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The new monetary stimulus relief issued by the Fed is going to create a massive hyperinflation that will provoke a banking crisis and potentially trigger the dollar collapse on the financial markets. Even though a second round of unemployment checks may sound good at this point in the economic meltdown, what lays behind this policy is yet another attempt of the US government to trap the American currency into an inflation loop. However, as the is hostage to foreign sellers and the market tendency points to a major dollar sell-off, experts have been alerting that how the second round of state money is programmed to swiftly lose utility, which will defeat its own purpose, and soon we’ll witness the dollar lose its purchasing power.
As the economic meltdown unfolds, the Fed continues with policies whose purpose is to sustain a bubble in financial markets. However, when the massive inflation bubble pop the inevitable result will be the total destruction of the dollar. To simply put, the extensive scale of printed money injections will create such an overpowering hyperinflation that the dollar’s purchasing power will rapidly deteriorate.
You may think the main purpose of monetary inflation is to support the economy, but the government’s real reason is that only a large-scale inflation can fund the colossal governmental deficit, which is climbing fast due to higher future welfare liabilities becoming current and also to the political class’ disruptive behavior to keep finding new reasons to spend money. Underneath the extravagant spending, there are unsustainable tax burdens on the underperforming US economy. And, the economic meltdown consequent to the health crisis was only the final blow that triggered the dollar downfall.
At the end of the day, as economy expert Alasdair Macleod explained, the real intention behind monetary inflation is to transfer wealth from savers, salary-earners, pensioners, and welfare beneficiaries to the government. In no way does this benefit the people as a whole. It also transfers wealth from savers to borrowers by diminishing the value of capital over time. That is to say, with yet another round of fiscal relief, the inflation of the money supply is now going to skyrocket, meaning that these negative implications are going to get much worse.
The coming elections will likely be another aggravating factor for it, because prospects to reduce, or at least restraint budget deficits have been totally suppressed by it. No matter who wins, government spending won’t be controlled nor tax revenue will be increased. The thing about unsubstantiated state currencies is that whenever they can be issued to cover budget deficits they will be issued. As a consequence, the inflated currency loses its purchasing power as the pace of its issuance speeds up to compensate – and that’s the main traction behind hyperinflation of the quantity of money.
Due to the Fed’s monetary response to the economic meltdown boosted by the outbreak, the imminence of a second wave of the virus destroying the possibility of a V-shaped recovery, forthcoming elections, and another stimulus package, a significant surge in FMQ will emerge. Although, right now, FMQ already exceeds GDP, and it will potentially exceed 125% of GDP in the coming months.
This money is raised through quantitative easing which is a policy that overlooks rules to enable the Fed to keep printing money and handing it to the US government. As the fiscal deficit has been expanding way before the sanitary outbreak struck the economy, and after businesses’ widespread collapse that led to the direct injection of money into each household due to the staggering unemployment rates, the government debt is predicted to be of $20.3 trillion by the end of fiscal 2020.
Furthermore, eventually, the inflation impact will be seen in prices, and ultimately, people will start to reject it as a currency, preferring to trade it in exchange for goods, because it will become worthless paper. While authorities are relying on public ignorance about how money and the theory of exchange works, foreign holders already started to dump dollars or sell them off in exchange for commodities.
Countries that hold the dollar as a reserve currency or as portfolio investment, are witnessing the worsening of the global economic outlook, boosting the deterioration of the currency. Additionally, the second round of stimulus relief will likely spark a banking crisis that will make the whole traditional banking system obsolete, and possibly mark the end of the Fed’s money-printing policy and the beginning of a new digital currency. In any case, the effects on the real economy will be disastrous and the financial markets are going to face another blow.
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