It’s a mad, mad, mad, mad world

In 1963, Stanley Kramer produced and directed, a movie by that name, which was about four groups of people chasing a bounty of $350,000 in stolen cash.

In 2019, billionaire investor Ray Dalio, head of Bridgewater Associates, one of the largest hedge funds, said the world, today, has gone mad with easy money, and the system is broken. He is right.

Ever since the US went off the gold standard, there has been unchecked and unbridled growth in issuance of fiat currency. This has had several pernicious effects: It has debased money, which is the foundation of the capitalist economy, it has hugely increased income and wealth disparities, and it has enfeebled the moral fabric of society. In short, the world has gone mad, and we will pay the price for our self-inflicted lunacy.

Consider each. A newspaper ad in 1925 sought to attract residents of South Mumbai to move to the suburbs, tempting them with the low price of land from Rs 3-7/sq. yard for land in Bandra, Khar, Ghatkopar, etc. So, today, if people feel rich looking at these asset prices of land, it’s less to do with their sagacity and more to do with the foolish overprinting of fiat currency by politicians.

Politicians have taken control over the monetary authorities. Monetary policy is not independent of politics. Hence, unbridled growth of fiat currency will continue, and this is the fear of Ray Dalio.

The cheap money created uneven flows. As a result, income and wealth inequality grew. The richest 1 per cent of Americans have more wealth than the remaining 99 per cent. Such inequality now rules across the globe, and, obviously leads to protests. Algeria, Bolivia, Chile, Egypt, Ecuador, France, Hong Kong, Russia and Venezuela are witnessing public protests.

The moral fabric of nations is badly eroded. The murder and cauterisation of a journalist inside his country’s Embassy is overlooked and overweighed by military contracts that could ensue by turning a blind eye. The false narrative used to invade Syria has led to the mass migration of people into Europe, and has destroyed/is destroying, their culture and way of life. The value of human life and human dignity are trampled by the roadroller of the Military-Industrial-Complex.

Chasing rich valuation

Continuous flow of cheap money is creating asset bubbles. Stock markets are at highs, albeit for only a handful of stocks. Mutual funds are still getting inflows of ₹6,000 crores/month from an investing public which has lost faith in banks. These funds are legally obliged to invest, on receipt of inflows, irrespective of their view on valuations. Stocks thus reach higher P/E multiples. Until an event occurs, which causes an unwind, and a crash.

The distrust of control over money supply by untrustworthy politicians, has led to the creation of blockchain-backed crypto currencies. Investors hope the crypto currencies would be a safe haven for their savings. Politicians, who wish to retain exclusive control over money supply, point to the risks associated with crypto currencies in their use to finance terror and drug activities.

China is contemplating issuing a gold-backed crypto currency. Should this happen, and gain popularity, the status of the US dollar as a global currency would be threatened.

It may be a good idea to get a bit lighter. The one piece of good news is the discovery of a large oil field by Iran, which would keep oil prices in check and benefit India.

One should pray that the debt bubble does not burst and that the world leaders see sense in bringing sobriety into monetary policy. Resources for economic development and growth should come from the restoration of human values and diversion of resources from the military industrial complex.

The writer is India Head — Finance Asia/Haymarket. The views are personal.

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