Historic Monetary Inflation: Q1 2021 Z.1

Doug Nolan


Total Non-Financial Debt (NFD) expanded $879 billion during Q1 to a record $62.032 TN. 

NFD expanded an unprecedented $7.671 TN, or 14.1%, over the past five quarters. 

And with Financial Sector Debt increasing $236 billion and Foreign US borrowings gaining $95 billion, Total Debt increased $1.210 TN during the quarter to a record $84.7 TN. 

Total Debt expanded $9.199 TN, or 12.2%, over five quarters.

On a Seasonally Adjusted and Annualized (SAAR) basis, NFD expanded $3.521 TN during Q1. 

For perspective, annual NFD growth averaged $1.829 TN during the period 2009 through 2019. 

NFD surged $6.792 TN during 2020 and inflated $7.671 TN over five quarters. 

NFD as a percent of GDP slipped to 281% - yet compares to 227% at year-end 2007 and 184% to end the nineties.

Washington remains the insatiable debt glutton. 

Treasury Securities rose $342 billion during Q1 to a record $23.943 TN. 

While this was the weakest growth since Q2 2019, overall spending was supported by the Treasury’s significant draw down of its cash balance held at the Fed. 

The Federal Reserve Liability, “Due to Federal Government – Treasury Cash Holdings,” dropped $607 billion during the quarter (to $1.122 TN).

Over the past five quarters, outstanding Treasuries surged an incredible $4.924 TN, or almost 26%. 

In just 15 months, the ratio of Treasuries-to-GDP inflated from 87% to 109%. 

Treasury Securities-to-GDP ended the seventies at 57.8%, the eighties at 63.0%, and the nineties at 58.7%. 

This ratio had jumped to 76.1% to close out 2009 and 85.4% to conclude 2010. It’s now gone parabolic.

Q1 Federal Receipts were up 3% y-o-y to an annualized $3.866 TN. 

Meanwhile, Expenditures inflated 67% y-o-y to an annualized $8.171 TN. 

State & Local Receipts rose 11% y-o-y to an annualized $3.090 TN, while Expenditures increased 2% to annualized $3.053 TN.

The U.S. Department of the Treasury is not the only Washington institution ballooning its balance sheet. 

GSE (government-sponsored enterprises) Assets rose another $150 billion during the quarter to a record $7.879 TN. 

Over five quarters, GSE Assets inflated an unprecedented $749 billion, or 10.5%. 

Total Agency Securities (debt and MBS) rose $140 billion during Q1 to a record $10.226 TN, with three-year growth of $1.354 TN (15%).

Bank (“Private Depository Institutions”) Assets jumped $767 billion during the quarter to a record $24.215 TN, though $678 billion of this increase is explained by a jump in Reserve Assets at the Federal Reserve. 

Loans (Assets) declined $72.7 billion during Q1 to $12.023 TN. 

Bank Loans contracted $278 billion, or 2.3%, over the past year.

The banking system continues to load up on securities. 

Debt Securities holdings jumped $408 billion during the quarter to a record $6.199 TN, with Agency/MBS rising $230 billion (to a record $3.606 TN); Corporate Bonds gaining $115 billion (to a record $802bn); and Treasuries increasing $60 billion (to a record $1.263 TN). 

With momentous effects throughout the securities markets, banking system Debt Securities holdings surged $1.551 TN over the past five quarters. 

Agency/MBS holdings jumped $972 billion in 15 months, with Treasuries up $384 billion, and Corporate Bonds increasing $147 billion.

Meanwhile, on the Bank Liability side, Bank Total Deposits surged $844 billion during Q1 to a record $19.707 TN. 

Over five quarters, Total Deposits inflated an incredible $4.175 TN, or 27%, reflecting one of history’s most spectacular Monetary Inflations. 

Total Deposits doubled over the past decade. 

Total Bank Deposits-to-GDP ended the quarter at 89%, up from 71% to end 2019, 63% to conclude 2010, 55% to end 2005, and 47% to wrap up the nineties.

Securities Broker & Dealer Assets declined $93 billion during Q1 to $3.608 TN (down $149bn, or 4%, y-o-y). 

Treasury holdings sank a notable $182 billion to $19 billion, with a one-year contraction of $247 billion. 

Meanwhile, the Broker/Dealer lending business boom rages on. 

Loans expanded $90 billion, or 67% annualized, during Q1 to a record $629 billion. 

Loans surged $255 billion, or 68%, over the past three quarters.

Some smaller sectors posted notable growth. 

Credit Union Assets expanded another $116 billion (25% annualized) to a record $1.940 TN, with unprecedented one-year growth of $335 billion, or 20.9% (up $405bn in five quarters). 

Money Market Funds gained $164 billion, or 15% annualized, to $4.500 TN. 

“Other Financial Business” (the old Wall Street “Funding Corps”) jumped $177 billion, or 37% annualized, to a decade-high $2.080 TN (up $562bn in five quarters). 

Total Mortgage debt rose $177 billion during Q1 to a record $16.958 TN. 

The year-over-year increase of $780 billion (4.8%) was the strongest mortgage lending since 2007.

Fed Funds & Repurchase Agreements dropped $166 billion during the quarter and $716 billion for the year (to $4.063 TN). 

Meanwhile, Exchange-Traded Funds (ETFs) jumped $460 billion during Q1 to a record $5.910 TN, with one-year growth of $1.924 TN, or 62.4%. 

ETF Assets were up 174% in five years. 

Over this period, Equities ETFs surged 186% (to $3.544 TN) and Taxable Bond ETFs jumped 179% (to $1.000 TN).

Federal Reserve Assets expanded $112 billion during the quarter to a record $7.769 TN, with one-year growth of $1.589 TN. 

Over seven quarters, Fed Assets have swelled an incredible $3.759 TN, or 94%. 

Over this period, holdings of Treasuries surged $2.958 TN (to $5.273 TN) and Agency Securities jumped $690 billion (to $2.275 TN).

Total Debt Securities (TDS) increased $656 billion during the quarter to a record $54.563 TN, with one-year growth of $6.193 TN, or 12.8%. 

Over seven quarters, TDS inflated $8.818 TN, or 19.3%. 

At 247%, TDS-to-GDP declined slightly during the quarter to 247% - although it rose significantly from Q4’s 2019’s 218%. 

This ratio ended 2009 at 223%, the nineties at 158%, and the eighties at 124%. 

Corporate Bonds jumped $119 billion during the quarter to a record $15.401 TN, with one-year growth of $1.280 TN, or 9.1% (fastest expansion since 2007).

Total Equities jumped $4.784 TN during Q1 to a record $69.991 TN, with a one-year surge of $26.941, or 62.6%. 

Total Equities-to-GDP ended March at a record 317%, up from previous cycle peaks 188% (Q3 2007) and 210% (Q1 2000). 

Total (Debt & Equities) Securities jumped $5.440 TN during the quarter to a record $124.554 TN – with stunning one-year growth of $33.134 TN, or 36.4%. 

Total Securities have now inflated $77.227 TN, or 163%, since 2008. 

Total Securities-to-GDP ended March at a record 565% (up from March 2019’s 449%) and compares to previous cycle peaks 387% (Q3 2007) and 368% (Q1 2000).

The Household (and Non-Profits) Sector balance sheet continues to be a Bubble Analysis focal point. 

Household Assets inflated $5.184 TN, or almost 14% annualized, during Q1 to a record $154.161 TN. 

Over nine quarters, Household Assets have ballooned $32.749 TN, or 27%. 

Household Assets-to-GDP ended the quarter at a record 699% of GDP – up 100 percentage points in 14 quarters.

With Household Liabilities increasing $188 billion during Q1 (to $17.244 TN), Household Net Worth (Assets less Liabilities) surged $4.997 TN during the quarter to a record $136.917 TN. 

For perspective, growth in Net Worth averaged $830 billion quarterly over the 20-year period prior to 2019. 

Net Worth inflated $31.399 TN over five quarters, or 29.8%. 

Household Net Worth ended March at a record 621% of GDP. 

This was up from previous cycle peaks 491% (Q1 2007) and 445% (Q1 2000).

The value of Household Real Estate holdings jumped $968 billion (second only to Q4 ‘20’s $1.017 TN) to a record $37.558 TN. 

Real Estate was up $3.335 TN, or 9.7%, y-o-y. Real Estate-to-GDP ended the quarter at 170%, only somewhat lagging the cycle peak 190% from Q3 2006.

Household holdings of Financial Assets jumped $4.027 TN (15.3% annualized) during the quarter to a record $109.562 TN, with one-year growth of $22.395 TN, or 25.7%. 

The ratio of Household Financial Assets-to-GDP ended Q1 at a record 497% of GDP. 

This was up from cycle trough 325% during Q1 2009 - and compares to cycle peaks 374% (Q3 2007) and 354% (Q1 2000).

Total (Equities and Mutual Funds) Equities jumped $2.832 TN to end Q1 at a record $39.946 TN. 

Total Equities jumped $15.535 TN, or 63.6%, y-o-y. 

Total Equities-to-GDP ended March at a record 181%. 

This was up from Q1 2009’s cycle trough 54%, while significantly surpassing previous cycle peaks 104% (Q2 2007) and 115% (Q1 2000).

Rest of World (ROW) holdings of U.S. Financial Assets rose $1.274 TN, or 12.8%, during Q1, with one-year growth of $8.892 TN, or 27.6%. 

In only nine quarters, ROW Assets have inflated $11.168 TN, or 37.3%. ROW Assets have now almost tripled since the end of 2008. 

Total U.S. Equities holdings jumped $724 billion, or 25%, to a record $12.276 TN, with a one-year gain of $4.758 TN, or 63.3%. 

Foreign Direct Investment rose $738 billion during Q1 to a record $11.540 TN. 

Debt Securities holding contracted $253 billion during the quarter to $12.618 TN, though they were up $427 billion, or 3.5%, y-o-y. 

ROW holdings of U.S. Financial Assets ended the quarter at a record 186% of GDP. 

This was up from Q4 2008’s 95%, 2007’s 108%, 1999’s 74%, 1996’s 51%, and 1990’s 30%.

It's right there in the data: one of history’s most spectacular Monetary Inflations and asset Bubbles. 

May Consumer Prices were up 5.0% y-o-y, the strongest consumer inflation since 2008. 

Ten-year Treasury yields dropped 10 bps this week to a three-month low of 1.45%. Markets are broken – and there will be more on this subject next week.

 Politics with No Labels

By John Mauldin 


You can’t always get what you want
But if you try sometime you find
You get what you need

—by Mick Jagger and Keith Richards, 1969


There’s no way around it: Investing in public companies is always political. 

Corporations exist because governments charter these artificial entities and legally shield the owners (shareholders) from personal liability.

This initially simple concept grew more complex over time. 

For those interested in the origins, see the fabulous book The First Tycoon

It tells the story of Cornelius Vanderbilt who, along with steamships and railroads, helped usher in the concept of the modern corporation. 

Vanderbilt was at the foundation of what became modern corporations, even if he and his cohorts did it to further their own ends. 

You’ll better understand where we are today if you understand how we began.

And from those “humble” beginnings, now we have multinational corporations, doing business worldwide under many different sets of rules, so it gets messy. 

The interplay between governments and businesses impacts your investments. 

So does the interplay of governments with other governments. 

Thus the drive to create an international corporate tax. 

So you can’t escape politics… but you can try to analyze it calmly, without partisan histrionics.

This is why I always include geopolitics and public policy on the Strategic Investment Conference agenda. 

Leaving them out would mean ignoring an influence that, however unpleasant, is critically important. 

Fortunately, I have sources who can give it the attention it deserves without grinding personal axes. 

Today I’ll tell you some of what they said.

Recovering Borders

We’ll start with some highlights on geopolitics. 

In a previous letter I covered one panel that discussed whether the US and China are enmeshed in a new Cold War

George Friedman said no, we’re not (as war to him means actual bullets), though we are certainly contentious rivals in many ways. 

George made a solo appearance later to discuss broader geopolitical issues. 

He spoke of many but I want to focus on his Russia comments.

Russia is an unusual kind of player. Its economy is relatively small (number 11 overall behind Italy and Canada), but it has other kinds of power: nuclear weapons, manned space flight, a permanent seat on the UN Security Council, strategically important geography, energy and mineral deposits, and some shadowy criminal groups that like to attack large organizations (including hospitals) for Bitcoin ransom.

George sees Russia’s leadership as (my word, not his) obsessed with rebuilding the buffer zones once provided by the Warsaw Pact countries. 

From the SIC transcript:

And this is what we have to understand about the Russians. 

The collapse of the Soviet Union took away their strategic depth. 

It took away Belarus, it took away Ukraine, took away Moldova, took away the Caucasus. 

It was a catastrophe as Putin has put it. 

And it really was if you're a Russian, especially if you're a Russian KGB man. 

Your entire purpose in life is to regain those territories. 

Ever since 2014, when according to the Russians, the US staged a coup d'etat in Ukraine… and I won't comment on whether it was a coup or not, but we were very happy to see it… 

Russia has been moving to recover its borders. 

Its move this year was in Belarus. 

Belarus in the hands of Ukraine would put the town of Smolensk basically as a border town. 

Smolensk is deep in the Soviet Union, [which] was deep in the Soviet Union…

We have the advantage of controlling the Atlantic. 

We could modulate the amount of force we have in the region. 

The Russians have no real land protection. 

It is unlikely that this is going to run into a crisis. 

But certainly the Russians are terrified that behind all the goodwill of Europe and the United States, that they're going to be hit again with an invasion. 

They're terrified, they're moving, they're reorganizing.

Right now, Europe needs access to Russian natural gas, without which much of the EU economy would grind to a halt. 

This gives Russia leverage. 

George doesn’t expect a crisis but there’s always a danger these things could spin out of control. And we know Russians (though not necessarily the government) are behind some of the recent ransomware attacks.

The US and China may not be in a new Cold War, but in some ways the other Cold War may be back. 

This bears watching.

Lines Crossed

Later in the conference we heard from Ian Bremmer, founder of Eurasia Group and confidante of many world leaders. 

I asked Ian to give us a “world tour” of hotspots, or just areas of concern. 

He named many but I want to focus on just one: Taiwan.

Others (Louis Gave comes to mind) have noted Taiwan’s dominant position in semiconductors is making its as strategically important as Saudi Arabia was when it was the world’s oil linchpin. 

Ian agrees, and says this is aggravating US-China tensions (minor editing).

Here's an interesting way to think of Taiwan. 

I think that, unlike many areas of the world where the Chinese are changing the status quo in ways that are destabilizing, for example, Hong Kong ending the two systems, one country policy, the treatment of the Uyghurs, the wholescale stealing of intellectual property, and the Belt and Road. 

I mean, lots of things where the Chinese are changing the status quo themselves, because they're more powerful and they can. 

In the case of Taiwan, I would argue the status quo is being changed more precipitously by the Americans, where we are working hard to make the Taiwanese semiconductor company, TSMC, … [which makes Taiwan] the most important semiconductor manufacturing country in the world. 

They're responsible for more than 50% of all semiconductors exported globally.

The United States is working hard to make them a strategically critical company for the US military-industrial complex. [They are building] a $20 billion fab in Arizona. 

We want to make them a trusted partner along with American companies for the US Pentagon and the DOD. Given the fact that the mainland Chinese are way behind the Americans in semiconductor production, unlike other components of advanced technology, they desperately need it.

The Americans with export controls are increasingly telling the Taiwanese, "No, you can't actually sell those to core Chinese companies." 

This is, I would argue, if not a red line being crossed, certainly a gray line being breached by the Americans. 

Now, if you talk to Americans, we have lots of reasons to do that. 

It's absolutely indispensable for the United States. 

We consider the Chinese to be dual-use technologies [not just commercial but military as well]. [The flipside is that…] 

The Chinese don't allow our top tech companies to invest in mainland China.

The simple point is that if you're China and you view Taiwan as a part of your country, the most important national champion of Taiwan is becoming like Lockheed for the US during the Cold War. 

You can see why the Chinese would find that intolerable. 

In the short term, they're ramping up their semiconductor investment domestically as fast as possible. 

They spent some $35 billion on semiconductors last year, that's 4X what they spent the year before, so they know it's a problem. 

But I do think that that is likely to precipitate faster and sharper conflict between the US and mainland China over Taiwan, not in the imminent future, not before the Beijing Olympics, for example, probably not before Xi Jinping secures his third term late next year, but certainly in the next five to 10 years. 

I'm increasingly quite worried about Taiwan, yes.

When Ian says he’s “quite worried,” we should pay attention.

No Labels

Now we’ll turn to domestic politics. 

My friend Bruce Mehlman, a top Washington lobbyist, is routinely in contact with both corporate leaders and politicians of both parties. 

He knows what they’re thinking about and discussing, and what they consider priorities.

Bruce has become kind of famous for his fabulously informative, entertaining slide decks. 

A couple of months ago he produced one on the increasing pressure corporate leaders face to get involved in social and political issues. 

In his view, they have little choice. 

Neutrality is no longer tenable. 

At the SIC I asked Bruce to put all this disruption in context. 

He came up with 21 points (for 2021) and I can’t possibly summarize them all here. 

But to give you a taste…

  • In the US we have elections every two years, any of which could change the party in control of the Senate, House, and/or White House. This used to be fairly rare. In the 10 election years from 1960–1978, only three times did at least one of those bodies change hands. In the 10 elections from 1980–1998, it happened four times. But now? The House, Senate, and/or White House changed control 9 times in the 11 elections from 2000–2020. That is obviously disruptive and it’s increasingly normal.
  • On the other hand, there are issues of bipartisan interest: China, antitrust reform, cybersecurity, supply chain security. Bruce thinks we may see some progress on those, notwithstanding which party has the upper hand.
  • But one wild card is the way the political parties are realigning, and in many ways polarizing. The top differentiators are education, gender, geography, and race. All are increasing.

Looking at education, for instance, as recently as 2010 voters with college degrees were almost evenly split between the two parties. 

Now Democrats have a 20-point lead.


Source: Bruce Mehlman


We can debate the reasons for this and similar splits, but I think we would all agree they are increasing political divisiveness. 

But some people are trying to restore unity, or at least tolerance.

In my SIC interview with Howard Marks, after we discussed market issues, we talked about his support for a group called NoLabels.org, and the associated “Problem Solvers Caucus” in Congress. 

The idea is simple: just solve problems without the partisan drama.

Howard pointed out, as Bruce did, that frequent changes in control combined with extreme partisanship add up to policy chaos, which is bad for business. 

The solution has, unfortunately, become a dirty word: compromise. 

Here’s Howard.

I love when the party in power says, "We should compromise. Let's do it our way." 

That's not a compromise. 

A compromise is you don't get all of what you wanted and the other guy gets some of what he wanted. 

We have to have that. 

I think that will eliminate extremists

The other thing is this, if, let's say, there's a bill and with all these changes to the tax system and it's passed under reconciliation in the Senate by the Democrats 51 to 50, and it has all these extreme changes, the minute you get a Republican Senate, they'll reverse it. 

Then if the Democratic Senate comes back, they'll put it back. 

Then the Republicans come back and they'll reverse it again. 

You [meaning primarily businesses and investors] can't live like that because we have to have a system that we can depend on to be stable.

[Many of the] the leaders in Congress have expressed the opinion in recent years, "My goal is to pass legislation without any votes from the other side." 

That's not a legitimate goal and it's not going to lead to a stable environment. 

You see how that was done with Obamacare. 

You see how much time the Republicans spent on just trying to undo it. 

The last tax bill was done that way by the Republicans. 

Now the Democrats are spending all their time trying to undo it. 

How about trying to do something which is positive, which is moving forward rather than just trying to undo what the other party did when they were in power.

Look, bipartisanship is an ideal. I think we can move in that direction. 

No Labels is not sure to work, but I always say to people, "What's your plan?" 

There is no plan B for bipartisanship other than No Labels. 

We get Democrats and Republicans together. 

We get Senators and House members together, which is apparently even more rare than Democrats and Republicans sitting down together. 

I think we can move this thing incrementally gradually in the direction of bipartisan solutions, which will be less extreme and which will endure.

No Labels has an evenly balanced bipartisan membership of 58 members of Congress, plus a similar group of about 20 in the Senate. 

If 75% of the caucus agrees on a bill, then the other 25% have obligated themselves to vote with the caucus, even if they disagree.

The Problem Solvers started with a few members and is growing. 

Will it ever be the majority? 

Only in our dreams, but it is a start. 

And on some close votes, they could be the deciding factor. 

The group leading the consensus over infrastructure with Biden is essentially the Problem Solvers Caucus and No Labels.

I realize that sounds optimistic in the current environment. 

I said after the election that Joe Biden plus a Republican Senate might actually get some good things done. 

Then Democrats took control (barely) of the Senate, which changed the calculus. 

Or did it? 

Yes, they passed a gargantuan stimulus bill, much of it (in my view) unnecessary. But their majority in both chambers is so narrow, Biden has little choice but to negotiate with Republicans on other issues.

The process is slow, messy, and frustrating, but I still have hope we could see some good outcomes. 

Will they be compromises? 

Absolutely. 

Whatever you may want, you won’t get all of it. 

But you’ll at least get something, while hopefully avoiding the extremes.

That’s how legislation used to be done. 

I think we may see it again. If we can return to those days, the US truly can be the world leader it should be—including economically.

I have been listening to some No Labels-sponsored conference calls featuring various Congressional and Senate leaders. 

Their proposals aren’t all to my liking, but then I am basically a small-government, low-tax conservative. 

That is not currently the zeitgeist for at least 50% of America. 

Those of us in that camp should seek compromise that keeps us from the extremes on either side. 

Moving from one extreme to the other simply guarantees the next election cycle will bring a different extreme.

In preparing for my interview with Howard Marks, it was clear he is a Democrat. Yet I found many issues on which we could agree. 

Listening to both sides on the No Labels conference calls, I once again find substantive areas where we can agree, but others that make me more than a little uncomfortable. 

In a two-party system with such a close divide, if we are to move this country forward, we’re going to have to find ways to work together or we are simply going to watch comity and our civil order collapse.

I typically refrain from taking partisan stands in this letter, but I believe in the work No Labels is doing. 

We have to once again find a middle ground in this country. 

Maybe it will take a crisis to get us to do that, but we can start now.

From now on, I will generally focus my own political funding and work in cooperation with this group. 

I no longer wish to be seen as a Republican or Democrat, but as an American. 

Perhaps you can go to No Labels, check out their website and listen to a few conference calls (I will once again listen to Manchin this Monday) and make your own informed decision.

Is it everything I want? 

No, but if you try sometime, you get what you need.

New York, Travel Plans, and Blood Pressure

I will be in New York the week after next and right now I’m tentatively scheduled to be on the Larry Kudlow show on Fox Business on Tuesday, June 22, along with a lot of other meetings. 

I plan to be in New York/Philadelphia every 6 to 8 weeks plus trips around the country and eventually Europe and Asia again.

I got a disturbing call from my longtime best friend from the first grade, Randy Scroggins, who told me he is recovering from a stroke. 

Bluntly, even though he was the picture of health, he had high blood pressure and just didn’t deal with it. 

With physical therapy, his recovery is looking good.

When I turned 59, someone turned up the dial on my blood pressure. 

My doctor, Mike Roizen at the Cleveland Clinic, called it Late Life High Blood Pressure Syndrome or something like that. 

I went from perfect blood pressure to uncomfortably high almost overnight. 

Cheap generic drugs keep it under control. 

Mike says that of the top 10 things you can do to maintain your health, the first three are blood pressure, blood pressure, and blood pressure.

You can buy an inexpensive electronic blood pressure cuff from Amazon or a local store. For whatever reason, moving to Puerto Rico has lowered my blood pressure and allowed me to reduce my medicine doses basically in half.

I need all of my readers to stay healthy and stay with me. 

As one of my million closest friends, I would gently urge you to keep checking on your blood pressure, and if it is more than 120/80, talk to a doctor. 

For what it’s worth, I use a drug called valsartan. 

My goal is 115/75. 

Without the med, it can easily jump up to 145/100.

And with that, I will hit the send button. 

Have a great week and start spending some time with friends in the same room and not on the computer.

Your paying attention to politics is not good for my blood pressure analyst,



John Mauldin
Co-Founder, Mauldin Economics

Copper boom: how clean energy is driving a commodities supercycle

Demand is set to explode with the rise in renewables technology, but years of under-investment threaten to leave supply short

Neil Hume and Henry Sanderson in London 


Kamoa-Kakula in the Democratic Republic of Congo is a rare commodity in the modern resources industry: a high-grade copper mine that one day could produce enough metal to satisfy more than 5 per cent of China’s annual demand.

Surrounded by small villages, the mine employs around 7,000 workers and has its own road for trucks to carry rock to a nearby smelter. 

The company is also upgrading a 40-year-old hydropower station on the Congo River to provide electricity to run the mine. 

The first phase of the $2bn project began operating in May, more than four years after the last big copper mine of similar scale, MMG’s Las Bambas, in Peru, came online. 

Despite these examples, years of belt tightening mean the pipeline of new copper projects is running dangerously thin just as demand for the metal — used in everything from wind turbines to electric vehicles — is set to soar.

Governments around the world are launching huge stimulus programmes focused on job creation and environmental stability.

The coming together of such demand and potential supply shortages has many people on Wall Street, and in the City of London, hailing the arrival of a commodities supercycle and asking if copper is set to become the new oil, a strategically important raw material.

“We see potential for a multi-decade commodity cycle ahead driven by decarbonisation of the global economy and shift to cleaner energy,” says Tal Lomnitzer, a senior fund manager at Janus Henderson. 

“It has more legs to it than the China boom of the early 2000s.”

Commodities have enjoyed a dizzying run over the past year, initially on the back of strong demand from China, and more recently other big economies. 

Supply disruptions have provided further impetus. 

Copper, iron ore, the key ingredient needed to make steel, palladium and timber all hit record highs in May, while agricultural commodities including grains, oilseeds, sugar and dairy have also jumped.


While there is no agreed definition of a supercycle, it has been commonly used to describe a period where commodity prices rise above their long-term trend for between 10 and 35 years. 

These cycles are typically triggered by a structural boost to demand that is large enough to register globally and to which supply is slow to respond, according to Capital Economics.

There have been just four sustained periods of above-trend commodity prices over the past 120 years. 

The first came with the emergence of the US as an economic powerhouse in the 1880s and the last with China’s rapid industrialisation in the early 2000s.

“Most people in commodities markets thought we were never going to see another Chinese urbanisation story. But it is now pretty clear that the green capital expenditure story is going to be bigger and multiples bigger because it is global”, says Ben Cleary, a partner at Tribeca Investment Partners, a boutique fund management group based in Australia.

“I also don’t think the China green capex numbers are fully appreciated,” he adds, “it’s $2tn a year for 40 years to get to net zero carbon. The numbers are mind blowing.”

A kite surfer is pictured in front of the Burbo Bank offshore wind farm in Liverpool Bay on the west coast of the UK © Phil Noble/REUTERS


The green effect

It is not a universal sentiment. 

Many economists believe the current boom in commodity prices is cyclical rather than structural and can be explained by strong Chinese demand, a post-pandemic economic recovery in Europe and the US overlaid with supply chain disruptions. 

They expect the rally to peter out as China — still the world’s biggest buyer of commodities — tightens credit.

Indeed some raw materials have already fallen in price. Iron ore is down 10 per cent from its recent record high of $233 a tonne in May as Beijing has moved to cool runaway prices.

“Commodity prices have rallied because demand is so strong,” says Ric Deverell, chief economist at Macquarie in Sydney. 

“But in large parts that is a cyclical rebound from a very large recession. 

And, of course, it has been turbocharged by stimulus.”


Sceptics are also quick to point out that not all commodities are in short supply. 

A case in point is oil, where Opec and its allies have yet to fully unwind the huge production cuts enacted in April 2020.

“When we are talking about a supercycle, we are talking about something bigger and that has to involve the major commodities, such as oil and iron ore,” says Mark Williams, chief Asia economist at Capital Economics. 

“And, for those commodities, the demand outlook is weaker.”

However, when it comes to copper and other metals linked to investment in green technology, such as cobalt and nickel, even sceptics accept the outlook is bright, because supply is constrained and demand is set to accelerate.

“In terms of trying to decarbonise the world, the only possible way we can do that is through copper. 

There’s really nothing else that can conduct electricity as well,” says Jeff Currie, head of commodities research at Goldman Sachs and one of the strongest proponents of the idea that we are in a new supercycle.

An electric vehicle contains five times more copper (60-83kg) than a car fitted with an internal combustion engine, according to Goldman Sachs © Christophe Morin/Bloomberg


“That’s why we say it is as strategically important as oil, because if you want to decarbonise transport and industrial fuels through electricity, you are going to need copper,” he adds, “and a lot of it.”

An electric vehicle contains five times more copper (60-83kg) than a car fitted with an internal combustion engine, according to Goldman, while a 3-megawatt wind turbine uses up to 4.7 tonnes of the metal.

Goldman is not alone in forecasting strong demand growth. 

To achieve net zero emissions by 2050, the International Energy Agency says the total market size of critical minerals such as copper, cobalt, manganese and various rare earth metals will have to grow almost sevenfold between 2020 and 2030.

   US President Joe Biden’s jobs plan and climate change directives may tie into a commodities supercycle © Mandel Ngan/AFP via Getty Images


“Every supercycle in commodities has been tied to redistribution policies,” says Currie. 

“What’s the redistribution story this time around? 

Tackling income inequality. And it is pretty clear we are going to tackle it the same way Franklin Roosevelt did in the 1930s, through green capex, just like the Hoover Dam.” 

Currie points to US President Joe Biden’s jobs plan and Europe’s Green New Deal as evidence for that view. 

But just as demand is expected to take off, the copper market is arguably the closest it has ever been to peak supply, due to big miners curtailing investment in new projects. 

That trend started around seven years ago, after a brutal downturn in commodity markets pushed many miners with bloated balance sheets and unsustainable dividend policies close to financial ruin.

“Mining companies are likely to continue to prioritise capital returns and balance sheet strength over investment in long-lead-time, capital-intensive growth projects,” says Christopher LaFemina, an analyst at Jefferies. 

“The economics of these projects are moving targets that are in many ways beyond the control of the mining companies.”

Robert Friedland, chair and founder of Ivanhoe Mines, started searching for copper in the Democratic Republic of Congo more than 25 years ago © Roger Bosch/AFP via Getty Images

Fall off in capital spending

Robert Friedland started searching for copper in the DRC more than a quarter of a century ago. Many people thought he was crazy. 

At the time the country was in the midst of a brutal war.

“Our team of geologists worked 15 years in the bush to find this deposit against a great deal of scepticism,” Friedland says of the Kamoa project, a joint venture involving his company Ivanhoe Mines, China’s Zijin Mining and the government of the DRC. 

“It is unquestionably the largest discovery in the history of the African copper belt.”

While the copper market is relatively well supplied for the next couple of years, thanks to developments such as Kamoa and Quellaveco — the $5bn Peruvian mine Anglo American expects to bring online in 2022 — beyond that the pipeline of new projects looks thin.

The Kamoa-Kakula copper project in the Democratic Republic of Congo © Ivanhoe Mines


“People look at the supply numbers, but they don’t filter in how difficult it is to get that supply,” says Farid Dadashev, co-head of European metals and mining at RBC Capital Markets. 

“The last time the copper price was high in 2011 and 2012 there were a couple of new projects in the market but they were all delayed and the capital expenditure was extremely high.”

After blowing billions of dollars in the last commodity boom on overpriced deals and over ambitious projects, the mining industry has dramatically scaled back spending and focused on returning cash to shareholders, who have now become used to receiving fat dividends from the sector.

“All the major producers have been returning capital for the best part of six or seven years with a gun to their head from shareholders who don’t trust their ability to reinvest profits into growth,” says Cleary from Tribeca Investments.

As a result, global mining and smelting capital expenditure, which peaked at $220bn in 2012, only reached half that level last year, according to Wood Mackenzie. 

Exploration spending has also dropped sharply from $35.7bn in 2012 to just over $10bn last year, according to Tribeca.

In spite of rising commodity prices — copper has almost doubled in the past year, recently hitting a record above $10,500 a tonne, although it has since slipped almost 5 per cent — miners are either unwilling or unable to sign off on new copper projects.

     A 3-megawatt wind turbine uses up to 4.7 tonnes of copper © STR/AFP via Getty Images


Unless that changes, Goldman sees an annual supply shortfall of 8.2m tonnes emerging by 2030. To put that figure in perspective, last year global refined copper production was 23.5m tonnes.

It is becoming increasingly difficult to find high grade copper projects in safe mining jurisdictions.

Ivan Glasenberg, the long-serving boss of miner and commodity trader Glencore, told the Financial Times recently that the copper price would need to rise 50 per cent to meet projected demand from the global green revolution. 

“You will need $15,000 copper to encourage a lot of this more difficult investment,” he said. 

“People are not going to go to those more difficult parts of the world unless they are certain.”

It is not just in the more difficult parts of the world where there are problems. 

Proposed tax changes in Chile and Peru — gripped by the most divisive presidential election in recent history — could make it very difficult for foreign miners to invest in the world’s two biggest copper producing nations.

“Fiscal uncertainty is likely to deter investment and impact future supply,” says Liam Fitzpatrick, an analyst at Deutsche Bank, who has identified $50bn of projects in Chile, Peru and Zambia that are up for approval over the next decade but could be delayed.


Ageing mines and declining ore grades present other challenges for the mining industry. 

These are particularly pronounced in Chile, where state-owned Codelco — the world’s biggest copper miner — needs to spend $35bn between now and 2030 to keep annual output steady at 1.6m to 1.7m tonnes.

It can take up to 10 years to develop a new copper project, assuming all the approvals are in place. 

So even if the mining industry, swayed by higher prices, decides to open the purse strings now, it may already be too late to prevent large supply deficits from opening up later in the decade.

“If we knew how hard it was going to be to find a major copper system and bring it into production with hydroelectricity in the Congo,” says Friedland, “I can assure you we would have given up.

“That’s the problem with mineral exploration,” he adds, “very few efforts come to fruition”.

Aluminium as an alternative

Not everyone is convinced that copper is set for a supercycle. Julian Kettle, vice-chair of metals and mining at Wood Mackenzie, says higher copper prices will incentivise substitution towards aluminium, which has lower conductivity than copper, but is much lighter.

In May, London-listed Tirupati Graphite said it had developed a graphene-aluminium composite material that it said had conductivity similar to copper. 

The company is working with Rolls-Royce on using it to replace copper in thermal, power and propulsion systems, according to a person familiar with the company.

During the last China-driven commodity supercycle, Kettle estimates the copper market lost 2 per cent, or between 400,000 and 500,000 tonnes per year, of demand due to aluminium substitution when prices rose above $6,000 a tonne. 


The Kamoa-Kakula mine under construction. The site was one of the largest discoveries in the history of the African copper belt © Ivanhoe Mines


“If raw materials prices are rising quickly, you look at opportunities for thrift,” he says. 

“It’s back to the law of physics: if the supplies aren’t there, then you cannot consume. 

The notion the price will go to fanciful numbers on a sustainable basis . . . that [scenario] tells the market you can’t deliver supplies and consumers will look elsewhere.”

But even Kettle concedes that the outlook for the copper market is relatively bullish. 

It needs to double in size by 2040 if the world is to meet the targets set out in the Paris climate agreement. 

“If there is one commodity where you will see supercycle characteristics it is copper. But the fundamental drivers aren’t there just yet,” he adds.

Back in the DRC, Ivanhoe Mines has begun searching for another big copper discovery on a parcel of land close to Kamoa-Kakula. 

And this time the work of its geologists is drawing attention rather than scepticism from big western miners, as well as sovereign wealth funds and international financial institutions, according to Friedland.

“Kamoa wasn’t just the discovery of a mine,” he says. “It was the discovery of a whole new mineral province.”

Dollar traders chill after the tantrum

US currency gives up gains made on expectation of rising interest rates

Eva Szalay

The dollar has weakened after appreciating in the first quarter of this year © Reuters


It was a classic case of buy the rumour, sell the fact.

In February this year, investors and analysts were concerned that the US economy was beginning to hot up, sparking fears that inflation would pick up and force the Federal Reserve to quicken its policy tightening. 

This, in turn, led to a surge in US government yields, which propelled the dollar to the year’s high against its peers a month later.

Fast-forward to the end of the first half of the year and inflation in the US is running at its fastest pace since the global financial crisis, but the dollar has weakened for two straight months after appreciating in the first quarter.

Most of the shift is down to US central bankers who rushed to reassure investors that they would keep conditions extremely accommodating, soothing the flare-up in Treasury yields and the dollar’s exchange rate.

As a result, analysts are pretty confident that Fed chair Jay Powell and his board will “look through” the rise in prices at the central bank’s rate-setting meeting next week, keeping the dollar on its current weakening path.

“The combination of steady Fed expectations and a broadening global economic recovery should allow recent dollar weakness [to] continue,” said Zach Pandl, co-head of foreign exchange strategy at Goldman Sachs, in a research note. 

He expected the euro to benefit the most against the US currency.

Still, some strategists cannot help but wonder whether they should stick to selling the fact, or if it is time to start buying the rumour — and the dollar — again. 

Despite inflation powering to above 5 per cent year on year, yields on 10-year Treasuries fell to their lowest in three months, in a counterintuitive reaction fuelled by the anticipation that policymakers will shrug off the building heat in the economy.

“Getting US inflation right may be the most important market call for the rest of the year,” said Athanasios Vamvakidis, global head of currency strategy at Bank of America in London.

A decision from the US central bank to keep its policy unchanged would allow the dollar to continue with its weakening path, but maybe not as much as traders anticipated at the beginning of 2021. 

Vamvakidis notes that currency markets are quietly pricing in less dollar weakness than at the start of the year, with the consensus view now calling for the euro to trade at around current levels $1.21 by the end of December rather than at $1.25.

“For now, high US inflation and a still dovish Fed keep real US rates highly negative and this supports the euro. 

The question is for how long this is sustainable if US inflation proves persistent,” he said, adding that the bank expected the euro to finish the year at $1.15.


There are signs that investors might be getting too relaxed. Options markets display little nervousness about the Fed meeting, and Mark McCormick, global head of currency strategy at TD Securities said negative bets on the dollar had begun to build up heavily again in recent weeks.

This adds to the risk of a sharp snapback in the currency’s exchange rate if the Fed does hint at tapering its asset purchases on Wednesday or before analysts expect.

“Don’t expect much more dollar weakness into the summer,” said McCormick.

There are also some offbeat signs that there is a risk of traders betting too heavily on the Fed’s commitment to keeping liquidity ample. 

Analysts at Standard Chartered noted that Treasury secretary Janet Yellen, a former Fed chair, mentioned the potential benefits of a higher interest rate environment twice in recent weeks.

John Davies, a US rates strategist at Standard Chartered, said that it was most likely that the Treasury chief was defending the Biden administration’s fiscal plans rather than criticising Fed policy, but it was highly unusual.

“It is still striking when the Treasurer of a public or private entity argues for higher borrowing costs,” said Davies.

Investors now expect the US central bank to start cutting its asset purchase amounts in the first quarter of next year, with an announcement pencilled in for potentially September, when the Fed meets for its annual symposium at Jackson Hole, according to Oliver Brennan, head of research at TS Lombard.

But while an earlier than expected announcement would cause some ructions, the real risk is that investors will have to start anticipating the timing of rate increases in the US, which could come sooner and harder than they anticipated.

“The taper sets the clock ticking for the first rate hike and real rates rise [and] big changes in Fed policy are rarely smooth-sailing,” said Brennan.

What Explains America’s Antagonism Toward China?

In the last few years, the view of China as a strategic rival has taken over the American political mainstream, with leaders largely choosing confrontation over cooperation. Two features of this shift stand out: how quickly it occurred, and the extent to which Americans – and their leaders – have united behind it.

Zhang Jun


SHANGHAI – Last month, the US Senate Foreign Relations Committee officially backed the Strategic Competition Act of 2021, which labels China a strategic competitor in a number of areas, including trade, technology, and security. 

Given bipartisan support – exceedingly rare in the United States nowadays – Congress will most likely pass the bill, and President Joe Biden will sign it. 

With that, America’s antagonism toward China would effectively become enshrined in US law.

The Strategic Competition Act purports to highlight supposed “malign behaviors” in which China engages to attain an “unfair economic advantage” and the “deference” of other countries to “its political and strategic objectives.” 

In truth, the bill says a lot more about the US itself – little of it flattering – than it does about China.

The US used to take a sanguine view of China’s economic development, recognizing the lucrative opportunities that it represented. 

Even after China’s emergence as a political and economic powerhouse, successive US administrations generally regarded China as a strategic partner, rather than a competitor.

But, in the last few years, the view of China as a strategic rival has taken over the American political mainstream, with leaders largely choosing confrontation over cooperation. 

Two features of this shift stand out: how quickly it occurred, and the extent to which Americans – and their leaders – have united behind it.

Ironically, the problem is partly rooted in extreme ideological polarization, which has impeded US political leaders’ ability to govern effectively and minimize the social costs of structural transformation in the age of globalization and digitalization. 

These failures fueled popular frustration and social tensions, creating fertile ground for former President Donald Trump’s populist “America First” campaign.

Vilification of China – which, unlike the US, prudently managed the risks of economic globalization to minimize the costs of structural change – was central to Trump’s electoral appeal. 

It is also perhaps the most notable feature of the Trump doctrine to have survived the transition to Biden’s administration.

The anti-China narrative has thus restored some common ground to American politics. 

Unfortunately, Americans are agreeing on an idea that will do them far more harm than good. 

What the US should be focusing on is how to benefit from globalization and technological progress and manage the risks arising from the associated structural disruptions. 

To that end, effective cooperation with China – together with a broader embrace of free trade and economic openness – would be enormously helpful.

In fact, according to former US Secretary of State Henry Kissinger, who spoke at a special session of the China Development Forum in Beijing in March, a positive, cooperative bilateral relationship is essential to global peace and prosperity. 

And no American alive today is better qualified to assess Sino-American relations than Kissinger, whose secret mission to Beijing 50 years ago this year led to the restoration of diplomatic ties.

In his remarks, Kissinger acknowledged just how difficult it will be to build the Sino-American relationship the world needs, noting that the different cultures and histories of these two “great societies” naturally lead to differences of opinion. 

Modern technology, global communication, and economic globalization further complicate the ability to reach consensus.

Kissinger was right to highlight modern technology as a key challenge. 

In the past, when dominant media organizations largely shaped the popular narrative, remaining relatively neutral was the most effective way to compete. 

With voters all sharing roughly the same facts, politicians’ best bet was to appeal to the “median voter,” rather than those on the extremes. (As Anthony Downs explained with his “median voter theorem” – inspired by the Hotelling model in economics – the outcome of majority voting is the median voter’s preferred option.)

But modern technology has fragmented the media landscape and eroded traditional news organizations’ “gatekeeper” role. 

Inaccurate, misleading, or otherwise unreliable information can be disseminated to a huge audience instantly. 

Moreover, it can be targeted at those who are most likely to agree with it, and kept away from those who would disagree.

This has fueled a growing preference for “personalized” information – and transformed media’s competitive strategies. 

In this environment, neutral reporting doesn’t attract as much attention as inflammatory or ideologically driven reporting, especially if the latter is algorithmically targeted at those who are primed to embrace it. 

The media’s role in establishing a common factual basis has thus increasingly gone by the wayside – and, with it, the strategy of appealing to the median voter.

As US media embraced increasingly biased, targeted strategies, deep polarization became all but inevitable. 

This, together with US politicians’ new incentives to appeal to the ideological extremes, has torn at the fabric of American society, fueling instability and conflict, hampering leaders’ ability to address urgent challenges, and undermining America’s position of global leadership.

China has largely avoided this pitfall of modern technology, though not without cost and criticism, by controlling extreme online speech and limiting populist attacks on mainstream values. 

But it has not avoided America’s media-fueled ire. 

In a matter of just a few years, the US-China relationship has regressed significantly, and the global free trade system has been pushed to the brink of collapse.

As Kissinger made clear, the difficulty of restoring Sino-American relations should not deter leaders from trying. 

On the contrary, it demands that both sides make “ever more intensive efforts” to work together. 

For the US, however, that work must begin at home. 

The real threat to the US is not from rising China, but from its inability to meet the challenges of modern technology.


Zhang Jun is Dean of the School of Economics at Fudan University and Director of the China Center for Economic Studies, a Shanghai-based think tank.