Warning Signs: Hedge Fund Predicts Global Economic Crisis Amidst Rising Inflation

A dire warning from a prominent hedge fund indicates that hyperinflation might trigger a collapse in global society, placing blame squarely on central banks.

The decision of central banks to slash interest rates in the early stages of the pandemic may precipitate the most severe financial crisis since the aftermath of World War II.

The world stands at the brink of its most significant financial crisis in recent memory.

Elliott Management, overseeing assets close to $56 billion, asserts that surging inflation coupled with the steepest interest rate hikes seen globally in twenty years sets the stage for an economic upheaval unparalleled since World War II.

In a recent letter to clients, Elliott Management, a significant hedge fund, highlighted an unprecedented and “extraordinary” confluence of economic circumstances that could lead to a crisis surpassing any stock market crashes or energy shocks in the last seven decades, as reported by the Financial Times on Wednesday.

While acknowledging that the dire prognosis is not a certainty, signs point to some level of economic downturn in the coming year, with central banks such as the U.S. Federal Reserve responding to inflationary pressures with aggressive interest rate increases, a move cautioned against by international institutions like the World Bank and the UN, fearing it could trigger a global recession.

However, Elliott Management warns that the outcome could be even graver, attributing the inflation crisis to central banks’ loosening of monetary policies in the early stages of the COVID-19 pandemic.

This looming economic spiral could potentially lead to “global societal collapse and civil or international strife,” Elliott Management suggests.

Fortune’s request for comment from Elliott Management went unanswered.

Central banks under scrutiny

Elliott Management’s letter accuses policymakers of being “disingenuous” about the true cause of rising inflation and failing to acknowledge the role central banks played in its genesis.

In 2020, many central banks, including the Fed, the Bank of England, and the European Central Bank, reduced interest rates to near-zero, aiming to stimulate growth following a decade of historically low rates after the 2008 financial crisis.

While this ultra-loose monetary policy mitigated the economic fallout from lockdowns and business closures, persistently low rates could pose additional economic risks if they fuel excessive growth and uncontrollable inflation.

Elliott Management warns of the long-term consequences of this era of low rates, potentially leading the world towards hyperinflation, a scenario characterized by rapid, self-sustaining, and largely uncontrolled inflation, typically defined by a monthly inflation rate of at least 50%.

Hyperinflation is exceedingly rare on a global scale, as a monthly inflation rate of 50% translates to an annual rate of 12,875%, significantly higher than the current annual U.S. inflation rate of 8.2%.

Renowned economists such as Mohamed El-Erian, president of Queens’ College, Cambridge, criticized the Federal Reserve last year in a Washington Post op-ed, cautioning that keeping interest rates near-zero for too long could become counterproductive for the economy, potentially leading to a “perfect storm” of high inflation, sluggish growth, and financial instability.

Former Treasury Secretary Larry Summers echoed similar sentiments, warning that prolonged low rates risked breeding “dangerous complacency” within the Fed regarding inflation, potentially forcing abrupt monetary tightening that could severely impact the economy.