No more easy money

There are things that are broken here. And sane societies, progressive societies, must decide to put them back together – Pic credit AFP 

It is tempting to keep writing about Sri Lanka’s challenges, but we mustn’t forget the global realities against which everything is afoot and unfolding. And this is the central economic story of our time.

The 2008 instigated era of cheap money and credit has now come to an end and the global “implosion” is coming. And every country has to adapt, and dysfunction and bloated bureaucracies and lack of human capital competitiveness, and cumbersome legislation will be even more unsustainable than ever before.

Financial decisions will be seismically impacted as will the sponsoring culture. Good sense, “value” investing will be demanded, and the sad, mad, companies who were cavorting across capital markets with ill-considered acquisitions, will have to revert to making a profit in the old-fashioned way.

“Less developed” economies may find they spared themselves an unnecessary roller coaster and are now more grounded in reality than the exemplars seemed to be. And if so, let us take heed from these.

This is not just about Big Tech layoffs (Amazon is letting go 10,000 workers in management layers, said layers being among the most “useless” people, by design, in corporations…something enshrined here in Sri Lanka as well). Either by overborrowing locally or globally by leveraging forever rising stock valuations based on market fever and inflated reputations, the puffery went out of control.

The giants come back to size

These cutbacks are occurring in every major company that is convulsing from these realities, or as Twitter is post Musk’s acquisition. Twitter and Facebook (or is it Meta) are on that road. And the many, many other companies who simply survived on ad revenue on the internet are experiencing the profitability squeeze of the impending and already present recessionary forces that abound.

Real estate residential markets in numerous global hot spots are starting to freeze up. Commercial real estate in big cities is seeing this increasingly, particularly offices that are still only “half full” post pandemic, where “remote work” has become an alleged virtue, or at least a sustained tantrum. 

The persistent inflation will keep prices artificially high for some time, but as the lack of a buyer’s market becomes evident, that is unlikely to be sustained.

US shelter

The rate of return on what has been the safest place to park and move money, US debt is a major issue. For nearly a decade and a half, short-term interest rates have been negative. There is no precedent for this.

This is tantamount to incentivising capital to chase “anything” but safety, discouraging savings, and the rising tides gave arbitrary encouragement to just about everything, including crypto (now in the disaster headlines on various fronts).

Looking back, we see a craze for extreme risk, a “who-cares” attitude about the pace of business expansion, the magic money trees environment of digital tech, along with the absurdity that society has made “attention” a commodity without real engagement or content or commitment of resources. Then there was the exorbitant government spending, propped up by zero-interest policies adopted after the last housing market crash, and the mad printing press zealotry to underwrite the lunatic global shutdown over a relatively middling virus.

Says Bill Gates speaking now at the 92nd Street Y in New York, “We didn’t understand that it’s a fairly low fatality rate and that it’s a disease mainly in the elderly, kind of like the flu, although a bit different than that.”

If you fainted during that confession of witlessness, understood. Anybody looking at global data and seroprevalence studies, knew this by Q2 2020.

The 2008 instigated era of cheap money and credit has now come to an end and the global “implosion” is coming. And every country has to adapt, and dysfunction and bloated bureaucracies and lack of human capital competitiveness, and cumbersome legislation will be even more unsustainable than ever before

Oh, Ben Bernanke 

So, this decades old innovation seemed “costless”. Ben Bernanke, Fed Chief, had the idea. Drive rates to zero to cool off the financial system and macroeconomic environment, and suppress the normal inflation that would follow, through some accounting legerdemain.

Namely, the Fed would pay a higher than market rate to banks to keep their assets at the Fed, which locks them away and keeps them from adding to inflationary pressure. This was considered “genius.”

As ever, no cost-benefit debate was allowed to occur. And for a time, this seemed like a magic bullet. Savings did not fully collapse beyond their previous level as inflation seemed to be “in check.”

Nevertheless, keeping funds in Treasuries was no place for returns. So, money and capital went crusading for the whole of the 2010s, when it “seemed” anything was possible. Sri Lanka too seemed to engage in economic swashbuckling decoupled from returns, or any solid development aims. Overseas, it went really mad. After all, what a combination: rates were zero, homes were affordable, and credit was plentiful for everyone!

Kids went to college, racking up vertiginous six figures of debts, learning not very much but extremist philosophies and pseudo-Marxist social theory. They were hired at fancy firms at high salaries for doing very little of real value but galvanised to deploy Woke sophistries online.

Academia was afloat in funds and relevance was irrelevant and so the “purge” of those who dissented from the prevailing ethos and mythos became ever more extreme.

The corporate world went nuts as well, wanting to “seem” socially conscious at all costs, pushing optically pleasing philanthropy and campaigning for climate justice, while customer service and innovation and stakeholder value seemed like quaint gewgaws of a less enlightened age. After all, there was no “cost”.

The Age of Appearances

And so the paper fuelled delusions continued and ESG and DEI came to the fore and became standard bearers for corporate life. The World Economic Forum could pontificate that “balancing the books” was secondary to “signalling the right virtues.” Media became ardent cheerleaders…and the money kept rolling in.

So Bernanke’s “solution” enabled all this. Except in the 1970s, owing to high inflation, rates had almost never gone into negative territory. Adjusting the federal funds rate, this holds true going all the way back to World War II.

Once the 70’s issues were tackled, rates rewarded those who saved and economic rationality was the bedrock in much of the 80s and 90s. Though a period often denounced, its hallmark was high savings and the search for “value” in investing. And it is when the East Asian miracles “by design” I recently wrote of occurred as well.

Post 2008, the abyss of negative rates became “normal” except it really can’t be. The Fed’s balance sheet ballooned, as underperforming assets were stockpiled in every filing cabinet, bunker and basement.

The “great escape” for this unsustainability was 2019. The idea was to shut down the planetary need for credit for some time. But the never-ending pandemic panic meant new money wasn’t going to “cold storage” but being hotly sought for immediate survival and deployment.

The rate of return on what has been the safest place to park and move money, US debt is a major issue. For nearly a decade and a half, short-term interest rates have been negative. There is no precedent for this

And so with massive damage to economic structures, financial markets, time horizons, the collapse of competence and clarity of thought and discipline and habits of professional and personal credibility, the demons came calling. 

Everything had received a vast financial subsidy, from bogus corporate binging to national vanity projects, fake credentials bolstered by “brand” preening, and evidence-free bad science galore. A “costless” world is too often at the whim of the currently powerful and influential, and it is unhinged from reality.

What have we wrought?

So intolerable levels of inflation are here or coming. Real rates have to now go above zero. Restoration of balance sheets will take years. The workforce will have to find real jobs. Financial markets and corporate culture will need to return to sanity and value and being grounded in competitiveness, and we need to take heed here locally as well.

So, an era of tight money is being augmented. And it is being signalled by what happened this week. The posturing Sam Bankman-Fried, with his menagerie of hucksters and bamboozlers, have brought down the Crypto darling FTX, to which we should devote a little attention. There was no “Midas touch” here just real fraud writ large.

The death was quick and fabulous as the cesspool of infinite funding dried up.

The bungee jump without the bungee

Crypto savants assumed the Mt. Gox disaster of 2014 would be the last such, teaching the lesson to investors to keep their own custody and keep an eagle eye on exchanges (the “on” and “off” ramps of this purported ecosystem).

Warnings flowed forth: keep your funds in your possession, these are exchanges not manna from heaven. And yet, another major, systemic meltdown.

So intolerable levels of inflation are here or coming. Real rates have to now go above zero. Restoration of balance sheets will take years. The workforce will have to find real jobs. Financial markets and corporate culture will need to return to sanity and value and being grounded in competitiveness, and we need to take heed here locally as well

The mess is gargantuan, and the much-garlanded Sam Bankman-Fried seems now to have been another magnificent charlatan. But he was a major Democratic donor (second largest for the midterms). He was on stages with Clinton and Blair in the Bahamas. He helped funnel funds to Ukraine. His exchange was even, fascinatingly, behind the discredited “smear” studies that demonized HCQ and Ivermectin (said study has now been revealed to be flooded with flaws). He was a darling of Schwab and “the Great Reset.”

People (briefly) spoke in the same hushed tones as they did of Paul Tudor Jones’ 1987 shorting of the entire US Economy, or George Soros’ 1992 raid on the Bank of England, or John Paulson’s bet in 2008 against subprime mortgages. But here, we had rot instead.

From zero to $ 32 billion and back to zero again in a mere three years. $ 16 billion in personal wealth was wiped out in a few days this last week.

There is the bizarre relationship that FTX had with the Ukrainian government which used the exchange as a fund depository. Bankman-Fried boasted of this publicly.

In a normal situation, where vested interests were not invested in the debacle, a deep dive would be done into this. Instead, we have fluff pieces in mainstream media, none of the frothing outrage that was being lavished, for example, on those courageous souls who wished to retain their physical autonomy against the compulsory and clearly deceptive “vaccine” juggernaut.

And the gushers kept gushing. There was Alameda Research, the “investment” arm of FTX where billions in customer funds were diverted, violating every canon of the crypto world which trumpets 100% reserves.

High profile endorsements, a named stadium in Miami, financial press ladling on acclaim for the upcoming “trillionaire”, stomach turning Super Bowl ads, billions in funding.

Past scandals seem almost “innocent” by comparison. Here was a caricature of the times, dishevelled, inarticulate, soda guzzling, surreal in his blather, surrounded by jejune cohorts, claiming to be the custodian of “effective altruism.”

We forget that capitalism was meant to be a way to focus greed and tame aggression (Adam Smith was first and foremost a moral philosopher and then an economist), and with government guard-rails, it was to be a platform for enterprise.

Gordon Gekko actually had it right in Oliver Stone’s movie Wall Street: “Greed, in all its forms – greed for life, for money, for love, knowledge – has marked the upward surge of mankind.”

Keeping funds in Treasuries was no place for returns. So, money and capital went crusading for the whole of the 2010s, when it “seemed” anything was possible. Sri Lanka too seemed to engage in economic swashbuckling decoupled from returns, or any solid development aims. Overseas, it went really mad. After all, what a combination: rates were zero, homes were affordable, and credit was plentiful for everyone

Call it “passion” if you prefer. It doesn’t need the unsavoury imbalance that “greed” can metastasize into. But that’s an ethic.

This humbug “effective altruism” is rhetoric and spin. Bankman-Fried was “inventing” value by getting everyone to jump on board. After saying half of everyone on earth should be taking “meds” because they “make your life better,” he admitted to Bloomberg reporter Matt Levine that you build a box and if everyone says it’s worth a billion it is.

Levine suggested that it was a Ponzi scheme. Bankman-Fried said, “I think that’s a pretty reasonable response…that’s one framing of this. And I think there’s a depressing amount of validity.” And that is the “depressing” anthem of our times.

But the “holiness” soon evaporated as liquidity dried up as explained, in all directions and 14 years of cheap money made possible by Fed-induced zero interest rates that had liquidity literally pelting us from all sides, started tightening and so it all began to unravel.

mRNA products by the top pharma advertisers clearly didn’t work as “advertised” and now this, it is a low tide for veracity or media credibility alas. 

Capitalism needs to achieve aims and create real value. “Give unto Caesar what is Caesar’s and give unto God what is God’s” is the sage scriptural injunction. And perhaps the twain should meet carefully, and judiciously.

Davos, Clinton Global, are where advertisers, not thought leaders, show up to peddle their wares, enshrined in woke vacuities these days. This is not “effective” altruism. This is social corrosion and pathology.

Someone summarised this and it is heartbreakingly true – and this is what countries worldwide must emerge from and certainly developing countries must commit to a different value model.

After all, if you steal $ 50 of goods, you will (rightly) end up facing legal consequences. But admit, as Sam Bankman-Fried has, to essentially “robbing” 5 million people, and if you are properly connected, law enforcement will “consider” if any laws were broken. 

There are things that are broken here. And sane societies, progressive societies, must decide to put them back together. More than economic solvency is at stake. These are the moorings of civilisation. And we had best paint and empower the civilisation we want to add to, and for our children to inherit.

(The writer is the founder and CEO of EPL Global and founder of Sensei Lanka, a global consultant with over 30 years strategic leadership experience and now, since March 2020, a globally recognised COVID researcher and commentator.)