Banananomics: Tech's Role In M2 Contraction

M2 is the U.S. Federal Reserve's estimate of the total money supply based on short-term savings, checking, and cash.

Inputs that matter: The Motley Fool warns that we are facing the most significant drop in M2 since the Great Depression.

• M2 is a critical factor in forecasting inflation.

• This week's employment numbers coincide with M2 depletion as full-time work fell by 6,000 in the U.S., while part-time work increased by 691,000 with a 5.2% increase in multiple job holders.

• The U.S. economy is shrinking as people have less money to spend.

The opportunity: "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent," explains Federal Reserve Bank Chair Jerome Powell.

• Tech layoffs conducted in 2023 were 59% higher than in 2022.

• TechCrunch reports that in 2024, Apple, Dell, IBM, EA, Sony, Rivian, Cisco, Toast, Grammarly, iRobot, Microsoft, and many others have made cuts or planned staff reductions.

• IBM announced a strategy to replace upwards of 8,000 jobs with A.I.

Zoom in: CNBC reports, "In October last year, the U.S. tightened restrictions to prevent the sale of artificial intelligence chips and semiconductor tools to China."

• Intel recently announced an $8.5 billion grant from the U.S. government to build chip manufacturing facilities inside the country.

• Nvidia currently manufactures its chips in Taiwan, with reports of moving production to Vietnam, where Intel has a facility.

Between the lines: The $280 billion CHIPS Act, signed into U.S. law in 2022, aims to catalyze domestic semiconductor manufacturing capacity investments.

• As A.I. becomes more of a concern for national security, countries are locked in an arms race to control the most advanced technology.

• The most significant risk is for a competing country to control the manufacturing of critical semiconductors used in most products.

Follow the money: Newsweek reported in December, "A Congressional Budget Office (CBO) report on Friday forecasts a rise in U.S. unemployment from the current 3.9 percent to 4.4 percent by the end of 2024, signaling potential job losses for millions amidst a contracting gross domestic product (GDP)."

• The first driver for M2 is income followed by inflation.

"U.S. Treasury Secretary Janet Yellen warned China on Monday that Washington will not accept new industries being decimated by Chinese imports," details Reuters.

Inputs that matter: Yellen told a press conference that U.S. President Joe Biden would not allow a repeat of the "China shock" of the early 2000s when a flood of Chinese imports destroyed about 2 million American manufacturing jobs.

• On Monday, U.S. Treasury Secretary Janet Yellen said she would not rule out any measures, including potential tariffs, on China's green energy exports.

• Chinese-built EVs are currently subject to sizable 27.5% tariffs in the U.S.

• CNBC reports, "In October last year, the U.S. tightened restrictions to prevent the sale of artificial intelligence chips and semiconductor tools to China."

The opportunity: "The U.S. has a long-standing two-sided approach toward China, in that it seeks to suppress and cooperate with China simultaneously." He Weiwen, a senior fellow from the Center for China and Globalization, told the Global Times on Sunday.

• China is reducing its reliance on U.S. dollars as it diversifies into gold.

• Diversification goals align with those of other countries in the BRICS (Brazil, Russia, India, China, and South Africa) group, whose economies are set to dominate the global economy by 2050.

• For example, Washington uses the currency as a diplomacy tool when imposing sanctions on Russia, Iran, and North Korea.

Zoom in: "What we have made clear is that it is unacceptable to us for China to support Russia militarily. That doesn't mean China can't have a relationship with Russia," Yellen said.

• U.S. President Biden has agreed not to support Taiwanese independence but insists on sanctions with China.

• Russia is receiving military support from Iran and North Korea in return for nuclear capabilities.

• Russia is providing South Africa with nuclear power generation when the U.S. has demanded the dismantling of the country's nuclear capabilities.

Between the lines: Russia, China, India, and the United States have tested anti-satellite missiles, and several major world powers have developed technology meant to disrupt signals in space.

• In 2019, the U.S. created the Space Force, an entirely new military branch "focused solely on pursuing superiority in the space domain."

• Recently, the U.S. officially tasked NASA with establishing a time standard for the moon, Coordinated Lunar Time (L.T.C.).

• At a time when the U.S. and China are locked in a new race over Global positioning satellites that serve as clocks in the sky.

Follow the money: The U.S. and China are the world’s two largest economies and the lead participants in competing groups of BRICS and G7.

• The U.S. and India are aligned against China.

• Japan and the U.S. are aligned economically in competition with China.

• China is the leading supplier of electric vehicle batteries, partnering with most of the world's auto manufacturers, including Tesla, Ford, and G.M.

• CNBC reports that Chinese government workers are banned from using Apple’s iPhones.

The European Union's new law requires the makers of the most potent AI models to evaluate them for safety and notify regulators of serious incidents.

Inputs that matter: The Biden administration is also stepping up oversight.

• Last October, it invoked emergency federal powers to compel major AI companies to notify the government when developing systems that pose a severe risk to national security.

• Governments of democratic nations are struggling to figure out how to regulate AI-powered speech, such as social media activity, given constitutional and other protections for free speech.

The opportunity: In 2022, Russia was sharing disinformation online to create a false narrative that Ukraine is preparing to use chemical weapons so that Russia can launch its chemical attack.

• China will use artificial intelligence-powered social media accounts to sow division in the lead-up to the next U.S. presidential election, Microsoft Threat Analysis Center (MTAC) general manager Clint Watts has warned.

Zoom in: Chief Executive Officer Jamie Dimon said artificial intelligence may be the most significant issue his bank is grappling with. He likened its potential impact to the steam engine and said the technology could "augment virtually every job."

• IBM announced a strategy to replace upwards of 8,000 jobs with A.I.

Between the lines: While A.I. is a critical tool for soft wars, those engaged in armed conflict also implement the technology.

• Israel's Lavender system is designed to mark all suspected operatives in the military wings of Hamas and Palestinian Islamic Jihad (PIJ) for bombing raids.

• China is producing A.I. tech for the battlefield with an unmanned unit that can fire a 12.7 mm machine gun or rockets to support ground troops, operated as a swarm or individually.

• The U.S. and NATO also have AI-based battlefield technology.

Follow the money: CNBC reports, "In October last year, the U.S. tightened restrictions to prevent the sale of artificial intelligence chips and semiconductor tools to China."

• Intel recently announced an $8.5 billion grant from the U.S. government to build chip manufacturing facilities inside the country.

• Nvidia currently manufactures its chips in Taiwan, with reports of moving production to Vietnam, where Intel has a facility.