In today’s issue:

  • Arsonists don’t put out small fires
  • Qui bono from inflation?
  • The Bank of England’s slow response time is the giveaway

Ronald Reagan warned us not to: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” But did we listen? No, the Bank of England went and did it anyway.

The Bank created vast amounts of new money. And promised there would be no inflation as a result. As though the laws of economics are like modern art: determined by interpretation. Everyone gets their own reality.

Even when the inflation came, central bankers simply denied it existed.

When it rose too high to ignore, they called it “transitory”. After all, nobody except JK Rowling has the balls to criticise that belief set.

And when their own staff began demanding pay rises, central bankers argued this would cause inflation! Yes, it’s our fault!

Talk about blind, deaf and really dumb.

Like arsonists who volunteer as fire fighters, the Bank of England eventually got a grip. But not before the inflation got big enough to make things really exciting.

A British government was booted out by inflation’s bond market carnage. The pension system almost went bust. Several US banks did go bust. And investors experienced one of the worst meltdowns in asset prices ever.

These days the Bank of England is celebrating that inflation is back under control. As through the cost of living isn’t up 20% in three years according to their own figures…

But the bond market losses were so bad even the Bank of England got into financial trouble. These days, the government has to bail out the Bank of England while the Bank of England bails out the government. Even that doesn’t quite cover the absurdity of it.

Under an indemnity… the government has to bail out the Bank of England…  because of losses on its holdings of government bonds… which were incurred as a result of the inflation caused by the Bank of England buying bonds from the government to bail out the government… which got into trouble because its bonds crashed as a result of the inflation caused by the Bank of England buying the governments bonds in the first place.

Do you see now?

But in the midst of all this chaos, nobody is asking the big question. So I’ll ask it again…

Who does inflation work for?

Who benefits?

We know “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” But who hired him?

It wasn’t me.

Was it you?

I doubt it. Because we know who the victim is. It’s you, and me.

But who is benefitting? That’s what Messrs Poirot, Marple and Cicero would be asking. And if you answer that question, you’ll also discover who is causing the inflation too.

Just don’t expect to like the answer. This isn’t a Hollywood production, where the bad guy is conveniently dislikeable. Discovering whodunnit won’t make you sleep better at night.

Our monetary madness would be more of a stage comedy, if your wallet weren’t the victim. There’s even audience participation. And a big twist at the end.

Central bankers haven’t lost the plot

Things are going according to plan. It’s just not a very nice plan, for you and me. But I need to explain the context.

Central banks are responsible for financial stability. This means keeping the systemically important financial institutions on life support when they threaten to keel over. Which banks and governments periodically do.

What made 2008 so dramatic was the failure to rescue Lehman Brothers. The crisis would’ve looked very different without that failure. And so it won’t be allowed to happen again.

These days, it isn’t just banks that get into trouble. It’s governments like Greece, Italy and the UK. The bond market can suddenly refuse to fund their deficit spending. And that means bond prices crash.

We saw the impact this can have in 2022 and 2023. Financial instability falls apart as banks go bust and pension funds go broke. Unless someone steps in to save the day.

This means government debt levels are now the key source of financial instability in the world. They must be brought back down to levels that do not require repeated visits to the emergency room for quantitative easing drips to keep the bond market hydrated.

But how do you cut government debt?


Don’t make me cry.

There’s a better option. The International Monetary Fund calls it the “Liquidation Tax”. And it isn’t imposed by democratically accountable politicians at all. It’s imposed by central bankers.

Just don’t expect any central bankers to admit they are imposing it.

After all, nobody hires a hitman, armed robber or mugger and publicly declares it. No friendly firefighter reveals they were the arsonist all along.

But when whistleblowers commit suicide, we all know what happened. And the value of your money is bleeding out.

So, who dunnit?

Central banks did.

And they’re going to do it again.

Until next time,

Nick Hubble
Editor, Fortune & Freedom