Tag: economy

Deflation Is Not The Villain – The Overleveraged Fiat System Is

It is important to clarify something here.

While mainstream economists, the financial media, academia, and other gatekeepers of the rotten fiat currency system howl about the dangers of deflation, it is worth taking a moment to consider whether it is really such a bad thing.

First, it is important to define our terms.

The correct and true meaning of inflation is an increase in the money supply. So the correct and true meaning of deflation is a decrease in the money supply. But that is not what most people mean when they refer to deflation, because the money supply rarely contracts in a fiat monetary system. When most people say deflation, they mean a general fall in prices.

One of the biggest popular misconceptions in economics is that a general fall in prices is a “bad thing.”

It is an enormous misnomer. Falling prices caused by increases in productivity are actually a good thing. Who does not want to see their money go farther?

Technology is naturally deflationary. It drives down costs, increases efficiency, and makes goods and services cheaper over time.

In an honest monetary system, that would mean falling prices and rising purchasing power. In other words, your money would buy more as technology advances.

But that is not how the current system is designed to work. In fact, it does the opposite. It is like running on a treadmill that keeps accelerating.

In a fiat currency system, deflationary increases in productivity are more than offset by inflation, which benefits people who own stocks, houses, and other assets that rise with inflation, and hurts those who depend on wages denominated in the debased currency.

In short, in a fiat currency system, the benefits of deflationary technology primarily accrue to asset holders, because the forced inflation created by central banks pumps up asset values.

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The US Economy In A Nutshell: Privatize The Gains, Socialize The Costs

In my post Five Dynamics That Make Sense of an Increasingly Chaotic World, #3 is the distribution of risk, costs and consequences to a diffused populace while concentrating the gains into the pockets of insiders/owners:

Those seeking to reduce their private risks and increase their private gains seek to concentrate the gains generated by control structures and distribute the risks and costs to others. Pull the strings that diffuse the costs and risks over a large populace and gather the gains into the hands of the insiders that manage the control structure, typically some form of monopoly, either public or private, or a fusion of public-private rackets.

So corporations face low risks while the gains are extremely enticing. This diffusion of risk and concentration of potential gains establishes perverse incentives to increase extractive, exploitive, well-hidden rackets that impoverish and immiserate the many, but in doses small enough to avoid triggering push-back.

In a system that concentrates gains and diffuses risk, the “rational actor” seeks to maximize rackets that distribute impoverishment and immiseration to the many in small doses over time that attract little attention and are not significant enough to trigger an emotionally potent resistance.

Correspondent Simons Chase (x.com/slchase and Selflet.ai) insightfully summarized this dynamic: Privatize the Gains, Socialize the Costs. Here is Simons’ explanation:

“Junk food is a kind of leveraged recapitalization — short-term gains privatized, long-term costs socialized as horrific health outcomes: pay a little now and a shortened, diseased life later. Dan Munro folded that framing into his Forbes piece tying roughly a trillion dollars a year in U.S. healthcare spending to sugar: Sugar Linked To $1 Trillion In U.S. Healthcare Spending (forbes.com, 2013). The mechanism is the point: privatize the gain, socialize the cost. Once you see it, you see it everywhere.

The receipt is real–Credit Suisse put 30%-40% of U.S. healthcare spending at the feet of excess sugar, and the 2012 Global Burden of Disease report found obesity a bigger global threat than hunger. That last fact is the whole thesis in a line, and I put it on X more recently: obesity is a form of starvation — understand that, and you grasp the U.S. economy:

Abundance, not scarcity, is the adversary now. The economy has already filed the invoice: the top employer in most states flipped from manufacturing to health care in a single generation. We stopped making things and started billing the disease. The damage became the GDP.

Debt is the same recapitalization run on the whole economy–today’s abundance privatized, tomorrow’s cost socialized onto a future that didn’t vote. And the defining project of my lifetime has been that operation run on foreign policy: borrowed against what we couldn’t pay for at home, the costs socialized onto people far from the ledger, each chapter sold as help.

AI is simply the newest instance, and the most intimate. Cheap, fluent, frictionless cognition now; the homogenization bill later. The engagement is privatized; the flattening of the culture is socialized onto all of us– and, exactly as you say, nobody notices the loss because nobody knows how to look for it.

Thank you, Simons, for this illumination.

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“Unlike Anything I’ve Seen In 40 Years”: Explosion In Data-Centers And Memory Costs Fueling Third Inflation Wave

We’re finally starting to see hints of relief when it comes to inflation. Prices at the pump are starting to come down, monthly core CPI momentum has slowed, used cars were down around 2% YoY, and food inflation is starting to moderate. On the other hand, there’s America’s massive explosion in artificial-intelligence infrastructure – which is beginning to push prices up on everything from electricity to smartphones.

On Thursday Apple announced a 15-25% price hike on Mac computers and iPads, after CEO Tim Cook told the Wall Street Journal that the jump in costs was “unlike anything he had seen in any area in over 40 years.” An Apple spokesperson placed the blame on the “rapid expansion of AI data centers, which has created an extraordinary surge in demand for memory and storage,” causing component prices to surge.

As the Wall Street Journal notes; 

The money pouring into the AI arms race is unprecedented. Analysts peg capital spending at five of the so-called hyperscalers—Alphabet, Amazon, Meta Platforms, Microsoft and Oracle—at $741 billion this year, according to FactSet, up nearly 75% from last year.

Where is all that money going? While much of the conversation is focused on what AI can do, the build-out itself is strikingly physical, said Columbia University economist Stijn Van Nieuwerburgh. -WSJ

AI data centers require specific, sophisticated equipment to ensure cool, stable operation – as well as electric and fiber-optic cables and backup generators in order to keep them running 24-7. According to the report, Van Nieuwerburgh estimates that the AI buildout could cost somewhere in the range of $8 trillion over the next six years. As such, the demand for components shared throughout the economy (memory, for example), the effects are now trickling down to consumer electronics – like iPads. Other companies such as Nintendo, Microsoft and Sony have all raised prices on devices.

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How Government ‘Affordability’ Turns an $18 Antibiotic Into $2,500

Nothing makes anything less affordable than a government promise to make something more affordable, and a Texas pharmacist revealed this week how an $18 generic antibiotic gets listed for $2,500. But from there, things get so seriously stupid that you just know there must be a government program involved.

Brad Hart, along with his wife Glenda, own Forest Park Pharmacy in Fort Worth, so he knows a thing or two about how the system works — and just how dysfunctional it is.

“A family came in wanting to transfer their kid’s antibiotic to us,” he posted to X earlier this week. “The child had already STARTED the course. Then, mid-treatment, the insurance company decided the last 14 tablets suddenly needed a ‘prior authorization’ before the other pharmacy could hand them over.”

All this for Linezolid, a generic antibiotic that costs Forest Park $18.

Why all the fuss for something so inexpensive? 

Hart explained, “Insurance and the PBMs [Pharmacy Benefit Manager] behind them price drugs off a number called AWP — ‘Average Wholesale Price.’ People in my industry have another name for it: ‘Ain’t What’s Paid.’ It’s a benchmark number, not a real-world cost. On paper, the AWP for just those last 14 tablets is about $2,500.”

“The system that’s supposedly ‘protecting’ this family from cost is the same system that inflated an $18 medication into a $2,500 line item, then slapped a prior auth on it to “review the expense” THEY invented,” Hart continued. “They manufactured the problem, then billed everyone for the privilege of solving it.”

PBMs and AWPs were unfamiliar to me, so I asked Grok to explain how they work and why they exist.

The short version is that Washington’s tax incentives and Affordable Care Act (thanks, Obama!) mandates push everything into third-party insurance, disconnecting patients from real costs. Medicare Part D (thanks, W!) and weak transparency rules empower PBM middlemen (another Washington creation) to profit from fictional AWP benchmarks, delaying care and sucking up tax dollars while also overcharging sick people.

You get robbed coming and going.

Really, what the insurance companies do here is play arbitrage games enabled by government meddling in the name of affordability. That’s why Forest Park Pharmacy doesn’t take insurance and just sells medications at a market-rate markup from their wholesale cost.

One solution — and this is exactly what I used to do — is to buy bare-bones high-deductible health plans with catastrophic coverage and pay cash for everything else. But I can’t do that anymore because Obamacare made those plans mostly illegal or unobtainable. 

Why, it’s almost as though the entire system were geared for price-gouging. 

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NO PENSIONS, NO WARSHIPS: Broken Germany To Raise Retirement Age to 70, as Plans Are Scrapped for Its Frigate Program That Already Cost Taxpayers $2.6 Billion

Germany is down and out.

13 months into his Chancellorship, Friedrich Merz is polling as the most unpopular German head of government in modern times.

That apparently does nothing to tamp down his cocky self-confidence and sense of self-importance, which so annoy the public.

And things may be about to take a turn for the worse as the German financial reality is biting.

To begin with, Germany is considering raising its pension age from 67 to 70 – the kind of move that set France ablaze for months while Emmanuel Macron tried to pretend all was great.

Germany is Europe’s largest economy, but it is stagnant, and the public finances are collapsing, so a ‘government-appointed commission’ has recommended a ‘radical overhaul of the pension system’.

The Telegraph reported:

“The commission, whose proposals are set to be presented to Friedrich Merz, the German chancellor, on Tuesday, has suggested incremental increases to the pension age every decade according to ‌life ‌expectancy, rising to 70 by 2092 under its current calculations.

They propose a 2:1 ratio formula. For every additional year of statistical life expectancy gained by the population, eight months must be spent working and four months can be spent in retirement.”

Currently, Germany takes the contributions taken from current workers to fund the pensions of current retirees, but the former keeps shrinking, while the latter keeps growing.

“We want to reform our country in such a way that future generations, young generations, also have the opportunity to live in freedom, in peace and in prosperity,” said Mr Merz last week.

[…] The commission also wants to reduce the number of gold-plated civil servant pensioners who receive an average of more than €40,000 (£35,000) a year. A recent calculation by Welt newspaper found the annual cost of these pensions, which teachers in many states can access, to be €67bn (£58bn).”

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CEO of eCommerce Giant Warns Robots Will Replace Humans in Food Delivery, Other Gig Economy Jobs

The founder of one of China’s largest ecommerce companies has issued a stark warning that its entire delivery workforce of 700,000 people will ultimately be displaced by robotic automation. This replacement of the gig economy with robots, if successful, will spread around the world.

The Financial Times reports that Richard Liu, founder and chairman of JD.com, delivered the warning at the Asia-Pacific Economic Cooperation CEO forum in Shenzhen on Sunday, saying that gig economy jobs will eventually become obsolete as robot delivery systems mature. His comments highlight mounting anxiety among Chinese policymakers about how swiftly advancing automation technologies could destabilize employment for the country’s most economically vulnerable workers.

Liu disclosed that JD.com has already established training partnerships with approximately 120 educational institutions to prepare its army of 700,000 delivery workers for alternative careers, particularly in robot repair and maintenance. He emphasized that mechanical systems inevitably develop faults, creating ongoing demand for technicians capable of servicing automated equipment.

At the forum, Liu stated: “In the future, when robots are delivering parcels, sooner or later, there will be a day when couriers are basically no longer needed.” He added: “It will definitely be robots delivering parcels. But I really do not want our 700,000 brothers to go without meals, without jobs.”

The JD.com founder declined to specify when widespread robot delivery might become reality in China. Nevertheless, various experimental initiatives are already progressing across the country and around the world.

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Trump instructs DOJ to investigate possible gasoline price gouging amid U.S.-Iran negotiations

President Donald Trump has called for the Department of Justice (DOJ) to “immediately” investigate possible gasoline price gouging as prices at the pump are slow to drop after the Strait of Hormuz was reopened during U.S.-Iran negotiations.

“The big Oil Companies are not dropping their price at the pump commensurate with the sharply lower prices they are paying for Oil. Those prices are dropping like a rock!” Trump proclaimed in a Truth Social post early on Wednesday. “In other words, customers are being ‘gouged.’”

“I have instructed the DOJ to immediately start looking into this,” he added. “Gasoline prices better start going down a lot faster than what I’m seeing!”

After the signing of an initial memorandum of understanding (MOU) between the U.S. and Iran, West Texas Intermediate (WTI) oil prices, the American benchmark, were under $70 per barrel as of Wednesday, down from about $112 per barrel in April.

Meanwhile, on Wednesday, the average price of gasoline in the U.S. was about $3.93 per gallon. This is lower than $4.52 a month prior, but more than $0.70 higher than the average price a year ago, according to AAA.

The opening of the Strait improved crude and gasoline supplies, though stockpiles were depleted during the military actions in the Middle East as countries tried to soften price hikes.

In another post on Wednesday, Trump added that Iran committed to imposing zero tolls on ships traveling through the important waterway, which should help to move traffic out of the oil-rich Gulf countries to export to other nations around the globe.

“Iran has informed the U.S. that, despite troublemaking Fake News reporting to the contrary, there are NO TOLLS, NO INSURANCE COSTS, & NO OTHER CHARGES OF ANY KIND BEING SOUGHT OR RECEIVED BY IRAN ON SHIPS TRAVELING THE STRAIT OF HORMUZ. If this is false information, negotiations would end, immediately!” he clarified.

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The Myth Of Price Controls

The Cuban dictator Miguel Díaz-Canel’s recent admission that Cuba’s generalized price caps failed to contain inflation, generated shortages, encouraged illegal markets, and reduced tax revenues is another confirmation of a much older economic lesson: price controls do not solve inflationary pressures, and they intensify the distortions they are meant to prevent.

The Cuban case is especially revealing because the criticism comes not from ideological opponents but from the regime that imposed the controls and later conceded their failure.

According to Díaz-Canel’s own remarks, price controls in Cuba produced the opposite of their intended effect: instead of stabilizing prices, they encouraged product scarcity, illegal-market activity, higher effective prices, and falling tax revenues. The government’s decision to eliminate price controls therefore amounts to an empirical acknowledgment that administrative decrees could not keep pace with economic reality.

This episode matters beyond Cuba because it captures the core mechanism of price control failure. When official prices are fixed below levels that would clear the market, legal suppliers reduce availability, quality deteriorate, and transactions migrate to informal channels where the real market price reappears, often with a premium for risk and scarcity. Thus, inflation is not abolished by decree but only transferred from the official statistics into queues, shortages, and the underground market.

The Austrian School of Economics has long argued that prices are not arbitrary numbers but indispensable signals coordinating dispersed knowledge across an economy. Ludwig von Mises claimed that intervening against market prices does not eliminate the underlying forces of supply and demand but rather creates secondary distortions that generate demands for additional intervention. Friedrich Von Hayek reminded us that market prices transmit information that no planner can centrally aggregate in real time, making administrative price fixing structurally destructive.

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MP Materials’ Lawsuit Against USA Rare Earth Highlights Battle For America’s Future In Minerals

USA Rare Earth has dismissed a lawsuit filed by MP Materials, calling the claims “completely without merit” and arguing the case is an attempt to slow its growth. The company said it will deny all allegations that it improperly obtained confidential information from a former MP employee, according to Bloomberg.

The dispute underscores intensifying competition in the U.S. rare-earth sector, where both companies are racing to build domestic mining, processing, and magnet-production capabilities. USA Rare Earth said MP is trying to impede its progress as it develops the Round Top deposit in Texas and a magnet facility in Oklahoma.

Bloomberg writes that MP sued last month, alleging a coordinated effort by USA Rare Earth to recruit MP employees and misuse proprietary information. The lawsuit also questioned the viability of USA Rare Earth’s projects. MP declined to comment on the latest filing.

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Nadella’s Hedge: Microsoft Wants To Make AI Models Cheap – Then Own The Rails They Run On

The entire AI capital cycle – roughly $700 billion in hyperscaler capex this year, an estimated $2 trillion-plus through 2028 – is collateralized by one belief: that intelligence is scarce, and therefore priceable. That belief is already under strain. Per-token inference prices have fallen on the order of 200× in a year, and the only thing holding revenue up is volume; the cost of intelligence is dropping even as the cost of deploying it climbs. Hyperscaler free cash flow is rolling over. The Fed has named AI capital spending a systemic risk. 

And after falling behind in the race to build the best AI, Microsoft is setting up for a massive hedge. The company is on track to spend north of $120 billion this fiscal year – most of it on GPUs and the data centers that house them, $37.5 billion in a single quarter alone, pushing free cash flow negative for the first time in a generation. That is a company betting intelligence is scarce. Yet to the Wall Street Journal last week, Nadella argued the opposite is coming – that intelligence is about to get cheap. The tell isn’t a contradiction. It’s a hedge: if you can’t win the race to build the best model, you make the model worthless and own the road it runs on.

Microsoft is already executing on the hedge. In the weeks surrounding the interview, the company rolled out a new wave of lower-cost models and made Copilot Cowork generally available worldwide – an autonomous agent designed for long-running tasks that lets users (or the system) dynamically route work across multiple models, explicitly including cheaper options. Axios reported that Microsoft is also actively weighing whether to host a version of DeepSeek, the ultralow-cost Chinese model, directly inside Azure for Copilot customers. The model would be optional for users, fully hosted on Microsoft’s infrastructure, and wrapped in the company’s enterprise security, compliance, and data-residency controls.

These aren’t side-quests, they are the product-level proof of the thesis: make intelligence abundant and interchangeable while keeping the customer, the data, and the workflow inside Microsoft’s perimeter.

Nadella believes intelligence is about to become abundant, interchangeable, and cheap, as a wave of agents routes work to the lowest bidder. And as the cost per unit of intelligence plummets, he wants Microsoft to own the rails it runs on.

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