Central Banks’ Dangerous Experiment: How Their Long-Term Influx of Money is Creating a Financial Bubble that Could Lead to Another Great Depression

Historian Edward Chancellor has warned that central banks have created a “bubble” in financial markets through their long-term flood of money. This bubble is now slowly deflating as interest rates rise, which poses a very risky situation for investors. Chancellor has been critical of central banks for years, arguing that their actions have led to the development of an “everything bubble” in financial markets.

Recently, central banks raised key interest rates but there was no major crash in the financial markets. The Chancellor expressed surprise at this lack of crashes, citing historical cases where manipulation of interest rates for political reasons led to disasters. Despite the recent hike in interest rates, some victims such as Silicon Valley Bank and other US regional banks have been sought. There are concerns about other heavily involved commercial real estate banks running into trouble as well as companies in different sectors facing difficulties due to higher interest rates.

Chancellor believes that interest rates will soon fall again due to high levels of global debt. The Institute of International Finance reported a record high of $307 trillion in global debt in the first half of the year. Geopolitical risks are underestimated in financial markets while investment risks are not accurately assessed due to frequent interventions by central banks during crisis times.

The impact of higher interest rates has already started inflating the erstwhile bond bubble with examples such as the 100-year Austrian government bond experiencing a significant price decline recently. Chancellor predicts bond market yields will remain high or even rise especially with inflation expected to continue. He sees opportunities for investors in inflation-protected bonds in the UK and US, as well as value stocks in Europe, UK and Japan.

In addition, Chancellor also sees opportunities for investors in emerging market stocks excluding China where the housing crisis has led to a massive deflation of the bubble despite the current financial environment he advises investors to look for potential opportunities while remaining alert to risks associated with changes underway