The Bold Lady
The Bank of England threw herself into financial markets in spectacular scenes this week. Yields on long-dated gilts, British government bonds, had shot up, and margin calls threatened to bring the country’s pension industry to its knees.
To extinguish the blaze, the bank said it would buy as many bonds as needed to sedate markets and lead an orderly transition to lower prices. The Investment Association, a club of British fund managers, reckons that £1.6trn of the country’s £2.5trn defined benefit pension assets were at risk should the bank not have acted.
Many questioned the move. Some pundits see it as socialism for the rich, bailing out bankers who got too greedy. Others interpreted these events as evidence of a financial system hopelessly addicted to easy money. While some armchair economists, like me, enjoy the drama and romanticise collapse.
These points miss the mark for three reasons: First, a central bank’s primary job is to ensure the smooth functioning of the financial system…