Feedback loops factored in
Sir, Gillian Tett (March 17), claims that “accounting rules and solvency regulation” have forced insurers to match assets to liabilities. The same pressures apply to pension schemes with the combination of the Pensions Regulator implicitly urging schemes to increase their liability hedging levels at the same time as the Bank of England is also buying gilts via quantitative easing.
One would have to be blind, or perhaps the governor of the Bank of England, not to recognise that this is the equivalent of a short squeeze in the gilt market. Surely most economists — no doubt a homogenous tribe worthy of study by anthropologists — have factored this “bizarre, self-reinforcing feedback loop” into their thinking. Phil Irvine Chatham, Kent, UK