It will not come as a big surprise to most people that inflation remains a pressing problem in the financial world. According to Deutsche bank, the United States may see a significant increase in inflation over the coming years. Typically, this would drive investors to alternative assets, but that may not necessarily be the case this time.
Inflation Will Ramp Up in The US
The monetary policies maintained by most countries globally raise a lot of questions today. Concepts such as quantitative easing and helicopter money are no longer suited for this world. Unlimited printing of money by banks and governments will trigger a severe backlash that affects the world economy. Although these tactics are nothing new under the sun, they may need to come to an end much sooner than people expected.
If Deutsche Bank is to be believed, inflation in the United States will hit one of the highest peaks in history. It would not be uncommon to see the 1970s repeat themselves, with all disastrous consequences amplified. The bank claims there is $2 trillion in “excess savings” held by American consumers due to the closure of many businesses during COID-19 lockdowns. The decrease in spending and travel will give consumers a chance to begin spending money when things return to normal.
Interestingly, the findings by Deutsche Bank are the opposite of what Federal Reserve Chair Jerome Powell has claimed in recent months. According to Powell, there will be “minor transitory elevated inflation”, yet the reality looks very different. As there is currently no “plan” to thwart the upcoming wave of inflation or how it may affect the economies, no one can predict what will happen. Furthermore, one has to consider the COVID-19 pandemic is far from over, and certain regions may need more stimulus packages for some time to come.
Unfortunately, this mass-spending behavior will likely trigger consumer-driven inflation. A surprising development, although one that anyone could see coming from miles away. There is too much “unspent” money in circulation – despite many people struggling to make ends meet during these uncertain times – which will impact the prices of all goods and services. Typically, any form of inflation makes consumers and investors flock to alternative assets as a hedge. Precious metals and cryptocurrencies are often the main “hedges” and can see a significant price appreciation.
Will Crypto Finally Reverse Course?
Although the looming threat of inflation may seem beneficial to cryptocurrencies, that is not necessarily the case. As a result, Bitcoin and other markets face plenty of bearish pressure for weeks on end. Even if there are consumers and other entities with money to spend, those funds will not automatically make their way to crypto assets. It is strange to see Bitcoin trade in sync with stocks and other traditional assets.
As this correlation remains in place, crypto assets will likely go down further when consumer-driven inflation takes hold. A very worrisome outlook given the recent market performance, yet decoupling from the “sync” with stocks and other traditional assets will prove very difficult. There is not enough demand for these assets at this time, and consumer-driven inflation may introduce another layer of market pressure.
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