The Federal Reserve’s new monetary program that aims to support the economy is based on the purchase of a variety of corporate bonds. This news caused a pullback of the USD relative to all major currencies; risky assets and commodities, including stocks, began growing again, and the price of gold rose by 2%.
It seems like the Fed has started to finance the 'real economy' directly, thereby bypassing the banking system, as it realizes that the liquidity it gives to the banks doesn't travel any further. The position of the banks is understandable: they don't know who they should issue loans to, considering that the post-COVID-19 economy is rife with barely-walking 'zombies' and potentially-bankrupt companies.
Still, we believe that the Fed won't be able to prevent a large-scale wave of defaults. The total debt is gigantic, exceeding the overall money supply/Fed balance by a factor of ten. You can't just print that much money without damaging the dollar's purchasing power.
At the same time, the situation in Europe and Asia is even worse when compared to the US. The political scene in the EU is controlled by populists, who are ready to sacrifice the economy for their political agenda. The result is high taxes, a heavy regulatory burden, budget deficit and – in the best scenario – a stagnating economy. Asia is drowning in a gigantic ocean of debt, which is even higher as a percentage of the GDP than the one in the US.
In spite of all this, the US dollar, as the base currency of the existing monetary system, still looks better than the available alternatives, such as the euro or the yuan.
The only way to save one's capital from devaluation is to store it not in cash, but in assets. Which ones, though? Those that are certain to grow in value are the precious metals, as well as stocks: all that liquidity has to be channelled somewhere.
The real estate sector will grow unevenly, since the overall rise in prices will be accompanied by stagflation and a reduction of income among the middle class. This means that the demand for middle-class and budget housing will fall, and so will the prices in this market segment. Moreover, the resulting decrease in state revenue will lead to higher taxes: the state will tax everything it can lay its hands on, and real estate is certainly an easy target.
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