Interest Rates Will Continue to Rise, Threatening The Entire Western Banking System
The comments below are an edited and abridged synopsis of an article by Alasdair Macleod
Macleod writes about why interest rates and bond yields are rising and why they will continue to do so, threatening to undermine the entire western banking system.
Rising bond yields are deferring the prospect of a central bank pivot away from fighting inflation to tackling a widely expected recession. These expectations wrongly assume that price inflation will fall in a recession, leading to lower interest rates.
History shows that monetary debasement, rising prices and a slump in business activity go together. Indeed, a slump in economic activity is almost certain, but interest rates will continue to rise, reflecting declining purchasing power for fiat currencies. There is nothing the monetary authorities can do to prevent it, and consequently a cyclical banking crisis, including both central and commercial banks, is bound to result.
Macleod points out the consequences of not understanding the true role of interest rates, the fallacies surrounding commodity price formation, and why a general glut cannot happen.
Blaming inflation on Russia or other external forces doesn’t cut it. The crisis is of our own making. Rising interest rates are the silent killer.
Up for discussion: Introduction; the truth about interest rate mismanagement; interest rates reflect time preference and monetary depreciation; the glut fallacy; the banking situation; central banks are also in a perilous state; and summary and conclusion.