How do you grow an economy in a deflationary environment?
This is something that few consider since we tend to not encounter them too often. In the West, we overlook much of what is going on in the rest of the world. This is a mistake that causes people to miss the major lesson of the last 20 years.
Japan was in a deflationary spiral since their collapse in the late 1980s. Once the game was up, things took a turn down and never looked back. The "lost decade" became three as the nation suffered through deflation for basically 30 years. It was only the supply chain shocks due to locking the global economy down that altered the path, albeit only on a temporary basis.
It is also a lesson in quantitative easing. While many think of this as "money printing" and causing the price of assets (along with goods) to increase, explain Japan. They started the process 2 decades ago and Tokyo real estate, the most populated city in the world, is still below it high by a good 20%.
In reality, QE is nothing but a central bank propaganda and shell game that keeps them relevant. They are battling a number of issues, one of which is technology. This is why the idea of global hyperinflation is ridiculous. We are dealing with the exact opposite, something overlooked by the media.
Ultimately, disruption is deflationary. This is true throughout history. Anyone who looks at the different sectors over the last 40 years, point to one disrupted by technology and notice the prices.
Entertainment And Web3
We engaged in a great deal of discussion regarding Web3. This is a prime area where disruption is going to obliterate what is taking place.
Nobody can deny that media companies are enormous. If we look at broadcast networks, movie studios, and streaming services, we realize that trillions in market capitalization is at risk. If we concentrate our focus upon the video arena, we can see how this makes up a majority of the value.
This means that we have a couple things taking place.
The first is many presume these entities are untouchable. I believe we are looking at a different scenario where they are coming under enormous attack. Video is overpriced in comparison to other media formats, meaning we might have a bubble anyway. Couple that with the idea that content creation is going to get easier, along with less expensive, and we can see how new entities will enter the market.
Another thing we are going to see is that value distributed in a much different manner. We know what was once held by Blockbuster is now tied up in Netflix and other streaming services.
This, naturally, is just one area of entertainment. Consider what will happen with gaming, software development, and a host of other industries. With the progress we are seeing with artificial intelligence, it will be a completely different world in a decade.
That said, how does this figure into cryptocurrency?
Deflation Can Be Bad
Deflation can be a wrecking ball.
A statement like this catches many by surprise since they believe that inflation bad, deflation good. After all, prices coming down is a good thing?
That is an odd statement. How many people like when the value of their stocks drop? Are people happy when home prices go down? If buying, yes. However, how many people want to sell a house and write a check out for $25K at closing?
People say they want prices to go down but then they complain when they do. Of course, they often mean the price of goods and services, not assets.
We also have to look at wages. Are people happy when they get their salaries cut? Does someone want to be paid 5% less then year as compared to last? The answer is rather obvious.
Even worse, do people want to be laid off when revenues for a company decline?
All of these happen during deflationary periods. If extreme enough, it can mirror the Great Depression.
Therefore, never believe that inflation bad, deflation good. The simple math tells you that deflation can be a bear of its own nature.
Technological Deflation
When an economy is disrupted like many expect due to the technology, that has a catastrophic impact. When people talk about demonetization, that is deflation. While it is good for prices to go down when purchasing, this has an impact upon the companies, especially the workers.
Technological deflation, on a wide scale, means that money is going to be in short supply. Here is where I firmly believe cryptocurrency will enter the picture. As people loose their jobs, the impact across the economy is obvious.
Unfortunately, the political establishment doesn't understand how things work. Even if they did, it is too slow to move for any positive impact. Technology appears to be accelerating, with the tentacles spreading.
What happens when billions in revenue is wiped out of the video industry due to technology? Just consider what the impact will be on the people who are working in that field? Do you think most of them will be retained and have expanding salaries? Not likely.
Here is one of the first areas we could see Web3 have an impact. We know social video, i.e. YouTube, is enormous. Consider all the hours of video that is watched on that platform. Who is that taking away from?
Of course, we cannot presume that YouTube will continue uninterrupted. There are other options arising which could be a threat, especially if tied to tokenization.
This is a prime example of how cryptocurrency is going to alter the pathway of an industry. Content creation is going to be in the hands of the masses due to technology. Constructing a digital platform to deliver the content isn't that difficult as we see. Changes in file storage is underway. Finally, add in tokenization and we see a monetary component that can offset the deflation created by technology.
The difference is this actually puts money into people's hands.
Posted Using InLeo Alpha
