How central banks robbed the world

28 Jun

It’s a little known fact that in the Great Train Robbery of 1963, the theft of £2.6 million in cash from a Royal Mail train travelling between Glasgow and London was accomplished by tampering with the line signals in order to stop the train. As train robberies go it was audacious. The haul was around £50 million in today’s money.

But as criminals masterminds go, the gang of 15 robbers that pulled off one of the most infamous heists in British history can’t compare to the current gang running the world’s central banks. Those people – Janet Yellen, Mario Draghi, Mark Carney and Haruhiko Kuroda – have managed to pull off an even greater heist.

By tampering with price signals – and here I’m talking about short-term and long-term interest rates – those central bankers have put trillions in global savings at risk. While the world has focused on the risks of Brexit, a bigger and more dangerous risk has emerged. The risk? That the “endgame” for central banks results in a massive fall in both stock and bond prices.

What about Brexit?

The last polls before last Thursday’s vote suggested Remain would take the day. As my college Charlie Morris of The Fleet Street Letter noted, that result would have seen UK equities in general, and British banks in particular, experience a nice surge.

That didn’t happen. Far from it. A Leave victory sparked chaos in financial markets. The FTSE’s down 350 points from its Thursday level, when the assumed Remain victory was already priced in. Banks, meanwhile, have been pounded. The FTSE 350 banks index is down around 17%, with certain big players like Lloyds hit even worse.

I personally think leaving will prove to be the best result for Britain in the long-run, despite this short-term turmoil. We were prepared for that turmoil, covering news as it unfolded on Friday. We’ll be doing the same over the coming weeks.

While the Brexit debate has raged, a bigger and more important story has been brewing. It’s the story of how a small cadre of central bankers took global interest rates to record lows, caused yet another dangerous bubble in financial asset prices (bonds), and managed to put the savings of an entire generation at risk when interest rates rise again.