The global economic crisis has all the elements of a deflationary shock that has not been seen in decades.
Many press releases have been released that reflect the tireless pressure from the Federal Reserve (FED) on new USD. Some concerns are justified; After all, the Fed has spent new dollars in record amounts. He even tried to calm fears by arguing that he had “unlimited money”.
Although a possible inflation spiral would be expected, the real threat could be a deflationary shock.
Dangerous deflationary area
Bloomberg reports that much of the world’s population is protected in their homes to help fight the pandemic. The most likely scenario is a deflationary spiral. The price of everything from oil to copper to food has dropped dramatically since the start of business closures.
JPMorgan Chase Global Economist Joseph Lupton said to Bloomberg: “A powerful flood of disinflation is now being born.” [Bloomberg]
Although this seems theoretically good for consumers, it actually points to a deterioration in the economic situation. With record layoffs, consumers lack the purchasing power they once had. Therefore, most cannot even enjoy the low prices. As a result, most companies see a drop in profits. That is the essence of the current deflationary spiral, and the falling consumer confidence index is evidence of this.
The result of the deflation crisis will be diverse: companies can postpone investments due to limited profitability. Households will spend less due to lower purchasing power and anticipation of lower prices. Debt is becoming more expensive for governments and the private sector. With the Federal Reserve’s interest rates already at the bottom, monetary policy has also tied its hands.
Inflation crisis seems unlikely
Talks in the cryptocurrency industry focused on the Federal Reserve’s endless money pressure. Of course, this is important: As BeInCrypto recently reported, the Fed prints about $ 60 million every minute.
However, given the currently depressed outlook for global demand, an inflation crisis seems unlikely. Instead, profitability is likely to suffer and economic growth will weaken in the coming years if this crisis continues.
This does not mean that inflation will not be reflected in the coming years. In the short term, however, the dollar does not appear to be on the brink of collapse. Instead, the world’s companies are on the brink of bankruptcy as investors flee the dollars to escape the storm.
It remains to be seen how it will react.to this unique crisis, but from now on the bullish momentum is developing. At the time of writing, the leading cryptocurrency exceeded the USD 7,000 resistance level.
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