Categories: finance
Tags: banks, crisis, bankrupt, money markets, government, useless
Date: 23 January 2009 19:57:06
The title is a combination of Corporal Jones, Private Frazier and the cover of The Hitchhikers Guide.
Why?
Well, on my home tonight I heard an American currency trader talking about the current state of the pound in the markets. One of the presenters asked why and was stunned by the answer. The rest of the world is concerned that we are not in the relatively good shape that our government tell us we are.
Governments borrow money by selling Treasury Bonds (Gilts) to other governments and financial institutions. So long as they find enough buyers you can sell as many as they like. To protect themselves the buyers can take out insurance against losses. A good idea, no?
A few weeks ago it would cost you $0.20 per dollar to do this. In the last few days the cost has gone up to $0.50 per dollar invested. That sounds alarming enough doesn't it? To put this into perspective....
If you bought bonds issued by Royal Bank of Scotland, our almost bankrupt bank, then you would pay $0.50 per dollar. So the professional dealers believe that our government is as big a risk as the bank that they own 70% of and are propping up to avoid it collapsing.
This is not a problem for us at the moment but if things start to get worse, or are just perceived to, then the country could become a greater laughing stock than Iceland.
Yet our government deny that they are in any sense responsible and that this is all a global problem that had nothing to do with their policies for the past 12 years. Could we see another Labour government going cap in hand to the International Monetary Fund for a bail out? Who said that history does not repeat itself?