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Over the next couple of months, we want to keep an eye on inflation numbers. Why? Well, there are two competing theories about what’s going to happen with the massive amount of stimulus that’s being put into financial markets to deal with the effects of the lockdown.
In this regard, the UK and Canada are interesting cases. This is because we expect lockdown measures there will last longer.
What are those Theories?
The traditional perspective is that when the money printer switches on, inflation goes up. When there is less economy and more money, that money is worthless.
The competing theory comes from an unorthodox, post-GFC perspective: that persistently low-interest rates slow the velocity of money, leading to deflation. Basically, what’s been happening in Japan, and in Europe since 2011.
Both scenarios have diametrically opposite impacts on the currency, potentially. So, we...
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