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How Canada Decides To Print Money

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In Canada, new money comes from two places: the Bank of Canada (BOC) and chartered banks such as the Toronto Dominion Bank (TD) and the Royal Bank of Canada (RBC). The Canadian banking system is one of the most respected and stable banking systems worldwide. The Canadian government and central bank managed the aftermath of the 2008 financial crisis more effectively than most of the other developed nations in the world.

The Bank of Canada

The BOC was chartered under the Bank of Canada Act of 1935, initially as a privately owned corporation. It was legally deemed a federal Crown corporation in 1938 and its shares are owned by the Canadian government.

The central role of the BOC is to maintain the financial and economic health and stability of Canada. Specifically, it is responsible for formulating monetary policy and managing funds and banking services for the federal government. It is the solely authorized issuer of Canadian currency, among other things.

New Money

Both chartered banks and the BOC have a legal right to create new money without a specific reason. The BOC has held the ability to print new money since its inception; however, chartered banks did not always have this right. Before the leadership of Canada’s 18th Prime Minister, Brian Mulroney, from 1984 to 1993, all banks in Canada were required to maintain at least an 8% reserve. This allowed the banks to lend out the same money approximately 12 times over. Mulroney dropped the required reserve rate to 0%. Thus, banks can lend out any amount of money, whether they have something in the way of reserves to back it or not. Though the Bank of Canada is the only institution that can print money, chartered banks can create money by entering it into a ledger when they issue a loan.

Inflation

The creation of money is inflationary, whether the BOC or a chartered bank creates it. A certain amount of inflation is considered necessary to allow for an expanded economy to function. However, the federal government has effectively also given private banks some control over the money supply without accompanying government control. When the BOC creates money, the federal government can utilize the funds for various programs, including education, health, and defense. The funds can also be spent on the reduction of debt and taxes. When chartered banks create money, it goes primarily to the bank’s shareholders.

Taxation

The BOC prints money and then lends it to the federal government at a very low-interest rate. Because the federal government owns the BOC, it receives dividends, meaning it obtains the loan essentially interest-free.

Economy

Eurozone out of recession after economy grows 2% – BBC News

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Euro sign at ECB building in Frankfurt, Germany, 24 Apr 2020

AFP

The eurozone’s economy grew by 2% in the second three months of the year, taking the region out of recession.

New figures suggest there was growth in all the individual national economies which reported data.

However, the eurozone remains 3% down from its pre-pandemic level in late 2019.

A recovery is under way in the region after the surge in coronavirus infections in the winter.

In Italy and Spain, two countries whose economies were badly damaged by the pandemic, growth approached 3% in both.

There was an even stronger rebound in Austria and Portugal, with the latter reporting its economy had expanded by 4.9%.

Tourism benefits Portugal

The eurozone’s two largest economies saw more moderate growth, 1.5% in Germany and 0.9% in France.

The growth statistics are first estimates, so there is little detail showing the breakdown of the pattern of recovery.

However, household spending made an important contribution in France, Germany and especially in Spain. In France there was a surge in the hotel and restaurant trade of 29%.

Andrew Kenningham, chief Europe economist at Capital Economics, said Portugal’s rebound might reflect “a slightly less disastrous tourism season than Spain’s”.

He forecasted “another strong number for eurozone GDP” in the third quarter of the year, which “would bring the economy close to, but below, its pre-pandemic level”.

In contrast, the US has closed that gap, however, US employment is still down and economic activity is below where it probably would have been had there not been the pandemic.

Other new eurozone figures showed the number of people unemployed fell by more than 400,000 in June, though it is still one million higher than the low it hit early last year.

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Canada's economy shrank for 2nd month in a row in May – CBC.ca

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Canada’s gross domestic product shrank by 0.3 per cent in May, the second consecutive monthly contraction as most industries slowed down.

Statistics Canada reported Friday that most industries shrank, especially construction, manufacturing and retail.

Even Canada’s red hot real estate sector shrank for the second month in a row. The real estate and rental and leasing sector was down 0.4 per cent in May after falling by 0.8 per cent in April. That’s the first two-month streak of declines since March and April of 2020.

“As housing sales and construction levels gradually return to more sustainable levels, this area of the economy could be a drag on growth in coming months,” TD Bank economist Sri Thanabalasingam said.

Agriculture and forestry, mining and oil and gas extraction, utilities and the public sector all expanded slightly.

All in all, the total value of all the goods and services produced by Canada’s economy was just shy of $1.98 trillion during the month. That’s still two per cent below the slightly more than $2 trillion that the economy was worth in February 2020.

The numbers for May come at the time when Canada’s economy was on the downslope of the third wave of COVID-19, and much of society was on some sort of lockdown or reduced capacity. But there are signs that a rebound has happened since.

Preliminary data for June suggests the economy grew by 0.7 per cent during the month. And July may have been even better — credit and debit card data suggests that consumers returned to spending on high-contact services including in-person dining, recreation activities and travel that had long been restricted to them, Thanabalasingam said.

June’s uptick means the economy will expand by about 0.6 per cent in the second quarter overall. That’s about a 2.5 per cent annual pace — much slower than the 6.5 per cent pace the U.S. economy clocked in the same period, but much better than the 8.3 per cent contraction seen in countries that use the euro.

Thanabalasingam said the data for May and June show just how up and down the economy may go from here on out.

“It may not be smooth sailing for the rest of the recovery,” he said. 

“The delta variant is wreaking havoc around the world, leading to a retightening of restrictions in some countries. Canada has so far avoided the worst of this virus, but cases are rising in some provinces. A fourth wave could lead to another stalling in the recovery, though with relatively high rates of vaccination a full reversal appears less likely.”

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After Quickly Expanding, The Economy Is Expected To Slow – NPR

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The U.S. economy likely grew 8% in the April-June quarter from a year prior, a blistering pace of growth. But the economy is expected to slow as the delta variant and other risks like inflation loom.



ARI SHAPIRO, HOST:

Today’s discouraging news about the pandemic comes after a spring when the U.S. economy reawakened. Vaccines were widely available, people went out to eat, and they started traveling again. In April, May and June, the U.S. economy grew by a healthy 6.5%. NPR’s David Gura joins us with more. Hi, David.

DAVID GURA, BYLINE: Hey, Ari.

SHAPIRO: So what does this 6.5% number actually tell us?

GURA: Well, it tells us the size of the economy is larger than it was before the pandemic, if you adjust for inflation. And that’s good news. That means the economy is now expanding. I talked to James Sweeney. He’s the chief economist at Credit Suisse. And I asked him how he interprets today’s numbers. Sweeney says it wasn’t as big as he expected it would be, but he’s still happy with it.

JAMES SWEENEY: The economy’s growing strongly, and we’ve got more growth ahead. This is the kind of negative miss (ph) that shouldn’t panic anybody.

GURA: And I’ll note here, it didn’t seem to panic investors on Wall Street. In fact, today the stock market once again hit some new records, Ari.

SHAPIRO: Yeah, what is driving the stock market growth over these last few months?

GURA: Yeah, the growth in the stock market and the economy – it’s been consumer spending, which is a huge part of the economy. The other day, I did some anecdotal research, anecdotal reporting – stopped by maybe a dozen small businesses near me just to see how they’re doing. And Melissa Ocampo (ph) is the manager of a toy store in Brooklyn. She told me things have gotten much better.

MELISSA OCAMPO: People seem to be back and running around and shopping for the kids and birthday parties and balloons.

GURA: Business has been steady, Ocampo (ph) told me, but she hopes it picks up even more. In the second quarter of this year, this transition happened, Ari. People who had been buying stuff – TVs, computers, yes, toys as well – started spending money at restaurants and on trips as vaccines became more widely available. And today’s GDP data reflect that big uptick in spending, which was larger than economists expected.

SHAPIRO: And yet this week there has been such a shift, largely driven by the delta variant – new mask mandates, vaccine mandates. What does the rest of the year look like?

GURA: Yeah, economists I talked to say they expect this growth to continue, but they are seeing potential risks to the recovery. So were small businesses. What worries Melissa Ocampo at my local toy store is the pandemic and the delta variant more specifically. She is afraid of what could happen to the store and to her if sales were to slow down again or if there were another shutdown. After the store closed temporarily last spring, Ari, Ocampo managed to find another job at a supermarket.

OCAMPO: I’m like, am I going to, like – am I not going to be with, like, a job towards the end of the year, or are we in, like, what’s just – it’s just uncertain and scary for sure.

GURA: Now, economists don’t think we’ll see the kind of shutdowns we saw at the beginning of the pandemic. For one thing, almost half the population now in the U.S. is fully vaccinated.

SHAPIRO: What else is keeping small-business owners up at night?

GURA: Well, inflation for one, how prices have gone up, problems with supply chains as well – that’s another issue. It’s gotten harder to get the products people want because of demand, and manufacturers are having trouble getting new materials. The supply chain issues show up in today’s GDP data. It was a big drag on growth in the second quarter. And one other worry among small-business owners is the jobs market.

SHAPIRO: Yeah, tell us more about that specifically.

GURA: Well, employers say it’s gotten harder for them to find workers. Some of them are worried about getting sick. Then there’s the lack of reliable child care. That’s a big issue. Ralph Elia owns a frame shop called KC Arts. He’s been in the business for about four decades. And he told me he’s had trouble hiring workers, which is something he blames on expanded unemployment benefits.

RALPH ELIA: I agree with it in the beginning, if you really needed it. But at some point, they should have slowed it down or cut it off, I’m sorry to say, because we need to hire people. People need to get out and work.

GURA: And that argument is what led about two dozen states to end those expanded benefits early, Ari. They’ll expire for all the remaining states in just a couple months.

SHAPIRO: NPR’s David Gura, thanks for the update.

GURA: Thank you.

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