Is there Inflation or Deflation in our future? How do we survive?

In a recent article we shared, “labour costs are losing their importance in defining competitiveness”. This comment was made in the context of global economies increasing use of automation and artificial intelligence. The consequence is that any “…attempts to increase employment will make the economy less efficient.” The technical term for this consequence is called Technology Deflation. 

If economies experience Deflation, the value of your dollars goes up because you can buy more goods and services for less, you would think that is a good thing?

Deflationary forces are coming our way fast and so is the systemic ‘repricing’ down of products and services and related consequences.

The quantum behind Moores Law is the doubling of technology computing power every 18 months. Technology in the last 50 years will double in the next 18 months. An interesting aside is that there is a suggestion that Moores Law (50 years old) is breaking down (unsustainable) and will end in 2025, coincidently this is when it is has been speculated (by some experienced commentators) that there will be a global financial reset. An interesting coincidence, we wonder if there is any correlation…?

So why do Central Banks continue to manage our economies using inflationary limits, is it because it appeals more to borrowers, allows them to print more money and sustains the status quo for a little longer? Could we suggest based on first principles (specific and related facts) there is a ‘new normal’ because Federal Banks have failed to achieve their mandate of controlling economies within certain Inflationary limits? 

Where does the money go to drive a better outcome? Central and Federal Banks around the world have created a world where the Inflation rate wins, but it has not worked. In part because negative interest rates have only motivated greedy multi-nationals to buy their own stocks with the sole purpose to increase their valuations and not invest in increasing productivity or fundamental value.

The Social Contract (in most First World countries, excluding a handful of exceptions) is broken and now Joe Public is responsible to supplement their fiscally stimulated ‘Universal Basic Income’ (in whatever guise this is to be handed out), just to survive.

So as we embrace automation and artificial intelligence, Technology Deflation is going to accelerate over time, increasing massive inequality. As long as Federal Banks print money equities and stocks will benefit from the zero interest rate policy. The fact that the stock market is not linked to the economy becomes even more obvious the longer this takes place.

Eventually those stock market assets and investments will adjust (collapse) when unemployment caused by Technology Deflation affects the fundamentals.

Initially Technology Deflation will drive the cost of living down but ultimately the standard of living for everyone. 

How to survive Deflation

It starts with preparing for the future of earnings by being proactive (by taking control of your finances, increasing your emergency savings and removing debt) creating more than one revenue stream (if an Employee becoming a Contractor to your Employer), embracing technology to make us more productive, working less, lowering our breakeven, and our cost of living but not the quality of our life.