Investing In The Age Of Anarchy

4min read

Populism and technology are transforming politics and economics in Western democracies, so how should we position our pensions and investments in response? Let me consider this in its historical context and plot a pathway for the long road ahead.

Summary: This analysis evaluates the impact of political populism, libertarianism, and unregulated tech platforms on global asset allocation. It contrasts the stabilising role of independent monetary institutions like the ECB and Bank of England against market concentration risks in US equities and private digital currencies. The briefing provides a strategic framework for Irish investors to hedge currency risk and diversify capital across emerging markets, global bonds, and sovereign assets.

In the post-war era, the western world has developed a financial and institutional framework designed to maintain political and economic stability. We have become so used to the IMF, the EU, and central bank independence that it is easy to forget how recent some of these arrangements are. The Bank of England only gained independent control over sterling interest rates in 1997, and the ECB came one year later in 1998.

You can certainly argue that the world has not been a model of stability in the intervening years but what would it have been like without this framework? The UK was prone to bouts of rampant inflation, IMF interventions and devaluations in the 70s, 80s & 90s culminating in the humiliating sterling crisis and devaluation in 1992 under Prime Minister John Major and Chancellor of the Exchequer Norman Lamont. Tony Blair and his “New Labour” movement won the next UK election in 1997 by a landslide.

The Labour Chancellor Gordon Brown, a model of Scottish prudence and restraint, took the historical step of granting independent control of monetary policy to the Bank of England the following year in 1997. Admitting tacitly that the UK political establishment couldn’t be trusted with control of monetary policy. One can only speculate as to what recent Prime Ministers Boris Johnson and Liz Truss would have done with interest rates if they had that power when they were under severe economic pressure. The UK is in a slow but inexorable economic decline relative to its former colonial subjects because it can’t face up the economic consequences of its political missteps. At least it has been a stable decline without a revolution (so far) and we can partly thank the Bank of England for that.

Here at home, we paid the price for our own lax financial regulation in the Celtic Tiger era. We may not have been treated fairly but had it not been for the bitter medicine of the IMF, who knows what would have happened. Some high-profile commentators advocated bypassing the IMF and burning bondholders unilaterally like the Argentinians, but our South American friends are still in a seemingly endless financial crisis almost twenty years later. It may not have been the panacea that was promised as their current libertarian leader Javier Milei is discovering to his cost.

The Greeks and other southern European “PIGS” nations threw themselves at the mercy of the ECB after the Global Financial Crisis (GFC). Now the PIGS are growing faster than the German economy, while Greek government bond yields are lower than the French – quelle horreur! The balance of evidence suggests that the financial guardrails of the ECB, IMF and central bank independence stand to protect the citizenry from the venality of certain politicians. They could all do with some reform, but their abolition could cost us dearly.

We have now entered a new political era of populism in the western world driven partly by the pain of post-GFC austerity. Populists make promises of pain-free largesse to get into power. It is widely assumed that their real agenda is to lure their populations into autocracy. It may be tempting to turn a blind eye to this threat to democratic freedom perhaps hypnotised by the old tropes that “at least Mussolini made the trains run on time”. In other words, maybe we should sacrifice some freedoms long as it’s good for the economy and stock markets? That is not a world I would like my children to live in, but what if the current political convulsions are a harbinger of anarchy rather than autocracy? Let me take the contrarian view that the forces of anarchy are deliberately undermining political and financial institutions as much to destroy state power rather than control it. Where would this lead financial markets?

Bitcoin is the epitome of this phenomenon. It was created by private individuals. It is not backed by any central bank. It is largely beyond the control of politicians and regulators. It is widely used by criminals and money launderers. It is promoted as a viable alternative to state-backed currencies. It is obvious that investors can trade it for a profit if their timing is good/lucky, but why have some governments given Bitcoin free rein? China has banned trading of Bitcoin, but the US President has gone all-in on cryptocurrency even though it consciously undermines the precious greenback.

In my view, digital currencies backed by central banks are an important innovation, but why hand over this power to private interests? The acceptance of Bitcoin is part of wider range of factors deliberately designed to devalue the dollar. As a result, the dollar has fallen 12% against the Euro since Trump was elected which has negated almost all the gains in US stocks for Irish investors.

Central Bank independence is also under threat. We all know that the US Federal Reserve is being pressurised to reduce interest rates by politicians. The governors are being targeted with efforts designed to remove them from the board. Running an economy is not like developing a golf resort; lower interest rates are not always a good thing. The consequence of this misguided notion could be economically damaging inflation. Similarly, it could lead to higher costs of government borrowing – dictated by the bond markets rather than Fed. Nigel Farage is mirroring this rhetoric in the UK and calling for the Bank of England to stop its vital bond-buying programme and to loosen regulation of crypto. Needless to say; the US and UK bond yields remain stubbornly high and cost their taxpayers higher interest payments on their growing government debt.

Tech companies now control a huge swathe of the public conversation through their ownership of social media platforms, podcasting, music platforms, and audiobook apps. The old media of state broadcasters and “newspapers of record” are under siege and with them the old decencies of political dialogue are disappearing. Perhaps the drawing back of this veil of discretion is revealing “the truth” about societies, but it is also now routine for reputations to be destroyed by online rumours and political opponents to be the subject of personal attacks. How can we separate fact from fiction when the US government’s Chief Strategist says, “the real opposition is the media and the only way to deal with them is to flood the zone with s**t”.

Nobody in the tech or political realm seems able to reach a consensus on regulating online hate speech/free speech, depending on your perspective. The ultimate broker of the tech power behind the throne, Peter Thiel, last week reportedly told a group of supporters without a hint of irony that those seeking to control AI, climate change and nuclear weapons can be compared to the Antichrist. Thiel is another libertarian like Javier Milei of Argentina. What’s the difference between a libertarian and an anarchist you may ask? They are both anti-establishment, but libertarians travel first-class. Either way, the upshot of their radical thinking is that the essential green agenda in the USA is being undermined, and sustainable equity funds are languishing while China takes the lead. US unemployment data is being withheld from the market because the news is not good, so the messenger is being well and truly shot, and we are all left in the dark. This is not good news for investors.

So, what should investors do? Keep an open mind and don’t assume that US stocks will always be the only game in town. The UK once had an empire on which the sun never set. So, diversify your equities geographically and include bonds, property and other asset classes. Since Feb 2025, Emerging Markets are up 15% and North American Equities are up 0.5% for Irish investors. Meanwhile, the US government has been shut down for two weeks and counting. So much for the trains running on time.

This is an opinion piece. Investments may fall as well as rise in value and income may fluctuate in accordance with market conditions and taxation arrangements.