UK

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Primer: Basics Of A Swap Meltdown

Published by Anonymous (not verified) on Fri, 30/09/2022 - 11:31pm in

Tags 

UK

I am now seeing more attempts to dig into what exactly happened in the United Kingdom interest rate market. In this article, I am not attempting to do that. Instead, I am just giving a primer on how interest rate swaps are used to hedge liabilities, and what can go wrong when interest rates rise. The mechanisms I describe were likely part of the issue, but I am not saying that this is “the” explanation. Since most people are unsure what liability-driven investment and swaps are, so I am hoping to cover big picture issues for those readers.

I am no longer directly involved in markets, and I certainly I have no expertise in the overhaul of derivatives plumbing that happened after the Financial Crisis. But based on my experience in the Financial Crisis and what I have heard about the LTCM crisis, I urge caution with respect to explanations of financial crises. Unless there is a comprehensive inquest by the authorities, even the most detailed journalistic investigation is likely to be a partial explanation. During a financial crisis, all the dead bodies come to the surface, and everything is going wrong at the same time. Meanwhile, experts in particular areas love to over-emphasise their area of expertise. (I had a lot of contact with swap strategies, so that is my beat, but I will repeat — interest rate swap issues might not explain everything.)

Since people often do not read to the end of articles, I will summarise my guess of what has happened: the mark-to-market losses on interest rate swaps would create margin calls and a need to post collateral. The swaps would not be 100% of the collateral, but given the chunky size of the positions, they would have been a good portion of the problem. The need to post margin created a cash drain on some entities, that was worrying enough for the Bank of England to step in.

Liability-Driven Investment

Liability-driven investment appears to be one of the management consultant buzz phrases that has vaulted into the headlines. Although particular strategy structures might be new, the premise is solid: pretty much all fixed income management after the 1990s is liability-driven.

  • Bank treasurers manage the duration gap between assets and liabilities of the bank.

  • Insurance companies need to hold fixed income assets to match the structure of their actuarial liabilities (which depends upon the policy mix — annuities are a very different liability than fire insurance).

  • Pension funds manage their assets versus the actuarial liability of projected pension payments.

  • Fund managers manage their portfolios versus the implicit liability of their benchmark.

  • Hedge funds manage their portfolios against some hurdle rate, typically a short rate plus a spread.

Sovereign reserve currency funds are one of the few large actors with the greatest discretion, but they are probably hemmed in by guidelines. Macro funds also have discretion in taking duration exposure — but their balance sheets are tiny versus the previously listed entities.

Pension Liability Management With Swaps

If we go back to the 1980s, pension management was amateurish and dangerous for pensioners. Pension funds held assets that were only vaguely related to their promised payments. They could get away with this because their workforces were young, and growing. However, the relentless headcount reductions, ageing of the workforce, and the shrinkage of firms that offered defined benefit pensions meant that there were no longer a wave of contributions of youngsters to make payments to oldsters.

Pension failures and accounting shenanigans led to a tightening of the regime, and the U.K. had the strictest rules. Pension funds had to have assets that generated long-term safe cashflows, and so they were crowded into long-dated bonds in at least part of their portfolio. The long end of the U.K. gilt curve (short for “gilt-edged security”) was described as the “freak show of the international capital markets” in the 1990s in a fixed income pricing textbook that is sitting somewhere on my shelf.

Chronic short-termism by modern management means that the private sector cannot produce truly safe long-dated bonds (other than regulated utilities). But buying long-dated central government bonds poses a problem: government securities are treated as having the lowest potential returns of any asset class. So using them to match liabilities is “expensive” in that it lowers the prospective returns on the portfolio. This implies greater contributions to meet the same payment commitments.

Investment banks came to the rescue: use interest rate swaps! Interest rate swaps are economically equivalent to borrowing to buy a bond. Using them allows a fund to implicitly use leverage against their portfolio: they get the cash flows from synthetic long-term bonds, but they “borrow” against those bonds to invest in assets with higher prospective returns (e.g., equities).

Aside: What Is A Swap?

A pension fund that would want a £100 million “synthetic” 30-year bond would enter into a swap contract that implies the following cash flows.

  • The pension fund receives the fixed coupon cash flows that would be generated by a 30-year bond, with a coupon rate the variable to be negotiated — the swap rate. For example, if the swap rate was 4%, the pension fund would receive fixed payments of (about) £4 million per year (with the exact payments determined by wacky bond market conventions). This is a “synthetic bond.”

  • The pension fund pays the floating interest rate on a £100 million loan (quarterly?), using a public short-term interest rate fix (historically, typically LIBOR). This is a “synthetic loan.”

  • The £100 million principal payments between the synthetic bond/loan at the 30-year point cancel out.

By convention, the swap rate is normally negotiated so that the net present value of the two payment legs are equal, so it costs £0 to enter into the contract. This means that the pension fund can replace a £100 million 30-year gilt position with a swap, and something more exciting, like £100 million worth of shares in a Chupacabra ranch in Arizona that a manager heard about at a conference in New York.

By itself, the strategy is entirely reasonable, and one of the large pension funds in Canada followed it and was highly successful. The problem is that the strategy generates liquidity management concerns, as discussed next.

Margin Calls

A pension fund is flush with assets, it should have no problems meeting the individual cash flows on the bond as they arise. The problem for the pension fund is that it needs to post collateral on the position, which increases as the net present value of the swap falls.

The net present value of the position is equal to the discounted cash flows on the swap. For the pension fund, it is equal to the value of the synthetic bond, less the value of the synthetic loan. The synthetic loan will have a value that is roughly equal to £100 million regardless of market conditions (there is a small amount of value wiggle), but the “bond” price will move up and down with the market swap rate like a 30-year bond (yield up, price down).

As swap rates rise, the pension fund would need to post more collateral — loosely speaking, a margin call.

Although this might sound scary, interest rate risks are easy to model. With modern risk management software, the collateral needs — as well as the drop in the value of collateral — could be accurately for any interest rate shock scenario. You pick your worst case interest rate scenario, and build your liquidity management around that scenario.

Aside: Cross-Currency Swaps

I have seen assertions that cross-currency swaps were involved. Given the history of currency swap involvement in financial crises, this would be unsurprising. However, a sane application of currency swaps in liability management would be qualitatively different.

It is entirely possible that a U.K. pension fund looked at the GBP swap yield curve, and said “nope.” They might have looked greedily at the yields at the long end of the USD yield curve. So instead of holding a £100 million 30-year gilt, they want to buy a 30-year Treasury.

The problem with just buying an U.S. Treasury outright is that this is matching USD cash inflows versus GBP liabilities. This does not work for liability matching. So the pension fund would use a cross-currency swap to hedge the USD into GBP.

Since I am lazy and want to make life easier for readers, I will assume that the exchange rate when they initiated the transaction was that 1 GBP was worth 2 USD. They enter into a cross-currency basis swap that is economically equivalent to lending £100 million GBP in exchange for borrowing $200 million USD, with both (synthetic) loans paying a floating rate plus a spread (the cross currency basis swap quoted spread). This allows the pension fund to buy $200 million piece of a 30-year Treasury with the £100 million GBP that would have been used to buy a gilt. There are floating rate payments to be made/received, but the swap cash flow that matters is the need to exchange $200 million USD for £100 million GBP in 30 years.

(Note that the exchange rate on ending transaction is the same as the entry level: the floating rate payments compensate for interest rate differentials. This is different than a currency forward, where the forward rate offset on a given date is driven by the fixed rate differentials as well as the cross currency basis swap spread.)

Well, what happens if the spot exchange rate drops to £1 GBP = $1 USD (which is a 50% depreciation in the pound for people like me who have to think about what forex quotes mean)? Since the spot exchange rate is £100 million GBP for $100 million USD, the swap contract implies $100 million future loss. Although discounting reduces the magnitude of the loss (I think…), this is still a big bucket o’ money to lose on the derivatives contract.

Of course, the whole purpose of the exercise was that it was a hedge. The fund owns a $200 million in U.S. Treasurys, and the increase in principal value in GBP terms matching the loss on the cross-currency basis swap.

Although this might look fine on a balance sheet, the problem is that we have two distinct instruments. The cross-currency basis swap loss implies a need for more collateral, and the risk is that the USD-denominated bond might not be available as collateral. Even worse, Chairman Powell has been torching the value of long-dated U.S. Treasuries in USD terms, and cross-currency basis swaps are floating-floating instruments, so they sit out the fixed interest carnage. (A fixed-floating currency swap would be a better hedge, but the floating cross-currency basis swap market is the main wholesale funding market.)

If the above scenario happened to any extent, the story is slightly different. The funds were not technically leveraged, instead they had overseas investments that were hedged back into GBP. The problem was that the drop in the GDP would increase the need to post collateral for hedges, adding to the funding stresses within the GBP markets.

Concluding Remarks

Although it is clear that somebody blew up, absent a comprehensive inquest by the authorities, we do not know whether (almost) everybody blew up. Everybody blowing up is the traditional cause of fixed income derivatives crises, and face it, the Brits are sticklers for tradition. This article explains why rising interest rates and a falling pound would cause major drains that would either start or exacerbate a funding market crisis.

Outside the GBP markets, the hope is that there is a greater variety of positions. For example, when I worked in finance in Canada, only a couple of the major players were heavily into using swaps for liability-driven investment. The largest players (including my old employer) used swaps, but on a discretionary basis — so they had the capacity to lean against squeezes, and the balance sheet capacity to endure squeezes on their positions.

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(c) Brian Romanchuk 2022

I have not

Published by Anonymous (not verified) on Thu, 29/09/2022 - 10:26pm in

Tags 

UK

I have not seen too many longer articles about the “gilt crisis” in the United Kingdom, but have seen a variety of reactions on Twitter. My reaction is that the discussions reminded me why I mainly followed people who used the title “rates forecaster” and not “economist” when I was in finance. (The “rates forecasters” might have had economics degrees, but they knew that if they wanted people like me to take them seriously, they needed to not sound like the people with “economist” in their title.) It is rather impressive how the most interesting part of this crisis has been buried.

We finally have had the financial instability crisis that everyone was a bug about throughout the 2010s. Many people have spent more than a decade calling for a repeat of the Financial Crisis — well, we just had a small version of it. Based on the initial reporting (which may not be perfect), pension funds managed to blow themselves up with leverage (created by fixed income derivatives) by crowding into one side of a trade. This alleged distress forced the Bank of England to intervene to reduce gilt yields (and hence swap rates).

It is not as if this is some kind of “once in a century” event. People have managed to blow themselves up with fixed income derivatives in 1994, 1998, and 2008[1], each of which ended up with central banks getting involved in some fashion. (I am not counting the many derivatives accidents in other markets, most of which were allegedly due to “rogue traders.”) Given that central banks ended up reacting to those blowups, there is no real excuse for economists to not pay attention to those episodes.

It seems entirely possible that this crisis will not have much in the way of economic ramifications, very much unlike 2008. What (allegedly) happened is that pension funds were caught by margin calls as a result of rising long-term interest rates. (This Financial Times article offers an explanation.) The sterling market is notorious for being dominated by a small number of players, much like the Canadian dollar market. In such an environment, once it is clear that some entities are facing margin calls, they will be squeezed unmercifully. That is why gilt yields spiked in an unruly fashion. However, the Bank of England intervention turned the hunters into the hunted — the shorts needed to cover, and were squeezed in turn. This allowed a partial recovery of bond losses, which might allow pension funds to get their liquidity position under control.

For this article, I am assuming that the reader understands what a margin call is, and not explaining what I believe what happened in detail. I will offer an explanation of how pension funds were operating in a later article.

I Blame Society The Pension Funds

When I was in finance, I was a secular bond bull, but I am now recovering. I can understand why fixed income managers at those pension funds might not have believed that rates could rise that quickly. However, it made no sense that they were this exposed to the liquidity risk created by margin calls.

The Fed did its first 75 basis point hike in May, and the crisis hit at the end of September. Even if one was bullish bonds, a 1994 style bond Armageddon scenario had to be taken into account by risk managers. Furthermore, they had to know that swap liability matching was a crowded trade, which meant that any squeeze was going to take rates outside of recent historical volatility experience. Portfolios should have been de-levered and liquidity lines built up.

The Gummint Done It!

Among the economist views I have seen, blame has been laid at the feet of the Truss government and/or things like a balance of payments crisis.

Of course, the mini-Budget triggered a rise in rates. That is what happens in a floating currency sovereign with an inflation targeting central bank: rates are expected to go up if demand increases. I have not read a gilt investment prospectus, but I strongly believe that at no point are there any guarantees about what happens to secondary market yields. Meanwhile, the Bank of England helpfully explains:

Our job to make sure inflation is low and stable, so we need to bring inflation back down. The way we do that is by increasing interest rates.

So yes, interest rates rising is exactly what you should expect to happen, and we do not need to invoke the balance of payments, bond vigilantes or whatever to explain this. The problem is that U.K. pension funds seem to have forgotten that yields can go up, and there are no guarantees about the speed of the rise.

I do not live in the United Kingdom, and I do not have any strong opinions on the wisdom of the Truss/Kwarteng mini-budget. But I certainly would not use a rise in bond yields as a signal that policy is bad. If we used that logic, the economic brain trust in 2008 that threw the global economy into depression and then left it in a state of stagnation for about a decade thereafter were the best economic managers in the post-war era.

As for the balance of payments worriers: the current account deficit did not cause pension funds to neglect liquidity management.

Did the BoE Do The Right Thing?

One may ask: was the Bank of England intervention the right thing to do? Emphatically yes. The liquidation of the pension funds would have caused widespread dislocations in the real economy. Instead, the intervention squeezed the shorts, and at the time of writing, generated an impressive mark-to-market gain for the BoE. Maybe I am too cynical, but I would be very unsurprised if a certain amount of skulduggery was involved in the pension fund squeeze. As a result, I am not going to be shedding tears for the victims of the BoE squeeze.

One of the key jobs of the central bank is to ensure an orderly market in central government securities. If that means throwing shorts under the bus every so often, so be it.

Minsky Moments

This episode is yet another example of the “stability is destabilising” argument of Hyman Minsky. Firstly, we had gradualist central banks taking the volatility out of rate movements. Secondly, we had major efforts to increase regulation to make derivatives “safer.” As Minsky’s arguments would suggest, that just allowed people to grow a really big interest rate swap position that generates a corresponding really big liquidity event.

So we finally ended up with the financial crisis that has been predicted by someone every year since 2008. So far, not as flashy, but it is pretty easy for a central bank to clamp down on interest rate volatility.

I would note that this event was not linked to the real economy, so it did not feature the investment accelerator dynamic that we saw in 2008. (Reckless real estate lending led to construction.) This cycle was confined to the financial sector. Thus, this event was not a full “Minsky Financial Instability Hypothesis” episode.

Contagion?

It is entirely possible that other things will blow up in the global financial system in the coming months. However, direct contagion outside of the U.K. is a hard sell. Liability matching is a domestic issue: you do not enter into liability matches in foreign currencies. So foreign entities will not be caught up in GBP issues. And liability matching was generally more popular in the U.K. than other economies, so similar blow ups are less likely. If only a few entities in a market are doing the same strategy, they are far less susceptible to squeezes.

Interest Rates Might Go Up. That’s What They Do.

A quite likely outcome is that gilt yields will rise after the short covering has subsided. Although many prices linked to international trade are weakening (e.g., shipping costs), there will still be price pressures linked to the fall of sterling and the rise in energy prices. So long as the rise in yields is orderly, the Bank of England can resume its quest of chasing after a lagging economic variable.

Although the rate hikes cannot do much about things like energy, British households are over-exposed to the housing market and mortgage payments. (Unlike conventional mortgages in the United States, British mortgages mainly reset based on relatively short-term rates.) This will act as a drag on demand and sentiment. Even if we grant arguments about the mixed effects of interest rates, relatively rapid rate hikes are self-limiting. The Bank does not need to restore sterling to any particular level, so the alleged “currency vigilantes” have limited inputs to the matter.

Concluding Remarks

Economic and financial commentary on this move was entirely predictable, discussing various ideological fixations — money printing, fiscal dominance, current account crises, etc. — and skipped over the fact that this was yet another liquidity squeeze of a bunch of players who trapped themselves on the wrong side of trade. Given that central banks are in an amazing position to reverse liquidity squeezes, the BoE was able to wade into the market and smack people around. The only real lesson we can draw from this is that if regulators move to contain financial instability of a certain magnitude, market positions will just build up to a larger one eventually.

And once again, I will put up a primer describing the swap market strategies that allegedly led to this mess.

1

The derivatives problems in 2008 were centered in the credit default swap markets, but funding derivatives like asset swaps were dislocated as well.

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(c) Brian Romanchuk 2022

Gilt Market Mayhem!

Published by Anonymous (not verified) on Wed, 28/09/2022 - 11:39pm in

Tags 

fiscal, UK


Bond markets are finally getting interesting, with the Bank of England launching emergency purchases to restore order in the gilt market. Since I am not in constant contact with people trading gilts, I will just offer a tentative description of what seems to be going on, and what it “really means.”

Disordered Markets

The Truss government launched an expansive “mini-budget” that was not received well by the forex and bond markets. The Bank of England did not do an emergency hike in response, which is a point I return to later. Gilt yields rose rapidly, consistent with a higher terminal rate.

However, the sell off became disorderly. The culprit that has shown up in market chatter are pension funds that entered into swaps to generate duration to match their liabilities. Using swaps instead of buying bonds means that the cash that would have been invested in bonds can instead be used to buy risk assets that offered higher prospective yields. This structure is essentially equivalent to a levered position in risk assets: borrow against bonds to buy risk assets.

Although the pension funds will have liabilities that decrease in value that offsets the interest rate losses on the balance sheet, the problem is that lower actuarial liabilities do not generate cash flow. There are margin calls to be met for the swap positions, and raising the cash immediately is not easy if locked in with other managers.

At the same time, everyone aware of this situation sniffs blood in the water and is going to squeeze those positions unmercifully. The gilt market is notoriously insular — similar to Canadian markets — dominated by a handful of large players who have a good idea about other players’ positioning. Not the sort of market you want to be in if you face large margin calls.

Bank of England Options

The Bank of England had to choose between two options today.

  1. Let the pension funds be squeezed into oblivion. Because free markets, lol.

  2. Do what it did — buy long-dated gilts with the explicit objective of restoring order to markets. That is, squeeze the shorts who were squeezing the liquidating longs.

The economic effect of letting the gilt market to melt down appears straightforward — many things would break, particularly the over-extended housing market — and the U.K. would be looking at a downturn at least as vicious as 2008 in the United States.

If order is restored to the gilt market, the BoE can methodically raise rates to deal with inflation problems. This might cause a recession, but it is much less likely to be a sudden stop.

Liquidationists Come Out of the Woodwork

As anyone with experience in interest rates would expect, government bond liquidationists have been out in full force, denouncing the BoE intervention.

  • All the people who have been predicting G7 balance of payments of crises for the past few decades are doing victory laps.

  • The left wants a meltdown to make the Truss government look bad.

  • Neoliberals are jabbering on about fiscal dominance and central bank independence. I will discuss these points next.

Central Bank Independence

One common complaint is that this episode has encroached upon central bank independence. Which just tells us that “central bank independence” means to these people “central banks can do whatever they want.” In the real world, governments grant bodies “independence” — but those bodies have norms to follow. Importantly, they cannot inject themselves into partisan politics.

Up until today’s intervention, the Bank of England did exactly what it is supposed to do: wait until a regular meeting date to adjust the policy rate in response to changes in economic conditions. Fiscal and monetary policy work with a lag: there is no reason that waiting a few weeks ultimately makes a difference. Term interest rates rose immediately, which is supposedly good enough for interest rate regulation of the economy over the very short term.

Conversely, an emergency rate hike in response to the fiscal statement — which is what some of these loons apparently want — would be a direct central bank intervention into partisan politics. Conversely, waiting until the next meeting gives the central bank plausible deniability about the effects of fiscal policy on the decision.

Fiscal Dominance: Last Refuge of Scoundrels

Finally, neoclassicals unsurprisingly invoked “fiscal dominance.” Fiscal dominance is just a code phrase for “fiscal policy I do not like.”

I discussed the problems with the concept in a 2020 piece.

When I looked at fiscal dominance, I was struck at how much hand waving was involved in discussing the concept. Neoclassicals loudly yell to the rooftops about how they use mathematical models, and are superior human beings because they studied Real Analysis (lol). But when fiscal dominance comes up? Welcome back to handwaving literary economics!

If we wanted to strip out the biased political stance behind the concept (spoiler: fiscal expansion bad), we get the amazing concept that the central bank needs to take into account fiscal variables (debt and deficit levels) when setting interest rates. Considering that fiscal policy is independent of the central bank — the flip side of central bank independence — that just means that the central banks need to take into account the state of the economy when setting interest rates. Well, duh.

Believers in this nonsensical concept would likely rage at that description and say that there is more to it. The alleged problem is that the central bank needs to take into account the possibility of a “fiscal crisis.” However, we rapidly run into the reasons why they need to use obfuscation to discuss this issue.

  • If the “fiscal crisis” is a default (because debt/GDP, vigilantes, whatever), we are back to MMT debates. Neoclassicals have now taken the stance that they knew all along that floating currency sovereigns are not subject to involuntary default, so they cannot suddenly appeal to default risks without showing themselves to be lying weasels.

  • If the issue is that increasing interest rates when the debt level is high poses inflation risks, we see that perhaps “basic macroeconomics” is wrong about interest rates and inflation.

  • If the “fiscal crisis” is just the bond market becoming disorderly due to rapid yield changes (as is allegedly the case in the U.K.), that is just a financial stability mandate issue. A short-term intervention to restore order is called for — since a disorderly market implies that yields are not at levels consistent with the central bank’s reaction function to stabilise inflation.

Concluding Remarks

The government bond market is the most hated market. Whenever it sells off, political hacks come out of the woodworks to claim that they are vindicated. Although being a political hack is fun, it can be dangerous to investors — you cannot extrapolate yield changes to infinity. Markets do overshoot — but you need to cover positions at some time.

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(c) Brian Romanchuk 2022

How an obscure intelligence-linked party fixed a second Brexit referendum and torpedoed Corbyn

Published by Anonymous (not verified) on Sun, 25/09/2022 - 4:48am in

The pro-EU Renew party emerged from out of nowhere at the height of “Corbynmania,” pushing for a second Brexit referendum that led to the Labour leader’s demise. The intelligence backgrounds of Renew’s founders were kept under wraps – until now. When Britain’s little-remembered Renew Party officially launched in the heart of Westminster in February of 2018, its founders addressed a room of mostly empty chairs. The party’s youthful and little-known co-founder, Chris Coghlan, announced a bold pro-EU agenda centered on […]

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U.K. Fiscal Policy: Boom

Published by Anonymous (not verified) on Fri, 23/09/2022 - 11:12pm in

Tags 

fiscal, UK

I normally stay away from commentary on budget statements, in that the analysis is mainly political in nature. In recent decades, the macro fiscal effects tended to be tepid and over-rated for political reasons. (The pandemic measures are the glaring exception, however, they were often enacted as stand alone measures and not part of the normal budgeting process. The same holds for the various fiscal measures enacted in 2008.) The recent “mini-budget” in the United Kingdom threw away that timidity. Since I have not been following the area closely, I will point you to Duncan Weldon’s piece, and offer a more theoretical response.

I am in the process of commenting on an article by neoclassicals that is doing inflation analysis solely based on Taylor rule parameters — which ignores minor details like fiscal policy. The ongoing rout in the British Pound and gilts (last quote I saw was +50 basis points at the 5-year point) underline that the fiscal stance matters.

The U.K. is currently having problems with inflation, exacerbated by the disruption in the energy markets. I have no opinion on the plan to cap energy costs within the mini-budget, but it is clear that muscular intervention of some sort (rationing) was needed to deal with energy prices. However, inflation is not just energy. A large tax cut is exactly not what is needed to deal with an inflation problem.

I am already seeing the predictable comments about bond vigilantes, and I guess the currency vigilante stories are spreading as well.

On the currency side, the economic policies of the Conservative government are best described as “omnishambles,” starting with Brexit, and now this budget document. Given the possibility of a hard landing, my amateur forex knowledge suggests that GBP is not particularly attractive. This will put political pressure on the government, given the long history of U.K. currency crises. The pound now floats, but why let facts get in the way of a good story? [Note: this text was mistakenly negated in the first draft - oops.]  Although this will likely speed up the government’s reaction (discussed below), I doubt that the Bank of England is going to start targeting levels of GBP (which is what “inflation vigilantism” would suggest).

As for rates, bond markets are just pricing in what the Bank of England is going to do: hike rates like crazy. They need to price the Bank’s reaction function, so it is not as if it requires a deliberate decision by masked fixed income strategists. The only way the bond markets would be acting truly independently is if the Bank of England had a mandate to keep the policy rate fixed — which it does not.

The Bank of England reaction is straightforward: hike 75/100 basis points per meeting until something breaks — or inflation miraculously rolls over. Given the stretched nature of the U.K. housing market, it does not take a whole lot of time to find the candidate for what will break.

The political reaction is also predictable. Once the crisis in the pound/interest rates hits some threshold, the government will announce cuts to social services (and possibly go forward with yet more privatisation in the National Health Service), pleading that the “markets forced us to do this.” This tactic has been used for decades by “free market” politicians, and yes, they will use it again. The only question is timing: will the housing market have crashed already? If so, the U.K. will get the implementation of austerity policies at the bottom of the cycle that is the trademark of conventional economic policies.

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(c) Brian Romanchuk 2022

If Labour were in charge there would be a full-blown currency crisis…

Published by Anonymous (not verified) on Sat, 03/09/2022 - 7:13am in

The pound Sterling is now worth a lot less than it used to be – even just looking at this Bloomberg graph for the post Brexit year of 2022. We have in this allegedly ‘economically responsible’ (but in fact economically incompetent) Conservative government, policies that are accelerating Sterling’s decline – which is important for energy... Read more

Intelligence operative confirms British gov’t is targeting The Grayzone

Published by Anonymous (not verified) on Thu, 25/08/2022 - 12:35pm in

Tags 

UK, censorship, YouTube

A public call to ban The Grayzone by a UK Foreign Office veteran and psy-ops specialist confirms the malign intentions of British intelligence. The Arvamusfestival (Opinion Festival) convened this August by the Estonian Foreign Ministry featured as its centerpiece an English-language panel on “how to deal with misinformation…in the interests of curbing its propagation.”  During the discussion, a British state operative named Ross Burley descended into a rant about The Grayzone, demanding it be banned from YouTube on the baseless grounds […]

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BBC assault on antiwar academics was apparent product of UK intel plot

Published by Anonymous (not verified) on Mon, 22/08/2022 - 3:54am in

Tags 

UK, BBC

Leaked emails expose the fingerprints of UK intelligence all over a factually challenged BBC special that aimed to deprive antiwar academics of their jobs and destroy their reputations. On May 31, BBC Radio initiated an embarrassing imbroglio when it broadcast a factually challenged, overtly propagandistic documentary special called Ukraine: The Disinformation War. Fronted by a British state information warrior named Chloe Hadjimatheou, the program professed to investigate “where the new red lines are being drawn in an age of disinformation,” […]

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How Britain fueled Ukraine’s war machine and invited direct conflict with Russia

Published by Anonymous (not verified) on Sat, 13/08/2022 - 8:48am in

Britain has played a key role in NATO forward troop deployments and training exercises on Russia’s borders. With war underway, the UK sends billions in arms, special forces, and volunteers to ensure escalation. In an effort to evade his domestic woes, British Prime Minister Boris Johnson—who may soon be replaced—has spent much time toing and froing to Ukraine. Ukrainian President Volodymyr Zelenskyy has described the buffoonish British PM as one of Ukraine’s closest allies. If and when Johnson leaves office, […]

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Fresh audio product: two views of British politics, Tory and Labour

Published by Anonymous (not verified) on Fri, 05/08/2022 - 7:22am in

Just added to my radio archive (click on date for link):

August 4, 2022 Simon KuperFinancial Times columnist and author of Chumson the upper-class caste that’s been ruling Britain for a decade • James Meadway, director of the Progressive Economy Forum, on the dispiriting economics of the leader of the Labour Party, the drab Kier Starmer

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