Historian Edward Chancellor has been warning for years that the long-term flood of money injected by central banks into financial markets has created a bubble in all investments. He calls it an “everything bubble” that is slowly deflating due to rising interest rates, posing high risks. Despite recent increases in key interest rates by central banks, a major crash in the financial markets has not yet occurred, but Chancellor predicts further economic and financial turbulence if the effects of higher interest rates persist.
Chancellor attributes this bubble to the ultra-low to negative interest rates set by central banks, which he believes have led to crises and catastrophes historically. However, he notes that there is still room for interest rates to rise before reaching historical norms, given their recent exceptionally low levels, with some places having had negative interest rates not long ago. The consequences of higher interest rates are already being felt in sectors like real estate and banking.
The global debt has reached record levels, raising concerns about countries’ ability to service their debts if interest rates continue to rise. Chancellor predicts that governments will push for lower interest rates to ease the burden of their high debts. Geopolitical risks are also being underestimated in the current market environment, adding to the complexity of the situation.
Despite recent market fluctuations, Chancellor sees opportunities for investors in areas such as inflation-linked bonds, value stocks, and emerging markets. He emphasizes monitoring interest rates and understanding their impact on various asset classes in the current market landscape. The bursting of the former bond bubble exemplified by sharp decline in some long-term bonds signals changing market environment with inflation expected to continue rising prompting shifts in investment strategies.
In summary, historian Edward Chancellor warns about a potential crisis caused by rising interest rates and continued global debt accumulation while emphasizing opportunities for investors who can navigate the complex market landscape effectively.
