World ‘plunging towards societal collapse’ as era of cheap money ends

The global economy is on the path to hyperinflation and risks societal collapse if soaring prices are not brought under control, one of the world’s biggest hedge funds has warned.

Elliott Management, the hedge fund founded by Wall Street billionaire Paul Singer, hit out at central bank rate-setters in an apocalyptic warning to clients as rate-setters bring the era of ultra-cheap money to an abrupt end.

The world economy faces an “extremely challenging” outlook and hyperinflation could result in “global societal collapse and civil or international strife”, the letter to clients said, the Financial Times reported. It said central banks have been “dishonest” in deflecting blame for the price surge from their prolonged use of ultra-loose monetary policy.

Elliott is one of the most influential hedge funds in the world and is feared in corporate boardrooms for its approach to investor activism.

Central banks are being forced into rapid interest rate rises to tackle inflation with the rate of price growth hitting double digits and a four-decade high in the UK.

The US Federal Reserve voted for its fourth consecutive 0.75 percentage point increase to its benchmark interest rate on Wednesday while the Bank of England followed with a 0.75 percentage point jump on Thursday, the eighth straight increase.

Stock markets have already suffered a tough year as the global economic outlook darkens and interest rates are pushed to levels last seen before the financial crisis. But Elliott believes that investors should brace for a “a seriously adverse unwind of the everything bubble” because of the number of “frightening and seriously negative possibilities”.

The “everything bubble” refers to the surge in a range of investments, including stocks, bonds and house prices, since the financial crisis after central banks left interest rates at rock bottom levels for years and cranked up the printing presses under quantitative easing.

Investors should not believe they have seen everything from previous financial crises, the letter warned. The sudden end to cheap money has “made possible a set of outcomes that would be at or beyond the boundaries of the entire post-WWII period”.

The S&P 500 – the benchmark US stock index – has plunged by 22pc this year and dropped a further 2.5pc on Wednesday after Fed chairman Jerome Powell signalled more rate increases are on the way. The FTSE 100 has been one of the world’s better performing stock indices but is still 5.6pc lower.

Elliott declined to comment.