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Productivity dilemma

The world has a debt problem. The U.S., China and Japan among the big economies have debt

to gdp ratios that are worrisome. And in the case of the U.S., there is a growing fiscal deficit, which guarantees more debt in the future. There are two ways in which you can improve debt to gdp ratios: through inflation, where nominal gdp grows more than the cost of debt, and through and increase in productivity, which doesn’t produce (meaningful) inflation but increases gdp growth. The last leap forward in productivity happened in the ‘90s with the birth of the internet, which was caused by a huge R&D effort on a global basis due to #y2k (fear that computers will not be able to cope with the change from 1900s to 2000s). The internet had such a great impact on the world economy that the U.S. ended up with a budget surplus. The world’s bet on a leap forward in productivity rests today on artificial intelligence, the difference with the internet is that we don’t have a need and a deadline, like we did at the turn of the century, and there’s also the fear that humans may be left behind by machines, and will not enjoy the benefits of the leap forward. Without a leap forward, the only solution, is inflation, and central banks are fighting to suppress it.


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