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Inflation or Deflation/Recession?

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Avatar for MikeZillo
Written by   6
4 days ago

The Covid-19 virus pandemic seems to be coming to an end.

On the "battlefield" there are a lot of deaths, but this pandemic has extremely serious repercussions especially in the economic sector of all nations involved.

As we know, last year, in order to face this financial cyclone, the FED printed dollars as if they were Monopoly money.

This factor increased the liquidity of money, at the same time it gave a boost to inflation.

What do we mean by inflation?

Inflation means the prolonged and generalized increase in prices of goods and services confined to a well-defined territory (region, nation, etc.) in a given period of time.

In order to make the calculation of this variable reliable and standardized, a list of representative goods or services has been drawn up.

After this operational definition we can say, briefly, that inflation indicates the percentage of devaluation of the currency.

So with the same amount of money it is no longer possible to buy the same good or service.

In this video I talk about it

As opposed to inflation, deflation.

The "antagonist" of inflation is deflation more correctly called recession.

In a recession there can be two triggers:

  • Production (always relative to a defined territorial area) slows down and there is an increase in unemployment.

The prices of goods/services undergo a drop, for two reasons: drop in raw material prices and drop in production costs.

  • Decline in demand. With the decline in demand, producers begin a race to the bottom in order to re-establish the supply-demand curve.

Unfortunately this race to the bottom causes a drop in wages and consequently there is, also in this case, an increase in unemployment.

In both cases there is a negative influence on the markets with a consequent loss of confidence in other economic areas.

The corona virus

At the same time, we can very well say that we are in the second situation and therefore in recession.

This is why the trillions of dollars printed by the FED did not make the world become a "second Venezuela".

Because of the forced closures of all nations, the demand for goods/services fell off.

Of course, businesses have also had setbacks as production has stopped.

Or, for reasons of anti-epidemic protocol, production slowed: staffing levels were cut in half.

Contrary to what could be an "after war" the end of Corona Virus cannot be defined a priori with an armistice.

Economically speaking a certainty of dates would have had a corroborating effect for the various nations.

Why?

Because everyone would be aware of a certainty: everything would return to normal.

With the due times, but without uncertainties.

In the current situation we do not have the certainty of a safe end of the pandemic: there could be another wave, and then everything would return as before.

Today everyone is extremely uncertain about the future of themselves, of the company they work for and of a potential new wave.

At this precise moment we are in the second situation that causes recession: a drop in consumption due to uncertainty about the future.

In both cases, is the situation desperate?

Absolutely, we have all the tools to exploit situations in our favor.

In this moment of recession, since the fiat currency is gaining purchasing power, we can start a phase of medium-term provision and foresee, subject to a strict money management, the purchase of cryptocurrency.

In this way we can preserve the purchasing power of the legal currency, taking advantage of a period not exactly rosy for the whole world!

The purpose of my articles is to make people aware of all the economic and financial aspects that underlie certain situations in order to manage them in the best possible way and make a profit.

This post is not a financial advice, nor an investment suggestion.

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