The Oversupply of Money and How to Remain Safe From it
It’s no secret to anybody that the COVID19 pandemic has had devastating effects on the global economy, but with quarantine measures becoming laxer, or even being completely abandoned by some countries, economies seem to be managing their way towards reactivation. Slowly but surely, some businesses are starting to open and many people are leaving their houses again, taking the necessary precautions, while the number of COVID19 cases seems to be relatively controlled. It seems as if the worst part has already passed. There is, however, an important consideration that investors have to take into account when assessing their possibilities in the long term, which will affect them even if the economy manages to recover. That is, the oversupply of money and its effects.
Most people with some level of economic knowledge are familiar with the concept of Keynesian economics, an approach to macroeconomic management around which there is a lot of debate. Regardless of one’s position on Keynes’ approach, it’s particularly important to understand it at this moment, because a lot of governments in the world are applying these principles, in one way or another to face the ongoing recession. In simple words, Keynesian economics are the idea, procured by the economist John Maynard Keynes, that higher government expenditure can bring short term macroeconomic growth. This expenditure can come in many forms, whether it’s by generating employment from building public infrastructure or lending public services, or by issuing liquidity to increase the cashflows of the general population to incentivize them to spend money. This latter method is the one that is being most commonly employed by governments in face of the pandemic, and as a natural consequence it tends to increase the money supply.
One very evident example of these Keynesian measures is in the recent “stimulus check” issued by the U. S. governments to its citizens, which was meant for them to spend freely to maintain the country’s economic flow. A similar principle was applied when the government injected 1.5 trillion dollars to the stock markets in April. In Europe, the ECB has taken aggressive measures to issue money in the form of loans. These types of measures lead to people having, and thus spending more money, which also means that retailers get to sell more.
Money, however, is like any other product in a market, and as such abides to the market’s principles. A higher supply of money means that money will have a lower price, and the price of money is measured as interest rates, which are close to reaching record lows in both the U. S. and Europe. With lower interest rates, people are more prone to get loans and credits, consuming an investing more. There’s thus a higher demand of products, services and assets, and with a higher demand comes higher prices. In other words, inflation. With this context in mind, the apparent recovery that economies are starting to get does not seem sustainable in the long term.
In order to avoid the hinderances that come with high inflation, investors usually recur to foreign exchange. Nonetheless, with the two most important currencies in the world steeply lowering their value, and with so many governments increasing the supply of their currencies, the forex market does not provide a viable alternative. Another common way to protect oneself from overinflation is to acquire commodities or real estate. This is the reason why gold is becoming such a popular asset amidst the pandemic, having reached a record high value. Commodities, nonetheless, are hard to liquidate, more so during an uncertain economic period. More liquid assets such as stocks are suffering a similar fate to that of money, with artificially injected liquidity that makes their value somewhat fragile even with their seemingly impressive short-term growth.
Investors should be left with the question, “what should I invest in next?”. And there is a clear, although not so evident answer. That is, an asset with real tangible value that is not bound, neither to the vicissitude of currency exchanges nor to the volatility of the stock markets. A new asset class that represents private equities of a holding within the booming technology sector, while also having the advantage of being as liquid of a publicly traded stock, able to thrive during the COVID19 crisis. This asset is called Kor, and its redefining the very way in which investments are carried. Kor represents equities of a FinTech consortium called Konzortia Capital, which subsidiary companies are developing highly innovative platforms for financial services.
Konzortia Capital is creating a groundbreaking and inclusive financial environment, in which users will have an unprecedented freedom to move their money, being able to store, spend, make transfers, invest, raise capital and trade without restrictions within a distributed ledger. This financial ecosystem is expected to result in a secondary market of digital assets, similar to a stock market but fully global, in which Kor will be the pioneering asset. This makes it an investment that does not just have potential for unbelievable growth, but also offers a clear exit strategy, while not being affected by the effects of the pandemic. This might very well be the perfect answer for those looking to keep growing their portfolio amidst an uncertain economy.