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How the global economy has been impacted by the latest epidemics

Cryptocurrency

Photo: Shutterstock

A graph of the stock performance of the index of companies around the world, overcoming all crises and epidemics, has aroused the curiosity of investors.

At first glance, we realized that even the 11.8% declines caused by the Ebola virus, the Nasdaq bubble in 2000 and the subprime crisis in 2008 were quickly reversed, in a matter of three or four years at most.

Hidden inflation

Before starting an analysis involving such a long period, we need to discount the effect of inflation. In the USA, a country with historically low inflation, the accumulation was 585% over these 5 decades. In Italy, accumulated inflation jumps to 1765%. Discounting inflation, net gain is reduced by 30-50% depending on the region.

Global growth

World GDP variation data 1970-2018, world Bank

Other
aspect that we must take into consideration is world growth, in reality
its absence, given that for nine years the indicator has remained below
2%.

It will be
possible for stock exchanges, real estate and the debt market to continue
growing over this decade without real economic growth?

The (limited) power of governments

In times of crisis, most governments tend to opt for stimulus measures, and there are numerous ways to do so. During the 2008 crisis, for example, the Fed increased its assets from $ 900 million to $ 2.2 billion in a matter of two months.

All
action has a reaction, and this is also true for the economy. Stimuli
economic conditions will necessarily reflect on indebtedness, inflation, even if
future, or the strength of the local currency. The United States, in this case, is
little, as the Dollar is a relevant International Reserve currency.

In
anyway, at some point it becomes necessary to raise interest rates again
to fight inflation or adjust the exchange rate, and this is when the crisis is
aggravates. Stimuli are, so to speak, a “slap hole”, running the serious
risk of losing credibility.

Cryptocurrencies in this story

We know
that non-inflationary and attack resilience characteristics make the
Bitcoin is a serious candidate to gain notoriety in this period.

All and
any kind of expansionist action by governments results in a devaluation of
currency against less inflationary assets. It is for this reason that gold is
much sought after in times of crisis, besides being the main thesis of
Bitcoin appreciation.

Conclusion

The chart of the infinite rise in the stock markets, although partially true, is not a guarantee of future returns. Without economic growth, we will hardly be able to return to such levels discounting inflation.


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