W. B. Yeats wrote his poem The Second Coming in 1919, in the wake of the First World War.
“Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world”,
was Yeats’ dystopian vision of a post-war world, a world without apparent hope. A poem of 103 years ago has striking relevance today.
French President Emmanuel Macron for one tried to steer a middle-of-the-road course but that centre didn’t hold in last Sunday’s elections. A left-green alliance surged, together with the surprising strengthening of the far-right, forcing a hung parliament. Macron will now find it well-nigh impossible to get his legislative agenda passed over the next five years. Élisabeth Borne, Macron’s prime minister, said in a post-election speech that the situation represented “a risk for the country”. She didn’t spell out what that risk was – but social unrest is the big unspoken fear. Social unrest, conflict instead of consensus, dogs the world from India to the US. The League of Nations was a legacy of the 1914-18 war and was meant to solve international conflict peacefully; it died in the 1930s under a welter of extremism. The United Nations started life in April 1946 tasked with the same mission. Might it too be killed by the same stubborn refusal to agree compromises?
Turbulent times are ahead for France – but today, where are they not? From Sri Lanka, with its violent protests against inflation of 30%/year to the UK, where strike action is spreading like the measles, the world feels a much more precarious place than it did even during the peak of the Covid-19 pandemic. The UK hasn’t had strikes since early 2020 but railway and London underground workers are now striking this week; teachers and doctors are warning they could strike in the coming months; mail workers are considering strike action; even junior criminal lawyers are intending to strike.
All these strikes are prompted by the rate of inflation (almost 8%/year), the lack of real wage increases for a few years, and the spiralling cost of living. The price of a pint of beer has passed £8 (almost $10) in London, a 72% increase since the Great Financial Crash of 2008. The Eurozone’s inflation rate is now 8.1% , which is bad enough; but in some of the zone’s countries it’s much higher, 20% in Estonia for example.
Apocalyptic views are gaining publicity; the world has already started “World War Three… this is a war, it’s a financial, economic war”, according to a leading Dutch entrepreneur. That view might have been laughed at a couple of years ago; not today, after Russia invaded Ukraine.
Another example of the previously unthinkable now being openly discussed comes from the UK’s chief of the general staff of the British Army. General Sir Patrick Sanders has told his troops to be ready to fight “alongside our allies” against Russia – while government plans will shrink the army to its smallest in history, just 72,500 soldiers by 2025.
Since 1945, we have lived with a global consensus, patchily overseen by the United Nations (UN) which has done its best to right the world when it wobbles. Other international institutions, such as the International Monetary Fund (IMF) and the World Bank, claim to have policed the global financial system with the consent of the international community.
24 February ended that ‘policing by consent’ period. Russia’s invasion of Ukraine showed that not all countries are prepared to follow the rules-based system that came into being after the end of the war. The inter-connection of nations’ interests painstakingly crafted at Bretton Woods “opened markets and increased trade… bringing consumers more goods and services at lower prices… creating jobs for millions… the expansion of freedom around the globe has been one of the great accomplishments of recent decades. It has protected the open governments in leading democracies, and has granted their people the ability to work, travel, study, and explore the world more easily” says a 2020 paper from the Atlantic Council.
It’s become a cliché to speak of the US as ‘divided’; but being a cliché doesn’t make it any less true. The latest edition of the University of South California’s Polarization Index, covering October 2021-March 2022 says: “over the past 18 months, the overall polarization level in the U.S. (83.6) has not dropped significantly from where it was before President Biden took office (85.1) in Q4 ’20”.
That open, richer, freer world, where consensus, into which we were gently lulled, was seen as preferable to conflict, and which was going to last forever, may always have been a delusion. That consensus didn’t exist everywhere; the wars in the former Yugoslavia in the 1990s, the conflicts in Yemen and Syria, show that. Yet even those conflicts could be seen as an aberration, a deviation from the consensual model that we assumed underpinned the world order.
But now the consensual model seems to be slipping away – as Yeats wrote, “the centre cannot hold”. It’s unclear what will replace it.
Preserve what you have
In these dark times the preservation of what one has becomes even more important; the future is always uncertain but even more so in a time of war.
The last time that inflation gripped many economies was in the 1980s; the US Dollar has lost 72%, the British Pound 78% of their values since 1980. One of the most difficult things is to know with any precision by how much inflation is today eroding the purchasing power of fiat money. Too many variables complicate the calculation; and they differ considerably from country to country. The cost of living in the US, for example, is on average more than 13% higher than in the UK. Rent is even higher, 46.50% more than the UK average. Against that, rent on average in London is almost 225% higher than in Warsaw.
The official consumer price index (CPI) figure states that US inflation was 8.6%/year in May, the highest reading since December 1981. But that official figure hides a multitude of sins. On 4 July, America’s traditional cookout will this year cost almost 21% more than last year. So is the US Dollar going to be worth 8% or 21% less next year? That depends on what you buy with it. But holding cash, fiat currency, makes little sense when inflation is so high; that cash is losing purchasing power.
People tend to turn to cash when other assets are collapsing, but when central banks aim to achieve inflation of 2%/year that cash evidently becomes steadily less powerful; and at 10% rapidly less powerful. Equities are currently in the doldrums. The Nasdaq Composite has been in a bear market (20% lower than its last peak) for a few weeks; the Dow is approaching one. The MSCI ACWI Index, which contains stocks from both emerging and developed markets, extended its decline from its mid-November peak to 21% on Monday to 597.64. While stocks have slipped – and would fall further in a recession – the Dollar-denominated gold price has risen by some 4.2% in the past 12 months.
Cryptocurrencies, regarded by their early promoters as a pathway to independence, to liberation from government, have been co-opted by those who are more intent on getting rich quick, and who are now getting poor almost as fast. The weekend sell-off of Bitcoin which took it below $20,000 may have forced the liquidation of large leveraged bets (big amounts of borrowed money being invested into Bitcoin). There has been – and perhaps still is – “an escalating credit crunch in the digital asset industry that threatens to engulf many of its major actors”.
Inflation is enemy No.1 for Western governments but central banks can do little except exhort populations not to seek inflation-beating wage increases, while having overseen in previous years a massive injection of easy credit and cheap money which has effectively enriched the already wealthy even further. We may be back to the inflationary era of the 1980s, but with a key difference – putting up interest rates sufficiently high to choke inflation is impossible without creating a massive recession. Which would be insane when the West is fighting a proxy war with Russia over Ukraine, a war that Western governments have neither explained nor justified to voters.
Ukraine is fighting two wars – one military, the other propaganda. As surely as it will be ground down and defeated in the first, it has already won the second, in the West at least. Whether we like it or not we have been sucked into this war; we have been persuaded by Ukrainian sources that it’s a war for ‘Western values’. What are those values? They once included consensus, compromise, a readiness to listen to others. A preparedness to meet in the centre. But what if that centre really “cannot hold”?
At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
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