Brexit, the election of Donald Trump and the rise of anti-establishment parties across Europe can all be traced back to the massive and unprecedented monetary policy interventions by central banks in the wake of the financial crash, according to Guy Monson, chief investment officer at UK-based asset management firm, Sarasin & Partners.
Mr Monson said the decision by the world’s four main central banks to effectively flood money markets with billions of euro of emergency cash in bid to shore up the financial system after 2008 had unintended social and political consequences that are still at play.
The massive bond-buying programmes undertaken by the central banks pushed down interest rates, which reduced the yield on bonds and assets and pushed up their prices. This process “enormously benefited” the wealthy, he said.
“So those who had pensions, who had housing or who had financial assets saw their prices hugely inflated . . . but those who did not could never get on the boat,” Mr Monson said.
Backlash against establishment
This accelerated gap in wealth unleashed a major backlash against the political establishment in Europe and the US, which can be detected in the Brexit vote, the election of Donald Trump and even the recent German and Italian elections, he said.
“Today, the top 10 per cent of wealth owners in Britain own five times as much wealth as the bottom 50 per cent,” Mr Monson said.
“In our hurry to repress volatility in financial markets and in the wider economy and to avoid deflation, we unleashed externalities. So financial repression caused political volatility.”
Mr Monson said the effect of this “unprecedented financial experiment” could now be seen in Dublin where low interest rates, low inflation and high growth were combining to cause a bubble in property-related sectors.
“The social consequences of low interest rates is the primary risk for me in global markets today,” he said.
In terms of what comes next, Mr Monson said he believed there would now be a rapid move to use the fiscal system to redistribute, noting “there’s already talk of university tuition fees being reversed in the UK, so that you begin to transfer money back from the wealthy to the young and from the old to the young”.
