Money creation – I Have 50 Dollars Fri, 05 Aug 2022 04:01:50 +0000 en-US hourly 1 Money creation – I Have 50 Dollars 32 32 Paying a heavy price for central bank money creation Fri, 05 Aug 2022 04:01:50 +0000

Much of the damage to bond and stock prices that we expected this year has been done. Markets are quickly adjusting to a new world of higher inflation in most advanced countries. They get used to the need to raise interest rates to fight price increases by slowing economies.

The markets were governed by the major central banks. Their study was crucial in projecting the future of economies and financial assets.

Asian markets were led by China and Japan, which managed inflation well, keeping it around 2.5%, despite their exposure to sharp increases in energy and food prices. Both also exercised reasonable control over their money supply and credit during the Covid shutdowns, with the People’s Bank of China maintaining its monetary target.

By contrast, major Western central banks – the Federal Reserve, European Central Bank and Bank of England – have failed to target or preoccupy money and credit, while actively promoting major expansion to offset the impact. general business supply chain blockages and disruptions. Each of them continued to push money creation into the recovery and ended up with double-digit inflation.

The Fed has given its economy the biggest boost and decided from the second quarter of this year to end all money creation, shrink its bloated balance sheet and aggressively raise interest rates from lows ultra low to show its determination to eradicate inflation. This led to a strong sell-off in bonds and many stocks, especially the growth hits of the long bull market.

The Bank of England was the first to put an end to monetary creation, stopping it last December. It is now trying to balance the need for higher rates to fight inflation against the risk of being so tough that it will cause a recession next year, choosing on Thursday to raise its main interest rate from 0, 5 percentage points.

However, the central bank with by far the biggest headaches is the ECB.

I kept the FT fund out of continental equities for a variety of reasons other than a small indirect exposure by holding the global index. The EU economy is suffering from an energy shortage, aggravated by Russia’s violent invasion of Ukraine and the need to withdraw Russian energy from Europe’s supply sources.

It has been damaged more directly by war and sanctions than the United States. On climate change, it has embarked on a vigorous path to net zero, which means shutting down or adapting many of its more traditional industries.

The Eurozone is still divided between surplus countries generating more euros through trade and economic success, and deficit countries running out of foreign currency and needing to borrow more. The original euro scheme had strong Germanic elements. Each member state had to control its own budget deficit and was responsible for its own borrowing. The central bank is not allowed to help member states finance excessive deficits. Deficit countries had to cut spending or raise taxes.

Today, many are those who wish to relax these strict rules. The need to maintain public deficits at 3% and public debt at 60% of GDP has been suspended. Surpluses from Germany and a few others are deposited with the ECB, which lends them to deficit countries at zero interest rates to ensure smooth settlements within the zone.

The ECB is debating how it can ensure the transmission of its policy throughout the zone. It’s fancy talk to try to keep borrowing rates lower for long-term and short-term loans at similar interest rates across member states.

The ECB sets the same short-term interest rate for the whole area, but it does not set the rates at which individuals and businesses can borrow from commercial banks in different countries and it cannot set the rates that states have to pay to cover their own bills by borrowing for longer periods.

She worries that Italy’s cost of borrowing is much higher than Germany’s. He wants to prevent the heavily indebted Italian state from having to pay too much for new loans and ending up in financial difficulties with its large interest bills.

In the two decades that Italy has been in the euro, it has not been able to reduce its public debt and it remains well above the required figure. The EU is now trying to help Italy by sending a large part of the central EU recovery funds to reduce the need for Italy itself to borrow. These funds are collected in the form of EU debt.

The ECB continued to create money and buy bonds until the end of June, when it ended its bond buying programs. There are now five countries in the zone with inflation above 10%.

However, he is worried about the current sluggishness of many national economies and wants to be able to buy the bonds of countries plagued by deficits to prevent their rates from rising too high. This is likely to prolong political confusion as it seeks to accomplish the nearly impossible task of preventing recession, stopping inflation and keeping bond rates together at the same time.

I continue to look for ways to get a better return on the substantial cash the fund has been managing, now that markets are more acknowledging the strains ahead.

Sir John Redwood is Charles Stanley’s chief global strategist. The FT fund is a fictional portfolio intended to demonstrate how investors can use a wide range of ETFs to gain exposure to global equity markets while reducing investment costs.

The slowdown in money creation could be another sign of recession Wed, 13 Jul 2022 13:03:09 +0000
by SchiffGold 0 0

The slowdown in money creation could signal a recession.

Money supply growth has fallen sharply in recent months. Measured by M2, money supply increased by 6.6% year-on-year. That was down from April’s growth rate of 8.21%. In May 2021, M2 increased by 14.30%. M2 growth peaked at a record 26.91% in February 2021.

Based on the “true” or Rothbard-Salerno money supply measure (TMS), money supply growth also fell in May after rising slightly in the previous two months.

Between April 2020 and April 2021, money supply growth often exceeded 35% year-over-year.

Economists Murray Rothbard and Joseph Salerno developed the TMS to better measure fluctuations in the money supply. TMS differs from M2 in that it includes Treasury deposits with the Fed while excluding short-term deposits and retail money funds.

As Ryan McMaken, editor of the Mises Institute, explainschanges in money supply growth can help gauge economic activity and indicate impending recessions.

“During economic booms, the money supply tends to grow rapidly as commercial banks extend more loans. Recessions, on the other hand, tend to be preceded by a slowdown in money supply growth rates However, money supply growth tends to pick up again before the onset of the recession.

As you can see from the chart above, based on the TMS, money supply growth already appears to be on an upward trend, despite May’s slight dip.

The gap between M2 and TMS is also revealing. Historically, TMS has climbed and become higher than M2 in the first months of a recession. According to McMaken, this happened in the early months of the 2001 and 2007-2009 recession. A similar trend emerged before the 2020 recession.

And it happened again in May when the growth rate of M2 fell below the growth rate of TMS for the first time since 2020.

As our technical analyst noted recently, while inflation is unlikely to come down as the money supply continues to grow, the stock market and the economy rely on a rapidly expanding money supply. With such slow growth, it will be very difficult for the stock market to reach new highs and for the economy to avoid recession.

The Atlanta Fed recently lowered its Q2 GDP projection into negative territory. This would indicate that we have been in a recession since the start of the year. Most people seem to think the recession will be short and shallow, but Peter Schiff recently said that was a fantasy.

The idea that this recession could be anything but serious is outlandish. There is no way we can have a shallow recession.

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Reviews | Bitcoin, inflation and the mistaken fear of government money creation Tue, 11 Jan 2022 17:35:08 +0000

I had fun yesterday with a tweet from Josh Mandel, future MAGA Senator from Ohio, who declared his allegiance to core American values: God, family and Bitcoin. I didn’t have space to talk about some of the things he said about Bitcoin, which is really at the center of his campaign. But I was particularly struck by this tweet from October, in which he appears to claim that fiat money (dollars are backed by nothing other than their official role as legal tender, and dollars can be created at the discretion of appointed officials at the Fed) is a crucial catalyst for inflationary spending: