The country is experiencing deflation and low prices due to the spread of the coronavirus. The massive injection of funds would cause uncontrolled inflation in 2021.
The economic effects of the coronavirus pandemic on the USA paint a dark picture for 2020 and possibly 2021. The Donald Trump government and financial institutions, such as the Federal Reserve (FED), have already announced measures to rescue the economy, which will have a contraction of around 6% this year, according to the International Monetary Fund (IMF).
One of these decisions is the all-time injection of liquidity from the FED, as a central bank, to finance hundreds of companies and millions of S citizens in times of economic paralysis and rising unemployment. The government has already distributed trillions of US dollars to temporarily alleviate the situation, with special payment conditions, while they reactivate the economy again.
Beyond the handling of the COVID-19 pandemic in the country, the main focus of the global spread remains for analysis of how the US dollar will react amid all this turbulence that could last for several months, without even having a vaccine to counteract the disease.
The situation shows one stage of international deflationary shock or falling prices, and another that could occur next year with a scenario of uncontrolled inflation. Venezuelan market analyst and trader, Alberto Cárdenas, believes that the world’s main economies are not currently suffering from an inflationary problem, but quite the opposite.
Cárdenas does see inflation regarding financial products such as stocks or bonds, which he considers to have captured this enormous liquidity and not to have yet been translated into the real economy.
Although governments have tried to keep economies afloat, inflation is not there. The truth is that there is an unprecedented printing of money by central banks, but this is only the first stage. Once the demand issue is solved, there may be a quick turnaround into an inflationary environment and all this printed money will translate into a loss in the value of fiat currencies, especially in the USA.
For 2020, the analyst considers that the US dollar will have a bullish trend, compared to other national fiat currencies, since some emerging economies are still in need of liquidity. In other words, despite the printing of US dollars on an industrial scale, there would be a latent shortage.
According to the trader, in deflationary situations like the current one, the US dollar appreciates as people seek refuge in bonds, among other securities. However, all could take a 180-degree turn if the cycle begins to change, which includes commodities reaching the bottom, economies reopening and a balance of inventories. That would mark the beginning of the second stage, where the printing of money would “take its toll” on the US dollar.
The circumstances would lead to a bearish cycle for the US fiat currency, which includes possible uncontrolled inflation as a result of fiscal deficits and current distortions. In this situation, the price of Bitcoin (BTC) and other cryptocurrencies could exhibit better performance under an inflationary environment, according to Cárdenas.
By Alexander Salazar
