Negative Inflation Rate

I had been tempted to write an article about how these fiscal stimulus packages would impact Canada. However, one of the major tenets of my article was going to be that we needn't necessarily take on massive foreign debt. We can likely just mint money without impacting inflation negatively because the widespread job less and the fact that global conditions parallel our own would negate a lot of that.

But, I had no proof that such a thing would actually happen. Until now.

What a lot of articles are ignoring is that a Federal government with it's own currency has a lot of options to essentially "manifest money". Under normal circumstances, the government doesn't want to mint more money than it typically does to avoid causing too much inflation or devaluing of the currency. Both of which would have adverse effects which could worse than cancel out the gains.

But, we're not under normal circumstances right now.

So, while in normal times the correct answer to needing billions in funds might be to borrow from another country, as it would help to keep the currency more stable and improve global relationships, this is probably not what is happening in broad strokes at the moment.

Borrowing money from other countries doesn't make sense. All of our allies or even non-allies which are large enough to finance such things are in the same crisis. Who would we take out a loan from?

And, if we don't take out a loan, we don't technically take on any additional debt.

In times like this, money would come primarily from either bonds or simply minting more money.

Countries will probably exercise both options to some degree. Bonds are seen as less impactful on inflation, and they can provide more stable investment options for individuals and businesses looking to divert funds from riskier stocks.

Minting money on the other hand is almost always seen as bad to some degree. But, that is largely because the more money people have, the greater the rate of inflation. Which, if it outpaces global inflation rates would likely lead to a less valuable currency. But, when you're staring at negative interest rates, all of a sudden it becomes a great stabilizing factor.

In short, what is normally a bad thing, has become a very good thing. And for a lot of reasons. The pandemic has shifted a lot more spending into the local economy than abroad. This provides some insulation against currency devaluation automatically. It doesn't matter what the US thinks CAD is worth if every single Canadian is trading exclusively with other Canadians after all. It isn't that extreme at the moment, but it is the basic principle here.

The second reason it matters less is that all of the major economic powers are facing the same crisis and incurring either similar costs, or risking lives and losing economic power which is much of the same thing. In turn that means they are facing similar economical challenges.

At almost all points in history, major economic crises have not been felt this globally. The Spanish Flu hit the Americas long before globalization was anywhere near it is today. World Wars had winning and losing sides and an uneven distribution of economic pains. This crisis hit virtually every country in a span of about 2 months, and hit them more or less equally hard in terms of impacts. Well, economically at least.

It is a unique situation at the moment. Before global travel the notion of a true pandemic of this measure would have simply been impossible. And that would lead to a more disproportionate impact on the longer term economies. While I certainly DO expect major disruptions in certain industries, I don't expect that the economy on the whole will suffer as long or as hard as many are expecting.

As I said, what is different is that major competing economies are also hit hard and need to recover. It isn't like jobs and markets are being gobbled up by foreign entities due to a weakness elsewhere. Everyone is weakened. The money isn't flowing away from the economies. More of it is just sitting still.

Just a guess I suppose. But, I definitely think many people are mistaken in comparing this too directly to market collapses of the past.