Holding Dollars

Item on Today this morning about rumours that one of the rating agencies is going to downgrade UK government debt. Given the amount that the UK is currently borrowing to prop up the banking system, this is not a good thing. Apparently, unlike the Germans and the Japanese, but like the Americans, the British don't save, but unlike with the Americans, no-one wants to hold debt in a dodgy minor currency - they prefer to hold euros or dollars. There are also rumours that the UK government might default on its debt. I think this unlikely, but the mere existence of the rumours will do us no good.

Clearly at the moment it would be better for the UK to be in the eurozone. Whether it would be better for the eurozone is another matter. There is the argument that the euro is a dodgy major currency, but that argument is generally made by the usual suspects. The problem for Gordon Brown is that even if he wanted to join the euro and even if the Germans would have us, it would probably be practically impossible to join by next May, certainly in terms of having notes circulating. It would also be a political controversial decision. We can though expect the debate to dominate the political discourse over the next year and a quarter. Brown isn't going to want to say that he will take Britain into the euro, but he has to keep the option open. Cameron and Osbourne's problem is that if Britain is the first country transitioning to a post-post-industrial society (we need a catchier term for the processing of turning from a first world to a, well, not quite a third world country, but certainly something profoundly different from what we have been over the last decades and, arguably, centuries) then sterling is worthless and the only alternative to the euro is US dollarisation. And that worked so well for Argentina. But it might be an easier sell to the readers of The Sun.

The UK government owns 70% of RBS, St Vincent Cable is openly calling for the nationalisation of the entire banking sector (unclear to me how he intends to pay to do that - perhaps he thinks the government should just sequester the assets of the banks) and the Bank of England's prime interest rate is, for what it's worth (in economic terms probably not very much as the economy today bears precious little resemblance to the economy thirty years, much less three hundred - and people say nothing ever changes), at its lowest level ever in 315 years.

And today, the United States gets a new president - young, vigorous and intelligent - at the time that the world's faces its gravest economic crisis since the early 1930s. We live in interesting times.

Comments

[Celestial M Weasel]

I am working on a version of the Philips curve which will measure my thoughts on the fuckedness of W********** ******** vs the British Economy at any given time (i.e. a plot of F(WS(t)) vs F(BE(t)) parameterised by time).