DMALINK’s Manu Choudhary says rate hikes leading economy into depression
Manu Choudhary is of the opinion that this crisis will be larger and longer than it is believed, with “all the hallmarks of being something disturbing” and that it is up to the Federal Reserve “if we’re headed to a recession or a full-on depression. We need action from the Fed.”
Manu Choudhary, CEO at DMALink and Co-Founder at DeFinity Markets, said he expects Europe, the UK, and the United States to enter recession at some point by Q2 of this year in an interview with Nicolette DeVidar, host of Smart Sustainability, a weekly television show broadcast every Sunday live from Metropolitan Washington DC.
The FX industry specialist, who was recently interviewed by FinanceFeeds at TradeTech FX USA 2023, called for central banks to stop interest rate hikes in order to avoid an impending economic depression.
After the currency wars and trade wars of the last decade, the post-pandemic world is presenting us with a real war. Manu Choudhary believes that rather than inflation, it is the war that is driving central banks to raise interest rates.
“We need action from the Fed”
The aggressive rate policies are making markets nervous, he said, pointing out to the falling 2-year Treasury yields earlier this month, the biggest 2-day drop since the 2008 crisis, as proof that banks and investors are concerned as they put their assets in the safest economy in the world, “which is obviously the United States.”
Manu Choudhary is of the opinion that this crisis will be larger and longer than it is believed, with “all the hallmarks of being something disturbing” and that it is up to the Federal Reserve “if we’re headed to a recession or a full-on depression. We need action from the Fed.”
He also shared that his biggest concern is that smaller banks and lenders are being hit hard, and these institutions are critical for employment and local businesses. “Without bank lending, we’re gonna see a calamity not just for the banking sector but for the broader economy. Banks are very important for the way our economy functions”, he continued as he highlighted the importance of productive lending – for corporations to hire people, buy machinery, build real-world products, and scale R&D. “That’s not inflationary.”
We’ll never go back to gold standard because politicians want to spend unproductively
Choudhary rejected the need to re-engineer the banking system. Instead, it must be repurposed because the fault is not of banks per se. “It’s an issue with the political system. Fundamentally, the reason we will never go back to the gold standard is that politicians wouldn’t be able to spend the way they’ve been doing, unproductively”, he said, as he expects “this particular flavor of financial system to fail permanently.”
The DMALINK chief executive also shared he was troubled by the events around the UBS takeover of Credit Suisse because lawmakers made emergency changes to the Swiss law so that corporate actions could be done without the consent from shareholders. “An insane development […] you can’t usurp the rights of shareholders”, he stated, while admitting there was indeed an emergency as Credit Suisse is one of the approximately 30 global banks that are “too big to fail”.
The Credit Suisse issue has seemingly been resolved, but the problem remains, and until rates are cut significantly, it won’t end, Choudhary continued, as he reminded Nicolette DeVidar that the recent UK pension crisis was the result of higher interest rates and hidden leverage.
US is not dominating the crypto revolution
Stating that “gold is not an inflation hedge, it’s a hedge against the failure of governments”, Manu Choudhary then spoke about digital assets. Besides being CEO of DMALINK, an EM FX-specialized ECN, the executive is also co-founder of DeFinity Markets, an institutional digital asset ECN.
Having always been bullish in general, he said he expects crypto to ultimately move higher. The size of the move will depend on the scale of the crisis. “Anyone who has a portfolio against inflation should have digital assets”, he recommended, as he pointed out a significant increase in institutional interest despite FTX collapse, overall crypto winter, and the extremely high capital requirements for holding crypto.
“Europe is very much in the lead. They’ve been pushing forward very aggressively”, he said about the regulatory approach to digital assets. While the European Union passed the Markets in Crypto Assets (MiCA) regulation, the United States maintains its regulation-by-enforcement practice. The CFTC has just announced charges against Binance.
Local community banks are the way to go
As to CBDCs, Choudhary made the same points he made in the interview with FinanceFeeds: that he is a big fan of wholesale CBDCs, but retail CBDCs make no sense in the developed world, “unless the real purpose” is to “have an impact on individual freedoms and more control”.
At the end of the interview, he called for a de-escalation of the Ukraine war, stable rates, and for the strengthening of local community banks as a way to re-engineer the financial system in a healthy way.
Besides having “some in crypto, some in precious metals, and some in cash”, Manu Choudhary ended his intervention with an unexpected recommendation: “buy art”.
