And Over They Go?

 

1. Drew the reason the UK has not been downgraded is because we are not in the euro. Its not some bias on the part of Anglo-saxon ratings agency as the French claim. We kept the pound and didn’t adopt the Euro so the Bank of England can print money. Our debt is denominated in sterling. The French cant, their debt is in a foreign currency and the ECB (really Germany) wont oblige them and print money. The underlying reason why the French have been downgraded though is because their banks have lent huge sums to Greece and it is very likely that Greece can never pay them back.

   Not that the UK economy is much better than France as such. UK debt is far too high and the deficit is still growing. However the socialists are no longer in control so the markets think the UK will eventually get spending under control. Also the UK has a better track record with debt. Our debt is generally paid back over longer periods. Unlike the Italians, Spanish and Greeks who have to roll their debt over much shorter periods. In point of fact the UK sold some debt this week at negative rates of return. So bond holders are effectivly paying money to lend to the Bank of England.

   http://www.telegraph.co.uk/finance/economics/gilts/9006468/Investors-pay-to-lend-money-to-UK.html

   All of this was predicted by people like myself and Norman Tebbit. We were called fruit loops, closet racists and little Englanders and a few other choice epithets when we said it would end in tears. The problem is that Europe doesn’t have a single treasury. Europe is not the US where the Fed can bail out a bankrupt California. They have a choice now. The Germans can pay for ever more to keep piss pots like Greece and Portugal in the style they have become accustomed too. Or the Germans and Dutch along with Finland can form a new strong Euro. The rest can have a weaker Euro. The French of course want on the strong Euro but the Germans may decide that they don’t want these deadbeats along for the ride. Either wa its going to be very ugly. There will be (more) riots in Greece and Italy and I suspect pretty soon riots in France if the socialists get elected. I dont rate Sarkozy’s chances of re-election too high. The socialists are unlikely to cut French spending so they will be unceremoniously dumped into the slow lane.

   Interesting times ahead I think.

   Posted by LyndonB       01/14/2012  at  11:28 AM  

Commenting is not available in this weblog entry.