Tuesday, November 25, 2008

Is Britain Going Bankrupt?

Another ridiculous article by a journalist who doesn't understand floating exchange rates and the difference between currency issuing nations that spend by crediting bank accounts (and Britain is one). There can never be a payments crisis or bankruptcy.

If this guy Ambrose Evans-Pritchard wanted to write about such a possibility he should focus on Germany or any nation within the Eurozone. These countries are no longer currency issuers and are completely constrained by the total amount of savings of their citizens and the nations' ability to borrow. They can go bankrupt. Britain, U.S. Japan, etc. can't!


googleheim said...

All I need to know is if the dollar will weaken against the quid ?

Sure the dollar will shore up due to the US FED being NICE to foreign banks by preventign a SPIKED U$D which would create a run on the dollar and further SPIKE IT

BUT I need to know if we'll see
1 GBP = 1.35 USD

Mike Norman said...

I'd be a buyer of the british pound now.

googleheim said...

UK Central Bank will reduce interest rates in December by up to 2 basis points.

The currency will weaken as a result, but relative to the US
the action will be dependent upon if the US economy looks to be OK, better or much worse.

Maybe the current rate will hold steady. Good time to hedge and switch back as more news comes.

Mike Norman said...

The Fed can sell an unlimited quantity of dollars and has entered into unlimited swap arrangements with the Bank of England and other major central banks. I don't see how the dollar rises against the pound given this arrangement.

googleheim said...

here is what i saw from recent history :

price oil fell a notch
dollar got stronger
quid got weaker

price of oil fell more
dollar stronger against quid again

us fed lower %
quid tugs a bit stronger from last
but not enough to gain back ground

uk fed lower %
dollar tugs a bit stronger from last but not enough to really spike

etc etc

if we are at the end of cards for us currency holdings, then we'll teeter here until UK fed is finished lowered rates ( maybe February? ) and then and only
then can the quid rise

a quid rise would mean oil rise
oil rise would mean quid/euro rise

there is too much momentum for green energy, and so if OPEC really wants to snuff the green for now, then they would have to allow a lower bottom for oil and keep it around $50 to $70

if oil gets back to $70 then quid would be around 1 GBP = $1.75 U$D maximum.

currencies have been entangled by price of oil, so really we have been inversely corelated to an oil standard of monetization more than gold regular.