The global liquidity surge due to expanded balance sheets of central banks around the world has led to surge in value of houses, stocks, bitcoins depicting strong inflation. The value of the currency in circulation drops when the Central Banks prints currency and this result in the drop in purchasing power due to too much of cash in a stagnant economy. The lab engineered global pandemic of Wuhan in 2020 has caused collapse of small & medium Business enterprises, led to spike in massive unemployment, restriction in movements, widespread substance abuse.
And the stimulous money printed to provide dole outs to the masses has actually led to rise in Consumer borrowing, educational loans, auto loans, mortgage debt, credit card debts. The cost of living is going up and Consumers are borrowing from the future to spend in the present. The debt fuel spending cant go on forever and day of reckoning will arive when you will have to service the debt. As the popular saying is “If we do not inherit earth from our ancestors, we borrow it from our children”.
For example in United States the American households are receiving $2,000 and this M1 money supply is recipe of inflation in the economy with all round increase in prices of assets class. And this stimulus money actually penalizes the genuine tax payers. The total federal outstanding US Debt has recently jumped to $27.5 Trillion Dollars and that’s roughly 106% of GDP.The debt obligations of America is higher than GDP of many countries. A default in the US Treasury would be catastrophic to the world economy with its interconnected banking systems.
The global pandemic has affected India’s economic activity after government imposed lockdowns. The fiscal stimulus provided by the government through Prime Minister Garib Kalyan Yojana, for poor, urban and rural workers, and those in need of immediate attention to tackle the economic crisis has led to sharp rise in India’s public debt to GDP ratio hit record high of 90% in 2020. The ratio was 72.3 per cent in 2019 and 68.8 per cent five years ago in 2015.
The debt-to-GDP ratio shows how likely a country is to pay off its debt. The higher the ratio, the less likely the country will repay its debt and the higher its risk of default. Investors often look at this ratio to evaluate the government’s ability to fund its debt. According to a World Bank report, if the debt-to-GDP ratio of a country exceeds 77 per cent for a prolonged duration, it slows down economic growth. High public debt will lead to reduced expenditure in Development projects and this would lead to higher taxes to augment revenues and cover up the deficit. The currency circulation has gone up because of liquidity injection by RBI during the pandemic. According to data released by the Reserve Bank of India, currency in circulation grew by Rs 5,01,405 crore between January 1, 2019, and January 1, 2020. Overall, it has gone up to Rs 27,70,315 crore, up 22% from the previous year.
Now the question is will the Central Banks around the world will continue create more debt to pay off their previous balance? India’s fiscal deficit touched 115% of the budgeted target in the first half of 2020-21. The Indian Government Interest payment liability is around Rs.6 Lakh crore year and that is about one fourth of the total budgeted expenditure. And fixing the mismatch should be the first order priority of the government.
With the Fed Balance sheet currently at $ 7.4 Trillion & set to expand to between $8.5 trillion and $10 trillion by the end of 2021 we shall find continue rise in prices of commodities across the globe leading to possible defaults of accumulated debts in years to come. The Government might force to nationalize some sectors to bridge the deficit. And this will force the world towards debt slavery and the reset might be introduction of Global Digital currency. If you felt that 2020 was volatile, then gear up for 2021 which shall be more turbulent. And with hyperinflation setting in, stock markets will soar further and Bitcoin is inching higher soaring by 800% in 2020. Its time to book your gains in the capital markets and shift to bullion Gold / Silver as the economy in the main street has no correlation with Wall Street / Dalal Street touching new high. Its purely liquidity driven market and its time to move to safer avenues of Investment.