Will the Inflation of the U.S. Dollar ever stop?

US President Donald Trump signed a law providing for the allocation of aid to the US economy, for a record amount of $ 2.2 trillion. This is almost 2.5 times more than the $ 800 billion aid package adopted in 2009, used to overcome that financial crisis. 

Unlike those times, when businesses wanted to work, but did not have money, today, the opposite situation is developing: there is money, but many are forbidden to work because of the quarantine. 

Monetary theory teaches what happens in such cases. The dollar will lose its “weight”. No wonder the Americans rushed to buy gold.

Economic problems caused by pandemics are a real disaster for the global economy. Everyone will somehow feel their consequences. According to the World Bank experts, the coronavirus pandemic today can cause losses of almost 5% of the world GDP, or more than $ 3 trillion, while losses from a “weak” pandemic cost about 0.5% of the world GDP. Confronting these threats, governments are trying to save their economies with extra cash infusions.

In particular, the gigantic amount of aid to the American economy that the US authorities allot to overcome the consequences of the coronavirus pandemic in their country will be mainly distributed to the population and companies. It is planned that $ 500 billion will go to help the most affected sectors of the economy, $ 350 billion - to lend to small and medium-sized businesses. About half a trillion dollars - for payments to American households in order to maintain effective demand. A hundred million will be allocated to the health care system for the additional purchase of drugs and medical equipment. About a quarter of a billion will go to unemployment benefits. Indeed, in recent weeks the number of applications for such assistance has jumped sharply from 200 thousand to 3.3 million. And the mass of unemployed citizens is growing steadily, because new people are losing their jobs.

Due to such large financial injections into the US economy, the dollar inflation will be the highest in history. The consequences are now impossible to accurately predict, because there are a huge number of other factors that cannot be evaluated: how long will the lockdown last, how will the situation with oil prices develop, what will happen to the debts of countries, etc.

On the other hand, in a globalized world, the excess money goes beyond the borders of the country that prints banknotes. Rates and inflation can be settled only with a working economy. Therefore, the main thing is the economy that has not stopped. The US economy will certainly not stop, as it was during the Great Depression. Why?

The United States understands that it is not possible to maintain an idle economy for a long time via the injections from the printing press of the Federal Reserve System. They continue to print money because their calculations are based on the fact that the economic shock from the coronavirus will be deep, but short-term, and that monetary investments in consumer demand and business will ensure a quick recovery in the future that will absorb the inflationary trend.

Similar decisions are made by other central banks of the world (EU, China, Japan). The "printing press race" of the US Federal Reserve and the European Central Bank to pump markets with liquidity is now fully on. This provokes significant currency rallies in the euro / dollar pair on global financial markets. According to forecasts, the fluctuations will intensify within a very wide corridor from 1.075 to 1.125 dollars per euro.

Of course, the trillions that the United States intends to print will put pressure on the world reserve currency. In the meantime, the EU promises to print another 2.5 trillion euros, Japan - the equivalent of 300 billion dollars and China- nearly 400 billion dollars.

What will be the real consequences of all this? We’ll all have to wait and see.