MARKET PERSPECTIVE

By J Mulraj

MARCH 30-APRIL 5, 2024

And how it shapes policy

The concept of democracy, propounded by Cleisthenes in 508 BC in ancient Greece, is a wonderful one, giving, as it does, power to the people to elect who should lead them, and the power to replace them should they not perform.

The practice of democracy, today, is, sadly, different. It has morphed and contorted itself in different ways. One can only hope that it regains its original ideals. Wars have been, and are being, fought over the right to ‘protect democracies’. Democracies need political funding for fighting elections, and this ‘need’ is used as a reason to justify the creation of, and the leniency towards, corruption. Something that gnaws at the innards of a society.

Start at the beginning of the democratic process.

Suppose two parties form a pre-election alliance, divvying up the seats between them. A voter may prefer one of the partners but the seat in his constituency has been allotted to the other, whose candidate he wouldn’t have voted for, but now does, in order to support the party he desires. Six months later the other, minority, partner splits away and, with the help of other parties, forms the Government.

This is a fake democracy, a circus really, and unfair on voters. It’s not what Cleisthenes had dreamt of.

Often the circus goes out of town in what is called ‘resort politics’. The MLAs (Members of Legislative Assembly) are sequestered at hotel resorts, to prevent them slipping away after being adequately greased by the opposition.. TV channels publicly announce the cost per MLA (all cash, of course), as if the MLAs were stock or commodities. And commodities is what they have become.

Is this a Cleisthenian democracy? It seems to be not a democracy ‘of, for, and by the people’, but ‘of, for and by the politician’. The generation of cash needed to form the crooked IPL team of state Governments is the root of corruption.

Once elected, the focus of the elected is on amassing wealth and not on governance. Investigative agencies investigate the misdeeds of other parties and file charges. As per this IE report, the charges on 23 out of 25 politicians who switched allegiance to the BJP, since 2014, were dropped.

Is this the Cleisthenian democracy?

In USA, too, democracy, as practiced, is a morphed version of the original. Election funding comes from a variety of sources, including donations from individuals. This is limited to $3,300 per individual, or double that if he also contributes for the primary. Yet, he can contribute by buying tickets for a dinner; as evidenced by the $500,000 per plate dinner in New York, attended by Biden, for which he was criticized for attending, whilst Trump was, at the same time, attending the wake of a police officer killed by an illegal immigrant, a multiple offender. A $500,000 a plate is not for a culinary cornucopia. There is, obviously, an IOU payable in the future. So are limits imposed on individual donations a mere gesture? Is it not a departure from a Cleisthenian democracy?

Why is all this important for stock market investing?

Look at the economic consequences of the Russia-Ukraine crisis, a war that the collective west goaded Russia into, just by ignoring its pleas not to admit Ukraine into NATO, as Russia deemed it to be an existential threat. The collective west then rushed to the aid of Ukraine, in the pursuit of saving a ‘democracy’. Ironically, the Ukranian ‘democracy’ has postponed its elections, due to the war, even as Russia held elections, fighting the same war. The collective west derides the Russian elections as fake elections. It could introspect if it’s own elections pass the smell test.

Look at the consequences of this pursuit of saving a democracy.

• Europe has become economically weakened, deprived of cheap Russian energy. Especially Germany, earlier the strongest European economy, now in recession. Other EU countries are also facing inflation and slow growth.
• Biden has pushed closer two of its biggest enemies, Russia and China. Cheap Russian energy, after being sanctioned by the collective west, has found new markets, including China and India. This has made China’s oil supply stronger, coming by pipeline from a neighbor and not subject to the higher cost of a sea route from the Middle East and the ability of its enemies to choke the supply route.
• Biden’s overuse of sanctions in this pursuit of protecting democracy has resulted in other countries becoming wary of the dollar dependent global financial system and the quest for alternatives. Bilateral pacts have been signed by several countries to use their own currencies for trade, to avoid the risk of sanctions. This erodes the value of the USD as a globally accepted international currency. In turn, it erodes the ability of the US to borrow money in international markets, which is what should worry the world’s most indebted nation.
• In the pursuit of saving democracy, the collective west has exhausted its financial coffers and its military ones. The former can be digitally created. The latter requires years of production. In order to address a shortage of artillery shares (donated to Ukraine) the US has struck a deal with Turkey.

Net, net, in pursuit of saving a democracy, the US has endangered its own! It has run out of money. It has run out of weaponry. This, at a time when a Chinese invasion of Taiwan, and, perhaps, an Iranian escalation on Israel, are distinct possibilities.

• In it’s pursuit to save ‘democracy’ the US has donated, in the past 9 months, more money to Ukraine than it has spent on its own, crumbling, infrastructure like roads, ports, bridges etc. just a fortnight ago, a huge bridge in Baltimore collapsed after its pylon was struck by a ship. Ironically, the Captain of the ship was Ukranian.

In a nutshell, the pursuit of saving democracy has disrupted energy markets, reshaped the geopolitical landscape, accelerated de-dollarisation,  weakened US ability to fight a prolonged war and neglected America’s physical infrastructure.

That’s a sledgehammer on American democracy, in pursuit of saving another! Does Biden not see all this?

Now, US Government debt is only the visible tip of an iceberg the bulk of which, underwater, is unseen. US Government debt is a humongous $34 trillion, but the hidden debt is the unfounded Social Security and Medicare programs.  These, according to Peter St Onge, amount to an incredible $175 trillion! These programs will have no funds left in under a decade. The only solutions are 1. Reduce number of beneficiaries, by hiking the age for eligibility, 2. Increase payroll taxes, 3. Reduce the benefits.

Inexplicably, Biden keeps borders open, allowing illegal migrants the benefits of draining such programs faster.

Last week the Sensex ended at 74248 for a weekly gain of 597 points.

Investors should look out for rising tensions in the Middle East. Iran is likely to retaliate against the Israeli air strike in Damascus which killed 11, including top Iranian military leaders.

The US fed is in a quandary. It has not tamed inflation to the target 2% rate and is, this, loath to commence the interest reduction cycle. Yet the unfounded liability in Social Security and Medicare, as well as in pension funds, and also to spur economic growth in an election year, Jerome Powell may need to start the downward spiral, probably this summer.

Indian elections will be held mid May. On declaration of results a dip can be expected in Indian Stock markets. Before that, if there’s a flare up in either Taiwan or Muddle East.

Picture Source: https://cartoonmovement.com/cartoon/elections-france-and-paper-shredder

Comments may be sent to jmulraj@asiaconverge.com