The pound is on the brink

[Babbles]

Devon, I think thats the truth of it, but I wonder how the election will affect it

[Jazzer]

The truth of it is no one knows.Economists are good at analysing after the event, and anyone who claims to know what will happen is living in cloud cuckoo land.. The over used expression "We are in uncharted waters" is however apt on this occasion.There are so many events unfolding, almost by the day to make any kind of forecasting impossible eg Dubai.

[Alan Zoff]

Agreed.  Many years ago, when I had advised a client not to put all his funds with one bank, the bank manager said to me: "Surely, you don't honestly believe that this bank would ever be in a position where it might not be able to pay out all its customers......" 

Take nothing for granted. Things can change, and sometimes very quickly.

[NormanH]

I wonder what impact the problems in Greece are going to have:

http://www.lemonde.fr/opinions/article/2009/12/09/le-test-grec_1278061_3232.html#ens_id=1268560

[velcorin]

That article in Le Monde seems to be a common theme at the moment FT Deutschland/FT/The Economist........even the BBC, and they're always weeks behind[:D]

It's actually a lot worse. The Eurozone countries have been selling bonds to local banks by the shedload, and the ECB has been buying these bonds, thereby increasing liquidity and bank capital. In the UK it's called Quanative Easing, and heavily discussed. The ECB does at 10 times (dramatic licence, but it's many times) the level, and stony silence. Million dollar question is........what happens when the ECB decreases their bond purchases to prevent inflation? Will Germans pick up the slack? No. They've got no money, and the French have got even less money than the Germans. They are all deperately trying to meet the new capital requirements. So forget that, and Maastricht prevents them anyway. Contrary to views to the effect of "Bankrupt Britain" expressed by some, the Brits are the only ones with any money. However, they won't buy EUR assets at the current exchange rates.

A guess: ECB continues that policy that is not called Quantative Easing until the UK General Election. Then the world and his wife starts talking down EUR, and then HSBC/Barclays bail out the Greeks/Irish and anyone else by buying their bonds.

[Martin963]

Thank you for that very enlightening (and in some ways,  from my own selfish point of view,  cheering) well-informed post Velcorin

Although I've got one question -  why would the "healthier" Brit banks want to buy Greek and Irish bonds given the state of their economies...?

Interesting that QE is unquestioned and unchallenged on the continent.....

[velcorin]

They'll buy the debt, because of the higher returns. Current rates on Greek bonds are around 5%, provided you're a bank without any capital raising issues, that's a good return on what is still essentially a cast iron asset.

The ECB conducts it's business without any public, press or open political scrutiny. They are just continuing the historical tradition of the Bundesbank tradition of omerta. Basically, they do what they want, with no outside interference. Personally I prefer the BoE way, where Minutes are issued, Parlimentary Committees scrutinise, and the press query. The ECB just issues Statements telling the world what the ECB wants to tell it. This leads to uncertainty, in that I have to assume they are sane and predictable, and therefore I know what they will do given a particular set of circumstances. The unknowns, and therefore uncertainty, over Ireland/Greece/Latvia/etc means I have to GUESS what this means to our EUR 900million business in those countries. Trade Insurance increased? Volumes down? Prices up? More short time working at the plants in Germany? It all has to be budgetted (guessed!). Give me the BoE any day[:D]

[Martin963]

Thanks for explaining.

[allanb]

[quote user="velcorin"]They'll buy the debt, because of the higher returns. Current rates on Greek bonds are around 5%, provided you're a bank without any capital raising issues, that's a good return on what is still essentially a cast iron asset.[/quote]If a Greek government bond is a cast-iron asset, why do you suppose it has to pay a higher rate of interest to attract buyers?

[allanb]

[quote user="velcorin"]They'll buy the debt, because of the higher returns. Current rates on Greek bonds are around 5%, provided you're a bank without any capital raising issues, that's a good return on what is still essentially a cast iron asset.[/quote]If a Greek government bond is a cast-iron asset, why do you suppose it has to pay a higher rate of interest to attract buyers?

[pachapapa]

[quote user="allanb"][quote user="velcorin"]They'll buy the debt, because of the higher returns. Current rates on Greek bonds are around 5%, provided you're a bank without any capital raising issues, that's a good return on what is still essentially a cast iron asset.[/quote]If a Greek government bond is a cast-iron asset, why do you suppose it has to pay a higher rate of interest to attract buyers?
[/quote]

Para que tengan posibilidad de competir con los Bonex del Estado de Las Provincias del Rio del Plata![:P]

[suein56]

[quote user="pachapapa"]Para que tengan posibilidad de competir con los Bonex del Estado de Las Provincias del Rio del Plata![:P][/quote]

Que? [:)]

[Braco]

Great speech by Darling - to quote a post on CIF 'just like attempting to clear a twenty thousand credit card debt by giving up Mars bars’

[allanb]

[quote user="pachapapa"]

[quote user="allanb"]If a Greek government bond is a cast-iron asset, why do you suppose it has to pay a higher rate of interest to attract buyers? [/quote]Para que tengan posibilidad de competir con los Bonex del Estado de Las Provincias del Rio del Plata![/quote]All right, let me state the question with greater clarity:

If a Greek government bond is a cast-iron asset, why do you suppose it has to pay a higher rate of interest than other euro bonds to attract buyers?

By the way, you need an upside-down exclamation mark at the beginning of that.

[Jako]

[quote] user="allanb"

If a Greek government bond is a cast-iron asset, why do you suppose it has to pay a higher rate of interest than other euro bonds to attract buyers?

[/quote]

But there still are international buyers of Greek bonds, for UK gilts there is only one buyer:  The Bank of England  

[allanb]

[quote user="Jako"][quote] user="allanb"

If a Greek government bond is a cast-iron asset, why do you suppose it has to pay a higher rate of interest than other euro bonds to attract buyers?[/quote]

But there still are international buyers of Greek bonds, for UK gilts there is only one buyer:  The Bank of England

[/quote]That's not true; anyone can buy gilts.  But in any case it's irrelevant: UK gilts are in sterling.  I was referring to differences in interest rates on different governments' euro bonds.

[pachapapa]

[quote user="allanb"][quote user="pachapapa"]

[quote user="allanb"]If a Greek government bond is a cast-iron asset, why do you suppose it has to pay a higher rate of interest to attract buyers? [/quote]Para que tengan posibilidad de competir con los Bonex del Estado de Las Provincias del Rio del Plata![/quote]All right, let me state the question with greater clarity:

If a Greek government bond is a cast-iron asset, why do you suppose it has to pay a higher rate of interest than other euro bonds to attract buyers?

By the way, you need an upside-down exclamation mark at the beginning of that.

[/quote]

¡ Que !  ¿ Como ? [:D]

[Jako]

[quote user="allanb"]

That's not true; anyone can buy gilts.

[/quote]

True, but nobody is buying gilts accept for the buyer of last resort: The BoE

The BoE has 'bought' a staggering 200 Billion pounds worth of gilts with fresh 'printed' money, calling it quantitative easing. While Darling has 'only' issued 178 B pounds of gilts. As the ECB is not prepared to print money and buy Greece bonds, Greek bond rates rise as the default risk rises.

The same will soon happen to UK gilts, but at a  much more alarming rate as the BoE will try to sell its gilts, the UK government still issuing new gilts and current gilt holders dumping the stuff. In fact, the UK is already defaulting by monetising the debt.

A run on the pound is nay.

   

[velcorin]

Re Greece: I think Herr Doktor Kohlenbach articulates very well what I think http://www.bloomberg.com/apps/news?pid=20601085&sid=aSYKNVJF9qt0

UK gilts purchases are no different to any other country. The ECB cannot buy bonds from national banks, but for example France sells it's bonds to BNP/SocGen, the ECB simply buys the bonds from the bank. At the end of Novemebr purchases totally EUR 700billion.

[mint]

Hey, anyone looked at the rate today?  Blimey, I nearly fell off my chair in shock!

[Théière]

There is a simple answer for that Sweets,

I transfered a small pile to france on Monday [6]

[mint]

Poor you!  Listen, next time you are transferring money, could you let us know a bit beforehand so that we can wait for you to move first before we do?[:D]

[WJT]

Don't worry, the government won't like that so some very bad news will most probably be announced soon to combat the small improvement. [:(]

[mint]

You're right, WJT.  Not only that, they have any number of bad news items to choose from.

[Kitty]

[quote user="sweet 17"]Hey, anyone looked at the rate today?  Blimey, I nearly fell off my chair in shock![/quote]

What happened?  I didn't check the rate on the 16th.