Bank of England Tries To Hold The Line

| October 3, 2007

Last month the US Federal Reserve cut interest rates a full ½ a percentage point. Some folks were surprised by this (myself included) due to the fact that many economic factors (such as the stock market) were near multi-year highs, and the economy in general was thought to be chugging along nicely.

In reality what was happening is that the money spigot was being squeezed shut as the folks who supply the money for everyone to work with, the bond market, started to seize up. I wrote about this set of events in an earlier post comparing the global economy to the latter stages of a super-massive star’s life-cycle.

Since cutting rates, the US dollar has been severely de-valued. If you could get 5.75% investing in the UK, why would you take 4.75% in the US?

Britain itself has been feeling the starting salvos of the approaching global correction. 2 weeks ago they experienced an old-fashioned bank run on one of their larger banks, Northern Rock. This created a significant shift in mood in the country, and raised suspicions about the current wisdom that if the US has trouble, the rest of the world will de-couple and keep going on it’s merry way.

Now our allies in London are meeting to set interest rates for Her Majesty’s bank. They are under pressure to follow the US cut in order to level the field and not dry up our economy. The Bank of England has plenty of it’s own problems. From Yahoo:

“The bank’s quarterly inflation report for August clearly indicated that interest rates would need to reach 6.00 percent before too long if consumer price inflation was to be limited to its target rate of 2.0 percent on a two-year horizon,” said Howard Archer at Global Insight.

We have the UK trying to keep inflation contained, and the US trying to defibrillate large financial institutions that have made a series of very bad investments. Who is going to win?

Also – I am working on digging up information that outlines that UK’s biggest banks and investment houses are hitting the “emergency lending” facility of the European Central Bank, bypassing the Bank of England in order to get money at a lower rate, and take advantage of the ECB’s assurance of anonymity.

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Category: Credit Backlash, Economics, Geopolitics, Main

About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

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