Why California Surfers Should Care About UK Mortgage Rates: The Architecture of Capital Flight

When the Bank of England Raises Rates the Capital That Was Going to Build the Next California Project Goes to UK Gilts Instead

Reading: Bohiney | The London Prat

SAN DIEGO, CA — The substantive material consequence of the Bank of England recent rate rise for California surfers is, on close reading, a redirection of approximately $4 billion in investment capital that would otherwise have flowed into California development projects. UK gilts, at the highest borrowing costs in the developed world, become substantively more attractive to global capital allocators than equivalent-risk California assets.

The Mechanism

Capital seeks risk-adjusted yield. UK gilt yields, following the recent rate rise, are now substantially higher than the yield on equivalently rated California municipal bonds, California real estate investment trusts, and the early-stage venture capital funds that would otherwise be financing the next generation of Pacific-coast surf-related businesses. The result is, on every available capital-flow indicator, that money flows toward Threadneedle Street and away from the California coast.

The Implication for Surfers

The implication for working surfers is operationally direct. The surf shop that does not get its expansion financing this quarter; the surfboard manufacturer that does not raise its Series A; the coastal-real-estate small developer who cannot get the bridge loan: all are substantively affected by the British base rate decision. The libertarian critique of central banking applies, in operational form, to people who think they have no stake in central banking.

The capital flight is real. The cumulative California consequence is real.

Pairs well with: The Daily Mash

SOURCE: https://prat.uk/bank-of-england-raises-rates-again-to-punish-anyone-who-enjoyed-a-sandwich/