Principal, Laveer Capital Management

Is AirBnB disrupting the FED?Is AirBnB disrupting the FED?

Is the FED becoming disconnected and placing itself at risk of joining folklore organizations beholden to past markets?  Will you think of the FED like you do the compact-disc, librarian or postal worker?

 

Central banks around the world have been disruptors of a different sort.  They have launched a massive experiment with money.

In an effort to boost employment, the FED has aggressively eased credit.  The theory goes that cheap money acts as an incentive for business to build stuff.  Building stuff = more jobs.  More jobs satisfies the FED’s mandate.

The FED’s willingness to make credit cheap helps Hyatt build another hotel, but what if the consumer wants to rent on AirBnB instead?  Folks living in urban areas may be more inclined to use UBER instead of buying a newly manufactured car.  Cheap credit builds large office buildings to house employees, yet cloud computing and an assortment of apps allow the worker the freedom to work from any location.

Tim Ferriss explained the freelance economy as “a thing” in The 4 Hour Work Week. Today, freelancing platforms allow business to connect, segment and manage tasks on a global scale.  The global freelance economy is growing at an exponential rate– no amount of cheap credit or bond buying programs will change this.  Thomas Friedman warned us in The World Is Flat a decade ago.

The big data analytics revolution is creating data sets that never existed before.  Sensors, smart devices, open sourcing and the ubiquity of storage has enhanced demand forecasting models and consequently the labor and process around meeting said demand.  Artificial intelligence and machine learning is on the precipice of augmenting the workplace.  Technology is impacting labor in many ways and its relation to jobs will continue to evolve.

The FED’s model is largely based on “physical stuffs”– manufacturing cars, building houses and buildings.  Their economic analysis is based on an economy more reflective of the industrial age.  Is this where the economy is today?  The market today, aided by technology, seems to be growing in another direction.  How people work and engage the marketplace is in conflict with how the FED is framing the challenge.

Blah… blah… what does it mean?  The FED can’t fix the impact of technology on jobs and the marketplace.  The FED’s desire to keep credit cheap, believing the building of physical stuff leads to broader employment gains, has resulted in many industries suffering from overcapacity.  Very few are asking– Is the FED incentivizing the right behavior? If misguided, the economic consequence will be severe.

The FED has no ability to manage technology growth and its impact on business models.  With all the talk of disruption, are we missing the elephant in the room?

Continue your financial education.  Stay nimble my friends.