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There have been a number of different stimulus programs announced to deal with the economic fallout of COVID-19. And they can get quite confusing.

Especially when we consider that each country, and often parts of countries, have their own programs and measures. One that is particularly important to unravel for us traders is fiscal stimulus, because of its long-term economic implications.

Fiscal stimulus generally refers to government spending that’s based on borrowed money with the intention of improving economic growth.

It differs from regular government spending (which almost universally goes up, regardless of the situation), because it’s based on borrowing. It’s also supposed to target key areas and is different from the liquidity injections that the central banks are carrying out.

Why Do We Need Spending?

In its basic form, the economy depends on people spending money.

This causes money to circulate. The speed at which the money circulates determines the growth of...

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