Tectonic Plates of Another Kind
Technology is deflationary, and it creates tremendous efficiency. We have only experienced the tip of the iceberg so far. There is more technological efficiency ahead of us than all of what has been achieved so far.
Here are two obvious examples. You might be reading this on a mobile device. In your hand, you have a tool to communicate with anyone in the world at an incredibly low cost. You have maps to navigate. You have books to read or listen to. You can send money to whomever you want. You can measure if the painting on the wall in your living room is straight. This is just the start of what is freely accessible in your pocket.
Perhaps you are old enough to remember when you had to visit a music shop to buy the latest tunes from your favourite artist. Now, for free, you can access every artist via Spotify on your mobile device. Technology is a beautiful thing. It is instrumental in driving down the cost of living.
Why then does the cost of living always go up? We should be able to save more as prices come tumbling down due to technological efficiencies. Does this sound like fantasy land?
Between 2000 and 2018, the global debt expansion was $185 trillion. At the same time, the global GDP growth was $46 trillion. This does not include the most precedent expansion of credit that has taken place in the last 18 months. If 1 unit of growth requires four units of debt, where does this end? The only survival mechanism for governments and their banking systems is to inflate away the future cost of paying for the debt. That means more money supply and less buying power. Welcome to our inflationary world, where the cost of living only goes up, and the silent tax of inflation erodes your buying power.
This is an exponential relationship. The next $46 trillion in growth will require $370 trillion in credit expansion. You can call it money printing if you like. To do this, governments will need more centralised power and more draconian regulations. Look out for the regulation of “Big Tech”. Governments cannot allow technological deflation to triumph. There is too much at stake.
In 2008 politicians stared into the abyss. They chose to bail out the banks using taxpayers’ money. Then they decided to double down on what pushed them to the abyss in the first place. The next time will be exponentially more dramatic.
Justin Spencer-Young