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Few understandings about the post Covid-19 economics.

by on 09/07/2020

As contrary to often heard claims about expected inflation due to the huge influx of money into the economy, caused by central banks monetary policy, I don’t expected in the foreseen future consumer price index inflation.  My reasoning is based on the following understanding:

A. Even a temporary drop of 10-15% on the GDP, with it the high unemployment will have deep effects on the agregat demand. 

B. The global economy started its slowdown trend already in 2019. As a reaction to it the Federal Reserve changed its interest rate policy already before the pandemic. It means, there was worldwide production overcapacity, globally and on the local level. 

C. The technology and sciences didn’t stop their research and development during the pandemics. New technologies and management systems, and new commercial networking continued to be created and introduced into the economy. 

D. the commodity prices halved at the beginning of 2020 and still are far bellow 2019 prices. Viz.

https://tradingeconomics.com/commodity/gsci

E. the inflation could raise locally in some major economy, if some major currency would depreciate substantially, meaning tens of percent. Such a dramatic change in exchange rates may happen due to some global change in the financial system of international trade. For example, if China successfully would introduce some kind of internationally accepted currency, that would replace the US dollar as a main currency for international trade. The same may happen, if Libra or some other kind of corporate money will be successfully introduced as a major payment system.

On the other hand, the central banks actions on the bond market, (Quantitative easing) means additional new money in the system that will look for investments in value holding assets. Since corporate and government bonds securities are with  almost zero yield, the only liquid alternative is share prices, commodity prices, esoteric currencies, as bitcoin and to less extent, less liquid real estate.

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