Central banks are officially trapped in endless inflation.
In accordance with a very simple logic that every first-year economics student could understand, printing money drives inflation, which at one moment will push central banks to raise interest rates, which will make it hard for governments to repay their debts… which will incite more money-printing.
The UK example shows that the vicious circle is difficult to break.
📈 Witnessing soaring inflation, several months ago the Bank of England decided to end its QE ( = printing new money to give to pre-defined companies, while reducing everyone’s buying power), reduce its balance sheet, and start raising rates.
This week it made a U-turn and started printing new money. Here’s why.
📈 The new government’s budget with unfunded £45 billion of tax cuts and £150 billion of help with energy bills spooked financial markets, bringing down UK bonds ( = debts that the government has contracted mostly from financial institutions) and the pound/dollar rate. Together with “mechanic” bonds drop caused by the rising rates, the situation got worrisome.
📈It became more difficult for the government to finance its debt and endangered UK pension funds, which have huge bonds exposure.
📈 This forced the Bank of England to return to printing: some £65 billion will be created out of thin air to buy the country’s bonds in an attempt to stabilize the markets.
📈This will, in turn, decrease the pound’s buying power and increase inflation. We have come full circle.
Maybe it’ll be better for everyone if money stays just money?