USA is going to give another $1400 per head of Stimulus Money. This is the 3rd round of money where the 2nd round $600 was paid during Jan 1st week. The 1st round was given during 2020 around $2000.
This will BOOST THE US ECONOMY as more & more people have money in their hands thereby spending on food, cloth, rental & travel purposes.
However This is clearly Money Printing – as More Money is printed out from thin air.
IMPACT ON FOOD PRICES
Let us analyze the Impact of Money Printing on Food Prices. More people believe that Money Printing will cause Food Inflation to Increase..
DEMAND-SUPPLY is the key factor which determines PRICE change.
Imagine there is 100 packets of rice (Supply) & 100 buyers (Demand) and selling at Rs. 100 (Price).
When there is an increase in Demand the Price will go up like Rs. 110, 120 etc.
MONEY PRINTING CAUSES FOOD INFLATION IF..
In an equilibrium market where the DEMAND=SUPPLY if you increase the Cash of Buyers there will be Spike in Demand & Price will go high.
MONEY PRINTING DOES NOT CAUSE FOOD INFLATION IF..
In the situations like Pandemics the DEMAND is less than SUPPLY. If you increase the Cash of Buyers there will be NO Spike in Demand above the Supply.
This is the reason we have not seen any Inflation spikes in US during 2020.
WHERE THIS MONEY IS GOING?
The money is reaching Stock Market, Mutual Funds, Overseas Funds – this is Pushing the Stock Market Up & Overflows to Asian Markets there after. So Indian Stock Market is positioned to gain from the US Stimulus.
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