No one, not even the U.S. government or the Federal Reserve, expected the COVID-19 pandemic to create so much excess money.
Approximately $3.5 trillion ($3,500,000,000,000) has been authorized across four stimulus packages, which include:
- Coronavirus Preparedness and Response Supplemental Appropriations Act – March 6, 2020
- Families First Coronavirus Response Act – March 18, 2020
- Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) – March 27, 2020
- Paycheck Protection Program and Health Care Enhancement Act – April 24, 2020
And, more is on the way, with proposals for the next stimulus package ranging from $1.8 to $2.2 trillion.
U.S. government spending also exceeded $6.5 trillion in the fiscal year 2020 that ended September 30th ($6,551,872,000,000 to be exact). This is a record high for our nation and represents a spike of over $2 trillion from the previous year (2019), a 47% increase. Whoa, right?
The “Price” of Injecting New Money
While these drastic stimulus packages are helping in the short-term and keeping many Americans afloat, they don’t come without a price. Unfortunately, injecting extreme levels of money into the economy also decreases the value of every U.S. dollar in circulation.
Meaning, the pandemic and its associated spending measures will propel unusual levels of inflation, well beyond the 3.22% per year that we’ve been averaging in the U.S. over the past 40 years.
Despite all of this, what really caught my attention was this:
Today in 2021, the stock market, real estate, and cryptocurrencies are all at all-time highs. Even precious metals have been caught in the whirlwind, with gold prices ascending to record highs.
Yes, you read that correctly. This is unprecedented. And yikes, it is not normal. That is an “artificial” effect, to say the least.
What to Do Now?
In the long-run, if you want to bet against the U.S. dollar (that is, hedge against inflation), Bitcoin will be a strong play. However, if you want to bet on cryptocurrency technology at large, investing in Ethereum would be a smart move.
Having said that, be cautious, because cryptocurrencies are up an average of 300% right now, so now is a precarious time to make these moves. Ethereum has taken off even faster, rising over 700% since the pandemic struck.
Similarly, for those who like stocks and real estate, be extremely careful until these markets correct. The S&P 500 is up as much as 70% from its low in March 2020. It sunk to around 2,300 in March 2020 and has now ascended to 3,900 as of February 2021. Wildly low mortgage rates have also artificially inflated home prices in most major housing markets.
Generally speaking, inflation drives up the value of assets while driving down the value of currencies (like the U.S. dollar, for example). This means that you should aim to own assets instead of cash during periods of high inflation.
However, the challenge is, what asset class do you buy when stocks, real estate, cryptocurrencies, and gold have all spiked to record highs? Share your thoughts below and let’s discuss.