Meanwhile in the UK

It’s all going wrong very quickly:

Politics live: ‘Unprecedented’ intervention shows chancellor should ‘look again’ on mini-budget; Tory MP says currency crisis ‘will pass’

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(1) The Bank of England (UK ‘Fed Bank’ equivalent) said yesterday they do not want to have an early rate meeting or intervene in the forex market using reserves. [A]

Which is understandable and forgiveable, considering Black Wednesday (1992). The last time the BOE picked a fight with the market, they got a bloodied nose. I think too this is primarily a crisis of politics, not central banking, and it’s absolutely wrong for the BOE to be expected to bail out the brazen ‘deluge our rich friends with money’ ideology of this month’s new cabinet. [B]

Official statement: Statement from the Governor of the Bank of England | Bank of England


(2) UK Chancellor (UK ‘Secretary of the Treasury’ equivalent), when asked about the crisis, said… “No comment”. Unbelievable. I haven’t heard anything in the news from the PM either. Neither leadership nor competence has ever been so totally absent in UK politics.


(3) Bank of England said today “Won’t hesitate to raise rates”… but inaction.

Soros provides a very interesting tale in his book “Crisis of Global Capitalism” describing ‘how it looked at the time’ for Russia economic collapse, and how things got worse at first day by day, then hour by hour. To the extent that between one day and the next, perhaps ten times more money and effort would be needed to solve the problem had it just been approached forcefully the day before. Also (from memory) how it required cooperation by all partners - investors, central bank, government etc - and it was only as the crisis deepened that they were forced to cooperate promptly - but still, usually, too late, with resulting economic damage that lasted years.


(4) UK Financial Authorities are already being asked to investigate the extent to which UK senior politicians were influenced recently to produce this crisis intentionally, considering the enormous amount of UK hedge fund short positions vs the pound showed up just at the right moment, bets placed by people in very close contact (and direct financial support) of the new PM.


References/Notes:

[A] Dalio, in his (free!) book “Big Debt Crises” (another excellent read), discusses the traditional pattern by which central banks intervene in currency crises, usually too early, usually lose in the end, and usually help bankrupt the country in the process. Highly recommended. Here is a free legal download for Big Debt Crises, directly from Dalio’s site:

I would suggest putting this book near the top of your reading list if you’ve not already read it - only the first 150 pages are essential - considering the condition of the UK & EU just now


[B] It’s only been a week since this ideology emerged into the open as their popular support collapsed and the new PM began to issue policy. It’s rather like when you catch a shoplifter and escort them from the shop, and they begin grabbing other items off the shelves on the way out. That is exactly what it feels like; a desperate direct attempt to make sure these soon-to-be-unemployed politicians will have thrown as much public money onto wealthy friends (and themselves) as possible on the way out. This is absolutely unprecedented, even by the standards of the Conservative party in the past.

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Hoping this link shows successfully. From one of my UK cronies who likes to keep me up to speed (was in England just last week but left before this kerfuffle started)

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“will pass”, fantastic misinformation. An outright lie to the UK public. Rinse and repeat with another tax cut for the wealthy as soon as possible.

@leap1

What part are you referring to as ‘fantastic misinformation’ ‘an outright lie’? The newspaper headline or the comments & articles above it?

the Tory MP in the OP. That is the MO of the supply side liars. Every time a foul up happens that favors the wealthy there is a lie to do it again later.

And here is the “unprecedented intervention” by the BOE, that we can thank for the 500 point gain in the Dow today.

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Re: BOE:

It’s hilarious. They just reannounced QE as the cure for our inflationary woes.

I have non-finance friends who are emailing me today asking ‘hey lux, isn’t this just QE again?’

What’s even more hilarious is the market response.

My favourite part of the announcement is the bit where they said ‘losses incurred by the BOE taking on government debt, will be transferred to the treasury’.

So the public debt, and the losses on repurchasing that public debt at a higher & higher price than the market will bear, are now being paid for by… adding to the public debt.

Totally can’t go wrong - :smiley: - no wonder the Dow’s heading for the moon!

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Brilliant! Send the annual deficit to the moon with unpaid for tax cuts for the “JCs”, then pile up more government debt to prop up the GBP, when it starts being valued as a banana republic currency.

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They are cutting taxes to what? Improve the economy!

Or as compete dunces to give the bankers a better pay day while not knowing what the burned in effigy they are doing.

…which again can be monetized at the expense of even more debt. Yes, sounds like the perfect virtuous cycle to me.

LONDON, Sept 28 (Reuters) - The Bank of England stepped into Britain’s bond market to stem a market rout, pledging to buy around 65 billion pounds ($69 billion) of long-dated gilts after the new government’s tax cut plans triggered the biggest sell-off in decades.

Sounds just like the ECB ‚justifying‘ buying up Italian debt based on allegedly irresponsible bond markets refusing to see the light in irresponsible fiscal policies.

Then again, not even the Fed seems to be able to meaningfully reduce the bonds held on its books.

The world is going nuts.

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The world is going nuts.

I completely agree. Market & GBPEUR & GBPUSD rallied hard today.

God alone knows why.

Still, last night’s dump across Asian markets came out of nowhere too.

Anything is possible now.

It’s easy to forget bear markets are best characterised by their volatility, than by ‘going down’.

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The Beeb reported tonight that the official excuse offered by the BoE was to prop up pension funds. Meanwhile, Treasury says it will not make a “U Turn” from it’s budget proposal…well, why should it, with the BoE backstopping against the consequences of irresponsible actions, and freed from EU deficit regs by BREXIT.

Wouldn’t it be ironic, if the only thing that has kept the UK afloat all these years has been EU deficit regs, and the entire operation collapses into banana republic territory as soon as the UK is “freed” of EU regs?

Steve

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I think they are telling the truth. But (at present) I think it has little to do with ‘a bank-run style event by British savers from their pension funds’.

Since we Brits are notoriously slothful in that regard. A bank run? Nah. Even a bank jog is pushing it. I suppose we’d maybe go for a bank walk, after coming back from the pub, but that’s the limit.

See: Time to think quickly? (UK, MBS, junk bonds, gilts, panic selling, credit freeze, banks...)

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It is not that simple, depends on if the law for corporate pension funds is like the law in the US used to be like. Meaning the pension liability needed to be met before profits could be declared. Assuming there are still corporate pension funds in the UK.

In other words it is not honest about bailing out the pension funds. It is warding off a complete meltdown of corporations in the UK if the pension liabilities explode and create corporate losses. Thank you conservatives. You turned a tax cut into corporate losses.

This article from bubblevision lays it out. Apparently there are still a large number of defined benefit pension plans in the UK. In the UK, these plans can use leverage. The plans hold a lot of long term government bonds. In recent days, some of those bonds had lost as much as half of their value. With that loss of capital, the pension funds were starting to receive margin calls, forcing them to sell holdings, driving the market down farther.

Where would “supply side economics” be without unlimited financial trickery and unlimited debt?

Steve

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That all makes sense.

The bottom line the companies were/are insolvent because of the liabilities involved.

What a time to be a dunce in parliament.