America! Why are we Bailing you out - The Pound undervalued
Quote from Gordon Brown speech 26 January 2009.
“Our banking systems and our national banking systems have been shown to be totally interdependent and interconnected and while the crisis started in the United States of America, its effects are worldwide. Trillions of dollars of United States securities are held by non-United States institutions. Some estimates suggest it is as much as $4 trillion that have passed from America to the rest of the world, and a large proportion of these are held by European banks. And as these assets are written down the banks’ ability to support new lending is severely reduced with real direct and severe repercussions on businesses and families.
Securitisation, which is the packaging up and selling of these assets across the markets, was meant to diversify risks across the system. Instead a mechanism to spread risk became a means of spreading contagion. And what was originally thought to be an ingenious way of bringing in non-bank investors such as pension funds became instead, as banks bought each other’s securitised assets, the source of huge interbank exposure and over-leveraging. And as the sources of funding dried up, non-bank investors have retreated to the safety of government debt.
At the same time banks facing losses on their overseas lending have increasingly retrenched to the familiarity of their home markets and the result has been a capacity gap with countries suffering from the loss of foreign and non-bank lending capacity which gave money to borrowers, whether it is businesses or home owners.
In Britain, somewhat contrary to popular perception, UK bank lending actually grew in the third quarter of last year by nearly 4%, but non-bank lending fell and overall UK lending by non-UK institutions has fallen by £100 billion since the second quarter of 2007.
So foreign banks’ lending capacity has been cut and it is in order to fill that gap that we put forward last week a programme of support for the economy with an expansion of new lending.”
But how has this US banking problem affected the British economy? Well of course it did but the hype made it so much worst than it really is. Britain is not bankrupt and in truth and it’s not really the fault of the present British government administration. The problem is US related based the now worthless securities held by British Banks. It would seem that the British tax payer is seen as many other non American tax payers bailing out America the debts of America have fallen on foreign soil. If Gordon Brown analysis is right surely America and America alone should be compensating UK banks for the loss of value of American securities. UK was doing great to the US imposed this problem on UK and the world. But what really annoys me is the Americanized media hype and its effect on the British pound.
The British pound hit its all time low and now we are seeing reports in USA that the statistics for fourth quarter see the actual decline in the gross domestic product — at a 3.8 percent annual rate — fell short of the 5 to 6 percent that most economists had expected for the fourth quarter showing that USA is not so deep in recession as hype would suggest also but why the attacks on the British economy? And why is the Dollar holding its value but the pound has lost value?.
Equally UK’s own fourth quarter figures are not that bad and certainly do not warrant such lack of interest in the British Pound. This deception will of course be short lived as the reality of actual correct statistics eventually cut through the hype
Prior to the US stock market fiasco the pound was at a very high level against the US Dollar at 1.89, it seems very strange that the within a period of three months hype it lost 28.5 % of its original value. It’s totally incredible how hype can effect the truth and the effect of political argument amidst very bad media seemingly gloating over economical failure. The British Prime Ministers idea of bailing out the banks that really placed the icing on the cake for the media and the opposing political minded.
In the past I have seen what hype can do and our main problem today is the ability of the media for political or news stringing and wringing out any and which way angles cause many problems that simply do not exist of never as bad as they are made to be.
The main point is the true depth of the present global financial problem will not present it self until the end of the first quarter of this year. However we will see a recovery slow at first as confidence builds in investment. Certainly the unemployment figures hyped at present do no really cause too much alarm especially in UK where 60% relates to normal seasonal problem at this time of year.
The one good thing about the over hype is that whilst the British pound is so low exports will rise considerably and in fact in one sense the hype is a God send to Britain’s fast recovery and I am afraid that the IMF have made a Hugh mistake on releasing such a gloomy picture concerning a financial center of the world that normally rebounds well after a fall and in this case we are talking about hype and a totally under declared currency. That at this moment should be approximately US1.60, of course currency speculators will all ready be ready to make money from that factor March and prior to the first quarter imports and exports being released these figures are of course the main judgment on currency values.
I expect that the true down side of this problem in UK will be moves to integrate UK further into EU and I would consider that UK will be introducing the Euro to take the place of the Pound in the very near future.
This present global financial problem could lead to a total l lack of confidence in the US$ and the true beginning of currencies being based on the Euro.
But a very good investment at present is defiantly the Pound as it defiantly will flatten out at US$1.60 showing UK true financial position when the first quarter’s figures hit the press.
I think that the US$1.45 mark will be the time the currency speculators will start buying the pound and sell out at the US$ 1.60. I expect the British Pound to reach at least US$1.65 by the end of April 2009.
Gordon Brown should be seeking a pay back plan from the USA’s Financial sector to compensate for the loss of value of American securities, it is ludicrous to think that we British should bailout USA without compensation.