Unfortunately, the new coronavirus is deadly not only for humans but also for the global economy. Central banks have fired their bazookas, but monetary policy is powerless during pandemics with their supply disruptions and self-quarantine that effectively freeze economic activity. Curiously, even central bankers seem to recognize their impotence. As Jerome Powell said during his recent press conference:

“We don’t have the tools to reach people, and in particular small businesses and other businesses and people who may be out of work…we think fiscal responses are critical.”

It didn’t take long to persuade governments to step in and increase their spending. For example, Spain announced a $220 billion stimulus package or nearly 16 percent of its GDP. The UK unveiled an even bigger stimulus: an unprecedented $400bn financial rescue package, amounting to almost 15 per cent of GDP, to “support jobs, incomes and businesses”. Germany went even further: The country authorized its state bank, KfW, to lend up to $610 billion, or nearly 16 percent of GDP, to companies to cushion the effects of the coronavirus.

Trump has already signed two packages, but worth only $108 billion. But don’t worry: the Americans haven’t had the last word on him yet. Republican and Democratic senators have reached an agreement on a roughly $2 trillion stimulus package. Yes, you read it correctly. Two plaguy trillion! But if you think it’s a lot, you’re wrong! In terms of US GDP, two trillion is ‘merely’ 9.4 percent. So don’t worry, there’s room for more stimuli if needed.

Will that gigantic fiscal stimulus help? Well it depends, the devil is in the details. Much depends on what governments will spend the money on in dealing with this pandemic. Spending on healthcare and vaccine research is desperately needed, so even fiscal hawks (like us) wouldn’t complain. But it can’t turn out like the F-35, and let’s also say funding infrastructure projects wouldn’t be very helpful right now. You see, this is a unique situation where all economies are frozen to flatten the curve and prevent the healthcare system from collapsing. But when companies do not operate, they have no income. Without income, people have no wages. Without wages and income, the loans are not repaid. Without refunds, the banking system collapses, and the entire system collapses like a house of cards. So some support is needed to prevent that, so that people can pay off their obligations without a problem.

It remains to be seen whether expansionary fiscal policy will be useful or not. But the recent unprecedented fiscal stimulus will have a very important consequence. Fiscal deficits will skyrocket. Forget austerity, surpluses or even budget balance. Then public debts will necessarily follow suit.

Because it is important? Well, global debt levels were already through the roof. In the third quarter, global debt, which comprises loans by households, governments and companies, grew to $253 trillion, or more than 322 percent, the highest level on record. In many countries, public debt will skyrocket to unstable levels.

Furthermore, this increases the chances of the US entering stagflation, and this means that investing in gold is likely to be particularly attractive. It might be a good idea to consider learning more about this precious metal, before it becomes obvious to all investors; when it does, its price is likely to be much higher already.