Imagine Two Massive Hurricanes Converging Over the Ocean. Instead of colliding and destroying each other, they begin to rotate around one another, creating a meteorological phenomenon known as the "Fujiwhara Effect."
Now, picture this effect not as a weather event but as a metaphor for our society today. Two massive forces—technology and financialization—are colliding and amplifying each other, driving profound changes in how we live, work, and interact.
Technology: The First Hurricane
Technology, much like a hurricane, advances at an astonishing speed. But did you know that this speed is directly tied to the cost of capital? The lower the cost, the faster technology spreads.
Financialization acts as a kind of "monetary drug," driving the cost of capital to near zero, pouring fuel on the fire of technological innovation. This enables more ideas to be funded and brought to life, accelerating technological disruption across every aspect of our lives.
Financialization: The Second Hurricane
Financialization, on the other hand, is the process through which the economy becomes increasingly dependent on financial activity. Since the 1970s and 80s, central banks have conducted unprecedented monetary experiments, fostering perpetual growth fueled by debt.
This growth is akin to the "opium of the people," as we've become addicted to this dynamic of debt and asset price inflation.
In the Information Age, technology no longer just complements human labor as it did during the Industrial Revolution—it replaces it.
A McKinsey study states that the current pace of technological change is 10 times faster and 300 times larger in scale than the Industrial Revolution, resulting in an impact that is 3,000 times greater.
Technology can drive the marginal cost of services and products to zero, which reduces jobs, wages, and prices. However, it can also create new employment opportunities in emerging tech sectors.
Financialization, meanwhile, has created an economy where debt is the main engine. With capital costs so low, businesses and individuals are incentivized to take on more debt to invest in technology and assets, leading to global debt levels far exceeding global GDP.
This has created a situation where the real economy is heavily influenced by the volatility of asset prices and debt markets.
These two hurricanes—technology and financialization—are becoming increasingly perilous when combined. They are driving a society starkly divided into the haves and the have-nots: those with assets and those without, those who understand the financial world and those who remain in the dark, those who read this newsletter and those who don’t.
(Jokes aside…)
Most of us, if you’re between the ages of 30 and 50, grew up with parents born between 1940 and 1960. This means they were shaped by a very different type of economy—one where families generally avoided debt.
Remember Robert Kiyosaki's famous advice:
"Study > Go to a good university > Get a good job."
This advice no longer holds up. The winners today are the asset holders, while those without assets are losing ground. In fact, we increasingly see the richest 1% holding more, while the poorest 50% hold less.
What’s more, while the top 1% grows their assets through leverage, the bottom 50% takes loans simply to survive, further widening the gap.
Historical Patterns of Wealth Inequality
Historically, when such disparities have occurred, the masses with nothing to lose have risen up. This has made countries that once seemed safe turn unstable, prompting people to flee to other nations.
In future editions, we’ll discuss ways for subscribers to protect themselves or plan an exit strategy. This isn’t the first time such events have played out in society, and it won’t be the last.
Entropy leads to chaos, and that’s precisely what we’re witnessing in the global economy.