“All signs are pointing toward an inflationary decade,” says David Munoz.
With the worst of the COVID-19 pandemic in the rearview mirror, financial experts like David Munoz are assessing the damage the worldwide health crisis inflicted upon the economy — and finding ways to navigate new waters in the cryptocurrency realm.
According to Munoz, an investor and former banker with nearly two decades of experience, all signs point toward a decade of inflation. Currently, he’s the CEO of Vektrust, a merchant capital and advisory firm. He previously managed a global hedge fund, worked at leading investment banks, and advised on numerous multibillion-dollar mergers and acquisitions transactions.
Double Inflation: Manufacturing and Services
Munoz says the recession can be attributed to record-breaking inflation rates, which are having spillover effects on virtually all aspects of the economy. Inflation has increased the cost of manufacturing, services, and energy. Recovery wouldn’t be easy due to the advancements in blockchain technology, which is increasing the velocity of money.
“COVID drove a manufacturing-oriented inflation because of supply chain issues,” says Munoz. This coincides with much of the manufacturing moving away from China. Together, the two have resulted in manufacturing inflation.
China may be the global manufacturing powerhouse, but for political reasons, companies are finding other suppliers. These corporate decisions are fueled by manufacturing in China no longer being as cheap as it once was. However, instead of moving to other low-cost manufacturing centers, Munoz says that companies are now looking to onshore manufacturing in either the U.S. or Europe.
“This is driving a significant rerating in terms of the cost structure of manufacturing for goods that is probably here for as far as we can see into the future,” Munoz predicts.
The silver lining is that supply chain disruptions and high manufacturing costs are relatively easy to undo because of their tangible nature. Policymakers will be faced with a bigger obstacle in undoing inflation in the service sector due to its intangible nature.
The past six months have been marked by a rapid increase in inflation in the services sector. “It is largely driven by the fact that we have record low unemployment,” states Munoz. One would assume that low unemployment is a good thing. However, Munoz warns that record low unemployment rates coupled with record levels of retirement, early retirement withdrawals, and credit card withdrawals, may further exacerbate inflation.
“What that tells you is that a lot of people are employed, but they’re underemployed,” explains Munoz. “They’re underemployed for the cost of living, for the way that they want to live their lives, because they’re basically taking on debt or taking away from retirement in order to fund their lifestyle.” And since the reliance, in this instance, is primarily on services, it’s driving up inflation in the service sector.
Adapting to Advances in Fintech
Munoz argues that inflation will rise further in the coming years due to the increase in the velocity of money because of advances in blockchain technologies. While this will represent a significant challenge for policymakers and governments in tackling inflation, blockchain will also revolutionize, for better, the ownership of property through tokenization.
To understand the concept of blockchain technology on the velocity of money, Munoz points out that we need to comprehend how money moves conventionally versus how it moves with blockchain.
If a person sends money to someone else across the world, it may take up to two days for the funds to reach the other person if conventional means such as a bank wire service is used. The money is locked up in the financial system during that period. However, if the same transfer is made through blockchain tech, the payment is made instantly. The speed with which money transfers is the velocity of money and blockchain is driving it up.
“The velocity of money is one of the key factors in inflation. The faster money turns, the more inflation you’re going to get,” Munoz says.
Presently, trillions of dollars are lying dormant due to reliance on conventional means of settlement. Once blockchain becomes the norm, trillions of dollars will suddenly be released into the global economy, driving up inflation. This release of cash will mirror the effect of quantitative easing, the process through which central banks print more money to pump into the economy.
“It’s as if the Federal Reserve or the European Central Bank printed trillions of dollars or euros,” explains Munoz. This influx of productive cash will be inflationary. As a consequence of this, these central banks will be forced to take money out of circulation, which they will achieve by driving up interest rates.
These influxes of capital will continue to enter the global economy in waves for about 10 years, Munoz predicts, meaning that the world will have to continue to live with much higher interest rates in the coming years.
Revolutionization of Property Ownership
The proliferation of blockchain has also revolutionized property ownership through tokenization. Munoz explains that this tokenization of assets started with non-fungible tokens, or NFTs, called CryptoKitties, a blockchain game. Since then, it’s dramatically expanded, with more tangible items being tokenized — for instance, in-game paraphernalia.
The use of NFTs has allowed people to ascribe value to things they deem valuable, especially items in the digital space. As time progresses, NFT ownership will change the ownership of physical goods, too.
“Your car is going to have an NFT attached to it. When you sell your car, it’s automatically going to go to the insurance company. They’re going to issue a new insurance policy. It’s going to go to the Department of Motor Vehicles. They’re going to issue you a new license plate and registration documentation,” predicts Munoz.
This is excellent news for capitalist economies that primarily rely on property rights. And for places where property rights are weak, such as Africa, Latin America, and parts of Asia, there will be a significant increase in the productive value of assets. The notion of property rights for non-tangible assets will be extra-governmentalized. “People can create productive value-enhancing assets all over the world, in countries where they couldn’t do it before because they were scared that somebody would take it from them.” Remarkably, Munoz believes this will result in millions of people being lifted out of poverty in the coming decades in a way that’s as unprecedented as the pandemic was.