Money creation – I Have 50 Dollars Wed, 27 Oct 2021 10:36:01 +0000 en-US hourly 1 Money creation – I Have 50 Dollars 32 32 “Shortages” do not cause inflation. The creation of money is. – Mihai Macovei Tue, 12 Oct 2021 05:32:00 +0000

For central bankers and mainstream analysts, the recent spike in inflation is just a transitory phenomenon that has little or nothing to do with the massive monetary and fiscal stimuli unleashed during the pandemic. Although the Fed recently admitted that price pressures persist longer than expected, the spike in inflation is believed to be due to supply bottlenecks caused by the pandemic. This superficial diagnosis serves as a convenient excuse for politicians to keep in place damaging growth stimuli and draconian public health measures.

Inflation is not due to a shortage of supply

Mainstream economists define inflation as an increase in consumer prices that occurs when money supply growth exceeds economic growth.1 In other words, too much money drives out too little goods. If the recent spike in inflation were due to a shortage of goods rather than an increase in the money supply, aggregate output would decline. But this is not the case, as the Organization for Economic Co-operation and Development predicts that global economic production will increase by 5.7% in 2021 after falling by 3.4% in 2020. This year, production lost during the pandemic is expected. recover in both advanced and emerging economies, including the United States (Chart 1). In fact, inflation accelerated this year at the same time as industrial production returned to pre-pandemic levels in both the United States and the EU (graph 2). The alleged shortage of supply at the aggregate level seems to be a myth.

Chart 1: Real GDP growth

Real GDP growth
Source: IMF, World Economic Outlook.

Chart 2: Inflation and industrial production

Inflation and industrial production
Source: FRED and Eurostat.

The alleged supply shortage is mainly based on anecdotal evidence regarding unmet demand and rising prices in specific economic sectors, such as semiconductors, cars, furniture and energy. But those who argue that supply is insufficient do not bother to analyze whether the compression of supply chains is due to a chronic shortage of production or to excess demand. Moreover, even if the supply was insufficient for certain goods due to production bottlenecks, changes in consumer schedules or environmental greening policies, an increase in the level of aggregate prices would not have if the money supply and aggregate demand remain broadly unchanged. The compression of some individual supply chains would be offset by a decrease in demand for other goods and services, and only relative prices would change in the economy.

Let’s take a closer look at specific cases of widely perceived bottlenecks. The shortage of shipping containers and logistical problems at several ports in the United States and Asian countries appear to be at the heart of many other supply chain bottlenecks. While shipping costs have skyrocketed, volumes shipped have also increased (Chart 3) 2. This does not indicate a lack of supply, but rather a sustained demand for international transport. Experts from major shipping groups report that major US ports, container groups and logistics companies can barely handle the boom in international trade. This is not surprising given that U.S. imports and its trade deficit grew more than 20% year-on-year in the first seven months of 2021, as consumers rushed to spend their stimulus checks. Experts from the United Nations Conference on Trade and Development say global demand for manufactured consumer goods has increased throughout the pandemic, increasing the demand for container transport and increasing transport costs. The surge in global demand not only reorganized international trade flows in favor of China and other Asian economies, but also pushed international trade volumes to new heights (Chart 4).

Figure 3: Global TEU shipping volume and price index

Global TEU shipping volume
Source: Container trade statistics.

Chart 4: World trade volume

Global volume of trade
Source: World Trade Organization.

The semiconductor shortage, which is affecting auto production, is also blamed on the inability of chipmakers to cope with an order book swollen by covid-19 and shipping disruptions. But the global semiconductor market grew by 7% in 2020 and is expected to grow another 20% this year (Chart 5) and almost double in size by 2028. So, again, the shortage is caused by a relatively rigid supply which cannot meet sustained demand. The latter has grown not only from the automotive sector, especially as electric vehicles use more chips, but also from manufacturers of computers and other consumer electronics, whose consumption has increased during the pandemic.

Figure 5: Global semiconductor market

Global Semiconductor Market
Source: Statista 2021.

The recent rally in energy prices, with European coal and gas reaching record levels and crude oil exceeding $ 80 a barrel, is also attributed to limited supply and seen as a threat to economic recovery. But the world supply has not diminished; on the contrary, world energy production follows a constant upward trend (Chart 6). After increasing by around 2.4% per year for the past three years, energy production fell 3.5% in 2020 due to lockdowns, but is expected to rebound 4.1% in 2021.

Graph 6: World energy production

Global energy production
Source: Enerdata.

Global energy supply would have been much higher and better balanced between sources and between regions without the government mandated green policies and carbon emissions targets. In Europe, coal-fired power stations have been phased out, as have nuclear power stations in Germany. They have been replaced by wind turbines and other renewable energy sources which have recently underperformed due to inclement weather conditions. Combined with the drop in gas deliveries from Russia, this has created a perfect storm in the European energy market. At the same time, China’s strict emissions targets and rising coal prices have also created a power shortage, disrupting factory activity.

In the same way that green government policies have undermined energy production, lockdowns and stimulus checks generously distributed during the pandemic have created an artificial labor shortage that is likely to exacerbate further inflationary pressures. . Due to forced business closures, the US economy lost about 20 million jobs in April of last year. Despite the economic recovery, some 5 million jobs have yet to be filled as millions of Americans have been paid to stay at home or have left the workforce altogether. In Europe, unions are already calling for wage increases as surveys show inflation expectations are on the rise.

Stimulating excessive demand and creating money are the real culprits

The growth stimuli applied during the pandemic were truly unprecedented in size and scope. Massive government support and budget deficits monetized by central banks have been poured into economies weakened by recurring lockdowns. Despite the loss of jobs and market income, the wealth of U.S. households has increased by $ 32 trillion since the start of the pandemic, fueling consumer spending and aggregate demand. Combined with an increase in the broad money supply of more than a third over the same period (Chart 7), this indicates that inflation is in fact driven by too much money rather than too few goods.

Graph 7: Money supply

Money income
Source: FRED.

Rapidly rising inflation also raises inflation expectations3. Inflation does not only depend on the mechanical result of changes in the supply of money and goods, but also on the demand for money. If the public realizes that their cash is being eaten away by large price hikes, they will move away from cash. In this case, inflation would accelerate beyond the pace of money creation, which is obviously the nightmare of all central bankers.


The current surge in inflation is neither due to a shortage of supply nor transitory, as central banks want us to believe. It is mainly due to the surge in consumer demand fueled by excessive incentives for growth and money creation. Government-imposed lockdowns and clean energy policies limiting production have exacerbated price increases. We are witnessing a consumer boom and persistent distortions in the structure of production, all strikingly resembling the boom that preceded the Great Recession.

  • 1. This definition is contested by Austrian economists because price inflation combines monetary and non-monetary causal factors, which have different consequences on the structure of production, income and individual wealth. Therefore, Austrian economists define inflation as an increase in the supply of money beyond an increase in cash, i.e. commodity money such as gold or silver. .
  • 2. According to the Financial Time, it costs more than $ 20,000 today to ship a standard container from China to the east coast of the United States, compared to less than $ 3,000 two years ago.
  • 3. In the United States, consumer price index inflation rose 5.3% in August, house prices rose nearly 20% year-on-year from July and the S&P 500 index rose nearly 29% year-on-year at the end of September. .


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Excess demand and money creation leading to high inflation – main macroeconomic influencers Fri, 08 Oct 2021 07:00:00 +0000

Some economists believe that government-imposed pandemic lockdowns and clean energy policies have both limited production and, as a result, exacerbated price hikes in advanced economies.

Daniel Lacalle

Daniel Lacalle, chief economist and head of investments at Tressis Gestión, shared an article about central banks wanting the world to believe the current spike in inflation is temporary or due to shortages. However, economists believe that it is mainly due to the surge in demand which is fueled by excessive growth incentives and the money creation unleashed during the Covid-19 pandemic.

Massive government support and central bank monetization have helped prop up economies during the recurring lockdowns imposed during the pandemic. Despite job losses and market income, the wealth of U.S. households has increased by $ 32 trillion since the start of the Covid-19 health crisis, fueling consumer spending and aggregate demand. Along with an increase in the broad money supply, inflation is actually driven by too much money rather than too little goods.

According to forecasts by the Organization for Economic Co-operation and Development (OECD), world economic output is expected to grow by 5.7% in 2021 after falling to 3.4% in 2020. As a result, advanced and emerging economies are expected to grow. recover production lost during the Covid-19 crisis.

Moreover, inflation accelerated as output recovered in the United States and the European Union (EU), indicating that inflation is not the result of a shortage of goods but an increase in the money supply during the pandemic.

Charles Kenny

Charles Kenny, senior researcher and director of technology and development at the Center for Global Development, tweeted about the warning from famous shortbread maker Walker about labor shortages caused by Covid and Brexit to cost him sales as he aims to recover from his toughest year. Managing Director Jim Walker said the Moray company is currently looking for 200 additional workers to meet growing demand during one of its busiest seasons.

Walker’s warning came amid the growing impact of the Covid-19 crisis, U.S. import tariffs and Brexit, indicating that the company’s profits had halved and sales had fallen of $ 22 million in 2020.

The pandemic and Brexit have severely affected the availability of workers in Moray, one of Scotland’s 32 local government council regions. Walker’s is one of the region’s largest employers with a workforce of 1,400. The company closed its factories for three weeks at the start of the pandemic in March 2020, but kept its employees on full pay.

Stephen gordon

Stephen Gordon, professor of economics at Laval University, Quebec, Canada, shared an article on Ottawa as part of discussions to extend pandemic aid beyond October 23, 2021 for some emergency wage and rental subsidies. Gordon tweeted that the Canada Emergency Wage Subsidy (SSUC) was to support employees during the height of the Covid-19 pandemic, but 18 months later, business and union leaders are pushing for a wide extension of expiring programs which should go directly to people who lost their jobs during the pandemic.

Dan Kelly, president of the Canadian Federation of Independent Business, said the grants are based on lost revenue suffered by businesses, but the maximum amount has been increased from 75% of eligible expenses to 20%. He stressed that the maximum should return to 75%, and that all companies impacted by Covid should be entitled to these subsidies.

Direct payments to individuals and businesses made up the majority of federal emergency spending during the Covid-19 crisis, resulting in an estimated federal deficit of $ 354.2 billion in 2020 and a forecast deficit of 154.7 billion dollars in 2021.

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RBA money creation to drive Australian rates up earlier, CBA says Wed, 29 Sep 2021 01:34:00 +0000
By James Glynn

SYDNEY – The deluge of fiscal stimulus measures rolled out by Canberra to mitigate the impact of the Covid-19 pandemic in Australia, could come with a sting in its tail as the central bank’s money creation that financed the spending of the government drives up inflation.

Gareth Aird, head of the Australian economy at the Commonwealth Bank of Australian, expects inflation to rise in the years to come, triggering interest rates to rise from early 2023 and pushing prices higher. mortgage rates at a time of rapid growth in household debt.

“The fiscal stimulus from the Covid shock was indirectly funded by the purchase of Reserve Bank of Australia bonds, which is money creation,” Mr. Aird said.

“We predict that the powerful combination of quantitative easing and direct cash payments from government to households will boost future spending and lead to higher consumer inflation over the next few years,” he said.

The CBA predicts that core inflation will be around the midpoint of the RBA’s 2.0% to 3.0% target range by mid-2023. In contrast, the RBA expects core inflation to be 2.0% by mid-2023.

The CBA warning comes as RBA Governor Philip Lowe recently berated financial markets for pricing interest rate hikes as early as late 2022.

Household deposits grew faster than credit in Australia due to government transfer payments, while the RBA’s bond buying program, which essentially funded budget support payments, boosted the mass monetary, Mr. Aird said.

Washing cash from savings accounts will ultimately bring core inflation back into the RBA’s target range earlier than the central bank expected, forcing interest rates to rise, he said.

An unusual situation arose in 2020 as bank deposits swelled against credit growth. Some people also had the opportunity to dip into their retirement savings to weather the crisis, thus increasing the liquidity of the system. But it was the wave of fiscal stimulus unleashed by Canberra and state governments that drove bank deposits up.

“Households don’t have to repay this money the same way they repay a loan. So the increase in deposits is powerful in the context of thinking about future spending,” Mr. Aird said.

The ABC estimates that during the pandemic until mid-2021, household deposits grew by about A $ 70 billion more than they otherwise would have. This is equivalent to 3.5% of GDP.

This figure is expected to reach $ 120 billion by the end of 2021, or 6% of GDP.

Households that have also strengthened their balance sheets by speeding up debt repayment, so they will feel more confident about spending in the future, Aird said.

If households spend around 15% of accumulated savings in 2022, the economy will see a direct increase in consumer spending of A $ 35 billion, the equivalent of 1.75% of GDP.

The extraordinary injection of liquidity into the household sector by the government, which contributed to the large accumulation of savings, was financed by the issuance of public debt, and by far the largest buyer of public debt during the pandemic was the RBA.

“The RBA’s massive bond-buying program, which largely funded the fiscal expansion, has in many ways blurred the line between fiscal and monetary policy,” Mr. Aird said.

“If you step back and look at what happened during the pandemic, it conceptually reveals that we have entered uncharted territory in Australia. Government transfer payments were indirectly funded by the central bank through of money creation, ”he said.

Write to James Glynn at

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Reserve bank should curb money creation by commercial banks Thu, 15 Jul 2021 07:00:00 +0000

Social Credit described the action of the Reserve Bank to curb its purchases of government bonds from private banks as a sensible and responsible decision.

At the same time, it must now curb the avalanche of money creation that has hit the commercial banks.

Failure to do so will allow inflationary pressures in the economy to continue to rise.

These commercial banks create an average of $ 20 billion in new money each year, and that amount has almost doubled in the past two years.

The ASB’s move to raise mortgage rates is just a cynical scam, preying on customers who have borrowed at the record-breaking interest rates offered by banks and will affect not only homeowners, but consumers. businesses, the very sector of the economy. which must retain staff and increase the production of goods and services to meet the demand of the economy.

ASB’s decision will be quickly followed by the other banks, all of which will be keen to increase their profits as well and will attempt to intimidate the Reserve Bank into raising the official exchange rate.

Any increase in Reserve Bank in OCR will simply drive up interest rates even further, add to already record profits for commercial banks, and worsen the effect on borrowers.

The Reserve Bank must determine who is in charge of the country’s financial system, itself or the commercial banks.

It should encourage banks to channel a greater proportion of their loans to the corporate sector, thus providing working capital for businesses to grow, invest in new technologies to overcome the labor shortage and increase the production.

Falling into the trap of rising interest rates will make the problem worse, leading to higher costs, reduced production, and hardship for businesses and homeowners.

© Scoop Media

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Bitcoin boom fuels struggle for money creation Fri, 23 Apr 2021 07:00:00 +0000

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If you’ve taken a college course in economics, you’ve probably learned a simple story about money. First, people were bartering. But the barter was difficult because it takes a “double coincidence of desires”: I have to want what you have, and you have to want what I have. So people used pieces of precious metal to facilitate bartering. Then paper came to represent metal, and paper grew in value. Ta da! Money.

This story was selective and highly political. As the U.S. government continues to create new dollars and cryptocurrencies compete against each other to see which can appreciate fastest, we are seeing a renewal of an old argument about the history of money. Whoever controls what we use for money has great power. So there has always been a strong push to say that the only true historical nature of money is oh, wow look! This is the thing I have!

The term double coincidence of needs originally comes from Stanley Jevons, a 19th-century British economist who published a detailed history of money in 1890.. He came to the particularly Victorian conclusion that the UK was right: to tie silver with gold, a valuable commodity that would flow naturally with commerce where it was needed.

Two decades later, Alfred Mitchell-Innes, a British diplomat, presented a story that financiers should find heartwarming. Credit did not follow money, he argued. Credit came first. This was money. Archaeologists had found traces of debts in ancient excavations. In Italy, 3,000-year-old iron discs had been snapped in half immediately after being forged – half for the creditor, half for the debtor. In Germany there were similar broken discs, made of silver alloy. In the Fertile Crescent, there were clay debt markers, anonymized inside tamper-evident clay boxes. Coins weren’t the only way to overcome a double coincidence.

I picked up Jevons and Mitchell-Innes this week after reading The Bitcoin standard, by Saifedean Ammous. It starts with Jevons’ story: money is a commodity that made barter better. Then he concludes that gold was the only suitable currency in the past and that bitcoin is its only heir. Any story is a simplification. As Ammus simplifies, he clearly expresses his concerns about the present.

When governments control money, he writes, they inflate its value, to wage war without paying the price. Inflation is a purely monetary phenomenon: producing more money, obtaining more inflation. People don’t need to be told to spend; they will do it on their own. But people need to be encouraged to save, in a scarce currency that continues to appreciate. Under these assumptions, he argues, the only rational defense against the tyranny of government credit money is to buy the scarce commodity currency bitcoin.

If you believe these assumptions, please buy bitcoin. But it is also easy to find examples in history where they do not hold. Sometimes people prudently pooled their savings in coins. But sometimes the trade took the coins elsewhere, and people found themselves without hard money, in a deflation that they couldn’t control. In these cases, people did what they always do: They found a way to make money that worked.

In the 18th century, the American colonies received only a tiny fraction of the world currency of their time, a flow of hard silver coins that went directly from the Andes to China. The merchants in these colonies did not patiently stack the coins they had and avoided deflation. They pushed for changing local exchange rates to attract more money, and then eventually pushed colonial governments to create paper money, colony by colony. Some of those paper notes fell apart. Some swelled in value but continued to circulate. Some banknotes, like those from Pennsylvania, have held their value very well. This newspaper does not sound like tyranny; it looks like an adaptation to the circumstances.

There is no one true nature of money. Almost everywhere you look you can find both coins and credits circulating together. The Habsburg kings of Castile had money from the Americas, but financed their wars on credit. The Renaissance Florence and Venice had gold from Africa, but financed their trade on credit. The merchants at the medieval woolen fairs in Burgos would write off each other’s trade debts and then settle what was left with coins.

And over the past week, my childhood friends’ texts have focused not on bitcoin, but on dogecoin, an expansion of the money supply created like a dog joke. People have ways to create the money they want. There has never been a right way to stop them.

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Money printing is carried out worldwide by economies to stimulate economic growth and in Sri Lanka this move has not resulted in inflationary pressure so far, although some have insisted that it would, a senior Central Bank (CBD) official said on the sidelines of the monetary policy press conference last week.

“Like all central banks, we have also resorted to the best option given the weak economic growth of recent years in order to stimulate growth,” the official said, noting that inflation was in the mid-range. single digit levels since last year.

Inflation is expected to remain subdued for the remainder of the year, supported by expected improvements in domestic supply conditions, which would also help keep inflation within the target range of 4-6% over the medium term, according to the Central Bank.

Central Bank Governor Professor WD Lakshman reiterated that domestic currency debt in a country with sovereign money-printing powers is not a huge problem, as modern monetary theorists would say. The country resorted to money printing last year to finance state coffers as tax revenues dwindled and foreign funding waned, officials said, adding that the depletion of the balance of payments had triggered downgrades. The central bank bought a substantial volume of treasury bills to finance deficits and target interest rates at various points on the yield curve. The Central Bank held around Rs. 566 billion of government securities by the end of 2020.

The general idea is that creating excessive money without taking into account the amount of goods and services produced in a country leads to price inflation. However, some proponents of modern monetary theories say that the money could be printed by the authority approved to repay rupee-denominated bonds within “sovereign powers”. However, the Sri Lankan economy is expected to experience a notable recovery this year, supported by stimulus measures and improving business confidence according to the Central Bank. The positive sentiments fueled by the Covid-19 vaccination campaign and the impact of growth promotion policies are expected to support economic recovery in the short to medium term.

In view of the low inflation rate, the Central Bank is actively supporting the government’s economic program focused on the development of a production-based economy.

The regulator also noted that the exchange rate has experienced intermittent volatility, and the Central Bank has taken steps to curb excessive speculation causing such volatility in the forex market.

The Sri Lankan rupee has depreciated 4.5 percent against the US dollar so far this year after depreciating 2.6 percent last year.

An increase in non-indebted currency inflows is expected, supported by measures introduced by the government and the Central Department of Economic Research.

The Central Bank reaffirms its commitment to continue the current orientation of the accommodative monetary policy The Monetary Council of the Central Bank of Sri Lanka, at its meeting on March 3, decided to maintain the rate of the permanent deposit facility (SDFR ) and the Central Bank Permanent Loan Facility (SLFR) rate at their current levels of 4.50% and 5.50% taking into account macroeconomic conditions and expected developments on the national and global fronts.

The performance of the external sector is closely monitored by the Central Bank The trade deficit narrowed by US $ 2.0 billion in 2020 benefiting from the notable drop in import spending, which more than offset the decline in revenue export.

The trade deficit is expected to remain compressed in 2021, supported by appropriate measures taken by the government.

Workers’ remittances continued to increase steadily from mid-2020, registering an annual increase of 5.8% and a further growth of 16.3% in January 2021, compared to the previous year. “Despite adverse speculation, all of the government’s debt service obligations have been duly fulfilled so far in 2021, and the government remains committed to maintaining its impeccable debt service record in the future as well. debt, ”the governor said.

The monetary policy easing measures implemented since the start of last year have resulted in historically low interest rates. Reflecting the transmission of monetary easing measures taken by the Central Bank in the recent past, market deposit and loan rates have declined significantly towards establishing a single-digit interest rate structure. Many market interest rates have fallen to historic lows.

However, some market interest rates, such as government bond yields, have recently exhibited unwarranted volatility, which is not in line with monetary policy expectations.

The Central Bank recalls that the high level of excess liquidity in the money market and the reduction in key interest rates so far aim to create a stable low interest rate environment, while offering a positive real return to savers .

The bank noted that credit to productive sectors remained crucial to ensure a sustained economic recovery Reflecting the expansion of domestic credit, the growth of broad money (M2b) continued to accelerate.

However, despite the substantial reduction in market lending rates, credit growth to productive sectors of the economy appears to remain insufficient.

“Discussions with the banking community and other stakeholders are underway to correct the gaps in the provision of credit to productive and growth-promoting sectors,” said the governor.

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Switzerland will give its central bank a monopoly on money creation Sat, 24 Oct 2020 03:30:27 +0000

The Swiss federal government confirmed on December 22 that it would hold a referendum to determine the authority of the country’s commercial bank in money creation.

The government’s announcement followed a campaign by the Swiss sovereign money movement known as the Vollgeld Initiative which presented a successful petition signed by more than 110,000 people calling on the government to donate to the central bank the exclusive power and authority to create money in the financial sector. system.

The Swiss sovereign currency campaign has been called a popular initiative, a feature of Swiss direct democracy that states that the federal parliament is obliged to discuss an initiative if 100,000 citizens (2.5% of the electorate) sign a form.

“The federal parliament is obliged to discuss the initiative, it can decide to recommend or reject the initiative or it can propose an alternative. Whatever they choose to do, all citizens will ultimately decide in a referendum to accept the initiative, the alternative proposal or to remain unchanged ”, read the official document of Swiss direct democracy.

If the referendum goes through parliament and final confirmation, the federal government will give its central bank a complete monopoly on the creation of both physical and electronic money.

Interestingly, in recent years the Swiss Sovereign Money campaign has stated that over 90% of the money circulating in the Swiss financial system exists in the form of electronic money. Thus, the group predicts that there is a strong possibility that the central bank will consider deploying an independent digital currency or an electronic form of money to eliminate cash.

“Due to the emergence of electronic payment transactions, banks have found the possibility of creating their own currency”, declared the Swiss Sovereign Money campaign.

“Banks will no longer be able to create money for themselves, they will only be able to lend money that they have to savers or other banks,” added the group.

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Global production of gold and silver coins versus money creation Thu, 15 Oct 2020 07:00:00 +0000

Gold mining stocks and GDX posted strong returns in 2020, with gold being one of the strongest and best performing assets in a very volatile year.

But choosing gold stocks is not easy, as every company has a variety of individual projects and risks that are worth evaluating. This is why the GDX (VanEck Vectors Gold Miners ETF) is one of the most popular methods that investors choose to gain exposure to players in the gold mining industry.

While GDX and gold miners can generally offer a leveraged upside against gold during bull markets, in 2020 GDX is back. 23%, a few points from the spot gold 25.1% to recover.

This chart compares the returns of gold, GDX, and the best performing and worst performing gold mining stocks in the index.

Understanding the GDX ETF and its value

GDX is one of several index ETFs created by investment management firm VanEck and provides exposure to 52 of the major gold mining stocks.

It offers a simple way to invest in the biggest names in the gold mining industry, while reducing some of the individual risks many mining companies face. GDX is VanEck’s largest and most popular ETF, averaging around $ 25 million per day, with the largest amount of total net assets at $ 15.3 billion.

When it comes to its holdings, GDX attempts to replicate the performance of the NYSE Arca Gold Miners (GDM) Index, which tracks the overall performance of companies in the gold mining industry.

How the biggest gold miners fared in 2020

As a market capitalization weighted ETF, GDX allocates more assets to components with higher market capitalization, resulting in large gold mining companies making up a larger portion of the index’s holdings.

As a result, the five largest companies in the GDX represent 39.5% of the index’s holdings and the top 10 59.3%.

An equal-weighted index of the five main constituents of GDX returned 27.3% over the year, outperforming gold and the index by a few points. Meanwhile, an equally-weighted index of the top 10 components significantly underperformed, returning only 18.4%.

Newmont was the only company in the top five to outperform gold and the overall index, returning 37.8% for the year. Wheaton Precious Metals (40.3%) and Kinross Gold (54.9%) were the only other top 10 companies to outperform.

Kinross Gold was the top performer among major components, largely due to its strong third quarter results, where the company generated significant free cash flow while quadrupling its reported net income. Along with these positive results, the company also announced its intention to increase gold production by 20% over the next three years.

The best and worst artists in 2020

Among GDX’s best and worst performers, it was the smaller companies in the bottom half of the rankings that significantly outperformed or underperformed.

K92 Mining’s record gold production from their Kainantu gold mine, as well as a significant increase in resources from their nearby high-grade Kora deposit, have resulted in a return of 164.2%, the company switching from TSX-V to TSX at the end of 2020.

Four of the five worst performers for 2020 were Australian mining companies as the country entered its first recession in 30 years after severe lockdowns and restrictions linked to COVID-19. Bushfires earlier this year disrupted shipments from Newcrest’s Cadia mine, and growing tensions with China (Australia’s largest trading partner) also contributed to double-digit withdrawals for some. Australian gold miners.

The lowest performing and last ranked company in the index, Resolute Mining (-36.9%), experienced further disruptions in the second half of 2020 at its Syama gold mine in Mali. The military coup and the resignation of Malian President Ibrahim Keïta in August were followed by threats of a strike by unionized workers in September, slowing down operations at the Syama gold mine. Pure and simple strikes finally took place before the end of the year.

How gold mining stocks are chosen for GDX

There are ground rules that dictate how the index is weighted to ensure that the GDM and GDX correctly reflect the gold mining industry.

In addition to the index weighting rules, there are company-specific requirements for inclusion in the GDM, and therefore the GDX:

  • Earn over 50% of revenue from gold mining and related activities
  • Market capitalization> $ 750 million
  • Average daily volume> 50,000 shares in the last three months
  • Average daily value traded> $ 1 million in the last three months

Gold stocks already in the index have some leeway regarding these requirements, and ultimately inclusion or exclusion from the index is up to us as the index administrator.

What 2021 will bring for gold mining stocks

GDX had a mixed start to the year, with an index of -2.3% because it mainly followed the spot price of gold.

Gold and gold mining stocks cooled significantly after their strong rally from Q1 to Q3 2020, as positive developments regarding the COVID-19 vaccine resulted in a stronger-than-expected US dollar and a surge Treasury yields.

That being said, the arrival of new monetary stimulus in the United States could prompt inflation-fearing investors to turn to gold and gold stocks as the year progresses.

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Purple House and MMT: the new money creation is real, it is not a “leftist” plot Mon, 06 Jul 2020 07:00:00 +0000
A purple house, not a theory. Image by Alex Anstey

It’s happening now, MMT. The Reserve Bank is making money. It should be called Modern Monetary Practice, not Modern Monetary Theory. In a speech last week, and questions after, central banker Guy Debelle explained it. Michael west reports on the MMT debate and how it is being used to tackle the looming deep recession.

In the corporate press, they are outraged. They think the purple houses are a “leftist” conspiracy.

“You can’t paint the house purple,” they shout. ” You can not do that ! “

They do, however. There’s Reserve Bank President Philip Lowe standing right in front of their eyes, brush in hand, decked out in overalls, painting the house purple.

“You can’t do this,” they yell.

Yet the purple paint genuinely drips from Philip’s brush.

He can do it. He does it.

What Philip’s doctrinal critics really mean is that they don’t like it. They hate Philip who paints the house purple, they hate purple. Purple is on the left. Purple is irresponsible, purple doesn’t work.

Guy Debelle supports the MMT

Reserve Bank Deputy Governor Guy Debelle ticked all the purple boxes last week in an address to the Economic Society of Australia: We selected the relevant snippets to demonstrate what the bank actually does and why.

In corporate media, with the notable exception of Alan Kohler – who brought up the topic of MMT logically – they claim MMT doesn’t work because the national budget is like a family budget and needs to be balanced. .

However, sensible MMT supporters argue that if an economy is performing below capacity and there is little chance of inflation, then new money should be created until that unused capacity is gone.

Guy Debelle, both in his speech on the political actions of the central bank and in response to questions asked subsequently, confirmed that this is precisely what is happening:

  • The economy is performing well below its capacity
  • The specter of inflation is low
  • Therefore, the RBA creates new money (he calls it liquidity) by buying Commonwealth government bonds from the big banks.

Do Grandchildren Really Pay the Debt? The problem with Scott Morrison’s stimulus package and MMT

A ripe environment for fresh money

First of all, Debelle set the scene: “It was a major event in the economy. This will have lasting effects ”.

“We had a very sharp drop in production, a very sharp drop in hours worked, a very sharp increase in unemployment.”

The economy is running at full speed

“The main thing that we are trying to do is get the economy to grow stronger… this is the main goal… The main problem we have right now is that the economy is performing very, very well under this. of its capacity, and until we can try to solve this problem… this will be the main channel to try to meet low inflation expectations and try to revive the economy.

“Our main goal is to get people to work and keep the economy running at full capacity…”

There is little prospect of inflation

“As the RBA’s bond purchases increase the liquidity of the system, I do not see this pose a risk of generating excessively high inflation for the foreseeable future.

“Indeed, the opposite seems to be the most likely challenge in the current economic climate, which is that inflation will stay below the RBA target.”

“Low inflation resulting from” declining population growth and a low rate of technological progress … and the aging of the population, perhaps even more important … and a sharp increase in risk aversion, at least for a while ”.

“The most likely outcome is low inflation and a sluggish economy…. I see a lot of high inflation risks coming from any source at the moment. “

What the RBA is doing about it

The RBA buys Commonwealth Government bonds from banks in the secondary market (it does not buy them at issue, in the primary market, or directly from the government).

“As was the case with many other central banks, the RBA bought government bonds in the secondary market to alleviate the dysfunction of the Australian government bond market.”

“To date, we have purchased just over $ 40 billion in Australian government bonds. “

Privatization fetishism and QE: will the government cede the economic bailout to the banks?

“The RBA’s purchases in the second half of March and in April helped improve the broader functionality in the broader bond market.”

The RBA pays for these obligations by crediting sellers’ Exchange Settlement (ES) accounts with the RBA – this is a new (digital) currency. It increases the money supply and provides (potential) liquidity to the banking system. The aim is for banks to lend it to stimulate economic activity.

“As the RBA buys government bonds, the amount of ES balances in the system increases as we credit the accounts of the banks we buy them from. “

New money

“The $ 50 billion in bond purchases increased SE balances and dramatically increased the liquidity of the system.”

“As I said in my speech, when we buy government bonds, it puts more deposits in the banking system, therefore it increases the money supply.”

“The higher level of ES balances in the system … anchors other money market rates.”

“Since the end of March, ES balances have moved in a very wide range between $ 40 billion and $ 90 billion.”

Meanwhile, in corporate media, they continue to claim that the national economy is like the household budget and should be run like a household budget – ignoring that households cannot raise taxes or issue their own. currencies.

The reality is that the central bank is creating new money, just like its counterparts in the US, UK, Japan and Europe.

The question now is how much money will the government create to stimulate the economy? It’s a guessing game, although the sub-ability is huge at the moment, so the answer is ample.

Moreover, since the government has effectively privatized its QE, or subcontracted it to the big banks, will the banks lend it? How much can they lend if there is no demand for loans?

CoronaRorts: Are the bailouts a blow or a blow to the banks?

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Money creation becomes nuclear | Tue, 09 Jun 2020 07:00:00 +0000

In most countries / regions, the growth rate of money supply bottomed out in 2019 and at the start of this year it was on a clear upward trend. Then came the ‘coronavirus crisis’, involving widespread economic lockdowns and unprecedented central bank money / credit creation designed to counter the effects of the lockdowns. The result was a veritable explosion in monetary inflation rates around the world in March and April (April being the last month for which there is complete information on the money supply). Here are some examples:

1) The combination of US and Eurozone money supply we call G2 True Money Supply (TMS) was at its lowest level in 10 years in the middle of last year. It is now at an all time high. It is by far the most bullish force currently acting on stock and commodity prices.

Graph of% change in US dollars and euro G2

2) At the start of last year, Australia was at risk of currency deflation, but that country’s currency inflation rate has since climbed to a record high of 24%. This is not bearish against other currencies and especially not against the (we suspect the AUD $ will trade at par with the USD within two years), as the AUD exchange rate is much more influenced by the raw material. markets than by the local monetary inflation rate. However, this suggests that in Australia the prices of goods, services and assets will increase significantly over the next few years.

Australia M1 YOY%

Australia M1 YOY%

3) The Bank of Canada has been a little more cautious than most other central banks in recent months, but in response to the recent crisis, it has done enough to drive the country’s monetary inflation rate up to nearly from a 10-year peak. A year ago, it was near its lowest level in 20 years.

Chart Canada M1 ++

Chart Canada M1 ++

4) We occasionally read articles that attempt to demonstrate that the pumping of money by the central bank does not lead to higher prices, the situation in Japan being cited as evidence. Japan is supposed to be relevant because the Bank of Japan (BOJ) has aggressively monetized assets for a long time with minimal effect on prices.

As we have noted several times in the past, prices have remained stable in Japan because Japan’s monetary inflation rate has hovered at a relatively low level for decades. Whatever the BOJ has done, it has NOT been pumping money at a rapid pace. Even now, in the face of further monetary stimulus, the year-over-year growth rate of the M2 money supply in Japan is less than 4%. This contrasts with a growth rate of the money supply in the United States of nearly 20%.

Therefore, the low rate of price inflation in Japan is not a mystery. This is exactly what one would expect from an economy with a low rate of monetary inflation and some productivity growth.

Japan M2 YOY% Change

Japan M2 YOY% Change

In summary, outside of Japan, the supply of currencies is increasing at such a rapid rate that there will be substantial price increases over the next two years. However, the price increases will not be uniform. For example, due to a high unemployment rate, the price of labor will likely lag behind, and due to their relative supply situations, the price of is unlikely to increase as much as the prices of,,, and .

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