UK Financial Crisis: Analysts Weigh In On ‘Calamity’
I doubt I was alone Monday in scouring the thesaurus for adjectives sufficient to convey the gravity of the crisis suddenly engulfing the UK.
The pound dove to a record to start the week, and at the lows was down some 8% in just two days. Gilts plunged across the curve. It was a total meltdown for the second straight session.
Sky News said the Bank of England was expected to make a statement. And they should. There was some risk, though, that if they failed to convey enough in the way of convi
Seems crazy for the new government to be so extreme. What is the sense in their actions? They’re undermining their own credibility. The new UK leadership is already hastening the day when they’ll be pushed out.
… a HUGE gamble, to say the least.
I just purchased a $20 bottle of sherry and a $35 bottle of bourbon (total wine prices) on Amazon uk for $35 for my parents in the UK.
When I was a kid and ERII was just coronated, a pound sterling cost $5. Now closing in on parity. Amazing! Only 2 months trade cover in FX reserves. Also amazing.
In all the fuss surrounding the UK’s current crisis I have seen no one attempt to relate their current problems to the mistake called Brexit. Maybe there’s no relationship between this decision and the country’s current troubles, but I find that hard to imagine.
Contagion? Liz Truss just made bond vigilantes globally fashionable again, by plopping them down at center court Wimbledon and letting them look like a 20-year old Roger Federer playing against, well, Liz Truss. At last count there are over 130 countries in the world with inflation rates at 6% or more, 120-ish over 7%. CB policy in this environment is like keeping up with the Jones’s when everybody is named Jones. Globally elevated sovereign debt levels must look like so much dry kindling to folks shorting bonds at this point.
empty, hailing from Germany here.
From my perspective what you mentioned above is decidedly NOT consensus.
There is definitely not a majority (or even a relevant minority) for leaving the Eurozone or even the EU itself.
Neither in parliament nor in the general public.
Except for one party, far-right AfD (translates to “Alternative for Germany”, a reference to Angela Merkels infamous phrase that saving the Euro back then was “without alternative”), who are pariahs in parliament as no other party wants to vote with them. The current ruling coalition is firmly pro-EU as well as the biggest opposition party, conservative CDU.
Regarding the (un)willingness to work/train for work there seem to be roughly the same factors at play as in the US: a sort of “great resignation” plus the unwillingness to accept low pay/ inacceptable working conditions especially in the health care sector.
What happens when foreign governments start dumping US treasuries or is that a likely scenario?
Well, if you’re talking about selling in size to defend currencies, you’re talking about China or Japan (or the Saudis I guess, but SAMA isn’t really relevant right now I don’t think). One worry is that you sell, and then you contribute to higher US yields, which then just adds to USD strength, undermining your cause. In other words, you could inadvertently end up moving rate differentials against your own currency, and thereby scoring an “own goal,” so to speak.
China’s treasury holdings fell to $980B in May — not immaterial but the lowest since 2010, and about $300B less than Japan’s current holdings.
I seem to be missing something fundamental. If the BOE is going to be selling bonds and the government will need to issue a huge volume of bonds to fund budget deficits, shouldn’t that make interest rates rise? And higher interest rates should attract capital inflows and increase the value of the GBP. But obviously that is wrong because the GBP is collapsing. Can someone explain simply why this environment is so bad for the GBP?
That’s the problem. In developed markets, the currency isn’t supposed to fall as rates rise. That’s the stuff of EMs. That’s what’s so concerning here, and it’s a testament to a complete lack of faith in Truss and a run on the pound.
H: I would enjoy hearing your thoughts on the right wing coalition that was just elected in Italy. From what I understand it won’t be surprising if Germany follows. I have been told that there are too many in Germany who don’t want to train to be skilled labor/work and those who are currently working and contributing to the social network are upset about this.
It is hard to imagine that the Euro, let alone the EU could survive this. Greece and Spain would also most likely want to have their own currency. It never seemed like a system could survive where fiscal and monetary policy/currency were controlled by different organizations.
This is what I am hearing from my German friends- but I am not sure if it is consensus or wishful thinking.
sorry for the confusion, above comment was meant as a reply to emptynester.
Typing on my phone…