What is Populism?
Populism occurs when the general sentiments of the majority are negative towards the elite minority. This happens when policies implemented by politicians increases inequality and unfairness in society. In layman’s term, Its the phenomena of the rich getting richer and the poor getting poorer, therefore resulting in the majority feeling that more can be distributed to them.
To make things worse, the rich do not actually hold much cash because it will be more profitable to convert their capital into assets, which then translate to higher growth. Whereas, the majority of the population will hold on to more cash or even taking on more debt to sustain their lifestyles.
How does this relate to investments?
Due to the higher proportion of wealth held by the few, their higher net worth will allow them to take more debt from banks to fund their investments. This in turn results in banks borrowing increasing amounts of money from the central bank to maintain liquidity. As such, massive amounts of borrowing will eventually lead to greater inflation, causing the value of currency to depreciate at the expense of those who are holding onto cash.
In essence, such inflation causes prices to go up faster than the increase in wages. While the rich continues to enjoy capital gains from their investments, the wealth gap will continue to widen until unsustainable levels. A similar situation happened in Hong Kong because prices of basic necessities like housing were no longer affordable for citizens. Triggered by a recent extradition bill which undermines certain freedoms, citizens went on protest to voice their demands.
What about the other parts of the world?
It is well established that in developed countries, a wider income gap is common due to capitalism. However, recent events in Hong Kong suggest that there might be issues still brewing and suppressed in other developed nations.
That said, the solution to financial issues today should no longer be centred at keeping the economic engine going. The reason is because the prolonging of the engine only promotes the widening of the wealth gap in society.
Closing Thoughts
In a nutshell, I think it is unfair to cause currencies to inflate at the expense of the general populous. Hence, I do expect to see an economic reset, which presents opportunities for longer term investments. However, in view of recent trade talks and rate cuts, we can only hope It comes sooner.
