PART 1/4 – FREE MARKET?
First off, let’s set the scene.
The inventory market is telling you nothing about the actual economic system anymore.
Financial fundamentals have by no means mattered as little for the inventory market as has been the case throughout this 11-year bull market.
The correlation between gross-domestic-product development and the route of the S&P 500 Index has solely been 7% on this cycle – traditionally it has been 30% to 70%.
Properly, it’s the Central Banks, led by the Fed, who printed their manner out of the Recession in ’08.
In doing so, they’ve papered over the cracks, and we’ve seen the longest financial enlargement in US historical past.
Nonetheless, this isn’t a very meritocratic course of: cash creation itself will increase inequality through the Cantillon Effect, as cash printing results in asset worth inflation, which disproportionately advantages the wealthy and hurts the poor.
Former Federal Reserve Chairman Paul Volcker instructed the New York Instances in 2018:
“The central problem is we’re growing right into a plutocracy. We’ve acquired an unlimited variety of enormously wealthy those that have satisfied themselves that they’re wealthy as a result of they’re sensible and constructive.”
The truth in fact is that that is largely not the case – it’s as a result of the sport is rigged of their favour.
Now, you will need to emphasise the truth that the trail we’ve taken has resulted within the highest residing requirements we’ve seen in human historical past.
Nonetheless, the difficulty, significantly for the reason that US fully deserted the gold normal in 1971, is that debt has exploded to obscene ranges.
We aren’t working in a free market if it takes $185 trillion of debt during the last 20 years to create ‘development’.
In reality, the worldwide debt to GDP ratio hit an all-time excessive of 322% within the third quarter of 2019.
Inflation signifies that your greenback loses worth and thus your buying energy goes down.
Deflation signifies that the worth of your greenback goes up and your buying energy goes up.
That is a very good factor proper? You get extra items and companies for much less.
When you’ve got deflation, debt explodes in actual phrases and you’ll by no means pay it again.
Because the economic system is predicated on debt, in the event you enable deflation, then you need to reset the debt.
That is why central banks concern deflation a lot.
Nonetheless, the key power driving the human race is technological progress – and this stops for no mortal…
PART 2/4 – TECHNOLOGICAL DEFLATION:
The elevated abundance created by expertise will lead to huge job losses.
Throughout history, doom porn fanatics have screamed that the machines are coming for jobs. That is not a brand new phenomenon.
All technological revolutions are deflationary – since they create “provide facet shocks”, which means that they permit for extra intensive use of sources and thus larger manufacturing. With extra items being produced, all different issues being equal, the worth of these items will fall.
Within the final 20 years or so, software program has disrupted and changed many established items and companies.
It’s within the subsequent 20 years that one other disruptive expertise is about to take the stage: AI
In accordance with Steve Schwarzman, the co-founder and CEO of The Blackstone Group who has a web price of $17.6BN:
“That is going to the touch everybody’s life….you are not going to have the ability to get away from this expertise”
Furthermore, this virus will solely speed up this pattern in direction of tech. Zoom is a fantastic example of precisely this.
Previous legacy financial techniques weren’t constructed for this tech deflation, and the factor about exponential development is that we people don’t intuitively perceive it.
For example, in the event you folded a chunk of paper 51 occasions, in fact you may solely fold it seven occasions, however in the event you might fold it 51 occasions, it might attain the Solar!
PART 3/4 – IMPLICATIONS FOR SOCIETY:
The query is: how does this play out?
In the long run, it’s the basic construction of the financial system that has a major affect on individuals’s lives, not who’s President for Four to eight years.
In actuality, politicians have restricted energy and are successfully all puppets. We’ve got seen what happens when a President doesn’t stay in their lane…
One might argue that the 2 most important mechanisms of management are:
Divide and Conquer and
As we’ve seen many occasions up to now, herd psychology is worryingly easy to manipulate…
Talking of the censorship, in his e-book Antifragile, Nassim Taleb discusses the anti fragility of data.
Data feeds extra on makes an attempt to hurt it than it does on efforts to advertise.
A implausible instance of this course of is what has occurred with London Actual: they had been banned on LinkedIn and David Icke’s interview was censored. Now, no matter what you consider this explicit channel or your ideas on David Icke and the theories supplied, censoring data on this manner truly spreads it extra virally.
It is fascinating to look at what number of views the movies relating to the bans and censorship have relative to the others. And the impact this has had on subscribers.
It’s at all times simpler guilty an even bigger enemy (or create a brand new one) fairly than to confess it is a structural drawback.
Subsequently, you keep away from brief time period ache…no matter the price.
The true query is if and when this situation will lead to social unrest…
PART 4/4 – INTELLECTUAL CAPITALISM:
The depth and width of jobs impacted by AI will proceed to extend sooner or later.
Now this is not going to essentially occur immediately.
Nonetheless, our transition from commodity capitalism to mental capitalism is inevitable and the individuals and nations who battle towards this pattern can be on the fallacious facet of historical past.
From a sensible funding perspective, and disclaimer this isn’t funding recommendation, community results are a vital side to contemplate transferring forwards.
Basically, which means the worth of the community will increase with every extra consumer – all the tech monopolies have exhibited this property.
An asset which might in time show very robust community results is Bitcoin.
Looking at the market cap relative to other asset classes, Bitcoin supplies an uneven funding alternative.
Solely time will inform…