RE: palantier buying 50 million gold bars!!!!! you know what coming....18 Aug 2021 22:42
I know you guy are talking about the fed raising rates, but I came across this today and thought I’d share
Crispin Odey, the hedge fund manager, has said that the Bank of England will “never” put up interest rates despite a warning that post-Covid inflation will soar to 10-year highs in the coming months.
Mr Odey said that because of the way the Bank of England had borrowed, raising interest rates would hit its own finances.
He said: “The heart of the story is that the Bank of England has issued deposits, essentially, in order to buy the long end of the bond market.
“So the Government has a very short duration book. Their borrowings are very, very linked - like the whole of the country - to interest rates. Which tells you they are never going to put up interest rates. [And] because they are never going to put up interest rates, they have to hope and hope that inflation is only temporary.”
I think the word “Government” in the last paragraph is supposed to say “Bank of England” instead. And I think “short duration” is supposed to say “long duration,” because they’ve bought a lot of bonds with many years to maturity.
If I’ve got it right, here’s what all of the above really means…
The central bank has bought a load of government bonds. If those bonds fall in value, the Bank of England’s assets would be worth less. It would make a loss, if it chose to recognise the market price of the assets it holds instead of pretending that they’re worth a lot.
The value of bonds depends largely on interest rates and inflation. But the central bank only has direct control of interest rates. Bond prices are the inverse of interest rates. In plain English, this means that if the Bank of England raises interest rates, the value of its bonds would fall. This would trigger the losses that I just mentioned.
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