Jack Dorsey Is Smart, But He’s Dead Wrong About ‘Hyperinflation’

Jack Dorsey, the CEO of both Twitter (NYSE:TWTR) and Square (NYSE:SQ), made headlines this weekend when he tweeted to his 5.8 million followers what appears to be a cryptic warning sign about the one thing most Americans are fearful of these days: inflation.

In short, Dorsey is quite dour on the topic. He said: “Hyperinflation is going to change everything. It’s happening.

Source: Twitter

Now, before I go on, I’d like to make it abundantly clear that I have the utmost respect for Jack Dorsey. He’s a brilliant guy – an outside-the-box thinker who built a social media empire that we can’t live without these days and who also saw the rise of cryptocurrency before more folks.

Very smart guy.

But… sometimes smart people get it wrong… and that’s exactly what you have here with Jack Dorsey and inflation.

Why Jack Dorsey Is Wrong About Inflation

Hyperinflation is not coming. Now, or anytime soon. Rather, the opposite is coming – muted inflation and potential deflation are on the horizon.

To understand why, you have to analyze the root causes of inflation in our world today.

So… as we all know… inflation is red-hot these days. Over the past few months, we’ve seen record-high inflation number after record-high inflation number.

Now, a lot of people think that this inflation is a byproduct of the government printing an excessive amount of money to address the Covid-19 crisis – and therefore, a lot of people think that so long as the government keeps printing money, today’s runaway inflation will remain red-hot.

Ostensibly, that makes sense, because as money supply increases, consumers and enterprises acquire more money to spend, and that creates a situation of super-charged demand for goods and services, converging on a fixed supply of those goods and services, leading to rapidly rising prices.

Seems straightforward enough. But such a cursory analysis represents a logical fallacy.

Specifically, it misses one important variable in the inflation equation: money velocity.

Money Velocity and Inflation

Money velocity is a measure of how quickly consumers and enterprises are spending their money. It’s been dropping since 1997, and today, sits a record-lows – meaning that while consumers and companies have all this money, they’re spending it less quickly than ever before.

This drop in money velocity is why a steady increase in money supply over the past several decades has not led to runaway inflation. We haven’t sustainably broke above 2% inflation since the early 1990s.

OK… so now we have to ask the question: Why is money velocity dropping?

Technology. The mass proliferation of productivity-boosting and cost-cutting technologies has dramatically reduced the cost to produce goods and services.

In the 2000s, Blockbuster had to pay for the packaging, storage, and distribution of every movie it sold. Each new movie sale represented new costs. The company was having to constantly spend money to make money.

Today, however, Netflix pays one cloud hosting fee to offer universal access to any movie for any subscriber. Each new movie watched or subscription sale does not represent new costs. The company does not have to constantly spend money to make money.

Netflix’s money velocity is much lower than Blockbuster’s money velocity.

The same is true across all of today’s technology empires.

Amazon’s money velocity is much lower than Macy’s money velocity because the company doesn’t have to pay for new stores, rents, cashier salaries, etc.

Google’s money velocity is much lower than The Wall Street Journal’s money velocity because the company doesn’t have to pay to make and distribute physical newspapers.

Spotify’s money velocity is much lower than Tower Records’ money velocity was, because the company doesn’t have to pay to make and distribute physical records.

Across the world – across every business sector – money velocity is dropping because technology is increasing unit productivity and decreasing unit costs.

This isn’t going to stop anytime soon.

Over the next decade, manufacturers are going to automate their supply chains with packing robots, retailers are going to automate checkout with self-checkout machines, restaurant operators are going to automate their kitchen and waiting staffs with robo-chefs, banks are going to automate their tellers, brokers are going to automate their trading operations, and much, much more.

We will plunge head-first into the Automation Economy. As we do, all those companies are going to spend less money to make more money – meaning money velocity is going to keep plunging.

Since the 1990s, this plunge in money velocity has more than offset a sharp rise in money supply to result in consistently sub-2% inflation.

We firmly believe that this trend will persist into the 2020s and 2030s.

The Bottom Line on Inflation

As for today’s red-hot inflation, that’s all due to temporary factors such as pent-up consumer demand after being “locked up” for a year and supply chain disruptions over in China. Those issues will be resolved within the next 12 months. Once resolved, we’ll head right back to the cycle of increased technology usage, leading to a drop in money velocity, leading to stubbornly low inflation.

So, with all due respect, Mr. Dorsey, hyperinflation is not on the horizon – deflation is on the horizon.

We talk about this a lot in our flagship investment product, Innovation Investor.

Because, in a deflationary environment, innovation-focused tech stocks win big. Just look at the past three decades. What are the stock market’s biggest success stories? Innovative tech stocks like Amazon, Facebook, Netflix, Google, Nvidia, and more.

This will remain true in the 2020s.

And in Innovation Investor, we invest in those very stocks. Well… not Amazon, Facebook, and Netflix. Rather, we invest in the next Amazon, then next Facebook, and the next Netflix – stocks that could soar 1,000% or more.

So… forget Jack and all the naysayers saying inflation is a big problem… and turn today’s inflation hysteria into your opportunity to create generational wealth.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/hypergrowthinvesting/2021/10/jack-dorsey-is-smart-but-hes-dead-wrong-about-hyperinflation/.

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