When the chief investment officer (CIO) at one of the world’s largest asset managers, PIMCO, publically admits what you have been saying and writing for the past 10 years then it is both a time of worry and hope.
Worry: because when the present economic system – built on greed, deception and speculation – will collapse then it will spread social and economic mayhem beyond our imagination.
And Hope: because a more balanced, equitable and just socio-economic order is long overdue. So whenever it is ushered in at a global scale, it is likely to bring much needed respite to those 99% who have been hammered to the bottom of the economic pyramid as a result of rampant globalization fueled by unlimited debt and heavy speculation.
PIMCO’s CIO Dan Ivascyn manages US$ 1.5 trillion in assets. At a Global Investment Summit in New York recently, he acknowledged “the impact of globalization, wealth inequality and climate change creating political uncertainty over the next five to 10 years.” I have been in the corporate banking business for well over two decades. Having built and managed a multi-billion dollar portfolio, I have seen from close quarters in the financial markets how “financial creativity” and “over leveraging” enhances economic risks which inevitably leads to social tension.
Every crisis has some early warning indicators. This is why we must not rush to the market to buy fire extinguishers after the fire sets in. More so when the price of that imminent crisis is expected to be global and catastrophic. And at the moment, we are seeing a much gloomier scenario than what the numbers looked like on the eve of 2008 global financial crisis. The US government debt has doubled since the 2008 financial crisis. While the global debt stands at US$ 188 trillion – the biggest debt bubble the world has ever seen. This numbers, which is equivalent to 230% of world output, has risen by US$ 24 trillion in just the last 3 years. On this amount, global financial elites are extracting US$ 500 billion annually in interest income alone. That is the singular reason why rich are getting richer (and poor, poorer) at an extremely alarming pace over the last 10 years.
Post 2008 crisis, I wrote in a piece “This is Not a Credit Crisis” in The Banker’s magazine that ‘a financial system based on justice and fairness will survive now and thrive in future’. And I highlighted the fact that ‘there is no “financial economy” in Islam, only real economy. Islam does not permit debt to be traded, discounted or securitized.’ Similarly, speculative trading is completely prohibited under the system which invariably results in high level of economic volatility. For instance, we often witness billions of dollars of investors wealth wiping out in a matter of hours in stock markets.
At a time, when civil unrest is gathering pace like a wildfire from Hong Kong and Beirut to Chile and beyond, another high profile player of the present financial system, Michael Novogratz, the hedge fund manager turned crypto-currency and blockchain investor expresses deep concerns about the future and admits “we’re waiting till the new narrative shows up.” Well the new (and more stable) narrative is already up and running. There are over 500 Islamic banks across five continents managing over two trillion dollars in Islamic financial assets – covering banking, capital markets, and Islamic insurance products. This industry is primarily catering to the faithful for the past four decades. The time is fast approaching when it will need to step up and serve the humanity, in general. The template is ready.
But idealism apart, the global elites who have been benefitting from the existing financial system will not allow “an orderly transition” at any cost. So practically speaking, the social unrest is likely to grow and envelope a much larger territory than what we see today. For weathering through such turmoil, it may be advisable to minimize personal investments in financial assets and maximize investments in hard assets – preferably small plots of agriculture lands that serve basic human needs like food and dairy products. Because survive we must, to experience better times!
Mansoor Durrani is Senior Vice President and Head of Project Finance at the largest bank in the Middle East. Views are personal.