As we navigate the uncertain waters of the global economy, all eyes are on inflation. But several signs suggest we are already in a recession and heading towards a landscape of deflation. Three key factors are critical in this economic forecast: debt, demographics, and technology.
While no one can predict the timing with absolute certainty, understanding these issues can offer us a glimpse into what might be coming in the long run. But first:
“Central Banking is a Scam”
These are the words of Argentina’s newly elected president. While there is much to say about Javier Milei, it is hard to say this statement is anything but valid. A small group of influential people have the ability to manipulate money supply (by printing more) and interest rates, which are essentially the cost of borrowing money. On one hand, they encourage people and companies to take on more debt because it’s less expensive. Then, on the other hand, they have the power to increase interest rates to get it all back over time.
The 2023 inflation crisis is often blamed on external factors like greedy corporations and the Russian war in Ukraine. But, the increase in liquidity by central banks in 2020 should be acknowledged as the root cause. Go search for “central banks balance sheet expansion” or “M2 money supply” and check the ballooning graphs for yourself.
If you start looking for answers to why inflation should be 2%, to begin with, you will see there are few to be found. Inflation (as inflated) means more money, so the purchasing power of existing money will decrease. Why would we want the value of our money to decrease? Two percent year-over-year equals zero value in 50 years.
It is also weird to think about what gets measured when discussing inflation as the foundation for interest rates. Why are goods and services part of the Consumer Price Index (CPI) but not assets like housing or the cost of education or early retirement? In whose interest are these metrics..?
The future of deflation
I will leave the dysfunctional system lead by fraudsters for now. Demographic trends, technological advancements, and rising household debt can hint at what’s coming no matter what central banks decide on. (If they survive the new breed of chain-saw-politicians that is.)
As a result of all the “stimulus” global debt currently stands at 307 trillion USD. In our new high-interest-rate environment, countries and households must reduce spending to meet interest payments.
Then comes demographics. Many countries have a trend of aging populations. Older people generally spend less, reducing consumer demand. This demographic trend, combined with the impact of technological advancements, particularly in the digital sector, further accelerates lower prices. The digital era has introduced a world of abundance, with software and digital products replicable at minimal costs, exerting a downward pressure on prices.
And to top it off, there is artificial intelligence (AI). This will most certainly lead to increased unemployment rates since companies must find new ways to fight costs. Many office workers who are let off in 2024 will never be needed back again as a result of rapid AI transformation.
2024: A Perfect Storm
The impact of these factors on the economy needs to be adequately addressed. But central bank policies often rely on outdated models that can result in ineffective or misguided monetary policies.
The combined effects of monetary policies in the USA and Europe, aimed at fighting inflation, along with the collapse of the Chinese economy due to lower exports, create a perfect storm that could lead us into a global recession worse than any other.
Understanding the long-term dynamics is crucial for leaders, policymakers and the general public alike. As we move forward, we must be prepared for a bumpy ride.