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Elon Musk, Jack Dorsey, and Cathie Wood usually agree with each other, but that’s definitely not the case right now. The three CEOs have been debating about the most important economic issues: what is going to happen from the government’s sudden creation of trillions of dollars? How can we protect our wealth going forward? Is an economic disaster on the brink of occurring? This video will go in-depth on Jack Dorsey, Cathie Wood, and Elon Musk’s debate on hyperinflation and the possibility of an upcoming market crash.
Everyone knows that the Federal Reserve and Congress have printed substantial amounts of money, but nobody knows for sure what is going to follow. Jack Dorsey, the CEO of Twitter and Square, believes that he knows exactly what’s coming, which is hyperinflation. Hyperinflation is when a currency’s inflation rate passes over 50% per month, which is a yearly price increase of 12,974%. An inflation rate that fast would obviously be a disastrous situation to be in. Prices would have to increase by roughly 130 times per year, which essentially marks the collapse of any currency. Whether it be Germany after World War 1, Venezuela in the 2010s, or Zimbabwe in the 2000s, hyperinflation almost always equates to economic turmoil. Jack Dorsey recently stated that “Hyperinflation is going to change everything. It’s happening.” “It will happen in the US soon, and so the world.” One user replied to Jack by stating that hyperinflation is the worst outcome for most currencies. Jack Dorsey further elaborated by saying, “not a wish. Nor do I think it’s positive at all.” Consumer prices are currently rising at an annual rate of roughly 5 percent, which is nothing compared to the scenario of hyperinflation, which requires an annual increase of 13,000%. So why does Jack Dorsey think hyperinflation will occur? One of the well-known indicators is the amount of M2 money, which has increased to enormous heights. M2 money is a tracker of the money supply that includes cash, checkable deposits, and other forms of easily convertible money. Total M2 money has increased from 15.4 billion dollars in February of 2020 to 20.9 billion dollars in September of 2021. That is a 35% increase in the money supply in 19 months, which is certainly unprecedented. This dramatic increase in the money supply may initiate an inflationary cycle. When consumer prices rise, employees will demand higher wages to pay for increasing prices. As a result of that, consumer prices would rise even more from increased consumer demand, leading to higher wages again. Because wages increased, consumer prices would increase again. This economic relationship is called the circular flow model, because an increase or decrease in one segment always impacts the other. If the inflationary cycle goes out of control, then hyperinflation may occur. Jack Dorsey knows that such an event would be disastrous and has been allocating a significant portion of his wealth to bitcoin. This is evident from his Twitter bio, which literally just says bitcoin. Dorsey is also protecting Square’s balance sheet from hyperinflation by allocating a portion of Square’s cash reserve to bitcoin. While Dorsey’s prediction may sound relatively logical, there is one investor that totally disagrees, which is none other than Cathie Wood. Cathie Wood ranted on Twitter in response to Dorsey. She explained exactly why Dorsey is wrong about his assumptions. Cathie first started by examining a common mistake that investors make — she made that mistake herself as well. vained how “in 2008-09, when the Fed started quantitative easing, I thought that inflation would take off. I was wrong. Instead, velocity - the rate at which money turns over per year - declined, taking away its inflationary sting. Velocity is falling.” Cathie is essentially saying that an increase in the money supply does not necessarily lead to more inflation. This is because in order for prices to rise, consumers have to spend money. If consumers store all of their money, then an increase in the money supply would not lead to inflation. The decreasing velocity of M2 money shows that consumers are not spending the money that they recently received. The velocity of money tracks how much money is spent on goods and services within a period of time.