Technology: An Economic Force Few Understand
The masses are usually wrong. This is something that those who find the gems in the world understand. Even on Wall Street, there is the herd mentality. One starts the process and the rest follow like sheeple. We see this during earnings season when one analyst upgrades a stock, others follow suit.
Technology is now a large enough part of the economy that it is an economic force. Yet few economists understand what the impact is.
Over the past few weeks I asked a simple question: what is the economic impact of technology on monetary policy.
Very few even attempted to answer this question. It makes me wonder how much people understand what is taking place. Then again, the masses are usually wrong.
How much does technology impact the world around us? I think few would state that it is any business, industry, individual, society, or economy is exempt from the effects of technology.
For this reason, it is crucial to understand the economic impact of technology on all that we encounter. Nowhere is this more evident than when it comes to different economies.
Be careful of looking down when everyone else is.
The truth of the matter is that the percentage of the global economy that falls under the laws of IT is growing at a spectacular rate. This is causing major headaches for central banks, the economists who advise them, and the average investor, especially in cryptocurrency, who believes in models that are now being rapidly negated.
Keynesian economics is on a 4 decade run where it is being totally disproved. The central tenet is complete hogwash. What is sad is many Libertarians, gold bugs, and Bitcoin maximalists are in this camp, yet do not even realize it.
They espouse archaic ideas of hyper-inflation while completely ignoring what is taking place. Even those who are not willing to go hyber, believe much higher inflation is in our future. This is the exact point pushed by the central bankers and ivory tower economists who believe they can somehow manage the economy in fact of this massive force that is falling on their heads.
This chart should come as no surprise to anyone. The interesting part is the last decade since the economic collapse.
What is really eye opening is the following chart.
Here we see $15 trillion was added to the balance sheets of 3 central banks, the Fed, ECB, and BOJ. This does not include what was added by the Chinese who spend much of the last decade printing a ton of money.
This is where we see the central banks and others completely baffled, the first chart is not suppose to look like it does with the second being in play. How can the Fed keep missing its inflation target when it (and other central banks) are going ape-shit crazy printing money?
In short, their monetary policy is not working and they remain clueless as to what is taking place. They simply cannot understand the impact of technology upon their own policies.
This is key. Right now roughly 3% of the global economy is under the laws of IT and it is growing. Over the next decade, we are likely to see this number jump to 6%.
In the United States the numbers are even worse. Semiconductors make up over 2% of the GDP already. This number really grows when software and storage are factored in.
This is the crux of the issue. We are seeing a ton of downward pressure in this area due to technology. All their printing is not getting the expected outcome and has not done so in over a decade.
Nevertheless, the Fed keeps believing in their own playbook. Recently they announced that they will no raise rates until they get inflation to a higher level, believed to be 2.5%.
The first chart shows it is likely to be a pipedream. It hasn't worked in a long time, but there is always hope.
After $23 trillion printed by central banks around the world in the 2010s, maybe they will be able to catch up.
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gif by @doze
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