medicines is imminent.
Electricity supplies are haphazard because imports of oil have stopped and oil is needed to run its thermal power plants which supply about 40 % of the national electricity supply. Coal and oil are the major sources of energy with Hydro contributing about 18% of the total. Total energy generation has plunged by 22.7 % since January.
In March, school examinations had to be cancelled due to a lack of paper. On 1st April, protestors attempted to break into the President’s house. On 4th April, the entire Cabinet of the Government resigned. Protestors are demanding the resignation of the President. China is the largest holder of Sri Lankan sovereign bonds but appears to own only 10 % of the total on issue.
In BOOM’s estimation, Sri Lanka must now decide between the IMF (a US Proxy) and China/Russia/India to ensure its future. BOOM expects it to choose the China team because that will help solve its perpetual energy crisis. The energy super suppliers of Russia and Iran can come to its aid rapidly in return for Sri Lankan currency if Sri Lanka and China request such aid.
At the end of the day, no economy can function without a reliable energy supply and without confidence in its financial management and its currency. Without those, every economy plunges from complexity back into an agrarian situation based upon agriculture and dependent upon manual labor.
DON’T LOOK UP: There is a current Hollywood movie which tells the same tale. When a huge comet threatens the very existence of Planet Earth and dooms everyone to a certain death within 6 months, the political leaders choose to ignore it. Why? Because it is inconvenient. They cannot spin a “good news” story about it. And it does not contribute to their obsession with image and winning the coming elections.
They promote (and corrupt) the chief Doomsayer to a position of power and, predictably, he then becomes mesmerized by his own image. The crisis is turned into entertainment. The politicians look to magical, technocratic solutions readily provided by an Elon Musk-type character who keeps calmly saying “it is alright, we have this gee whiz new technology that will not only defeat the comet but make us all rich beyond our wildest dreams”.
The people choose to either deny the comet exists — Don’t Look Up — or believe the dream spun by the politicians and their Chief Technocrat until it dawns upon them that it is all lies. Eventually, they realize that they are doomed.
The foolish, image-obsessed President eventually gets immediately eaten by a vicious dinosaur upon her return to Earth after 22,000 years asleep in Cryo Capture on a spaceship (X ?). She didn’t see it coming — just like she didn’t care to see the comet. Beware who you vote for. Propaganda is dangerous. Reality TV is not reality. Poor leadership has its consequences.
In economics, things work until they don’t. Until next week. Make your own conclusions, do your own research. BOOM does not offer investment advice. SUBSCRIBE – FREE AT BOOM: http://boomfinanceandeconomics.com/#/
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BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY: LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans). https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy
Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how global banking systems really work. https://www.youtube.com/watch?v=EnC1UlnFLyI
AND Watch for 4 minutes, this Bank of England explanation: Money is essential to the workings of a modern economy, but its nature has varied substantially over time. This video describes what money is today. https://www.youtube.com/watch?v=ziTE32hiWdk
Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models. EMAIL: gerry {at} boomfinanceandeconomics.com
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I found a pretty current intel source on Youtube: “Why Russia Might Win WW3 Nuclear Conflict: Former CIA Tells Truth: Peter Vincent Pry”. I am reminded of a Prophet (forget exactly who) that said when the US Military transmits emergency war signals to US forces, they fail (jammed). Everything goes back to bad (liberal/communist) government. One “good” Prophecy item from Youtube: “I died and Jesus showed me WW3 during my NDE” : North & South Korea unite but then evidently get into war with China; that would remove some worries about Ukraine and Taiwan as WW3 triggers right now. He tells of famine, a huge volcano, a huge explosion, destroyed cities, recovery and ultimately a more peaceful people.
Around the 20 minute point he discusses all the weapons Putin has NOT used, but still could.
At some point he says “Putin is an evil man and Russia is an evil empire”. Uh… Not sure I agree. Overall a good interview, though.