Posted originally on Jan 29, 2025 by Martin Armstrong
It was only a matter of time before an innovative mind created the next mainstream AI tool to compete with ChatGPT. In a massive step toward AI advancement, Liang Wenfeng of China launched DeepSeek, an open-source large language models (LLM) intended to compete if not one day overshadow ChatGPT. The launch immediately wiped $1 trillion off the US stock exchange and the tech competition between China and the US is coming to a head.
ChatGPT is run by OpenAI. Its creation marked the dawn of a new way of interacting with the internet and accessing information. Users can ask AI to instantaneously perform actions and it is reshaping the way the world operated. People have created businesses based on ChatGPT. There have been countless warnings of AI replacing human jobs. Governments are still uncertain how to regulate these services and the data they pull from users. Of course, countless services like ChatGPT have launched in recent years, but DeepSeek may be the next best alternative.
Wenfeng hired all the top minds graduating from Chinese universities and paid them top dollar to create DeepSeek for a fraction of what it took to create ChatGPT. OpenAI’s GPT-4, launched in 2023, cost $100 million to develop; DeepSeek-R1 began with a $6 million investment.
Semiconductor chips are shaping the tech race. It takes semiconductor chips to operate these AI programs and that has been an ongoing problem for American companies. Chinese companies do not have such problems. There is much speculation that ChatGPT did not require the estimated 10,000 GPUs and 3,500 NVIDIA servers. Nonetheless, DeepSeek is operating on less. Now, DeepSeek has around 50,000 NVIDIA H100 chips but they cannot speak about the matter due to US export controls.
President Trump stated that DeepSeek is a reminder that American companies need to be “laser focused” on competing with China. Everyone is impressed at the low operating costs. “Instead of spending billions and billions, you’ll spend less, and you’ll come up with, hopefully, the same solution,” Trump noted. Some US politicians are already calling for a ban. “The U.S. cannot allow CCP models such as DeepSeek to risk our national security and leverage our technology to advance their AI ambitions. We must work to swiftly place stronger export controls on technologies critical to DeepSeek’s AI infrastructure,” Rep. John Moolenaar, R-Mich., the chair of the House Select Committee on China, said Monday.
Hangzhou DeepSeek Artificial Intelligence Co., Ltd, owned and funded by hedge fund High-Flyer has inserted $2 trillion into the US markets at the time of this writing. Critics claim that DeepSeek censors available information based on what the CCP will and will not permit. Still, investors seem extremely bullish on DeepSeek, which has already surpassed ChatGPT as the most downloaded AI app on the Apple app store.
Posted originally on Jan 27, 2025 by Martin Armstrong
Federal Reserve Chairman Jerome Powell and Donald Trump face off once again. The two have notoriously butted heads over interest rates, as Trump has accused the Fed of stifling economic growth by raising the cost of borrowing. Speaking at Davos, the president said he would “demand that interest rates drop immediately.”
We all know the Federal Reserve is independent and the White House cannot dictate interest rates. Lowering interest rates does not stimulate the economy, contradictory to the common belief that reducing rates will boost economic growth. The outdated understanding based on Keynesian Economics states that an increase in the supply of money MUST be inflationary. The Fed raises rates to reduce consumption and lowers rates to stimulate consumption.
It’s a very nice theory, but when actually tested, it utterly fails. Lower rates will NEVER cause people to invest until they believe that there is an opportunity to invest. We are watching the big players withdraw from equities, let alone government debt. We are in a private wave where money is running off the grid at a rapid pace.
Once upon a time, you could not borrow against government debt. Thus, it was deemed non-inflationary as long as it could not be used as money. Today, you post bills as collateral to trade futures. The old theories no longer exist in this new, strange world we live in. Hence, all the QE was merely swapping the debt for cash.
Every fiscal policy in recent years has exacerbated inflation and the Fed cannot keep up with government spending. QE FAILED. The artificially low interest rates of the recent past were completely unsustainable and relied on outdated theories.
The most significant issues facing our economy are simply out of the Fed’s hands: war, taxation, and government spending. Chairman Jerome Powell surprised everyone when he called spending under the Biden-Harris administration “unsustainable” and warned that it would hurt generations to come. While not a direct criticism, Powell issued a stark warning that aligned with our Revolution Cycle of 72 years. In 1951, the central bank defied the US government by refusing to purchase debt to prevent rate hikes amid the Korean War. The minutes reports always mention that the central bank is keenly monitoring geopolitical events as it must look at all variables from a global standpoint.
The issue of increasing sanctions on Russia, and the rest of the world for that matter, may raise inflationary fears and push long-term rates higher. Then we are looking at the risk of Japan, who holds the bulk of US debt, experiencing a sovereign default in a contagion that will spread to Europe.
We may see the Fed pull back rates this year. Powell understands that Keynesian policies no longer work and raising rates have no effect on inflation. Interest rates are really the price of money in anticipation of future inflation.
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