The UK’s reputation took a further plunge as investors queued outside the Bank of England yesterday (see below) demanding payment in either gold or other hard currencies in exchange for the pound.
The currency took a further lurch lower in value after another frantic day’s trading on currency markets. Following the Governor’s refusal to bail out the UK’s major banks in 2008, the UK has failed to break from its cycle of recession after the catastrophic effects of the collapse of an effective payment system in 2008. The subsequent widespread economic hardship was exacerbated by The Bank of England’s refusal to allow Quantitative Easing (QE). The policy of QE has been aggressively pursued by other major central banks since 2009, leaving the Bank of England an outlier. The European Central Bank incrementally added its QE programme which saw a rapid solution to its “Euro crisis” in 2011.
This scene from yesterday, outside the Bank, is reminiscent of Northern Rock’s collapse 10 years ago, which saw then Chancellor Darling bail out that bank, but encouraged him and the Prime Minister to not support further bank rescues in 2008.
Yesterday’s demand was from a disparate collection of private individuals and investors, and marks the further increase in tensions as the currency slipped to further all-time lows against both the dollar and euro. As overseas investors continue to shun the UK government bond market, double-digit gilt yields further undermined equity market confidence.
Last year’s vote to leave the European Union only exacerbated the already weak financials. Conditions continue to worsen as net immigration to Europe and the rest of the world reaches levels not seen since the 19th century. The government aimed to reassure investors, but with an ounce of gold costing sterling-based investors over £10,000, it is difficult to see normal conditions returning to the UK anytime soon…
Or rather, is it just a queue of collectors keen to have one of the new Jane Austen £10 notes launched today?
My counterfactual history of events 10 years on from the financial crisis is clearly ludicrous. But whilst QE may be bad, it is like Churchill’s remarks on democracy: QE is the worst form of policy, except for all those other forms that have been tried from time to time.