G B P Warning For Brits; Possible Sterling Crisis !

[LaoPo]

Bloomberg: Britain Currency to Crumble

Tuesday, July 7, 2009 3:33 PM

By: Elaine Barr

Harvard professor Niall Ferguson sees the handwriting on the wall with Britain’s currency, and he doesn’t like what he sees.

“The probability of a real sterling crisis is around one in three, and the probability of major tax hikes and cuts in public spending is roughly one in one,” the British financial historian told Bloomberg Markets.

The deterioration of the U.K.’s public finances already has prompted Standard & Poor’s to warn on May 21 that the country could lose its AAA rating.

Another ominous sign: Chancellor of the Exchequer Alistair Darling said the government’s 2009 deficit would hit 12.4 percent of GDP.

Nigel Lawson, former chancellor of the Exchequer under Margaret Thatcher from 1983 to 1989, agreed with Fergueson’s outlook. He said Britons can expect to face spending cuts in coming years in all areas, including Social Security and healthcare.

“Our public finances are easily the worst we’ve ever had in peacetime. The amount of borrowing the government will have to do as a result of the deficit is very worrying,” Lawson said.

Andrew Bosomworth of Pacific Investment Management Co. goes even further with his prediction. “In a worst-case scenario, there could be a run on the currency.”

To head off a crisis, Lawson urged Britain’s next leaders to make deep cuts in government spending right away.

Ferguson sees no alternative to severe cuts.

“It has to happen. This kind of red ink implies both spending cuts and tax hikes that could make the 1980s look like a teddy bear’s picnic,” he said.

Source: Bloomberg/Moneynews.com

http://moneynews.newsmax.com/financenews/s.../07/232876.html

LaoPo

[syd barrett]

It is a fair bet. But the US$ and the EURO both have problems of their own

I think it is wise in times like these to hold a basket of currencies including CHF YEN and NZ$

[churchill]

Sterling crisis or $ or Yuan - etc all are printing paper which is getting worth less every day the printing presses are running .

[Cobalt60]

You dont have to be a genius to work out that the UK will need public spending cuts <deleted>. Peddlers of doom and gloom stating the bleedin obvious as usual. Hope we can all suffer to prove them right.

[Thai at Heart]

And where are the moaners who think the GBP should go back to 65 to the baht?

[verydumbubba]

None of them were smart enough to prevent the current meltdown.

Why should this crystal ball, bill of goods be better.

Wonder if they are betting men.

Bubba

[brahmburgers]

Similar pitfalls are looming in the good 'ol USA also. Among the many factors, is one that's rarely mentioned: guaranteed pensions, particularly for people who have been involved with gov't or who are getting 'funny money' or some sort.

Just one trend that's been going on in the States for decades, and probably going on also in Britain:

Public service people, who have such strong leverage with local government, demand and get very high pensions. For example, a retired fire captain or police officer might get $130,000/annually, plus all sorts of health benefits. With fewer workers paying in to coffers, and millions retiring, the guaranteed payments get quite top-heavy.

of course that's just one tiny portion of the myriad ways things are being mis-managed in the States, and there are probably a slew of similarly crazy over-payments going on in Britain and Europe.

.....yet another reason I enjoy living the simple life in rural Thailand. BTW, even though I'm an American, I will get zero SS in later years, as I didn't pay in to it (was always self-employed). In a related item, I personally know dozens of Americans who get SSI (Social Security Insurance) for bogus reasons. The actual # in the States could be tens of millions - each getting an average of about $776/month. That sure adds up!

Edited July 8, 2009 by brahmburgers

[Chaimai]

And where are the moaners who think the GBP should go back to 65 to the baht?

If the Pound went to 65 for 1 baht we would all be in the sh!te

I suspect that you were referencing 65 Baht to the Pound - surely we should go for 70 - if you are going to dream, you may as well make it as wet as possible !

[cpofc]

I am quite a big fan of Niall Ferguson's, for reasons other than his views on this subject alone.

It would be very wise to take onboard what he is saying, especially if you are a brit dealing with pounds. He is a pretty smart bloke and doesn't bung on any side.

Ferguson, single handedly set a cat amongst the pidgeons in the genre of modern history. He shed new light on world 20th century history. On the subject of why it was our bloodiest in hisotry.

A six part video of his book, The War of The World' is most enlightening.

i just can't help but take what this bloke has to say seriously.

BTW, they are talking about the same thing with the US Dollar and an FDR style bank holiday.

[Thai at Heart]

And where are the moaners who think the GBP should go back to 65 to the baht?

If the Pound went to 65 for 1 baht we would all be in the sh!te

I suspect that you were referencing 65 Baht to the Pound - surely we should go for 70 - if you are going to dream, you may as well make it as wet as possible !

Got discombobulated there.

With stories like this about the GBP and the USD doesn't look that fancy either, there is virtually no economic reason for the Baht to collapse. The big blue chip currencies will crash first if anything.

I was here when the baht collapsed and it wasn't a pretty event at all. I got a bit of a bump financially, but having stayed here long enough, it was an awful time for Thailand and wouldn't want the country to go through it again.

[Chaimai]

Got discombobulated there.

With stories like this about the GBP and the USD doesn't look that fancy either, there is virtually no economic reason for the Baht to collapse. The big blue chip currencies will crash first if anything.

Full marks Thai at Heart - word of the day award for you, I think

[TAWP]

Less British tourists = I'm happy.

I love British pubs, if only half of the people visiting them...didn't.

[alant]

it is difficult to conclude anything other than we (brits) have a problem and it is of our own making but this simply rekindles old info and devalues the £, so who is on the take? i have seen the £ reduce by a baht today, i wonder if anyone related to this being published had done a bit of spread betting.

as for those who are glad that the brits are in trouble and less brits = good, sorry we have offended and we look to learn from your example

[Texpat]

I've listened to various expats forecast a slump of the baht for the past three years. They claimed its being propped artificially by this method or that institution.

It really hasn't done anything but strengthen in that period. I'm not convinced the baht is weak at all. I'm not optimistic it'll do anything but strengthen vis a vis the buck or pound.

[MJP]

Similar pitfalls are looming in the good 'ol USA also. Among the many factors, is one that's rarely mentioned: guaranteed pensions, particularly for people who have been involved with gov't or who are getting 'funny money' or some sort.

Just one trend that's been going on in the States for decades, and probably going on also in Britain:

Public service people, who have such strong leverage with local government, demand and get very high pensions. For example, a retired fire captain or police officer might get $130,000/annually, plus all sorts of health benefits. With fewer workers paying in to coffers, and millions retiring, the guaranteed payments get quite top-heavy.

of course that's just one tiny portion of the myriad ways things are being mis-managed in the States, and there are probably a slew of similarly crazy over-payments going on in Britain and Europe.

.....yet another reason I enjoy living the simple life in rural Thailand. BTW, even though I'm an American, I will get zero SS in later years, as I didn't pay in to it (was always self-employed). In a related item, I personally know dozens of Americans who get SSI (Social Security Insurance) for bogus reasons. The actual # in the States could be tens of millions - each getting an average of about $776/month. That sure adds up!

Yes. The elephant in the room. Unfunded pensions liabilities.

All this QE is just the last ditch attempt to prop up the great post-war super-boom Ponzi scam. It won't work.

I think GBP is looking dodgy because many parallels are being drawn between the UK and the now bankrupt State of California.

[Electra]

Ferguson is first and foremost an historian and any pronouncement from him is inevitably based upon that perspective but frankly what does he know about markets? Of course the £ will continue to have its moments, which currency doesn't, but the science is not in stating the bleedin' obvious but in determining just when movements occur and to what extent. The chap is an academic and not a market expert although it wouldn't take a rocket scientist to tell you that the British economy is going to be driven by higher taxation and reduced public expenditure. It's what happens in a recession following the bursting of a stupid debt driven bubble.

In addition to his literary career, Ferguson likes to be taken seriously as an emerging financial guru and writes for the Financial Times and is an investment consultant. Uttering banalaties as if they were great profundities is his way of reminding us of his conceit.

[Kimera]

Less British tourists = I'm happy.

I love British pubs, if only half of the people visiting them...didn't.

Are you sure you are spelling your name right, I think you are missing a T

[torrenova]

Pensions are screwed, which is going to screw the retired so they claim social security which in turn goes to screw that system. The fundamental haven't added up for years and the writing was on the wall well before this crisis.

The fact is that you cannot have people spending so long in education and so long in retirement which leaves only a limited time in the productive working environment. People are not going to start dying younger nor are they going to start going to work younger, so the only two options are either to tax them more or make them work longer, in terms of raising the retirement age. The answer is simple, higher taxes and a higher retirement age.

[LaoPo]

Pensions are screwed, which is going to screw the retired so they claim social security which in turn goes to screw that system. The fundamental haven't added up for years and the writing was on the wall well before this crisis.

The fact is that you cannot have people spending so long in education and so long in retirement which leaves only a limited time in the productive working environment. People are not going to start dying younger nor are they going to start going to work younger, so the only two options are either to tax them more or make them work longer, in terms of raising the retirement age. The answer is simple, higher taxes and a higher retirement age.

Indeed.

Tens of thousands of Brits who own a second- or retirement home overseas, whether on Europe's mainland, Thailand or elsewhere are in deep trouble. In Spain thousands of Brits don't know how to cope with the situation, especially also because real estate is way down and there are no buyers.

The Spanish coast and islands are filled with apartments and villas for sale, totaling more than a million houses.

Personally I know of a couple who had to sell their villa. Asking price was € 580.000.-. They sold for € 300K

And that's just one example; most stories aren't even known or told...

LaoPo

[brahmburgers]

Pensions are screwed, which is going to screw the retired so they claim social security which in turn goes to screw that system. The fundamental haven't added up for years and the writing was on the wall well before this crisis.

The fact is that you cannot have people spending so long in education and so long in retirement which leaves only a limited time in the productive working environment. People are not going to start dying younger nor are they going to start going to work younger, so the only two options are either to tax them more or make them work longer, in terms of raising the retirement age. The answer is simple, higher taxes and a higher retirement age.

There's another factor that could be added (in order to lessen the burden of gov't payments): Namely: renegotiate inflated pension payments downward. Granted, all retirees with cushy pensions would howl, but Confucius say: you cannot squeeze blood from a beet. The US has consistently borrowed money from (and sold T-bills to) overseas countries (S.Arabia, most of western Europe, Japan/China/Korea, etc), but Uncle Sam's reputation for being a safe haven for money - is losing its luster. Ok, I know the op is about Britain, but there are similarities with both bloated economies.

A municipal worker who made $75,000/yr salary, then his/her income nearly doubles upon retirement, there's something unfair (to the taxpayers). If municipal governing bodies can't stand up to the lobbying strength of their hired workers, then who else will?

[Spee]

All this QE is just the last ditch attempt to prop up the great post-war super-boom Ponzi scam. It won't work.

As the great satirist PJ O'Rourke quipped: "Giving money and power to the government is like giving whisky and car keys to teenage boys."

I'll bet we won't see any politicians, career bureacrats or other government hacks getting cheated out of their pensions.

My parents planned for their retirements by not counting on anything from the government, but they still got something. I think my generation will be the first to do similar planning but not actually get any money that we are entitled to. The next generation is totally fuc_ked. They will get nothing and pay more for it.

Edit:

What I am much more worried about are rumors of my government doing away with the overseas income tax exemption. Should this happen, it would destroy a major incentive for going to work abroad. Either that, or it will simply drive the expat economy further underground.

Edited July 9, 2009 by Spee

[Spee]

A municipal worker who made $75,000/yr salary, then his/her income nearly doubles upon retirement, there's something unfair (to the taxpayers). If municipal governing bodies can't stand up to the lobbying strength of their hired workers, then who else will?

My grandfather worked for the postal service many decades ago, long enough to qualify for a pension. When he passed in his nineties, his annual pension was 3x-4x his largest annual salary when he retired. This was 15 years ago. I can only imagine how bad it is today, and what the future holds.

Government workers and politicians are the ones with the gold plated offers of employment, insurance and pension. It would be a great system if it weren't a completely flawed business model. Everyone else in the real world has to compete for employment, work in at-will positions, and generally fend for themselves. The business of government acts as if the source of investment is infinite. What other business works this way and lasts for very long?

Until this mess starts to change, things will only going to continue to worsen.

[wolf5370]

This is all old news and quotes from the opposition (and likely next government) who would say exactly what they are. A lot of money is wasted in the UK on poor policy, very expensive IT projects that never see the light of day and the current government's policy of hiring everyone to reduce unemployment figures (I read somewhere that 1 in 5 UK work aged people work for the state! - half of Glasgow - Britain's once highest unemployed city - now work for the state too!). Benefits are not overly generous, but are given to too many people for far too long.

Giving away houses that are state owned was a Conservative idea, meant to rid the country of long term (multi-generations) peppercorn rentals that cost us millions in repairs and upkeep, was made so ridiculously loose that people were making small fortunes off it and councils had to restock or rent back properties that used to be theirs just to put people in again!

There is a lot of waste that could cut expenditure a fair way before cutting into the flesh of real services.

Edited July 9, 2009 by wolf5370

[brahmburgers]

The gov't albatross weighs heavy in Thailand also. Though dollar amounts aren't as high as US and Britain, the social divide is greater %. Example; when a gov't worker in Thailand retires, he/she gets an ok pension. When other Thais, get too old and feeble to work, they get essentially zilch from gov't. That's one reason why so many bar girls work so hard - to support relatives who have no other safety net.

In my adopted city of Chiang Rai, there are dozens of large gov't building throughout. In each, there are bureaucrats, mostly young women, diligently doing nothing. They sit at desks and pretend to be working, but a closer look reveals they're doing squat diddly nada. Ok in fairness, some are doing things, but it's to feed the bottomless pit of bureaucracy for the sake of bureaucracy - 99% of which is unnecessary. Yet they're all there largely because they know gov't offers security for later years. This being Thailand, they know they'll never get laid off, fired (for lack of work), or seriously reprimanded for wrong-doing.

A microcosm was shown at the bus station yesterday. forty gov't salaried workers on hand. None doing anything, except one woman who was selling tickets. She was in a booth with four seats/windows - the other 3 seats were empty. The one working gal had a slow queue of twenty people. Not much different than the airport, when hundreds of tired travelers converge. There are twenty turnstiles for checking passports, but only about two are manned.

[christcourt]

Less British tourists = I'm happy.

I love British pubs, if only half of the people visiting them...didn't.

Are you sure you are spelling your name right, I think you are missing a T

With a quote like that "TAWP" I'd stay away from the Brit pubs if I were you. We are all affected by the economic downturn in one way or another and 'Bullshit" like that is not needed.

[JMS]

if the pound plummets even more this would mean less tourists here and people residing here leaving to go back to their home country.

Bad for the ecomony all round

[chiang mai]

if the pound plummets even more this would mean less tourists here and people residing here leaving to go back to their home country.

Bad for the ecomony all round

But it would help the UK economy so in that respect it's not a complete lose leader. Anyway, the negative impact on Thai tourism caused by a reduction in the number of people spending Pounds would be insignificant, when viewed in the context of the larger financial picture. But moving on from those things:

It does indeed seem as though GBP/THB is going to get hit but that shouldn't come as any big surprise to regular GBP/THB watchers, unless of course you belonged to the "bring back 70" brigade of dreamers! The Thai current account is looking strong and Thai foreign reserves even stronger - exports are still down factories are starting to offer overtime once again so things are really not looking that bad.

By contrast, the UK has taken a series of hits in the past two weeks with reports from a series of influential bodies highlighting the problems and recommending cuts in government spending, a move of course that is counter culture in the mind of the current government. But the stats that caught my eye this past week were the two "awards", one for being the most prolific users of cocaine in Europe and second for being the country with the highest rate of violence, staggering. All of that suggests to me that when the government does start to cut spending (it has to happen) the things that will get cut will be social services and that will likely compound the already dire social problems. Forget the fall in the currency, that can recover over time. But the fall of the people is another topic entirely and arguably one that's far more serious.

[chiang mai]

if the pound plummets even more this would mean less tourists here and people residing here leaving to go back to their home country.

Bad for the ecomony all round

But it would help the UK economy so in that respect it's not a complete lose leader. Anyway, the negative impact on Thai tourism caused by a reduction in the number of people spending Pounds would be insignificant, when viewed in the context of the larger financial picture. But moving on from those things:

It does indeed seem as though GBP/THB is going to get hit but that shouldn't come as any big surprise to regular GBP/THB watchers, unless of course you belonged to the "bring back 70" brigade of dreamers! The Thai current account is looking strong and Thai foreign reserves even stronger - exports are still down factories are starting to offer overtime once again so things are really not looking that bad.

By contrast, the UK has taken a series of hits in the past two weeks with reports from a series of influential bodies highlighting the problems and recommending cuts in government spending, a move of course that is counter culture in the mind of the current government. But the stats that caught my eye this past week were the two "awards", one for being the most prolific users of cocaine in Europe and second for being the country with the highest rate of violence, staggering. All of that suggests to me that when the government does start to cut spending (it has to happen) the things that will get cut will be social services and that will likely compound the already dire social problems. Forget the fall in the currency, that can recover over time. But the fall of the people is another topic entirely and arguably one that's far more serious.

[cpofc]

is there any one here who can give me a quote?

I need my Moat hucked out.

[chiang mai]

is there any one here who can give me a quote?

I need my Moat hucked out.

Yes it's that aspect too, along with the imbalance in pension fund values between final salary schemes (government employees) and the rest of the population - the whole country seems to be out of whack and it's going to take a long time for it to recover, if indeed it ever can.