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Pending Inflation Pressure Should Boost Bitcoin in Coming Years

13 Jul 2020 - Cryptocurrencies

The global economy is down, way down. Outside of the Great Recession, the global economy is in perhaps the most dangerous position it has ever been in. The following visual depicts the year-over-year change in the unemployed by country. On average, the unemployment rolls are up 67%. That number is 21% in the Eurozone and 226% in the U.S. for the second quarter of 2020.

Unless schadenfreude is your thing, the picture is not exactly beautiful.

In prior years, when one economy soured, other economies would provide some sort of support to the broader global economy. That diversification is gone. With all economies moving in sync (“lack of portfolio diversity”), global economies will need to find a way to boost each other simultaneously to get out of this rump.

What some forecasters think

Interestingly, with global economies still stinking of unruly residue, equity markets are betting massively on uber-massive global stimulus, be it through government spending, abnormally low interest rates, or huge central bank balance expansions.

The views on pending stimulus have led many analysts to assume the labour market will eventually get back to normal. The following is Oxford Economics’ view, which shows the jobs markets across countries getting back to where they were in 2020 by around 2024.

The backdrop from inflation

With economies dead but trying rise from the grave, the inflation picture is, unsurprisingly, low. Inflation around the world is actually not inflation, but rather disinflation or actual deflation.

On average across all countries covered by Oxford, global inflation is near its all-time low at 2.25% in the second quarter of 2020. In modern times, the only other time inflation has been this low was in the third quarter of 2009, when economies were just beginning to climb out of the rut left from the global financial crisis.

Given this background, investors should now be considering how global economies can grow and simultaneously prevent rapid inflation given the backdrop just presented.

Remember, this time around is different. The stimulus to this point may turn out to be just the beginning. Should the shutdown continue, governments everywhere will likely have no choice but to spend more money to support their economies and central banks will be forced to continue with the printing press operations.

This is interesting in the context of inflation. Historically, governments have never been able to avoid quick inflation rates with such massive fiscal and monetary stimulus. The picture is just unprecedented.

Overall, the visuals that follow show the low interest rates, massive central bank balance sheets, and government spending across countries. Clearly, this time is uniquely different. Whether government officials will be able to boost economic growth without rapidly rising inflation with these visuals as the backdrop is the question of the day.

Of course, with this background, it should likely come as no surprise that Bitcoin may be a large beneficiary of the massive government spending and printing programs. The world’s most well-known cryptocurrency was partially born because of this type of situation.

world map
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