It was announced today that fourteen large retailers besides J.C. Penney are closing many of their brick-and-mortar stores. What does that have to do with the future spot price of gold and silver? A lot. It comes down to one word.
The world is undergoing nothing short of a major wave of technological innovation. Online retailing is literally eating up the traditional retail experience. Browsing online has replaced browsing the store aisle for everything from motor oil to designer jeans. The overhead associated with maintaining a physical infrastructure has reached a tipping point.
This phenomenon was foreseen in a book written in late 2013 called “Too Different for Comfort” (free PDF download). In it, Louis-Vincent Gave told of a coming “Robolution” that would transform the world economy and vastly disrupt the traditional employment structure. Following are some of the more interesting chapters in the book.
Chapter 2 The Rise of the Robots – Or Pricing ‘Cheap Labor’ Out of the Market
Chapter 4 Will the Robolution End Up Eating Its Own Children?
Chapter 6 The asset-price centric monetary system
Chapter 11 The Dollar-Debt Standard
Chapter 17 Adapting
These are provocative to say the least. The one that will be our focus is, “The asset-price centric monetary system.” A few excerpts from that chapter are very interesting:
“We have now moved from a world where money was at the center of the system and asset prices at the periphery, to a world where some specific asset prices are at the core of the system, while money has moved to its borders.”
“Economic thought has thus moved from the horizon of the labor theory of value, to the theory of subjective value, to the theory of never falling prices.”
“And this is where the next problem for investors may find its source as, if anything, the various central bank interventionist policies have probably had their biggest impact not on prices, but on the volatility of almost all assets.”
Gave’s contention is that price discovery of assets was due to money finding its way through the economy into those assets that the market valued. Now, the monetary system is managed in a way to prop up certain asset classes so that they may never fall in price.
It seems logical then that the asset classes that are in most need of protection are those that are highly leveraged by debt, including global sovereign bond markets. After all, when push comes to shove, governments and their central banks will ultimately move to protect their assets from default over all others.
The question is, “Is this strategy sustainable?”
The role technology is playing in hastening the coming reform of the global monetary system cannot be underestimated. It is not only disrupting retail industries and the entire banking industry (via FinTech). Technology is also enabling (perhaps requiring) that we rethink how a future monetary system should be designed in order to accommodate massive changes to the very structure of the economy and labor markets.
Debt based and central government managed money on its own simply will not be able to support or adapt to the emerging economy. A value based currency system will. Such a system would naturally include gold and silver. The question is whether or not we will have the political will to consider, let alone implement, such a system. It’s a question we all need to be aware of, because if we do not adapt, our future may indeed be too different for comfort.