2020 has been a dramatic year so far, for almost the entire population of the world. Everybody has been affected by the corona virus whether they have seen a decrease in their disposable income, forced to close down their business, barred from travelling and enjoying their hobbies, or even affected by the virus itself. All of these things created huge economic instability in most countries in Europe and around the world.
The first thing that central banks always do when there is an economic crisis is to lower interest rates, but in this case the interest rates were already very low to begin with thus the effects of this change cannot play a large role in the recovery of the economy. The European Union, and other countries around the world, have announced rescue packages in order to deal with this crisis. But how is the European Union going to get all this money that is promised in this rescue package? The answer is simply through the European Central Bank, and the way to do that is use what is called quantitative easing, which is printing money in order to inject it into the economy and stimulate lending and investments. The European Union will rely on the ECB to create enough new money to artificially stimulate demand for the debt they have created, that will allow them to finance all their public spending plans. By the end of 2020 the ECB is expected to own more than 30% of all public debt issued by eurozone countries. Moreover we don’t know if the economy will stabilize or there might be a need for additional similar rescue or stimulus packages in the future
The consequences of such quantitative easing is that there will be some inflation in the years to come. We don’t know to what level the inflation will be, but if there is a need for additional rescue packages in the future it is very likely that the level of inflation will be quite severe. This solution that the European Union has come up with is very likely to work in the short term, but will have consequences in the long term.
We as advisors and consultants propose to our clients to look at the long term effects of current events and suggest that now would be a great time to invest rather than divest in real estate, stock exchange and other investment opportunities that will keep their value or even increase in value in the future.
Add Your Comments