More evidence has emerged this week that the West’s financial system is teetering on the brink of collapse, as Europeans worry that they won’t have enough affordable energy to heat their homes this winter.
During a speech in Washington, D.C., Bank of England Gov. Andrew Bailey first warned that “market volatility went beyond bank stress tests,” which is frightening in an of itself, before he reinforced that there is a “serious risk to UK financial system stability,” adding that a program to bail out pension funds is “temporary,” according to Zero Hedge.
However, Bailey then dropped a bombshell.
“My message to the funds involved and all the firms is you’ve got three days left now. You’ve got to get this done. The essence of financial stability is that it (intervention) is temporary. It’s not prolonged,” he said in a chilling warning that sent shockwaves through financial sectors around the world. “I’m afraid this has to be done, for the sake of financial stability,” he added, per the BBC.
Meanwhile, according to the Financial Times, here’s why traders are not selling more UK bonds:
Traders say the reluctance of some investors to offload larger quantities of gilts is in part a consequence of the BoE’s approach to making purchases.
The central bank has only bought gilts at close to the prevailing market level and has rejected offers it deemed too expensive. Investors may get a slightly better price by selling their bonds to the central bank rather than on the open market, but the difference is measured in small fractions of a percentage point. In return, they have to face the uncertainty of whether the BoE will actually accept their offer to sell, or potentially leave the bank holding unwanted gilts in a market where the price may have moved against them in the meantime.
“Clients don’t like the uncertainty — they say ‘you take the risk and you can charge us for it’,” one gilt trader at a big investment bank said. “You sell the bond wherever the market is — there’s no buying force coming from the BoE.”
“The way that the bank has structured this intervention is they can only buy assets if people put offers into them, but nobody is putting offers in,” noted Craig Inches, head of rates and cash at Royal London Asset Management.
But after Bailey’s comments in Washington, the sell-off began in earnest, paving the way for what many see as a collapse of gargantuan proportions in the not-too-distant future, barring a miracle of some sort, because the destructive cycle has already begun: As the global currencies plunge, the U.S. dollar becomes stronger; and as the U.S. dollar becomes stronger, the more global currencies plunge in value.
“This was coming because it has always been this way before,” ‘Big Short’ Michael Burry tweeted Monday, adding, “how anyone over the age of 40 did not see it coming is a riddle. The answer is Greed.”
The BBC noted further:
Earlier, pensions industry body the Pensions and Lifetime Savings Association had warned against the help ending “too soon”.
It suggested the support should be extended until 31 October, when Chancellor Kwasi Kwarteng is due to detail his economic plan explaining how he will balance the public finances. The statement will be accompanied by independent forecasts on the prospects for the UK economy.
“As the Bank has made clear from the outset, its temporary and targeted purchases of gilts will end on 14 October,” a Bank of England spokesperson reiterated on Wednesday, as reported by CNBC.
“The Governor confirmed this position yesterday, and it has been made absolutely clear in contact with the banks at senior levels. Beyond 14 October, a number of facilities, including the new TECRF, are in place to ease liquidity pressures on LDIs,” the BoE spokesperson added.