UK gilt market crisis
On September 23, 2022, UK Chancellor Kwasi Kwarteng announced £45 billion in unfunded tax cuts. Within days, 30-year gilt yields rose from 3.7 percent to 5.1 percent — the largest single-week move in modern UK debt-market history. The move triggered a cascade in pension funds running 'liability-driven investment' strategies that used gilts as collateral; the rapid price drop forced collateral calls that forced more selling. On September 28, the Bank of England intervened with emergency unlimited gilt purchases, reversing course on its planned quantitative tightening. Truss resigned on October 20 after 49 days as Prime Minister. The episode demonstrated how tightly the modern central bank is bound to fiscal authority, and how quickly the fiscal-monetary distinction collapses under stress.
The gilt crisis was the first major case of LDI (liability-driven investment) failing under stress. UK pension funds had been encouraged for two decades to match assets to long-dated liabilities using interest-rate swaps and gilt collateral. When yields rose sharply, collateral calls forced gilt sales, which pushed yields higher, which forced more sales. The Bank of England's intervention stopped the spiral but locked in the principle that the central bank cannot let the long end of the gilt curve trade freely — a constraint the Fed is also operating under, even if it has not been openly tested at the same scale.
07 · Stealth Printing
In November 2008, the Federal Reserve launched Quantitative Easing — the purchase of long-dated Treasury and mortgage securities with newly-created reserves. It was, mechanically, money-printing. Politically, it was called 'unconventional monetary policy.' The innovation was not the printing; central banks had been doing that for three centuries. The innovation was that the printing became invisible to most people — the new money entered the financial system through bond purchases rather than fiscal deficits, and its effects showed up in asset prices rather than in consumer goods. Alongside QE, central banks have developed a toolkit of yield-curve control, reverse repo operations, currency swap lines, and measurement adjustments to the inflation indices themselves. The era's thesis: debasement still happens; it's just harder to see.
Read the full era →- Nov 25, 2008Federal Reserve launches QE1
- Sep 21, 2011Operation Twist — maturity manipulation
- Apr 4, 2013Bank of Japan launches QQE
- Jan 29, 2016BOJ introduces Yield Curve Control
- Mar 23, 2020Fed announces 'unlimited' QE for COVID
- 1996 — 2023CPI hedonic adjustments and substitution
- 2018 — presentTurkish lira collapse — rate cuts into inflation
- 2023 — 2025Central Bank Digital Currency pilots