Never in the field of inhuman goforit have so many traders sold so much on the basis of so little.
It’s hard at first to say what convinced Mervyn King and his fellow Monetary Policy Chauvinists to spring the ‘no more QE’ news so suddenly, while using the bare-faced line ‘This is good news because it means we don’t need QE any more, hurrah!”
Either way, the market’s response was “Merv, we have not just fallen off a Christmas tree”.
However, on reflection the view here at Slogger’s Roost is that the one may have cancelled the other out: the Bank ripped up a blank cheque, and the markets saw it as a reality check.
There’s no doubt in our minds that the Fitch/S&P credit downgrade rumours got to the MPC – along with the worrying December inflation rate running at a 2.9% annualised equivalent. But at the same time, this bizarre exchange of blank ammunition has brought into very sharp relief the untenable position the UK is in.
In summary, more QE can only bring higher inflation and delayed pain. But cuts in spending can only bring the realisation that, right now, the UK private sector simply isn’t up to it.
The mendacious Lord Mandelson can call this ‘talking Britain down’ until every Vodka Palace has been dry-docked: it’s nothing of the kind: it’s talking sense.
Fascinating, I think, was the reaction of currency traders – who marked up Sterling to 1.148 to the Euro. However awful the outlook may be, even a small chink of reality is good news for those constantly sniffing for signs of sovereign default. And as not a scintilla of this reality is apparent in Brussels, they rightly felt bearish about the EU’s Toytown currency. (Reality abounds in Germany – but that’s another story).
Of course, for the overall ‘balance’ of UK outlook, a stronger Pound is in theory the last thing we need. But theory isn’t practice; and in practice, the currency exchange rate is not the problem we have in export markets. The problem there is that we have nothing they want – or simply, nothing to sell at all.
I’m in the camp that says there remains no alternative to a long, cold winter of adjustment to our new (more humble) position in the world rankings. We could make this a shorter, milder winter – by facing facts, and starting right now to restructure our economy towards high-value techno-lines and British heritage luxury goods for sale to the East. This – along with an expanded agricultural sector – would lower our food costs, and transform our balance of payments. The problem is, I don’t see so much as a glimmer of awareness of that fact among the dozy, cliché-ridden elite.
You thought bonkers was supposed to be funny, didn’t you? Well sadly, when the bonkers person sits next to you on the bus, it’s not at all amusing. And when the bonkers person is driving the bus, it’s absolutely terrifying.
Enjoy the weekend.