This might sound odd to many people. After all, the amount of money that is being printed is adding up to be quite a bit. After all, aren't we all taught that money printing leads to hyper-inflation especially after historic "money printing"?
The sad reality is that this is being proven false with each passing year. We already saw historic easing over the passed decade, a move that should have seen inflation rates go through the roof. They didn't.
So where is the disconnect and why is deflation the issue going forward?
Our answer lies in something few economists and policy makers ever consider: technology. This is the animal that is changing everything.
"Software is eating the world" -Marc Andreeson
Here is the inflation rate of the United States:
Let us hone the chart in a bit more and look at it over the last 25 years.
The red circle is the range when the historic easing started. How much was pumped by central banks around the world? The total number is somewhere around $23 trillion. The United States Federal Reserve eased until 2014, a point where inflation was already declining.
How can this be? The inflation rates should have mooned?
Understand the effect of technology on the economy is paramount. If we do not grasp the basics, then we will fail to see the shift that has been taking place over the last few decades.
Of course, the fact that it is accelerating is going to make it obvious in the years to come.
At the core is the fact that technology is deflationary. Anything that falls under the Laws of I.T. provides tremendous downward pressure. Seeing the deflationary rates of the different sectors, software, storage, and processing, really tells major part of the story.
Looking at the first chart, we see that the largest deflation rate was during the Great Depression when we hit 15%. The different sectors of I.T. deflate at a 17%-50% annual rate. This is a level that is eating up all the stimulus that is being tossed out there.
What makes this situation even worse is the fact that, I believe, the trendline we were operating upon is only going to adjust upwards. This means that, because of the panic associated with the coronavirus, the shift to automation is going to accelerate. The result is that more of the global economy will fall under the laws of IT.
As this percentage increases, the downward pressures are going to consume all stimulus that is put forth. This is simply unavoidable. It is also a fact that economists seem completely obvious to.
Over the past 20 years, we witnessed wages being flat. This is likely to continue as we see workers prospects declining. Entire industries are going to be eliminated while other ones move towards more automation.
We are going to see a societal upheaval over all of this. The fact that neither those who are in charge of fiscal and monetary policy are not talking about it shows how we will be caught off guard.
The next time someone mentions inflation, simply ask what percentage of the global economy falls under the laws of I.T.
Ignoring this point is misses the proverbial elephant in the room.
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Posted via Steemleo
