How Central Banks Could Benefit from a ‘Protectionist Driven’ Global Downturn

From observing the behaviour of ‘leavers‘ and ‘remainers‘ since the EU referendum in 2016, I have seen first hand how partisanship works as an effective tool to cloud judgement. Once a position of bias becomes ingrained, it has proved next to impossible to see beyond it or for the individual concerned to be convinced of an alternative perspective.

The psychological operation of ‘fake news‘ is now entrenched within society, with both sides of the divide claiming one another to be peddlers of false truths. By my reckoning this is all the more reason why positioning yourself as neither one thing or the other is the only logical way in which facts can be objectively scrutinised.

The role of the Bank of England in the Brexit process is an example of how bias is serving to insulate central banks from impartial and informed criticism. On one side are those who depict governor Mark Carney as an ‘enemy‘ of Brexit, whilst on the other are people who consider Carney as a safe pair of hands amidst a whirlwind of political turmoil. Non-partisan analysis of communications and policy decisions emanating from the BOE is rarely given space to evolve.

For instance, last week the bank published its latest Financial Stability Report in conjunction with a press conference delivered by Mark Carney. Whilst much of his interaction with the press on Brexit was of a similar theme to previous events, one aspect in particular stood out.

Asked by Joel Hills of ITV News about the level of preparation in the event of a no deal Brexit, Carney affirmed that the financial system in which the BOE presides over was ‘ready for whatever form Brexit takes.’ Carney’s conviction stems from a series of bank stress tests that the BOE conducted in 2018 in an attempt to gauge how the financial system would stand up to a crisis greater than 2008. The results as published by the BOE showed that the UK’s banking system was fully prepared.

Indeed, Carney’s confidence was such that he went on to say how the system would continue serving both households and businesses, ‘even if a worst case disorderly Brexit occurred at the same time as a global slowdown triggered by a trade war.’

Where it started to get more interesting is when Carney made an unequivocal distinction between financial stability and that of market and economic stability. The area where the BOE possess overarching control – the financial system – is, according to the bank, prepared for any adverse scenario. But this preparation does not extended to currency or equity markets, nor economic fundamentals such as inflation which would likely become volatile should supply chains into and out of the UK be compromised.

To quote Carney exactly, ‘market stability will adjust potentially quite substantially if there is a no deal Brexit. Even with a smooth adjustment this would still be a major economic adjustment and major economic shock – in not just a short period of time but virtually instantaneously.’

The expectation from the BOE is for immediate volatility if and when a no deal exit is confirmed. Not from within the financial system itself, but within the surrounding economic environment. The areas which the bank purport not to have direct jurisdiction over. Those who keep abreast of Brexit led developments will know that the pound would be most susceptible to a dysfunctional exit from the EU.

According to Carney, the preparedness of the UK system, which encompasses the country’s trade infrastructure, had seen ‘some progress‘, but ultimately it was for ‘the government to speak directly to that‘ and not the Bank of England.

Gradually over the last three years, the BOE have been carefully positioning themselves so as not to be held culpable for the economic ramifications of a ‘disorderly‘ Brexit. One mechanism for achieving this has been to re-elevate the importance of their 2% mandate for inflation, when in the years post 2008 it had no direct relevance for how the bank conducted monetary policy.

What we learn from Carney is that a no deal eventuality is a more pressing concern for markets and the economy than it is for the financial sector. Is this true? To a point perhaps, but not entirely as the Financial Stability Report alludes to.

An area of concern that has gestated since the referendum result is with uncleared OTC (Over the Counter) derivative contracts. Derivatives are essentially a contract between two or more parties that derive their value from the performance of an underlying asset, such as a commodity, currency or interest rate. Banks use a high degree of leverage to attain these positions in the market. Derivatives can also be used to speculate (bet) on the future value of assets, without the need to own the asset outright.

When it comes to uncleared contracts between the UK and EU, the Financial Policy Committee specifies these as a medium risk should Britain depart with no withdrawal agreement. As for the scale of contracts affected, the report is forthright. Note that the term ‘lifecycle events‘ includes actions such as settlement, modification and termination of derivative contracts.

Certain ‘lifecycle’ events will not be able to be performed on cross-border derivative contracts after Brexit. This could affect £23 trillion of uncleared derivatives contracts between the EU and UK, of which £16 trillion matures after October 2019. This could compromise the ability of derivatives users to manage risks, and could therefore amplify any stress around the UK’s exit from the EU.

This concern is what Mark Carney refers to as a potential ‘spillover‘. In their communications the Bank of England have routinely called for EU regulators to implement measures to mitigate the risks of a no deal exit. This is something that The European Banking Federation  and The European Banking Authority have also been encouraging.

As well as this, the report states that for derivatives, the government has ‘legislated to ensure that EU banks can continue to perform lifecycle events on contracts they have with UK businesses.’

A possible spillover, however, stems from how The European Commission ‘does not intend to reciprocate for UK-based banks’ contracts with EU businesses.’ In particular, ‘uncertainty remains about the scope of current or proposed legislation in jurisdictions which account for approximately half of the notional value of outstanding contracts.’

A safe assumption is that potential economic fallout from derivatives would impact on financial stability. On the home front the Bank of England’s position is that markets and the economy would suffer from a volatile form of Brexit, but the financial system would remain fully functional and be able to withstand unprecedented stress. The validity of this claim could only be tested if a no deal exit comes to pass.

The caveat here is spillovers originating outside of the UK, which three months before the intended exit date of October 31st remain unresolved. Because the global economic system is interconnected, a banking crisis in one part of the world has the capacity to infect the system as a whole. This was evident over a decade ago when Lehman Brothers was sacrificed.

Derivatives, along with other financial instruments, are an inherent weakness built into the system. But instead of automatically interpreting such weaknesses as a threat to central bank autonomy, it is feasible that they present an opportunity for further far-reaching ‘reforms‘ to the financial system.

To globalists, crises open the gateway for establishing broad consensus for major economic change. Because out of chaos invariably comes consolidation of resources.

The question is, how could substantial financial instability be of benefit to the Bank of England? After the initial phase of the 2008 crisis had played out, the Bank for International Settlements put into motion new regulatory standards called ‘Basel III‘. Conceived on the global stage, the new regulations were designed to be implemented by national jurisdictions over a gradual period of time. Many of the standards are now in place, but the full roll out is not due to be completed until around 2021.

One of the aims of the FPC, as expressed in the Financial Stability Report, is to ‘ensure that systemically important payment systems support financial stability.’ This resonated with me because as I have touched on in previous articles, the Bank of England is targeting the year 2025 for the wholesale reform of the RTGS payments system in the UK. A reformed RTGS would have the capability of connecting to distributed ledger technology (DLT). As explained elsewhere, blockchain is a form of DLT, and works in conjunction with cryprocurrencies such as Bitcoin.

Changes on this scale would represent a major overhaul of the UK’s financial system, and would conveniently coincide with the BIS 2025 initiative. This initiative, as outlined by the BIS, will ‘foster international collaboration on innovative financial technology within the central banking community‘.

Based on the documentation I have read from the BIS, the IMF and the BOE, the introduction of central bank digital currencies (CBDC’s) is very much part of the drive for ‘innovative financial technology.’

The prospect of central banks issuing their own form of digital currencies in the future is, according to BIS general manager Agustin Carstens, something that might come sooner than people realise:

Many central banks are working on it; we are working on it, supporting them. And it might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies.

Whereas attention is directed to the short term actions of central banks, longer term plans provide a clearer perspective on the direction that global institutions want to take the financial system in the medium to longer term. It appears that globalists are targeting the period between 2025 and 2030 as the time when digital currencies would start to be implemented, resulting in the eventual abolition of physical money.

The concerted attention placed on CBDC’s comes as sterling remains highly sensitive to the Brexit process. I continue to think it is probable that a no deal exit will trigger a currency crisis. And given that currency markets have no borders, the danger is that a global trade conflict stemming from Brexit and the trade policies of the Trump administration would jeopardise the fiat currency system. This is a topic I discussed earlier this year when looking at the possibility of sterling no longer being considered a reserve currency post Brexit.

A crisis of this magnitude could quite easily be used by central banks as a rationale for a new approach to how currencies are disseminated and controlled.

Back in the present, the conventional theory pushed throughout alternative media is that protectionism is something that central banks and international institutions like the BIS and the IMF fear. On examination, I am doubtful of this claim. The FPC’s report makes it clear that even in the event of a ‘protectionist-driven slowdown‘ running in parallel to a no deal Brexit, the financial system would ‘absorb, rather than amplify, the resulting economic shocks.’ It remains to be seen whether this rhetoric bares any semblance to reality.

My concern is that rather than fear the breakdown of what globalists call the ‘rules based global order‘, it is in actuality an essential variable for orchestrating reforms of the system.


  1. The whole Brexit event has come to display how light on their feet the globalists really are, but considering they are sitting in the board rooms with all the levers of control at their disposal is it any small wonder? I give them credit for their ability to coordinate and use the vast structure that comprises the financial sector, that runs the gambit from consumer loans to derivatives, some based in synthetics, the markets where price discovery – supply and demand have largely given way to algorithms and pools of digits and to trade between jurisdictions and the jumble that is foreign exchange, with each of these sectors having its influence within the other. We must surmise that these folks (monsters) would not leave too much to chance and that the computations must be immense!.

    It seems that after each Hegelian dialectic interval the solution phase consists of a consolidation of the gains made through what was formerly a ‘solution’ that then came to be seen as ‘the problem.’ At least with Guinness we get some idea and view of coming future structures which if we care to admit it could be seen as financial coattails to ride if we should decide to acquiesce or points of contention to pursue…

    What or when pray tell will the people ever propose during the reaction phase a solution that actually corrects the private ownership of the creation of capital, not for the betterment of humanity’s experience but for even tighter control mechanisms over a human plantation. The only other unspoken goal for the globalists being the attainment for themselves of God like status via trans humanism.


    • Steven,
      It will not be long now before Powell confirms the rate cut at the end of the month that in previous post replies to me you refuse to believe will ever happen as part of some sort of conspiracy to destroy the worlds economic system, but let’s just wait and see on that one. Mark Carney is another central banker you have completely misread, one of the roles of the Bank of England is as I quote from their website:

      “Take action, where necessary, to mitigate financial stability risks from very high levels of private sector debt, which can make the system less resilient and economic growth more fragile.”

      What a joke! With both consumer and corporate levels of debt at record highs means central banks can NEVER raise rates or face the implosion of the worlds economic and banking systems. Central banks have overseen the inflation of successive bubbles in consumer, corporate and bond market debt and speculation and are now trapped by their own stupidity and arrogance, remember Bernanke’s answer to the question that central bankers were merely monetising government debt? He said no and that the policy could be reversed in fifteen minutes!!!

      I believe that one of the mandates of the Bank of England is to also preserve the value of the currency, so if a hard/no deal BREXIT were to occur how would his statement the other day that following a hard/no deal BREXIT the Bank would cut rates be reconciled?Quite simply as inflation rises to double digit levels and stays there, he and his successor will do absolutely nothing and say it is only “temporary” or they do not want to kill the “economic recovery” too soon. Lord King did the same after the GFC when inflation went to 5.3% and nobody said or did anything, so why would they next time?

      Quite simply, the Bank of England has like other central banks actively created bubble after bubble to form on their watch and then cut interest rates and intervened in bond markets to maintain these bubbles to the point where economics has been turned on its head and has led to the “tail now wagging the dog” in that the stockmarket and the housing market are leading economic growth as opposed to the historic norm of economic growth leading to higher company profits and share prices and hence wage growth and house price appreciation.

      The UK is never going to be allowed to leave the EU as we probably both agree on, the “globalists”(shall we call them that?!) are now in the process of removing Corbyn with a hysterical “anti semitic” campaign based on nothing but media lies and spin as the back up plan to cover all the bases at the next general election to ensure the UK never leaves and that I believe Labour will win outright, in the event they only win by an unworkable majority, they will form a Pro EU alliance with the Pro EU/RemainLib-Dems thus ensuring we never leave, the ultimate collapse of sterling following which ensures the adopting of the Euro and ensures we never ever attempt to leave again as we will be economically hobbled just like Greece.

      Farage and the BREXIT party are never going to get enough seats to block BREXIT even with a potential alliance with what is left of the Tory party after the next election, Labour and the Lib-Dems will I believe form the next government and lead us like lambs to the slaughter.


      • Hi Kevin,

        Good to hear from you again.

        In my replies to you I have never once stated that it was my belief the Fed would never cut rates. I consider it unlikely to happen this month, and indeed before an economic crisis is recognised within the mainstream. What I have said is that if they do cut rates, which is possible, I don’t believe it would be a sign of what is to come. A rate cut could help to spur inflation and set the Fed up for nullifying any reduction in rates fairly quickly. We saw this in the UK after the EU referendum. The Bank of England cut and implemented more QE, but just over a year later with inflation at 3% they raised rates. Something which no mainstream analyst thought they would do months before hand. I predicted the BOE would raise rates back in June 2017, five months before the event.

        I’d be interested to know what your perspective was back in 2017, and whether you thought the BOE’s talk of raising rates was just rhetoric?

        As for your assertion that I have ‘misread’ Mark Carney, again I’m open to the possibility. What my analysis seeks to do is quote the man directly and form an interpretation. For every comment you can find where he has intimated that rates would be cut after a no deal Brexit, I can find you one where he said the exact opposite. The one thing his words have in common on this subject is that decisions on rates will be predicated on inflation.

        What’s interesting here is that the outbreak of populist / nationalist narratives became a permanent fixture within the mainstream through the vehicles of Brexit and Trump. As I have written about previously, this provides plenty of cover for central banks to set about instigating an economic downturn. What you seem to be overlooking is that central banks are not in the business of preserving economic bubbles. When the bubble burst in 2008, the banks did indeed cut rates and pile in with stimulus. But ask yourself why, if their intention was to forever maintain the bubble that has grown since 2008, the likes of the Fed even bothered to raise rates 8 times since Trump’s election victory and cut their balance sheet by over $600 billion? Why did the Bank of England reverse the rate cut of August 2016 just 15 months later, and then raise rates a second time in 2018? One answer is that with the rise of populism came a sudden resurgence in the importance of inflation targeting. I don’t believe that to be a coincidence.

        I’m intrigued to know why you continue to promote the fallacy that central banks can never raise rates when that is exactly what the Fed and the BOE have been doing.

        The facts are that monetary tightening has directly coincided with the rise of populism. It’s a perfect cover to implode what some have termed the ‘everything’ bubble, and to blame the ensuing chaos on renewed nationalist tendencies. You might consider this far fetched, but I wouldn’t dismiss it out of hand.

        I entirely disagree with you that the UK will never be allowed to leave the EU. My articles over the years have argued why Britain leaving the EU is beneficial to globalists. Without inducing crisis scenarios, they have no other mechanisms for attempting to further centralise economic powers.

        You mentioned how you believe an EU alliance will form after the next election, which would ensure the UK never leaves the EU, and a subsequent collapse of sterling would mean adoption of the Euro and ensure the UK never tried to leave the EU again. I have to ask, why would sterling collapse if we never left the EU and a no deal Brexit never happened?

        Future adoption of the Euro might be possible as part of a plan to assimilate currencies into a global framework. But I don’t see that occurring without the trigger of leaving the EU in a no deal scenario. We might well end up back in the union with the Euro. But in my estimation globalists have no hope of engineering a situation where first we never leave, and secondly we adopt the Euro as our currency. That is nonsensical. They would need a chaotic exit and subsequent economic pain in order to convince the masses that leaving was a terrible idea. A leftist government at that point could put forward a mandate for re-entry, and if people were suffering economically they would probably be more minded to support it.


  2. Hi Steven

    I am very much with you. Your analysis is just excellent.

    I have the following input/questions:

    1) Rate Cut Fed – I was sharing so far your view that the Fed will not cut rates on the 31 July meeting. The problem is, as Wolf Street points out, somebody needs to ‘walk the markets back’ as CME probabilities still show a 0% probability for no cut. Still, this is entirely possible in the remaining 14 days. But there is no room to delay this further. Just 4 dates left where economic data in the US is to be released of category ‘major impact’. If the Fed would indeed not cut on a 0% ‘market expectation’, I guess this would be quite a shock for the markets.

    2) Reading the BIS Papers ‘Central bank digital currencies’ as well as ‘Big tech in finance: opportunities and risks’, there is no question that BIS is working on and promoting both. The latter document is almost a doxology of Big Tech’s entry into finance, with the only concern they have that the field must be properly regulated by them. So the question that evolves out of this is of course, how will CBDC’s and Big Tech currencies coexist? In 2020 FB Libra will enter the market, which will be a gigantic market disruption. How will this all play out.

    3) There is much talk about Basel iii, especially about the position of Gold.
    Gold is assigned a 85% RSF factor. This does not sound much Gold friendly.
    On another paragraph it says: ‘A 0% risk weight will apply to (i) cash owned and held at the bank or in transit; and (ii) gold bullion held at the bank or held in another bank on an allocated basis, to the extent the gold bullion assets are backed by gold bullion liabilities.’
    This does not make any sense. A 0% risk weight could also be applied to a nuclear waste ‘asset’ position, if that position would be funded with a nuclear waste liability.
    Whats your take on Basel iii and Gold?

    Thank you very much Steven.


    • Thank you for your kind words John.

      My feeling remains that the Fed will keep rates on hold come the end of July. As for managing market expectations, upcoming economic data (manipulated or otherwise) might do the job for them. A better than expected GDP reading for example could dial back hopes for a rate cut, which was the initial reaction when the last jobs report was released. The Fed themselves continue to talk of a ‘strong’ U.S. economy, and have made no reference to an impending downturn. Therefore, to cut rates now would run completely contrary to their current assessment of the economy.

      If they do cut rates, I’ll be interested to see how they justify it and also if they continue to put full weight behind their 2% inflation mandate. We’ll see what happens.

      As for Facebook’s Libra, like Bitcoin I imagine it will be used as a test bed for what central banks hope will be the implementation of digital currencies. It’s intriguing timing for it to launch in 2020 – possibly in the wake of a no deal Brexit and an escalation of the trade conflict between America and China.

      I’ve written previously about Basel III. I won’t profess to have a technical working knowledge of it, but the papers I have read courtesy of the BIS have stressed repeatedly how they consider it essential that its full implementation is delayed no longer. In researching Basel III I found out that Basel II was in the process of being fully implemented when Lehman Brothers collapsed. The resulting global economic crisis meant that it was ultimately abandoned for more far reaching reforms, which we know as Basel III. I suspect that Basel III will also never be fully implemented before a new crisis enters the mainstream. That could pave the way for Basel IV for globalists to acquire a further stranglehold over the financial system. Might even more advanced regulations begin to factor in the use of digital currencies? Worth keeping a close eye on.


  3. Awesome post Steve!

    I agree that they will not make any rate cuts in July because they need to save all the gun powder for this fall so they can secure Trump’s reelection a year later.

    Once Trump has secured the office the whole system will be nudged over the edge with the same climactic propulsion for change in the fall of 2021 as 9/11 gave “the powers that be” in the fall of 2001.

    What most do not understand is who is governing this whole process from the top down and why:

    Revelation 13:16-17 And he causeth all, the small and the great, and the rich and the poor, and the free and the bond, that there be given them a mark on their right hand, or upon their forehead; (17) and that no man should be able to buy or to sell, save he that hath the mark, even the name of the beast or the number of his name.

    This mark is an allegiance of the mind and hand to prove who will walk in the “mystery of lawlessness” from those who will not:


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