BY BRITT GILLETTE
Since the arrival of COVID-19 and the subsequent decision to lockdown entire cities and nations, world economic activity has significantly decreased. When normal recessions strike, they typically involve only one nation or a single region.
But the COVID Recession has hit the whole world at once. This is the first time every nation has simultaneously seen a decline in output since the Great Depression.
Despite the scale of this economic disaster, many economists are calling for a quick V-shaped recovery once the coronavirus is brought under control. But is this likely? No. Even if the virus disappears tomorrow, we won't see a V-shaped recovery. Why? Because of central bank policies and unrestrained government spending.
The world's central banks (the U.S. Federal Reserve, the European Central Bank, the Bank of Japan, and others) have made reckless policy decisions for decades. But their bad policy decisions kicked into overdrive following the Great Recession of 2008-2009.
After September 11th, central banks pushed out artificially low interest rates. These low rates, along with other poorly thought out government policies, blew a massive housing bubble. When the bubble burst, central bankers and politicians rewarded corrupt and incompetent bankers and business executives with huge bailouts.
Unrestrained by a gold standard, they created new currency to fill the holes created by bad decisions, mismanagement, and misallocation of resources. They propped up a broken financial system and blew yet another asset bubble in the process.
When COVID popped that bubble, we saw a new round of bailouts and central bank schemes to elevate financial markets and avoid the inevitable. We also saw direct government payments to individuals in the hope of "stimulating" the economy. This is only possible because governments can create new currency at will.
The U.S. dollar and every other national currency in the world is a fiat currency. This means they aren't backed by anything but a government promise. They only have value because governments say they do. They're nothing but pieces of paper or ones and zeros in a computer, and that means governments can create as much currency as they want to with the click of a button.
Fiat currencies don't have the value of those backed by gold, silver, or other hard assets. This means politicians and central bankers can create new currency out of thin air to fund an endless array of stimulus programs, welfare benefits, and schemes to bailout and enrich their friends.
For decades, and especially since the Great Recession, these politicians and central bankers have done everything in their power to avoid the pain of a recession or even a protracted stock market decline. But no matter how hard they try to avoid the inevitable, a day of reckoning is coming.
They've distorted the free market, and they can't hold off the consequences forever. The bill will soon come due. COVID didn't cause the coming crisis. It only accelerated it.
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