Melting Down the Queen

So the news of the day (late January 2009), here, is grim.  

The image of the Queen, which graces all of the realm’s coins and bank notes, seems a bit rough for wear.  The British Pound, “Sterling” as it is known, has hit a low of $1.37 USD (at one point today $1.36 USD).  That’s the lowest it has been since 1985.  Trading at $2.00 USD just six months ago, the British Pound is worth, today, less than one Canadian Dollar.  The last time I was personal witness to a currency’s fall of this nature, it was … well … only last year, when the US Dollar took its backward slide against the Canadian Dollar.  The British Pound also closed at 1.06 Euro.  While down slightly from yesterday’s 1.07 Euro value, the Pound is up since two weeks ago when the British Pound and the Euro were at near parity.

Things could get worse.  Well, if you’re listening to the official government line, as I am, the responsible thing of the hour is not to spread panic.  So, no.  No, I’m not spreading panic.  I can’t afford to panic.  So much of life, my life is now valued in British Pounds, panic just wouldn’t be sane let alone reasonable or rational or, at the very least, responsible.  Besides, D. is my resident panic button.

Not that he need panic.  The BBC certainly led the charge, even without using the word panic as did D.  Inflation is soaring.  Joblessness isn’t just on the rise, it’s well beyond a roll.  Housing prices continue to fall, though by what measure who knows.  No one is selling.  Who could afford to, with both the value of real estate and the currency in which it is locally valued falling.  You’d be taking a double bath, like a car wash.  And, the government’s borrowing to stimulate the economy, or, to keep the banks from failing is itself failing.  Barclays, one of Britain's largest banks, lost 25% of its stock value last Friday.  Today’s reports suggest it has lost another 7 to 9% each of the last two days.  That’s not a rosy average, those numbers are to be summed.   The banks probably should lose that much stock value for propping up the ponzi scheme - I realize that it wasn’t really a ponzi scheme - in the housing market and the market for bad housing debt acquired from the States.

Anyway, as if that didn’t put too fine a point on it - the British are not dullards, you know, they can reason and read between the lines of BBC reporting - an American investor is given the news microphone to should: Bring out your dead!  Translation: dump British currency as quickly as you can.  Great news, for D.  So, where what this American investor when the US Dollar was the Canadian Dollar’s shrinking violet?  Well, he says, look at the United Kingdom.  ”You” sell only two things to the world: North Sea Oil - and that’s on the decline, expected to dry up over the next decade - and London, specifically the financial centre that London had become.  What else has the UK got to prop up the Pound?  Good question.  Don’t you think?  

Before I consider the question, I want to point out one delicious iron in his statement.  North Sea Oil … that’s Scotland.  Scotland is north of England.  And, while yes it is part of the United Kingdom, that means that it is also north of London.  41 - billion or million, I’m always losing my zeros (zeds as they’re known here) - 41 whatever Pounds of the current problem arises from bad debt acquired by the Bank of Scotland (BoS) - not the Bank of England.

You can almost here the tongues wagging here.  The UK treasury - listen to the Scottish and Welsh: translation, the Bank of England (not exactly, but close enough maybe) - the UK treasury saved the BoS (as in the moniker often given to Bruce Springsteen) by partly nationalizing it, saving it before it went under.  When that happened, you could hear the smile in the English voices stating the fact.  There goes Scotland: Scotland which had been poised to declare independence sometime this year, 2009.  And, now we own at least half of it.  Well, now - now, it seems like it was a poisoned pill, doesn’t it.

But all can’t be blamed on Scotland, particularly not when Scottish oil is keeping English (and other UK) home warm this winter.  English banks have had their share of glory as it were.  Barclays, known locally as the banker to the University of Cambridge, is an English bank for example.

Here in the UK, the government stimulus package - giving money to the banks which usually lend money to those who need it to buy, buy, buy the country out of debt - … the package didn’t work out so well.  The banks kept it on hand.  Ostensibly, they kept it because they couldn’t trust the other banks to which they would lend it on its way to being lent to the people who would hock their futures.  They might have been hanging on to it, to cover their own bad lending, to shore up their portfolios against the kind of turmoil on the stock market that we’ve witnessed over the past two days.  Anyway, we’ll soon see.  Banks, here, are required to file their reports by February.

So that question? …

So, what else has the UK got to prop up the Pound?

First, let’s consider the irony of the UK’s prop poverty.  A few weeks ago, a financial analyst for the BBC speaking to the Pounds fall against the Euro declared, I paraphrase, we haven’t got the manufacturing that those Euro countries have got.  I was listening while riding the train on my way to York from Cambridge.  The English country-side was rolling by.  It was lovely.  Verdant.  Well irrigated.  Still apparently, mostly family owned.  But, where were the factories that industrialized this country that lead the Industrial Revolution?  To be fair, the part of England that I was rolling across was marshland.  It was suitable for farming but not for industry.  To this day, the farm field sit in pans below the rivers and streams that irrigate them.  It’s not great land for heavy industry and large cities.  Still, if the comment on the whole were true, what a sad statement on the history of the nation that it could have come so far and now be left so far behind.

The British will tell you that they’ve got quite a bit more.  Grocery stores in the States are stocked with designer jams and jellies for example: all British.  I am what I eat, so the only examples that I have are foods.  There’s shortbread too.  Yummy.  But, I’m sure that other stellar goods populate the stock of other areas of the economy.  Insurance, for example.  Lloyds of London.  Gee, I hope that the insurance business isn’t too closely linked in with the Lloyds group.  Like City Bank in the States, it did its civic duty earlier by buying up the assets of one of the troubled banks.  Good idea, keep what was good, get rid of what was toxic.  Too bad no one is buying anything: good or toxic.  And, with eyes open, I don’t imagine that anyone would buy anything toxic now.  Any wonder that the British government is now talking about buying up all of those toxic assets and creating a bad bank.  I understand that’s an idea they’re thinking about back in the States too.  The British, ever mindful that they could as easily be a State of Europe, however, have something to prove.  So, they’re a bit further along on the idea.  But, think of it for a moment: you are what you eat.

As the British say: BRILLIANT.  Bril-li-ant!  So you have been hiding from the world the fact that you’ve borrowed twice your weight in gold, er, sterling.  Brilliant!  Marvellous, indeed.  Do you really, now, want to form any association that may allow the world that holds your debt to equate your currency with toxic money?  Heavens, you might allow the world’s powers to presume that you are a lesser ape, in need of the spoils of their protection.  And, there rests the obvious answer to the American investor’s question.

Britain might take a page from its own history.  It might “turn the page”, as they say.  Britain, the former colonial master, might become the colony as a means of paying its debt.  China could send its war ships up the Thames.  It might even set up opium dens in the heart of London as a means of pacifying the people.   The Gulf states, who’s practice of slavery was ended by the British, could raid Birmingham and Manchester for human capital.  Of course, this may not be such the plumb I think it to be.  China is already sending its war ships up the Thames and unloading its equivalent of opium dens: large screen TVs, DAB clock-radios, cell phones, even lowly bathroom tissue holders.  And, the Gulf states are already exporting human capital, mostly to their gleaming new cities in the sun: state of the art, mushroom universities and banking with a human touch or, at least, Islamic banking strictures.

Britain has what colonized nations have always given: land and people.  Of course, with plenty of verdant farmland, it could become a Leak and Potato Republic.

Please realize, that a good bit of the above was Tongue in Cheek.    ”TiC - TiC - TiC” as the French say.  Of course, they say that to express their disapproval.  But, Tongue in Cheek, none the less.

When D. was panicking today - and we set out to move our money around, I noted that the Icelanders were now insolvent after similar events, but that they were still alive.  What I didn’t tell D. was that they’re still alive and rioting in Reykjavik.