How did the economy catch COVID-19 Professor Provencher

As mentioned in the previous article, an increase in government spending can indeed lead to higher prices. This is especially true when that money is spent on what Economists call ‘consumption products’ (short-lived goods and services).

So, was the spending of our governments during the pandemic lockdown(s) to blame for the high inflation we have seen since the reopening of the economy?

Let’s tackle a big political question that has been at the center of many debates lately: the link between government spending and inflation.

Many governments around the world spent substantial amount of money supporting their people during the government lockdowns of the economy.

This month I want to take some time to discuss interest rates in an economy and their link to Economic output and, perhaps more importantly these days, inflation.

Let’s start with a few statements I came across on different outlets, things you may have heard yourself or thought they were right (spoilers: they are wrong): (1) Banks are increasing their interest rates to increase their profits after the pandemic lock-downs; (2) Banks agreed to work together and squeeze more out of their clients; (3) The government is helping banks by increasing interest rates for nefarious reasons (bribes, lobbying, etc.).

Most Economists agree that the USD is still the reserve currency of choice in the world. Most Central Banks hold it and indeed need it. Most trade is still made using USD and that place has not yet been challenged significantly.

However, I argue that the USD is not seen as “safe” as it once was. To be a safe haven currency (or asset), investors need to see it as a store of value in times of economic uncertainty.

Let’s discuss why economies of many countries are suffering from the emergence of this new infection.

I’m going to focus on the possibility that the UK leaves the EU with no free-trade agreement whatsoever (no-deal) outside of basic World Trade Organization (WTO) rules. It is for this scenario that several economists and politicians predicted that the UK would be facing substantial shortages of all sort of imported products, including food, medicine, cars, clothing, and more.