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Anthony Rowley

Fashionable, frivolous or downright foolish? Which of these words best describes the trend in markets toward derivatives, cryptocurrencies, digital assets and tokens as supplements or alternatives to traditional finance? Where is this great “paper chase” leading?
For one thing, it is likely to be causing a flight into gold. But unless gold is remonetised and mining output is stepped up sharply, that trend could lead to deflation and limited economic growth. So a retreat to sustainable safety will not be achieved via that route.
The fact seems to be that the world – or at least the Western world – has lost its compass or common sense and is heading down a path towards economic and moral anarchy unless it abandons its irresponsible obsession with new, faddish and often highly risky forms of finance.
In the world of finance, control is increasingly being separated from ownership of assets. Gone are the days when shareholders felt they genuinely owned part of the companies in which they bought stocks, shares and bonds.
Gone, too, are the days when relatively few of those companies’ shares were amalgamated into mutual funds or investment trusts as a means of facilitating ownership of shares in a number of companies. The Exchange Traded Fund (ETF) revolution means investors now own and actively trade indices containing the securities of hundreds of firms.
We all know where this kind of thing led. The 2008 global financial crisis had its roots in the international proliferation of so-called subprime mortgages, where mortgage loans were sliced and diced into a myriad of tradeable securities, regardless of the quality of individual borrowers. It ended in financial disaster.


Nowadays, even “token” stakes in anything from artworks to cryptocurrencies are being traded in their millions or even billions.
Who is supplying the financial wherewithal for this speculative frenzy? It’s a question too rarely asked, and even less often addressed head-on. Part of it comes from the vast sea of people’s contributions to pension funds and from life assurance premiums, which are handled by asset managers who compete to outperform others or are content to sink or swim together.
It is not only supposedly “sophisticated” financial derivative instruments that are at risk now, however. The same goes for government bonds that anchor the global financial system – not just those of the US government but also those of any government that spends and borrows beyond its means.
It is bad enough that we have a proven nihilist – US President Donald Trump – in the White House who seems to believe in the destruction of global trade. But it is even worse that he is encouraging those in the financial community who seem to wish to make the global financial system their plaything.

This is not just a reference to Trump being an avid supporter of cryptocurrencies at a time when their safety has yet to be proven but also his reckless behaviour with regard to undermining the integrity of the US bond market, a staple of global finance.
“The search for safe assets has become acute amidst economic uncertainty and financial market stresses triggered by the tariff war and heightened geopolitical tension,” writes Hung Tran, a senior fellow at the Atlantic Council’s Geoeconomics Centre and a former International Monetary Fund official. “High-quality government bonds have played an important role as anchors in the portfolios of central banks’ reserve assets, as well as other large and long-term institutional investors such as pension funds and insurance companies.”
However, Tran also notes that “the quality of government bonds issued by developed countries, mainly the United States, has been questioned. Developed countries face fiscal pressures reflecting demands for higher government spending on defense, infrastructure, and other needs, while their budget deficits and government debts are already at high levels.”

Meanwhile, public equity markets are afflicted by strong uncertainty and volatility, created largely by Trump’s tariffs and trade wars, as well as growing geopolitical tension. For private equity markets, their “flywheel of funding – which has powered the industry’s rise from the sidelines of finance to the mainstream – is now sputtering”, according to a recent Financial Times editorial. “Buyout barons are finding it harder to profit on their investments through sales or initial public offerings.”
The one sector where bearishness does not prevail is that of ETFs where, according to PwC, global assets under management grew a record 27 per cent in 2024 to a record US$14.6 trillion and are forecast by some to more than double to US$30 trillion over the next five years. However, the growth of this sector only underlines the increasing trend towards fragmented ownership in enterprises and the separation of ownership from control for people saving and investing. It helps to deprive national economies of direction.
It is no surprise then that in today’s fragile political and financial environment, gold is regaining prominence among reserve managers. “Gold is good when other assets are not safe,” said one observer at the recent Official Monetary and Financial Institutions Forum annual seminar in London.
Gold is once again being treated as a strategic asset because it serves as a symbol of political neutrality and security in times of fragmentation and independence from the liabilities of any one single issuer. If the world is forced back onto a restrictive gold standard, the financial community will have only itself – aided and abetted by the likes of Trump – to blame.


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How the obsession with risky assets is putting global finance in peril

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Opinion

World Opinion

News

World

Economy

Global Economy

Policy

Business

Cryptocurrency

Tech

Tech Trends

Blockchain

From the speculative frenzy over digital assets to the assault on bond markets, the next financial crisis will be self-inflicted


From the speculative frenzy over digital assets to the assault on bond markets, the next financial crisis will be self-inflicted.


Fintech

NFTs

Stocks

Bonds

Donald Trump

US-China trade war

US-ally trade wars

Global Financial Crisis of 2007-2008

Financial regulation

United States

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Macroscope

How the obsession with risky assets is putting global finance in peril

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}From the speculative frenzy over digital assets to the assault on bond markets, the next financial crisis will be self-inflicted

From the speculative frenzy over digital assets to the assault on bond markets, the next financial crisis will be self-inflicted