The world's central bankers are trapped

Five charts to start your day

After unleashing the most aggressive rate hiking campaign in a generation to combat inflation, central banks now stand at a precipice, each clutching their own monetary weapons whilst eyeing their counterparts across the globe with a mixture of hope and dread.

The US Federal Reserve is at 4.5%, the Bank of England at 4%, the ECB at 2%. Once they watched each other for signs of who would blink first. Now, the threat comes from within their own borders, from governments that have borrowed beyond redemption. The US owes $37 trillion, the UK's debt exceeds 100% of GDP, even prudent Germany is abandoning fiscal restraint. At these elevated rates, governments face crushing interest bills as their debt rolls over.

The US alone now pays over $1.1 trillion annually in debt service. Politicians who once urged rate hikes to fight inflation now demand cuts to slash their borrowing costs. The enemy isn't inflation anymore; it's the sovereign debt bomb ticking in every central bank around the world.

CHART 1 • The world's central bankers are trapped

Into this powder keg comes a chart that pretends to map the future, showing these same central banks descending in beautiful synchrony from their peaks.

Look at these smooth curves, each one gliding down like choreographed dancers: the Reserve Bank of New Zealand from 5.5%, the Fed toward 3.5%, the Bank of Canada to 2.5%, all arriving at their destinations without drama, without deviation, without acknowledging the elephant stampeding through the room.

This is the killer chart not because it shows what will happen, but because it reveals what must happen if the whole edifice isn't to collapse. These aren't forecasts; they're prayers. Prayers that every central bank will cut rates just enough to keep their governments solvent, but not so much that inflation roars back.

These are also prayers that the bond vigilantes stay dormant, that currencies don't crack, that somehow, miraculously, everyone can ease their way out of a debt trap that only tightens with each passing quarter. This is now a world where fiscal dominance has replaced monetary independence, where long-dated US Treasuries call the shots and central banks merely execute. This chart stands as both prophecy and epitaph for an era when central bankers once controlled their own destiny (which they no longer do).

Source: Christian Gerlach

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