It should be noted that previously it was thought that the virus was only an excuse for stock market problems. Certainly, at that moment, it was believed that the market was about to fall anyway. But it turns out that the coronavirus has really helped the US stock market as it has led central banks to pump even more liquidity into the global financial system.
With this, it can be firmly said that all this means more liquidity, the relaxation of central banks. In fact, that is exactly what has already happened, except that the new relaxation is taking place, for now, outside the United States, particularly in China.
This being the case, it is necessary to indicate that although the new money is being created mainly in China, it is flowing to dollars and US stocks. Last week, U.S. stock markets once again reached record highs.
Benefits thanks to coronavirus
It is necessary to express that if it were not for the coronavirus, the US stock market would still be selling. However, due to the stimulus of the central bank that has been the result of fears about the coronavirus, which actually benefited not only the US dollar but also the US stock market.
Clearly, the main economic concern is that the coronavirus will slow down production and ultimately impede economic growth. In other words and more explicitly, the world would produce fewer things. If the virus continues to spread, there would be fewer goods and services produced in a market that is reduced.
Now, in relation to this, there are unknown questions such as, Why would the Federal Reserve respond, or why would some central bank respond to that by printing money? How does that problem solve printing more money? The answer to this is that it does not. In fact, it actually exacerbates it. Sometimes, the illusion created by inflation may seem like a magic wand. Printing money can hide problems. But none of this will fundamentally fix the economy.
In fact, if the central bankers really did the right thing, the appropriate response would be to drain the liquidity of the markets, not to supply even more.
Of course, the asset that is doing its best right now is gold. The yellow metal exceeded $ 1,600 yesterday. Gold has risen 5.5% annually in terms of dollars and has established historical highs in other currencies.
Source: SchiffGold
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