Personal Finance & Money Asked by Andrew Sasha on January 23, 2021
Last time I heard from my friend that M1 money supply year increase in my country is about 35% and economy is frozen (I don’t known is it true, but let assume that it is true in some country X).
If I understood correctly it means that people have a lot of money on their bank accounts or cash and they don’t spend their money now and their amount of money is growing as they all get paid from their employees and their employees get money from government help (because of COVID pandemic), so generally money are printed in huge amount.
Also my friend said that when this COVID pandemic will finish we are expecting huge increase in real estate prices and worthless money, because people will start spending their money which they are gathering now.
I have two questions:
Sorry, for my English feel free to edit 🙂
Don’t be too concerned. Inflation is a function of both the money supply and the velocity of money, and of course the velocity of money has slowed down a lot during the pandemic and so the money supply has had to be increased in order to compensate for that and avoid serious deflation. In most cases, it’s been done in ways that can be reversed as the monetary velocity returns to normal.
Having said that, if your country offers index-linked government bonds in your currency, they’re pretty much a 100% guaranteed hedge against inflation, though they may have negative yields at present. Otherwise, equities with a steady yield such as the utilities that you mention are pretty good.
Correct answer by Mike Scott on January 23, 2021
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