The founder of Elliott Management and one of the world’s most successful hedge-fund managers, Paul Singer, was the man who saw the economic crisis coming. He also predicted inflation at the start of the Covid pandemic.
“Men and nations behave wisely,” the Israeli statesman Abba Eban observed, “when they have exhausted all other resources.” Imagine if our economic policy makers listened to Paul Singer instead. Mr. Singer, 78, is founder of Elliott Management and one of the world’s most successful hedge-fund proprietors. Before the financial crisis of 2008, he tried to alert investors and public officials about the dangers of subprime mortgages. In the 15 years since, he’s repeatedly warned that the landmark Dodd-Frank Act of 2010, and the expansive monetary policies along the way, were inviting disaster.
Will policy makers finally start listening? He isn’t betting on it. “I think that this is an extraordinarily dangerous and confusing period,” he says at the Manhattan office of his charitable foundation. (Elliott’s headquarters moved to West Palm Beach, Fla., in 2020.) Mr. Singer is dressed casually and appears relaxed, but his message won’t put investors at ease.
“Valuations are still very high,” he says. “There’s a significant chance of recession. We see the possibility of a lengthy period of low returns in financial assets, low returns in real estate, corporate profits, unemployment rates higher than exist now and lots of inflation in the next round.”
His pessimism about the soundness of the dollar and other currencies isn’t new. He’s watched and worried for years as the Federal Reserve and other central banks settled into a more or less permanent emergency footing in which the answer to virtually every economic and financial challenge is to create more money.
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This fueled the rise of cryptocurrency, which Mr. Singer describes as an “alternative for people to express a kind of libertarian impulse, a kind of disdain or criticism of central banks’ fiat money.” But while he may share the disdain for the work of central bankers, he says crypto is “completely lacking in any value. It is not a substitute for gold, but it has taken away some of the demand side for gold.” He adds: “There are thousands of cryptocurrencies. That’s why they’re worth zero. Anybody can make one. All they are is nothing with a marketing pitch—literally nothing.”
Since the 2008 crisis, the Fed and other central banks have undertaken various rounds of “quantitative easing”—creating money to buy government bonds and other assets. The artificial demand for such assets holds down interest rates, which enables political authorities to spend lavishly, run massive deficits and take countries deeper into debt.
Mr. Singer saw inflation coming at the start of the Covid pandemic. “We think it is very unlikely that central bankers will move to normalize monetary policy after the current emergency is over,” he wrote in an April 2020 letter to investors. “They did not normalize last time”—meaning after the 2008 crisis—“and the world has moved demonstrably closer to a tipping point after which money printing, prices and the growth of debt are in an upward spiral that the monetary authorities realize cannot be broken except at the cost of a deep recession and credit collapse.”
Recently, Malaysian Prime Minister Anwar Ibrahim proposed the creation of an Asian Monetary Fund to reduce dependence on the US dollar. China and Malaysia are expected to discuss the proposal.
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