The biggest change in the last 17 years – the death of the “Greenspan put”

I joined MoneyWeek 17 years ago, in August 2005. The Labour government had recently won its third election in a row under Tony Blair, with hand-wringing columnists bemoaning pitiful turnout levels and general voter apathy. The oil price had just breached the $60-a-barrel mark for the first time ever. Inflation in the UK was 2.4% and the Bank of England – rattled by signs of a mild slowdown, driven in part by high oil prices – had just cut interest rates by a quarter point from 4.75% to 4.5%, a gesture which helped to inject unwelcome energy into what had been a slowing housing market. The average UK house price, according to Nationwide, was about £158,000, having doubled in just five years, and plenty of us thought that was unaffordable.

Since then, we’ve seen a global financial crisis, a slower-burning eurozone sovereign debt crisis (which is still smouldering even today), several Chinese growth scares, a global pandemic, and now a land war in Europe. No one can argue that voters are too apathetic these days – indeed, after two divisive UK referendums and one very divisive US election, political columnists in the Anglosphere mostly complain that voters are rather too engaged and that this democracy business is over-rated.

Globalisation has given way to trade wars; inflation has gone from being less of a threat than outright deflation to being economic public enemy number one; and of the Brics (Brazil, Russia, India and China) – once the world’s hottest investment destinations – only two can really be deemed investable destinations today (feel free to take your chances with Chinese stocks, but I won’t join you). About the only thing that hasn’t changed is that houses are still too expensive (we’re now paying an average £270,000 in the UK, says Nationwide, up 11% on the year).

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The biggest change

But the biggest difference between today and the financial world that prevailed right up until last summer, is this: roaring inflation means that central banks no longer see markets as their top priority. The “Greenspan put” – the assumption (named after former Federal Reserve boss Alan Greenspan) that central banks would print money or cut interest rates as soon as markets wobbled – is no more. That leaves investors at the mercy of how politicians react to rising prices and angry voters, which makes for a far more fickle environment, as a glance at a handful of this week’s topics – war, the end of empire, rationing and industrial policy – reveals.

Why the trip down memory lane? I’d like to say it’s because I’ve come up with a grand theory of finance, but in fact it’s because, I’m sad to say, this is my last editor’s letter for MoneyWeek. I’m off to pastures new but I’ll still be writing about money, so I hope this is “au revoir” rather than farewell – follow me on Twitter at @John_Stepek and on LinkedIn to keep in touch. And if you’d like to say “hello” in person, I’ll be joining Merryn at her Edinburgh Fringe show at Panmure House (once home to Adam Smith) which runs from 25 to 28 August. Book your tickets here.

Hope to see you there. And may all your investments be ten-baggers.