This is the Corona crisis as well, in so far as while it also would have happened without Corona, the pandemic served as a catalyst that has incredibly accellerated the process. I have feared these consequences in the ongoing pandemic more than anythign else.
Most people will loose most of , not few will loose all that they had. A very few rich ones will incredibly benefit from the redistribution process that is being expressed by a shift from paper to real material value - because ordinary people depending on FIAT paper money so far will not have the buying power anymore to make that shift for themselves, too. Only the rich can transform their wealth into a form of assets and goods that do not get affected directly by inflation like paper currencies. From nothing they get something. All others will loose, and with their losses will finance the wealthy even more wealth. A new upper-lower-class society, which in fact is an old pattern, will arise from this, and if need be: being enforced and protected by police state tyranny and totalitarianism. We already can see the writings on the walls in America and Europe.
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Originally Posted by https://www.focus.de/finanzen/boerse/experten/vermoegensverwalter-warnt-das-suesse-gift-des-billigen-geldes-frisst-sich-durch-das-monetaere-endspiel-hat-begonnen_id_12569923.html
Markus Steinbeis is the managing partner of Steinbeis & Häcker Vermögensverwaltung GmbH in Munich.
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The corona crisis hit a world with record levels of debt this year. That is the reason why this otherwise manageable crisis became an existential one. After the global financial crisis in 2008/09, there was a repeated rapid rise in national debt within a short period of time. The latest economic forecast by the International Monetary Fund expects global growth to collapse by around 4.4 percent in 2020. It is therefore not surprising that terms like deflation and recession make the headlines in the business press. Should one seriously prepare for inflation in this environment? From our point of view you even have to. The flood of money from central banks and the monetization of public finances meanwhile lead to a significant increase in the amount of money. A tide change begins for investors.
The M2 money supply (cash as well as savings and cash deposits with a maximum 2-year term and 3-month notice period) is growing by over 20 percent in the USA compared to the previous year. In the euro zone, it is around 10 percent. An excessive expansion of the money supply has always been the basis for inflationary developments in the past. As is so often the case in history, most states in our time can no longer cover their expenditures through tax receipts or the issue of bonds on the capital market. That is why the printing press is started. We are currently experiencing an unprecedented harmonization of fiscal and monetary policy. The central banks have become vassals of governments. Only the elderly among us remember our former independence.
We are at the beginning of the so-called Modern Monetary Theory (MMT). According to this, states can increase the amount of money almost indefinitely through their influence on the central banks. For us this is neither modern nor does it sound like theory. Rather, it is an act of desperation in a monetary endgame that has long since begun. Where does that lead us when budget deficits and national debt apparently no longer play a role because they have become irrelevant with freshly printed money and artificially depressed interest rates? Well, that's good news for all debtors. For investors and especially for the old-age provision of broad sections of the population, this is a disaster. In almost all major western countries, real interest rates (nominal interest less the inflation rate) are negative. Creditors are being dispossessed on a large scale.
The sweet poison of cheap money works and eats its way deeper and deeper into economic, political and social structures. Public and private debts are increasing immeasurably, interest payments can hardly be provided. The financial industry is profiting from asset price inflation and politics is enjoying the new leeway that freshly printed money offers. Charities are distributed and election promises outbid each other. It smells of socialism again. The system is on drugs and the substance is called debt. The balance can only be maintained if the dose is steadily increased. If this does not happen, the patient will show withdrawal symptoms. Last seen in the fourth quarter of 2018, when the US Federal Reserve tried to raise interest rates and shorten its balance sheet.
So far there has been no outcry from the population. There is still trust in the monetary system. Should this trust wane, things will get serious. People will then begin to exchange the money for property. As a consequence, the speed of circulation of money increases and the large amounts of money develop their inflationary dynamics. There is hardly any resistance in politics. System criticism in the mainstream media? Mostly nil.
Historical experiences are deliberately excluded. The history books are full of regimes that wanted to remain capable of acting through freshly minted or printed money and ultimately achieved the opposite. "History does not repeat itself, but it often rhymes" once wrote Mark Twain. When the euro was introduced 20 years ago, 1,000 euros could still buy more than 4 ounces of gold. Not even one today. It would be very surprising if the devaluation of paper currencies did not accelerate in the coming years. So far, inflation has only been shown in the area of asset prices. However, the recent explosion in the money supply due to various fiscal programs should also have an impact on consumer prices in the coming years.
Due to the dramatic glut of money, we fear a significant decline in the value of many paper currencies in the coming years. This shifts the coordinates for today's generation of investors in Germany. Investors have tended to operate in a disinflationary environment since the 1970s. Falling interest rates caused bond prices to rise. Conservative investors were able to steadily increase their wealth through savings and bonds, i.e. in the role of creditors. Real interest rates were mostly positive. The future is likely to be very different. Collecting liquidity by the central banks by raising interest rates would be political and economic suicide. Rising inflation rates will only push real interest rates further into negative territory. The monetary endgame has long since begun. A new era of value stocks is thus looming.
What the market for precious metals has been indicating for many months is likely to be seen in other asset classes in the foreseeable future. Goods that can secure assets in a currency depreciation will come into the focus of investors. In addition to companies with strong balance sheets, this includes selected real estate, precious metals, raw materials and perhaps also inflation-protected bonds. It seems that politicians and central banks have opened a new chapter in the financial markets with their merger.
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I am certain the political party fat cats and the elites and the wealthy in Venezuela have more than enough foods and drinks on their tables - and precious metals and jewelry in their cupboards.