– Part 1
Intro
In the last decade a monetary paradox happened in currency where the US engaged in massive money printing under the terms “Quantative Easing” or debt monetization where the opposite of traditional monetary theory happened. Central banks worldwide lead by the Fed created an eye watering amount of money, but the value of the US dollar went up while they printed more.
The misunderstanding of what drives the value of the US dollar has been the premise of a lot of objectively incorrect decisions in the investment world, corporate world, government policy (Both US, China and other countries) and international relations.
The cornerstone of my proposition is that in the last decade international tech conglomerates have now become the backbone and structurally an integral part of the entire world economy. Every business almost worldwide big or small utilize their services and in my opinion now constitute the entire reason for the maintenance of US Dollar supremacy. This is where I have come up with the term “TechDollar theory”.
This is part 1 of TechDollar. This is my unique theory and opinion on the current state of the modern economy. As always, instead of giving the answer straight, I will also work through the methodology of first principles relevant to the topic in an attempt to prove myself correct instead of simply stating what I believe. As this is a very large topic with a lot of moving parts, I will try make this as easy for new people as possible, while still being relevant for much more experienced readers. I will also add my recommendations at the end.
Part 2 will involve me evaluating the failures of the competing theories and the political ramifications of TechDollar in regards to China, other central banks etc (later in the weekend).
Disclaimer: I decided I’m not going to use charts or any other bs. If you need to be shown the data, this article isn’t for you and you aren’t going to make it anyway. This is strictly for people at the top of the food chain or who want to be there. Yes this is long, I don’t care. It’s you and your families life at stake.
Current Theories
The current ideas of what’s going on in the global economy and the US Dollar seems to be very convoluted, depending on who you talk to. There in my estimation is 4 simultaneously competing theories vying for correctness. My premise is that they are all incorrect in some form or another and I will go through one by one and explain what they believe so you can have context to what I will discuss in TechDollar.
This is in order what I understand the world to believe(summarized) and who the major proponent of it is:
Petrodollar premise / (US military dollar also) – Brooking institute / most think tanks.
Petrodollar is the current premise of the global reserve currency, and that because of the current global reliance on oil as we have expanded the money supply this won’t matter as it will be absorbed by the countries needing oil. This is the underpinning of traditional neocon/neolib political idea that the US Dollar exists because of military supremacy and people use the USD due to military supremacy. This is the core reasoning behind a lot of US interventionism around the world in the think tank world. Because of this supremacy, the amount of dollars being printed is able to be absorbed by the global economy because of it’s reliance on oil and war. The financial logic for this is roughly 100~Mb/d used at an average of $50 / barrel = $5B per day in global demand for dollars in usage. Net sellers of oil are OPEC (US agreement), Russia, Americans, then we have 2nd tier of Norway, Mexico and other states.
Keynsian theory premise (MMT) – Paul Krugman
Money printing won’t cause inflation if the demand doesn’t exist. When demand comes back (as a result of stimulus from lowering interest rates + bond buying) the economy will be in a much better state and thus will be able to absorb higher interest rates as inflation picks up. As inflation picking up is a good thing as it’s showing aggregate demand is increasing.
This comes from a thought process that demand creates supply.
Austrian Theory premise – Peter Schiff
Printing money is inflation, the massive money printing of the last 10 years should have caused hyperinflation and will do so shortly. New money takes value from the old, and thus the newly printed money will cause a destruction in the currency.
Dollar Milkshake premise – Brent Johnson
As money is printed, there will be a flight to safety causing a massive rush into the dollar, causing it and US Gov bonds to spike in value (which is deflationary), then inflation after this temporary spike has occurred. (120 on the DXY(US dollar index) was the call I believe)
Methodology and Outcome
Now that we have our current given ideologies laid out, we can start to go through the concepts from principles and you will see how quickly each ideology starts to unravel. As empiricists, we work from reality rather than seeking to impose our ideology upon reality.
The reality of what has happened recently, what occurred that forced an appreciation in the US dollar while near hyperinflating the currency. These two simultaneous events occurred and no ideology seeks to reconcile those two factual positions, this is what I will try and address.
Primer on currencies
Currencies have logical principles that emerge from reality like anything else, and we simply need to follow them in order to understand what’s going on.
Currencies are the tokens we use to divide the current available and future available resources, goods and services available within the usage of that currency (or society). The most important thing is to separate the tokens from the goods when thinking about what is going on.
To understand this easily I’ll use the visual analogy I always use when teaching people the concept, we are going to make our own currency and economy. You can do this yourself if you want to play along. Take 5 oranges (or anything lol), and 5 $1 dollar coins. The oranges are the goods, services and resources of society, the dollar coins are the tokens that allow us to purchase those goods. In our economy, we now have a total economic production of 5 oranges, in which each orange is priced at $1 worth of tokens.
Now if we add 5 oranges to the goods and services available, what would happen to the value of the tokens? Well we now have 10 oranges and 5 tokens. Which means eventually each token would be worth 2 oranges, which would mean each orange would now be valued at 50cents relative to the total currency in supply eventually. In this example, the society has increased it’s production without changing it’s currency, meaning the original holders of the currency have now benefited from our economy becoming more productive, as the nominal price of the goods have come down, due to the increased number of goods being distributed via the number of currencies.
What if we add 5 tokens instead, and we have 5 oranges and 10 tokens? Well now each orange is worth $2, due to the fact that no change in the amount of goods available, just in the amount of tokens available to buy them with. This change would happen quickly in our scenario, but you can see whoever gets the first few created coins, will get oranges at the full value of the original currency, and that value comes from the dilution of previous holders.
Essentially what happens is wealth is transferred from those who hold tokens to those who hold oranges, especially if you can borrow the tokens that are being devalued. As you are getting the premium price of the oranges, for a depreciating future cost.
There is a little more to it when it comes to future value and interest rates etc, but this is the real meat of the logic.
Which leads to my method of valuing currencies. Which is the intrinsic value of the currency is simply. Total number of currency units / total demand for currency relative to goods and services denominated in that currency both fixed and forward contracted.
You can't fight reality, if it’s priced any higher than that you are simply holding currency units for no purpose, remember we want the goods (oranges) the tokens can provide, not the token themselves. If it’s priced lower than the total value of the goods available, then you are getting the real goods at a discount.
This sounds incredibly simple, that’s because it is. People complicate things too much because they don’t understand the principles behind what’s going on. They’d rather look intelligent, than be correct. As I laid out in my first principles essay, the biggest issue is the emotional trauma caused by this method of prior problems, not the method itself.
Quick primer on central banking, government spending and power
When governments or politicians seek to spend money, they have 2 main methods.
1) They can legitimately tax the productivity of the citizens under their control currently to generate revenue.
2) They can borrow the money on a promise to tax the future productivity of the citizens under their control.
However there is a third method which is the most insidious is they can centralize control over commerce by mandating usage of trade using a singular currency in which they have absolute control and authority over. When this occurs they are able to print the money in order to finance the spending they wish to do. This is the purpose behind the money printing, to finance government spending that it could not do by taxing or borrowing. So politicians that seek power or ideological congruency use money printing to finance their power or delusions. How they cover this up is a matter of word games, obfuscations and shell games, but this is the base concept. Money printing now is how autocratic systems extract tribute from those subservient to them.
Now to the current problems with the value of the US Dollar.
TechDollar thesis
What happened starting in the early 2000’s but really started to ramp up in the 2010’s is the value of the tech service and hardware sector in the US really began to take hold not just in the US but across the world. The core premise of my argument is that in 2020, the US dollar reserve status isn’t based on the petrodollar like in the 1970's when Kissinger made the international oil agreement, but rather in the fact that the entire technological infrastructure and platforms that are required in every business, in every country around the world now has created absured, real demand for US Dollars.
So if we go back to our original currency analogy, while we created more tokens, we also increased the number of oranges available to buy with those tokens created. These occurred simultaneously, and rather in spite of the money printing than a causal impact of it. This is why in my opinion there has been little headline inflation numbers for the last decade even though the amount printed has been astronomical, so has the value created by the tech sector.
To put in context what I mean I will quickly go over a summation of what the current state of modern business looks like, and the technological infrastructure developed by these companies have effectively created the most efficient business ecosystem in history. In which all modern entities must use in some form or another. From the solo business freelancers, to the largest companies in the world, and literally every company size in between. Charities, individuals any group or service will use in some form or another the modern tech infrastructure for it’s operations.
· Internet infrastructure
You have the internet platform companies like Amazon with AWS and Amazon fulfilment. Google with search, adsense, and Android platform. Facebook with it’s ad platform. Apple products and Apple store as a platform. Microsoft products and services are core components of now every small business worldwide. Global revenue for US tech companies dwarf the internal local revenue within the United States.
· Business services
for example Salesforce, Slack, Adobe, Nvidia, Twitter, AMD, Oracle, Shopfiy, Stripe to name a handful. They are both global and now a requirement in order to achieve success in business now. Those who don’t use these services are simply left behind in terms of scale, reach and efficiency.
· Advertising Infrastructure
Both Advertising (fb/goog/amz/twitter), infrastructure and core business software is globally priced in USD unless it’s done bespoke like my company does priced in it’s own national currency. The scale and conversion rates of the main internet ad platforms dwarf old school advertising methods.
· Scaled International software companies
Once a software company like Shopify which is a Canadian company goes global, it’s global revenue is done in USD creating real demand for dollars. Or Spotify in Europe has the same structure. This is the same for any second-tier companies.
· Entertainment platforms
Our entertainment platforms are now also constructed in US Dollar payments. From Spotify, Netflix, Disney+, HBO Max, Apple Music, YouTube and any other scaled internet services scaled for entertainment use US Dollars as payments. Yes they accept national currencies, but this is converted into US Dollars, also creating a real demand for dollars.
· Everything else
Literally anything and everything is being ‘teched’ and scaled. Most of these products and services is being sold and priced in USD.
The other thing not mentioned is the business structure. As these are generally subscription based services. This is causes consistent demand every month from most companies for US Dollars.
This infrastructure has created a dynamic where the US Dollar is the network for the entirety of modern business commerce via the internet. As these efficiency services are all charged in US Dollars creating real demand for dollars. With a network effect that is extremely difficult to untangle.
Created monetary dynamics
Effectively what’s happening now is that the US government has and desires obligations that it desires to have without the accompanying taxes to pay for it. So they are borrowing and printing the money to facilitate this spending. The government can no longer afford the obligations it desires to hold, and so it is debasing the currency in order to facilitate the maintenance and expansion of their power and promised obligations.
The reasons for this is for political debate, and a different article, that isn’t the focus of this article.
However they aren’t the only government doing this, simultaneously there are many governments doing the same thing to varying degrees. The consequences of this has created quite a chaotic monetary phenomenon.
Essentially in my opinion the USD is sinking slowly, but this would have been hyper accelerated in any normal environment, but unlike every other hyperinflationary period in history, the tech companies have linked every other country to the USD as well. This is forcing the others to come down at the same rate, because they cant dump it even if they wanted to because they are so dependent on the technology for the operation of their companies.
Because everyone is anchored to the USD through this web of tech infrastructure, the US governments printing of USD means they aren’t subject to what would normally be the immediate consequences of currency debasement as effectively, the entire world is now intertwined with the USD system. The US government is effectively taxing the rest of the world by exporting their inflation to the rest of the world, because the businesses worldwide now require such vast amounts of USD in order to exist within the modern technological infrastructure.
The best analogy I can think of is imagine a row of boats on the water, and you have one large boat and 10 other smaller boats. Think of over inflating a currency as taking on too much water. Normally when this happens the boat just sinks and we move to a new boat. However with the US Dollar, instead of the boat sinking, the global tech companies have effectively intertwined the US boat with every other boat using those companies lets say with planks of wood. So now when the US takes on water, its being held up by everyone else absorbing the effects of the printed money via the tech company dominance over modern business. So instead of just the US sinking, it’s forced everyone to sink with them, and they look like they are floating as a result. This optical illusion continues because of the efficiencies created by the tech giants for businesses throughout the world.
Disparity between virtual reality and physical reality
Another way of conceptualizing what has happened is that there is now a clear distinction between the virtual / digital reality and physical reality.
While physical manufacturing and production of real goods has been moved internationally (for reasons I won’t go into here), the east has focused on the physical infrastructure of society. While the US tech sector have effectively created their own control over digital infrastructure. This I would argue is far more important, and the lynchpin of the US Dollar supremacy.
I have purposefully avoided talking about technical financial minutia of the Fed and the international banking structure so far. Not because I can’t, but because I think people structurally overvalue what they believe the governments and central banks are capable of doing. The real value of the world is in the oranges, not the tokens. The tokens represent the oranges, that’s it. I’ll address this side in part 2.
How do we know we are correct?
The way we can objectively prove the validity of ‘TechDollar’ is by looking at what the market believes is the most valuable companies. Back in the 70’s it was energy companies at the top of the market caps, the dollar supremacy truly was due to the international agreements to price oil in dollars. The market is pricing in the tech companies as the global power by market cap rather than the petrodollar which is conventional wisdom politically now. This sounds so incredibly simple, because it is. Everyone overcomplicates things, either to try and sound smart, conform to their pre-taught ideology or because they seek power in obfuscation of reality.
In this sense, we can now understand that while the danger of massive amounts of printing has occurred, I think the implied suggestion of immediate hyperinflation are over-estimated but the expectation of high real inflation 7-15% every year for the next 10 years globally would be very much expected, with the reported numbers being whatever they are able to lie to maintain power. With the logical reasoning above as to why.
Now this monetary phenomena last forever, but it does completely change the landscape of how we must think about what’s going to happen as a result. As I always say, the predictive capabilities of a theory is the test to it’s validity. We know gravity is correct because we can predict the apple falling, before we drop the apple (that’s not way, that’s the predictive nature of it).
This type of massive autocratic confiscation doesn’t happen in a vacuum, nor is does it go unnoticed by major players or countries. This is why I simply don’t believe the mainstream theories. Businesses and countries will simply do what is in their best interests, and currently because of the tech supremacy and requirements, they go along with this primarily.
Other factors at play
This I’m going to do a quick overview of these topics, purely for context to my explanation as to my prescription at the end. These could each be their own in-depth article, but a brief understanding is required.
Globalization of Labour and disparity of capital
This is a controversial topic, however it must be discussed. There is two distinct factors at play here.
1) Functionally, labour is paid in a linear scale to time in depreciating currency, meaning it’s a forward promise on future currency, which is debt. In a non-autistic way, I’m saying that the value of labour is being devalued through money printing.
2) Non-high value jobs are able to be outsourced due to tech and globalization. You are no longer competing with everyone in your town, or area. You are competing with about 7 billion other people. Non-high value skills and jobs will simply be competed down in western countries.
These two factors are what’s causing a massive divide between capital ownership and labour producers. This will only widen as money printing transfers wealth from the labourers to the capital owners as we discussed earlier.
With zero percent interest rates, the cost of capital has dropped to effectively zero, the value of labour will slowly drop to that of the time value of their money. Coupled with the ability for tech to scale globally, vs the linear scaling of manual labour. It is simply going to be too much for most.
Due to huge money printing, real money is now moving into the creation, distribution and sale of assets. Not incomes. The better you can scale, the more value you can create. This asymmetric disparity of what’s going on now has never happened before and it may never happen again.
Due to these factors, this will and is causing political instability. However, this isn’t the purpose of this article. This is simply to inform.
Pace of change
What is going on in the real economy is structurally changing compared to what has before the internet. The speed of rapid change has never happened before in history. This is radically changing inter-generational dynamics and dominance hierarchies. Corporate hierarchies are a dying model, simply because they can’t adapt to the changes fast enough, and the pay model for the best talent is outdated due to the printing of money, and the globalization of labour.
I’m in tech and 3 months in tech is like 10 years in terms of development 50 years ago. Big bulky corporates simply can’t keep up.
The other major factor in this which I only want to briefly talk on is the difference between top of the food chain talent and middle of the road. Top of the food chain people are creative and sometimes abrasive. These types of people don’t operate well in politically correct enforced structures, which modern corporates are. If you want to be around the best, look for the small teams. This is important as slowly the best talent will no longer be in the large corporates, but smaller nifty operations. The small will slowly cannibalize the big, as the big can’t keep up.
Global ability of migration
Those with money and portable assets will not want to be subject to onerous taxation and regulatory failure of modern states.
Corona forced an adaptation in society and capital owners can now work from home. This makes traditionally autocratic enforcement much more challenging as the limitations of movement have been severely eroded.
Quality of life will take precedent and the old way of operating will quickly be obsolete. As more work moves online for higher value producers and capital owners, people will move to where they believe their best life will be. Autocratic impositions will soon have a serious safety valve on their insanity for the minority who can afford to move.
Consequences and the price of centralization of power
Due to the massive amount of money printing occurring with no immediate repercussions this has caused a delusional understanding of those in power thinking they are correct. The centralization of power will continue, but this will come at great expense of the majority of the population. This will also come at the cost of credibility of the major institutions. As they have to choose between being ideologically congruent, or correct. And since those in power will choose political congruency for power, they’ll sacrifice the credibility of their institution in the process. This will mean slowly, but surely the old world will be consumed by the new.
The new players in this will be ant-fragile. Those who stand against this system will simply be immune to the attacks of it in the future. There are ways around this hegemonic system, and those who go through this path, will simply be invincible coming out.
You won’t hear the screams
However I think curiously what else has happened is that the other main players in this that would normally sound the alarm are not as fervent in their cries, simply because those of us who understand this to some degree, have already gone into the life rafts years ago. And every day more join us in the flotilla to safety of crypto and hard assets. Those in the know have already done this, or are currently doing so now.
How bad will it get?
Bad.
What to do for the future personally?
This isn’t to cause fear but rather calm. It’s very easy to understand what to do once we understand the frame of what’s going on. Noah built the ark before the storm, make sure you build yours.
Let’s break down what we should do into 3 distinct areas knowing what we know now, our income, investments and our social systems.
Income / Job
With how the world is currently working I hope I have convinced you that menial labour or more accurately non-scalable labour is a disaster. My suggestion is to move into areas where your labour is either asymmetrically scalable or in the creation or selling of assets.
Non autism: Software dev, Real estate, Private equity, hedge funds, venture capital, affiliate marketing, ghost writing, SEO, online e-com stores, sales, graphic artists. Anything that can asymmetrically scale or be involved in the purchase and sale of real assets. Anything else and you are on the other side of the money printing wealth transfer. Traditional corporate jobs are simply going to be squeezed.
A good rule of thumb is that the skill needs to be independent of corporate overhang. You need to be able to sell or do it yourself. This doesn’t mean quit your job tomorrow, don’t be ridiculous. But it means you need to start developing independent skills of your current occupation that you can scale and create incomes from. And slowly transition out if possible.
The current busines super-cycle has moved into crypto and tech. Don’t miss it.
Investments
You need to focus on the accumulation only on assets, this cannot be exclaimed enough and specific types of assets. You need to be buying either equity in businesses, commodities or physical or digital assets that cannot be printed.
Meaning stocks, real estate, farms, crypto, digital real estate, online stores etc. Things that cannot be printed but generate cashflow or can be exchanged for future currency.
Under no circumstances should you be buying debt or companies that issue or sell debt. They’re completely screwed. This is insurance, banking etc. You need to be buying REAL assets.
One method is to be able to buy solid, long term positive cash flowing assets on margin (using debt). That way you are on the positive side of currency devaluation. As the debt you hold will be devalued, but the asset you hold will appreciate, and the cashflow will remain and scale with inflation.
Use extra or scaled income to buy the digital assets that are the new infrastructure of society that have been mentioned in this article already. These are only ever going to go up in value. Buy the companies that produce either digital infrastructure, cash flowing companies that produce physical goods. That’s it
I have purposefully avoid the discussion of crypto for this article as I think it will needlessly overcomplicate the theory. However as a solution I would strongly suggest you learn, and fast. You need to learn crypto and how it works. It’s the financial infrastructure of the future. Things will break down eventually, you have time, but not infinite time.
It’s not hard, just break it down into principles. You need to focus on these things and learn how to do them.
If you have large sums of money, you should look to own properties and assets multi-nationally.
Social
You are going to need a physical support group. Get better friends. You are going to need them. Go to areas where the energy is congregating online, and in real life. That’s the best advice I can give You need to have quality health. I’ll help with this in another article.
Summary
Hopefully I’ve given a convincing argument as to the validity of my thesis of the current state of the global economy. That the US Dollar supremacy exists due to the technical supremacy of the technological digital infrastructure that has been created. And that the governments and central banks are out of control worldwide, but that we have time, just not a lot.
Part 2
Part 2 I will logically dismantle the competing theories, technical banking & economic analysis and go over the political ramifications and structure of what’s going on. So stay tuned!
If you got value from this article, please like the post it gives me dopamine and consider subscribing if you can afford it!
Did you ever publish part 2? Would be very interested in reading if it's posted somewhere
What happens to all the non-USD currency that is used to buy USD?