There is great debate regarding topics such as inflation, money, and markets. Personally, I have concluded that many are still using ideas there were applicable in the 1920s yet are dead in the 2020s.
For example, the velocity of money use to be a function of the banking system, and how quickly it physically was able to move money while adjusting their deposit entries. Today, this ultimately comes down to bandwidth. The amount of spending on iTunes is not determined by the amount of currency but, rather, the speed which the servers (both Apple and payment processors) can facilitate the transactions.
This is easy to see if we envision AI agents that are tied to wallets. How quickly can money move? What is it based upon?
Obviously, it will come down to how fast these agents can operate. Bandwidth is the determining factor in the digital world.
Now we are entering the "new economy" which is changing everything.
The AI bubble. We hear a lot about this.
Many want to compare the spending of a Cisco to that of Nvidia. They are completely different. During the Dotcom boom, there was no gain of function, unlike today. AI is gaining function in many areas, with applicability only growing.
This is showing up in the numbers. We saw the market caps of the top technology firms skyrocket. They went from $5T or $6T to over $15T. This is a huge jump. Certainly, some will say market cap is not necessarily reflective of what is taking place, especially if there is a bubble.
The challenge here is that every metric for these companies is following in parallel. Revenues and profits are at record level. This is coinciding with massive layoffs in the sector, another sign that things are changing.
What is not discussed yet is crucial is how this is going to impact money. Unlike the past, Big Tech is taking a completely different approach to this economy. The funding is massive yet a simple piece gets overlooked.
Typically, growth is financed through debt. This is the common practice throughout history. A company floats some bonds, taking on debt to build new factories or acquire another company. If the cash generated off the addition was sufficient, the repayment of the loan was easy.
Of course, if the expansion didnt work out as intended, companies took a hit. If the debt load was large enough, it could sink the company.
That did not happen in this instance. The massive expansion in value came without adding any debt. We see massive growth funded simply through operations and cash flow. A company like Tesla is a prime example, recording record earnings while not adding to the liability side of the balance sheet.
What happens as the tentacles of these entities spread further out?
The entire concept of money creation, from what we knew, is altered. This is what economists miss. They are still operating from the textbooks they studied in the 1980s, ones that were written based upon ideas developed in the 1930s and 40s.
We could be looking at a situation where growth comes without the need for massive amounts of debt. The entire inflation narrative is flipped due to technology. At its core, it is deflationary. Hence, we have an expected hit to the job market, where wages are stagnant (if not declining) yet total output keeps increasing.
Naturally, this is only a small segment of the overall economy at the moment. However, the next 5-10 years will likely see massive reach with this concept as traditional industries are disrupted and old companies put out of business.
Technology is changing everything. By the mid 2030s, even the concept of money will have a new meaning.
