And after the Coronavirus? Help the Financial System or Populations?

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It is an eternal question, almost always with the same answer.

When there are crises, the monetary policy measures used by Central Banks almost always focus on helping the Traditional Financial System.

But does it make sense?

The issue is especially important when many alerts about global economic stability arise.

The new coronavirus has already led the OECD to admit reduction from its forecast of world growth for 2020 from 2,9% to 1,5%.

And with the spread of the Covid-19, without showing signs of slowing down, millions of companies around the world are already beginning to have financial difficulties, even being forced to lay off workers or close.

And after the Coronavirus? What will the aid of the great world powers be like? Will aid be provided only to sharks or will it reach populations?

Keep the Status Quo...

Monetary policy can benefit a country's economy, but it can also mask its weaknesses.

Late last year, the United States Federal Reserve (FED) made headlines around the world when, over the course of a week, it injected $ 278 billion into the so-called repo market, of repurchase of securities, to guarantee that the banks managed to meet their liquidity requirements.

At the European level, the Quantitative Easing measures applied by the European Central Bank, combined with an aggressive monetary policy, which suffered constant shortfalls in the main interest rates, served to keep the European Economy alive.

But this can lead to a serious case of dependency.

An action, when prolonged in time, becomes seen as a norm. In addition to losing the novelty effect, which makes it stimulating, it becomes a vice.

What happens next? Nothing out of the ordinary - print more money. This dependency leaves the Central Banks without arms, since the effects of their policies take time to translate into results in the population.

These measures, which at the same time contribute to the devaluation of money as a store of value, led Ray Dalio, a well-known fund manager, to leave a pertinent question in his last post qualified Paradigm Shifts.

"It is a good time to ask yourself what will be the next best currency or store of value to have, at a time when Central Banks want to devalue their currencies (...)" - Ray Dalio, Founder Bridgewater Associates

According to Dalio, who expects a drop in the value of money, gold may be the best solution for future investments.

The North American billionaire already believed in 2019 that the geopolitical climate could lead the global economy to enter a complicated period that would lead to a paradigm shift.

It was not the geopolitical tensions that shook the economy, but the appearance of a pandemic - the new coronavirus.

And now what shall we do?

… Change Paradigm?

The Central Banks have almost always opted for the same measures - printing money, which reaches large companies, but not the population.

But the truth is that irruption can also occur in other ways, through direct support measures for families.

For example, the concept of Helicopter Money. It is a disruptive measure of monetary policy, but that, instead of allocating resources for the purchase of sovereign and corporate debt, they are allocated to the people.

The justification turns out to be the same as for other measures: by applying it, a government believes it is driving the economy.

An unconventional measure? Yes. Impossible? Do not.

Finland already applied it in 2018, distributing amounts of 560 euros to a total of 2.000 unemployed.

End Notes

Basically, what is at stake is the impartiality of the measures taken by the political leaders when they are asked to act in times of crisis.

But why print money to help companies with structural problems and little capitalization, instead of using it in a way that more effectively helps the population?

The question does not have an obvious answer, but it is worth reflecting on. Mainly, when we have already realized that the consequences of the new coronavirus will be dire and will require unconventional measures.

The usual stance of decision-making politicians has even led a group of skeptics of the traditional system to create a cryptocurrency called Bitcoin in 2008.

This cryptocurrency is, for an increasing number of people, the solution to many of the problems of the traditional financial system.

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