Historian Edward Chancellor warns that central banks have created a bubble in all financial investments with their long-term flood of money. This “everything bubble” is slowly deflating as interest rates rise, posing significant risks. Chancellor, a renowned British economic historian and author, has been sounding the alarm about this bubble for years, pointing out that ultra-low to negative interest rates have inflated the financial markets.
Despite recent interest rate hikes by central banks, a major crash in the financial markets has yet to occur. Chancellor acknowledges his surprise at the lack of significant accidents in the financial system in recent months. He emphasizes the historical consequences of interest rate manipulation leading to crises and catastrophes, urging caution in the current economic climate.
Chancellor notes that while interest rates are not historically high, the recent increase has come from exceptionally low levels. The risks of higher interest rates are apparent in various sectors, such as regional banks and heavily indebted companies like Thames Water in the UK. He warns that further interest rate hikes could lead to more banks and companies facing financial difficulties.
Geopolitical risks are also being overlooked in the financial markets, according to Chancellor, who highlights the importance of properly assessing investment risks. Despite the current complacency in the markets, he stresses the need for a more nuanced understanding of the potential consequences of rising interest rates and a shifting economic landscape.
Chancellor predicts that interest rates may fall again soon, given the high global debt levels and the challenges many countries face in financing such debts. He also expects inflation to continue rising, posing additional challenges for investors and the financial system as a whole. Despite these risks, Chancellor sees opportunities in certain areas of the bond market and value stocks from specific regions like Europe, the UK, and Japan.