What Will Follow after this Pandemic; an Hyperinflation or a Deflation?

I will love to hear the news after this when I am told the economy is stable but for now, the economy is slowing down, factories and businesses are shut down, employees are losing their jobs and even companies are declaring bankruptcy. In all this, my fear is with our currency. With the emergence of currency, a lot of problems are being spotted but the major one is minting/printing more money just to cover economic problems.

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A lot of countries have been printing trillions of dollars (wait, why dollars and not Yen? The US dollar is the international currency) to combat the coronavirus and support a lot of people and businesses affected by the pandemic, which has caused a lot of fear that the act of printing too much money will cause inflation or better still, hyperinflation which often causes poverty as the prices of everything starts to increase but surprisingly, we aren’t seeing any hyperinflation (if there is an increase in price of any goods currently, it is caused by demand and supply).

If it isn’t Inflation, then what is?

During the great recession, a lot of people expected to see a very high inflation but to the surprise of the people, there wasn’t any hyperinflation, rather there was deflation. Since the government couldn’t print enough money for everyone in the country during the great depression, the bank decided to place a 10% increase in the value of the US Dollars in the space of three years (You mean a country can increase the buying power of a currency?). One good thing about deflation is the buying power of the currency increases but the bad thing about deflation is the debt increases as well. Currently, government around the world already took trillions of debt and they still plan to take more debt and this isn’t a good thing as there will be a lot of debt burden on both citizens and the government.

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Deflation itself comes with an economic crises called the deflationary spiral which often comes with lowered price of goods which affects businesses which eventually affects the investors and the employee causing layoff and low spending as there aren’t funds to spend. The United States is in great fear of getting into a state of deflation and in some cases, a deflationary spiral often comes with an inflation at the end.

A lot of world powers like the European Union, the United States, and the United Kingdom, China, Brazil might start deflation as hyperinflation can bring the economy of a country to a worse state. Nations like Canada, South Korea and Japan already got into a state of deflation as Ontario a state in Canada now has more debt than a lot of countries in the world. The Federal Reserve Bank of San Francisco (FRBSF) wrote an economic letter on May 11, 2020 over its concern for deflation.

Conclusion

It is true that the world is passing through a lot of economic downturn currently and picking inflation or deflation is something that a lot of government are considering (hyperinflation will make world powers look weak). What do you say, do you prefer an inflation or a deflation?