When one strips away the lies about central banks’ “inflation and employment” mandates and focuses on what they really do – which is to keep asset prices artificially supported and volatility suppressed – the motive behind virtually every central bank act becomes readily apparent: preserve (and increase, if possible) confidence in the market and economy, while saying anything and everything that helps achieve this, or in other words, lie but don’t get caught.
Today, thanks to the FT, we have proof of precisely this, in what may be the first recorded instance of a central bank openly lying in an attempt to preserve market stability… and getting caught.
On Tuesday, the Bank of England admitted that the UK government failed to find enough investors to fully cover its its 1914 War Loan, and was forced to turn to the central bank to help plug a deficit of more than £100m in the fundraising. However, it did so only after it lied to the public that the bond was oversubscribed:
“Despite claims it was swamped with buyers, the 1914 War Loan raised less than a third of its £350m target, attracting a very narrow set of investors, according to BoE employees writing on the Bank Underground website today.” The bloggers uncovered the cover-up by trawling through the bank’s old ledgers.
As the FT notes, “the debt yielded 4.1 per cent, well above the 2.5 per cent payable on other government debt at the time, but it still failed to attract a wide enough pool of investors.”
So why lie? For the same reason to this day central bankers around the world lie at every possibly opportunity: to preserve confidence in a fragile system, which can collapse the moment doubt spikes.
The government decided that news of a failed bond sale would have been “disastrous” to the general public, and so schemed with the Bank to plug the gap, the BoE now says. The central bank bought the outstanding securities on offer, and covered its tracks by purchasing the bonds in the name of its chief cashier, and listing them on its balance sheet as “other securities”.
Ironically, the FT which reported of the BOE’s blog finding, was instrumental in publicizing and disseminating the lie on November 23, 1914, something which many have accused the paper of doing today.
The Financial Times played its role in convincing the public that the sale was a success, publishing a segment (which appears to be an advert) claiming that the debt was oversubscribed and offering “further particulars of this magnificent investment… upon request.”
It was all a lie. This is how the BOE’s bloggers justify it:
For the Bank of England and economic policymakers more generally, this early failure led to the realisation that managing the national debt was a complex and, in war times, perhaps Herculean task. The episode marked an important step on the Bank’s transformation from private institution to a central bank. A decade after the Armistice, the altered role of the Bank prompted creation of a Parliamentary commission to examine its functions, ultimately setting it on a path to nationalisation.
Did this clear intention to mislead the public lead to any consequences? Here’s the FT’s take: “The BoE’s intervention uprooted the UK’s long-held laissez faire approach to capital, as the government prioritised the war effort over private investors. And although the hoodwink worked, the authors suggest that the failed sale prompted some soul-searching at the central bank:”
Unfortunately, over a century later, the soul-searching has led to zero tangible results, as lies in the name of preserving public confidence and avoiding “disastrous” – but true – news continue unabated, and those who dare to expose them are branded as “conspiracy theorists” and, more recently, Russian sympathizers.
As for the FT, the principal agent employed in propagating the central bank’s lies, it had this to say:
Clarification: On 23 November 1914, a piece published in the Financial Times claimed the UK government’s War Loan was “oversubscribed”, with applications “pouring in”. The item described this as an “amazing result” that “proves how strong is the financial position of the British nation”. We are now happy to make clear that none of the above was true.
Well, thanks for “coming clean.” We, for one, can’t wait to find out what current stories and narratives the FT will admit some 103 years from today that it is “happy to make clear” were lies.