Analysis by Keith Rankin.
Role: Economic historian.
Keith Rankin, 1 September 2026 – There is a lot of recent material on YouTube about a coming global financial crash. The text is the bond markets in, especially, the United States and United Kingdom. Medium and long-term interest rates will soar, it is alleged; these rates are set by the market, not by central banks. The subtext is that masses of money will flow from bond-markets into already-inflated sharemarkets. And that governments – if they are not already – will become helpless, hapless, and hopeless bystanders.
Refer The Bond Market Just Broke – A Financial Crash Could Be Next, Eureka UK. This is an orthodox commentary.
4’16”: “You have two arms of the same government trying to do the opposite things at the same time. The Treasury wants borrowing costs down, because it is drowning in interest payments. The Central Bank is worried about inflation, and the standard tool for fighting inflation is high interest rates. Both cannot win.” … 13’5″: [Joseph Brusuelas] “Governments will be forced either to tighten their belts or let inflation run riot. Mortgages will get more expensive. Investment in roads, schools and hospitals will have to shrink. Taxes will have to rise. Businesses will struggle, jobs will be lost, economies will falter.” [emphases mine]
The problem is being presented as a contradiction whereby the Treasury does not want higher interest rates while the Bank of England does want higher interest rates.
The solution is presented as the elected Government [represented by Treasury] having to bow down to the unelected Central Bank. ‘You are wrong, we are right, eat that!’, the Bank might proclaim.
The problem is presented as excessive government spending raising ‘borrowing costs’. In other words, the commentators – the Eureka UK presenter is a typical commentator – resolve the contradiction without examining it. The presumption is that a non-austere Treasury cannot have what it wants, and the Central Bank must have what it wants.
The presenter ‘concludes’ that there will be a financial crash and that: “the underlying cause [is] governments spending far more than they raise”. She does not once attempt to address the real underlying cause, the verifiably false narrativeabout ‘inflation running riot’ if central banks do not manage interest rates with an upward bias.
The unexamined parts of the conundrum are those parts I have emphasised: ‘The standard tool for fighting inflation is high interest rates’ and ‘or let inflation run riot’. There is simply no evidence that fighting a general inflation with high interest rates works, or that any of the inflations in western capitalist countries this decade have been defeated by higher Bank interest rates.
The ‘standard tool’ for fighting rising prices doesn’t work; further, it seems that there is no other tool. Clearly, if there is only one tool which doesn’t work the best thing is for the would-be inflation-fighter to do nothing. So, if the Central Bank stops fighting inflation – or ‘inflation expectations’, a phenomenon which may or may not be a phantom (or a bogey) like a psychosomatic pain – with high or rising interest rates then the whole conundrum goes away.
If we resolve the contradiction by requiring the Bank of England rather than at the Treasury to change its policy direction, then the dire fiscal prognoses itemised need no longer be a matter of concern.
This is a contradiction of the commentators’ – ‘expert’ and otherwise – own making. There is too much at stake; wiser heads should be sought to contest the pedlars of austerity who transfix governments.
The above notion of ‘inflation running riot’ is a farce, and needs to be called out as such. As noted in my Context: The New Zealand Residential Property Market yesterday, New Zealand (and other countries) had record low interest rates in 2019. Far from running riot, both inflation and house prices were subdued. And in 2007/08, with interest rates at 15-year highs, in New Zealand at least, both CPI-inflation and housing-inflation were ‘running riot’.
About the writer:
Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.