Bank of England Capitulates | Learning to Protect Our Purchasing Power

On the macro front, there has been one significant development since the update I shared on the 26th of September. On September 28th, the Bank of England announced an emergency period of bond buying to stabilize soaring yields and a plummeting British Pound. Put another way, they began quantitative easing, also known as money printing.

For those who aren't clear on what this means, I hope this summary is helpful: some of the largest institutions that manage money in the UK warned the Bank of England that if they did not step in to print money and buy bonds, the bond market would collapse, as there was little to no bid. The British pension system was at risk of collapsing. The Bank of England had two choices: do nothing and let the free markets go where they naturally want to, a path that would lead to a sovereign debt default as well as massive damage to the pension system with contagion almost certainly to emerge elsewhere, or print money and buy £65 billion of glits (UK government bonds) to keep the system afloat for another while longer.

So print they did. And they continue printing every business day to support the bond market. How does this help? By buying up bonds with worthless paper money, they are essentially taking highly undesirable bonds off the hands of the largest institutions and pension funds - these large entities are then free of toxic bonds that no one else wants, and with the freshly printed money they receive from the Bank of England, they are able to buy more desirable assets like blue chip stocks, commodities, US dollars, etc.

So the biggest institutions and funds were saved by the Bank of England. How? By the BOE flooding the market with printed money backed by nothing.

Now ask yourself this: if you've been working for many years in the UK, putting in 40-50 hour work weeks to build up your savings, how do you feel about the purchasing power of your savings getting diluted by the freshly printed money that the Bank of England created to take toxic bonds out of the hands of large institutions that didn't make good choices in buying those bonds in the first place?

The institutions will be fine for the time being, as they are now holding "safer" assets like blue chip equities and USD. But this was only made possible through dilution of the savings of everyone who has British pounds in a savings account. This is what people are referring to when they say that rampant money printing is akin to overt theft of people's time. You and I have to exchange our time and labour for money that we strive to save to sustain ourselves in later years, while central banks can print more of the same money any time they decide they'd like to bail an entity out. Yes, the vast majority of us are modern day serfs living in serfdom.

The U.S. central bank continues to maintain that they won't print more money to buy bonds and will continue to raise interest rates to fight inflation.  If they continue on this path, the USD will continue to strengthen, which will put increasing pressure on everyone with debt, especially those with USD debt living outside of the United States. The UK bond market almost broke around the 27th-28th of September and the BOE was forced to capitulate with the money printer. The U.S. central bank will be forced to capitulate as well - it's purely a matter of mathematics and the need to keep debt markets solvent. And when they begin printing trillions to kick the can down the road once again, if at all possible, you want to be holding desirable assets that will rise enough to protect and even increase your purchasing power.

Those who don't have assets like high quality equities, Bitcoin, and real estate that rise in value in a money-printing environment will see further erosion of their purchasing power.  This is why the gulf between the haves and have nots continues to widen with every cycle of money printing, and why populism - dissent over the widening wealth gap - is growing stronger as we approach the end of a long term debt cycle. 

Hopefully, with increasing awareness of what money is and how central banks work, the masses will realize that the monetary system is broken, and that it's up to each of us to learn how to protect our purchasing power in the years ahead.