Original article that I got from my brother in PDF version.
Language is in French, this is a quick automatic translation. Very interesting content!
Sorry for posting so late, it was published in May.
The different stages of the escape from money: the worst is yet to comeThe monetization of public debts will lead to a huge increase (about 70%) in the money supply by central banks (in the monetary base).
Such strong monetary creation will lead to mistrust of economic agents towards the quality and value of money, and will therefore lead to “escape” from money. What are the different stages?
If a single country were to conduct a very expansionary monetary policy, the residents of that country would sell that country's currency (currency) and buy other currencies; there would be a sharp depreciation of the exchange rate and high inflation in this country; But all the OECD countries are conducting this very expansionary monetary policy: there is therefore no switch from one currency to another and, moreover, the exchange rates are very stable between the OECD countries in the recent period;
The first step in the escape from money is then a escape from money to the investment of assets: savers-investors try to get rid of the money and buy other assets (stocks, real estate, gold, etc.). There are therefore bubbles everywhere in asset prices; this is already the case since the subprime crisis and will worsen after the Covid crisis;
This settles the question of money as an investment, but not the question of transaction money. The feeling that the currency is losing value will lead economic agents to look for a transaction currency other than the devalued official currencies; this certainly opens the door to the development of private currencies (
various crypto-currencies) provided they are well managed, that is to say that the supply of these currencies does not increase excessively;
It is finally only if the reflex of mistrust towards the currency led, to "get rid of the currency" to purchases of goods and services and not to purchases of assets that there would be inflation prices of goods and services. At the moment, this is not being observed.
The violently expansionary monetary policy carried out in OECD countries will therefore first lead to generalized asset price bubbles; in a second stage, there could be an explosion of the International Monetary System with the rejection of public currencies.
Escape from the currencyThe central banks of the OECD countries have embarked on a policy of massive monetization of fiscal deficits put in place in 2020, in order to avoid rising long-term interest rates and a public debt crisis.
This will result in considerable money creation: we believe that the central bank's money supply, the monetary base, will increase by 70% during the year 2020.
This enormous monetary creation will lead to a loss of confidence in the currency, to a distrust of private economic agents towards the value of the currency, and to “run away” from the currency: economic agents try to get rid of currency by purchasing more secure goods or assets.
A note: all OECD countries have the same policy. If only one OECD country were to conduct this very expansionary monetary policy, the holders of that country's currency would sell it to buy other OECD currencies; the currency of this country would depreciate sharply and there would therefore appear high inflation. This is what we see today, for example, in Argentina.
But all the OECD countries are pursuing the same very expansionary monetary policy: there is therefore no reason to switch from one OECD currency to another, and moreover the exchange rates between these currencies are very stable in recent times.
The escape from money could take the form of purchases of goods and services, with each economic agent trying to "get rid" of money by purchasing goods and services. There would then be inflation (of the prices of goods and services), but this does not happen as shown by the lack of correlation between the central bank money supply (the monetary base) and prices.
Asset price inflationWhat we are seeing today is the portfolio rebalancing mechanism. Economic agents try to get rid of the excess money they hold by buying financial assets (stocks, bonds, gold, etc.) or real estate. At equilibrium, the currency created by central banks is obviously always the same, but the increase in demand for financial and real estate assets leads to an increase in the prices of these assets, which we have already seen from 2002 to 2008 then after the subprime crisis and what will be even more violent after the Covid crisis.
Since the start of the coronavirus crisis, we have seen the start of the rise in the price of gold.
The first effect of excess money creation and the flight from money is therefore to cause asset price bubbles to appear.
The question of transaction currencyThe above therefore corresponds to the role of money as an investment: excess monetary creation leads savers to carry over from money to other financial and real estate assets, hence the bubbles in the prices of these assets.
But what about money as transaction currency?
Economic agents also keep money to finance their spending, and if they lose confidence in the value of money they will try to use currencies other than official state currencies as transaction currency.
This could give an increasing role to private currencies (for example cryptocurrencies) if they are well managed, that is to say if the supply of these currencies does not increase excessively.
This phenomenon has not yet been triggered by the coronavirus crisis, as the evolution of cryptocurrency prices shows (reminder: this article is from May 2020).
Conclusion: two stages in the escape from moneyThe excess monetary creation by central banks leads to loss of confidence in money, and therefore to run away from money. This has two stages:
1/ The escape from investment money, already present for 10 years, and leading to asset price bubbles;
2/ The escape from transaction currency, not yet present, which can lead to inflation (in the prices of goods and services) if there are massive purchases of goods and services, but also to the replacement of the official public currencies of States by private currencies.
Let's see what's going on in 2021.
Feel free to discuss respectfully
