A brief explainer to share with friends who don’t get it
I have long been fascinated at the wealth created out of nothing tangible aside from the labor involved in the creation of some IP. Three guys writing software for a year collecting $3B. The value in the equation stems apparently via ad dollars in a somewhat zero sum game. The old paradigm of wealth resulting from exploiting natural resources via labor and IP got removed in the new economy, One day another exposition along this fine hamburger story would be helpful.
Thanks as always,
So can the metaverse save us?
OK thinking about how this would actually go into your equation, the model still basically works and I'm just over-complicating an excellent thing for dummies. I'd just suggest -
Value of money = Amount of money flowing / Amount of stuff flowing
Because the way it's currently written only focuses on the supply side of the relevant things
I love this, but I think adding in two other factors would really help
1. Demand for Stuff:
- You touched on this a little bit when you gave the example of 2008 - creating more money but giving it all to one guy who still only eats one hamburger so the inflation doesn't hit in the same way.
In this model, we assume in increase in money also means an increase in demand for stuff, which is actually the more important factor in the numerator. Money sitting dead and idle in the dynamic, living economy is functionally the same as the money not being there (more or less).
I haven't dug too deeply into this but I think this impacted the timing of the inflation we're seeing, just as life was going back to 'normal' and people were demanding more stuff again.
2. Demand for Money (particularly the US Dollar)
USD is still the asset that everyone around the world runs to for a safety when they're scared. Global demand for dollars was way up during the pandemic.
This means USA can get away with money printing in a way that other countries can't.
That's changing though - US has been tanking its international reputation for a while now and more and more countries are waking up to the fact that, hey, we can transact directly without using USD as the middle man.
And probably even more importantly - the US and its allies just locked Russia out of all its dollar-denominated assets (about 1/5 of its foreign reserves). The sanctions mean they have to move away from the dollar based system and look for alternatives (hello Renminbi). And other countries are watching.