To see the future, one just needs to look at Japan. The land of the rising sun is also the land of falling prices. This is despite the fact that the Bank of Japan discovered quantitative easing (“QE”) decades before the US Federal Reserve (“Fed”) coined the euphemistic term for money printing. Besides the prescience of Japanese-style deflation becoming the global norm, Japanese otakus (“hermits”) were also enjoying lockdowns long before it became a global phenomenon.
With the pandemic, consumption has turned anti-social and the economy has turned into an anti-sharing one. Consumers are now snapping up used cars to drive to work instead of taking public transit and business travelers in the US have switched to private jets instead of dealing with airport hassles and crowds on scheduled flights. This trend, also known as the hitori (“solo”) movement, actually started in Japan in the 70s, with capsule hotels. It has since expanded into all sorts of lifestyle services, from solo grills to bars and even 1Kara (“karaoke booths”).
What happens if anti-social behavior plays out on a global level? We get deglobalization. When it comes to this new art form, the US is a relative rookie compared to the Chinese, who has practiced it for four centuries. After the Great Voyages of Chinese-Muslim Admiral Zheng He (1430 AD), China decided it did not need the world and closed the door to foreign trade until the British forced them open during the Opium War (1840 AD). The lesson from the Chinese is that you need a self-contained supply chain to make it work. Alas, recreating a supply chain may not be as easy as it sounds. Ask the Russians – they can build rockets yet struggle to make cars. This is because while car manufacturing is no rocket science, its supply chain is very complicated and requires clusters of supporting industries. Same goes for smartphones and electronic products.
During this pandemic, the Fed was able to unleash unlimited QE based on the premise of Modern Monetary Theory (“MMT”), which posits that debt does not matter to a currrency-issuing nation as long as printing is not so overdone as to cause runaway inflation. The dollar, which costs nothing to produce, is similar to a gaming currency, with the crucial difference that Americans need to pay taxes in dollars, thereby creating demand and hence value for the dollar. Unfortunately, MMT ignores the fact that the dollar is also the international reserve currency and its value outside the US is derived from trade being denominated in dollars, from commodities to financial dealings. If America decides to deglobalize, what would happen to demand for dollars outside the US?
Bitcoin was originally a private sector initiative to create a QE-resistant currency but thanks to monetary easing after the 2008 financial crisis, it was transformed from a currency for tax evasion and illicit goods into a quasi-legitimate digital asset for wealth preservation, volatility notwithstanding. With unlimited QE, what happens if frustrated nations decide to band together to create an alternative reserve currency? Well, we may move from Bitcoin to BIG (Blockchain-based Inter-Governmental) Coin!—–
Kay-Mok Ku is Managing Partner for Gobi Southeast Asia. He joined Gobi in 2010 and has invested in over 30 companies, including Aptoide, Carsome, Deliveree, Eko, Superatom and Travelio. Prior to his career with Gobi Partners, Mok held the Vice President position in both Xinya Media and MediaCorp (Singapore). He was also part of the team that managed a $500 million fund at the Media Development Authority in Singapore, and is co-founder of Private Express, a cybersecurity startup based in Silicon Valley. He started his career with the Infocomm Development Authority, and has a Computer Science degree from the University of California, Berkeley, and an MBA from San Jose State University.