This is The Start Of Future Shock

Currency arbitrage, digital nomadism going mainstream, Fed raises rates faster than ever, & more

The world around us is changing very rapidly. The Federal Reserve hasn't hiked interest rates this fast ever in modern history (going from near 0 to almost 5%). Did you make adjustments? Or are you sitting on your hands trying to figure out what's happening and how to adapt?

That sounds an awful lot like future shock, doesn't it?

#1 This Is The Start Of Future Shock

In May of 2021, a little over a year and a half ago, I first wrote about the meta consequences of remote work.

"As companies decide they no longer need as much space (whether hybrid or remote), they will downsize their corporate real estate. Fully remote teams will abandon office space completely, hybrid models will downsize in favor of smaller and more modular offices."

"At a high level, that means banks, REITS, and large scale corporate real estate organizations will struggle in this changing corporate real estate environment."

"A meta consequence of remote work is that it inevitably leads to a shakeup of the corporate real estate markets."

In many ways, this prediction has come to pass, and we are now seeing the deeper consequences of what changing workstyles and falling corporate real estate valuations means to society.

To drive this point home, let's look at the most straightforward "case study" of this phenomenon. San Francisco, which just announced a massive budget deficit.

"San Francisco is facing a projected $728 million deficit over the next two fiscal years as the city confronts falling tax revenue amid a lackluster recovery from the pandemic."

"San Francisco is also projecting hundreds of millions of dollars in lower-than-expected property taxes, business taxes and real estate transfer taxes as the city’s economy struggles to get back on solid footing."

"(Mayor) Breed is asking departments to prepare for 5% budget cuts in the first year and 8% in the second."

“As we work to close this deficit, it will require tough choices and real trade-offs."

There are a lot of reasons for this tax shortfall but much of it leads back to the consequences of remote work. For example, when we zoom out and look at how other locations are doing, it becomes clear that San Francisco isn't alone in facing the challenge that falling office space valuations bring for city tax revenues.

"In jurisdictions that reassess property values annually, owner appeals of tax assessments are up 30% to 40% compared with a typical year before the pandemic"

"If landlord appeals to cut their tax bills are largely successful, cities, school districts and other taxing jurisdictions may face some tough decisions involving cutting jobs or programs or looking for other ways to raise revenue."

That last point is the kicker. As the consequences of remote work finally start to permeate through society, major disruptions are now starting to take place to our way of life. 

This marks the arrival of Future Shock.

Most local governments are fundamentally unprepared for the wave of property value changes, how they will reduce tax revenues, and ultimately, how this will greatly impact local government budgets. 

These real estate valuation adjustments won't happen all at once, they'll be staggered across several years. So, it should be crystal clear at this point that a wave of change is coming. And it's also clear that many local politicians, facing budget shortfalls, will in some cases take drastic measures. Like adding new taxes to local businesses that allow remote workers as a way to make up for tax shortfalls.

By creating new tax policies to combat remote work, they'll create a constrictive dynamic that makes local businesses struggle to compete globally. Incentivizing businesses to relocate to places with less antagonistic policies for remote work. 

This hasn't happened yet but based on the mounting evidence confirming these trends, we can expect to see politicians levy taxes to protect their expensive initiatives.

And so, we are once again seeing the stars align to force a deeper and more consequential trend to accelerate over the next 12 to 18 months. That trend? The formation of a new social class divide. The one that was written about in The Sovereign Individual. ie: society is shifting from blue collar vs white collar social class divides to location-dependent vs location-independent income divides.

The key point is that the policy wants and needs of these two groups will diverge and politicians will pick sides. One example of how we'll know this is happening is by the groups that emerge in support of punitive remote work tax policies and those that form to combat them.

The bottom line is that the world is rapidly changing in a short period of time as a direct consequence of remote work. Layer in the changing global landscape (multipolarism) and a financial ecosystem struggling with inflation and rising interest rates. The major pieces for the structural change of society are all here.

This is the start of future shock and most people will get caught offsides waiting to be told what to do and how to act. These are the conditions where we should expect the core ideas of The Sovereign Individual to emerge.

#2 Remote Work & Location-Independence Will Increasingly Be Influenced By Currency Arbitrage

As more individuals earn their incomes online, they'll view the world priced in terms of digital age incomes and currencies vs local incomes and corresponding currencies.

That means workers will also start to assess the arbitrage values of earning in one income/currency versus another. Especially focusing on how the purchasing power parity can increase by multiples when earning in a globally strong currency vs a locally weak currency.

Ie: more people are starting to ask; how can I earn in dollars and live somewhere that the dollar has more purchasing power comparatively speaking.

This is a trend worth watching.

As people earn in strong currencies like the dollar and leverage remote work to relocate to places with weaker currencies, how will they spend the extra value?

Will they pay down debt, invest more, or spend it on local economies? And how will these new global incomes and spending patterns influence developing world communities and the location-dependent class of people that have developing world income levels? How will this flight of capital impact the most developed countries?

Said differently, where you choose to live and why will be influenced by your ability to improve your quality of life when taking advantage of currency arbitrage. This is becoming a mainstream topic.

Rapid Fire

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