The day I entered graduate school, I sat down with the dean of the Global Securities Studies program at Johns Hopkins University in Washington D.C. We would discuss the reason why I was studying at the school and what I wanted to study.
Deflation, I Said.
I had proposed a hypothetical to the dean. What would happen to the world if – in a breakthrough – a scientist developed a new technology that would be easy to scale and make oil and natural gas obsolete. No mining, no drilling, just highly abundant fuel. No need for oil or natural gas.
What would the security implications of this be?
The answer isn’t obvious to most people. But the elimination of oil would effectively put petro-reliant nations into peril. There would be massive unemployment because we didn’t need the energy supply chains anymore. There could be massive unrest because you now have millions of people across those nations now without work. Massive unemployment.
And then, you’d have nations looking to paper over the economic turmoil that would come. Nations would likely bailout stakeholders in now obsolete companies while also spending gobs of capital in order to pay unemployment benefits to those people.
Hypothetical Becomes Reality
Now, that all sounds hypothetical. But this is exactly what has happened over the last decade. Technology has displaced workers, it has fueled massive changes in our economy, and it has spurred dramatic amounts of deflation. Jobs of the past have disappeared.
The central bank, in turn, has spent into oblivion to prevent deflation from happening in the U.S. economy. When Amazon made a lot of retail obsolete, the government has injected capital into the markets for two reasons. One, to ensure that hedge funds don’t go bust. Two, so that the newly unemployed can have enough money to pay for goods.
The problem is that the Fed has created inflation in food, energy prices, real estate, and the stock market. The Fed has also concentrated a significant amount of power into the hands of these tech giants that have created all of the deflation and job elimination to start.
Now, sitting on top of record share prices, cheap debt, more cash, and a stranglehold on their markets, they can now invest even more money into future deflationary technologies that will displace even more workers.
Deflation VS Inflation
There is a battle happening between deflation and inflation, and the winners aren’t the middle class or the people living paycheck to paycheck. Instead, the Fed is directly enriching the very people they are fighting: Innovators, but they refuse to allow deflation to simply drive down the cost of everything.
This makes it very apparent to me that stocks like Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Meta (NASDAQ:FB), and other monopolies are actually among the best investments to protect against inflation. So long as the Fed creates inflation through monetary policy and refuses to allow real prices to decline, there will always be more capital pumped into the system.
I am going to be discussing this subject quite a bit. The system is a mess, and it opens more questions about power, wealth, and “getting ahead.”