“Don’t panic…don’t panic (yet)”


A familiar cry if you are a forty-something who grew up in an era when Dad’s Army was prominent in the “world of light entertainment” when a memorable catchphrase was a bit of a mainstay. But, let’s face it, times have changed. Dramatically and in every sphere of life.

How long has it been since you could say that something was “safe as BoE”? Along with “safe as Fort Knox”, these sayings was pretty common place when you were growing up…certainly, if, like me, you were born in the 60’s?

“And now for something completely different”

The Bank of England has said that the UK’s economic growth is set to pick up, although risks to the recovery remain.
Don’t trust The Management, or The Government or (even) BoE…  

Remember the desperation at Northern Rock branches a few years ago? Depositors queued up to get their hands on their savings, petrified they wouldn’t see them again.

‘The Rock’ released statement after statement saying all was well, and that savers and shareholders shouldn’t be nervous. The company was in good shape, they said.

Of course this is exactly what the guys at the top have to say. If they don’t, they risk a loss of confidence. But you shouldn’t believe a word of it…

And now the same kind of messages of reassurance came from European politicians and bankers to defend Greece’s position. Of course, the markets don’t believe a word of it. And nor should you.

The fact is, trouble in Greece is set to send dominoes falling across Europe. And that includes the UK.

With Northern Rock, eventually the government bailed out the depositors. But this time, it’s the government that’s at risk. Who’ll bail out government depositors?

Let’s go back a bit and see what happened in Iceland…

Lessons from Iceland

By the time Iceland’s major banks were nationalised in September 2008, it was already too late for most of its people to take evasive action. They were stuck with cash savings in krona and probably most of their assets denominated in krona too.

The krona crashed…

And since then, Icelandic people have had their savings slashed, and suffer inflation from the krona’s devaluation…

How Icelanders must now wish they’d acted sooner to get some foreign assets or maybe a bit of gold into their portfolios. How they must wish they hadn’t listened to all the reassuring promises from the authorities!

Because, with a bit more foresight, individuals could have put measures in place to profit from the carnage.

Unfortunately, we have much in common with Iceland. An independent currency and a bloated banking system for starters.

For us to put faith in our independent currency and the Bank of England to get us out of any fiscal tight spot is a dangerous gamble.

The Greek drama is exposing Britain’s weakness, and you need to get ready to take preventative action…

The European drama unfolds

The pound has been weak against the euro for a good couple of years now. You might think that the unfolding euro-zone crisis would allow the pound to regain lost ground.

Not so. While the dollar has had a good run, the pound has barely budged. The reason for this is clear. The markets are fretting about Britain’s own deficit problems.

In terms of our public sector deficit, we’re in the same boat as Greece. We both have a deficit around the 12-13% mark. Worse, here in Britain we don’t seem to have any political will to make the changes necessary to avert crisis. All we’ve got is an independent bank with the power to print currency – and that’s supposed to be our strength!

Remember, when the crisis looms, it’ll come quickly. The authorities will tell citizens there’s nothing to worry about – the problem’s down to mindless speculators they’ll say.

It is particularly worrying that the BoE already know what’s wrong and what needs to be done to start the healing process and rebuild from a solid foundation…Mervyn King and Andy Haldane have both spoken on the subject: Complexity: Global Banking – “The Sources of Unpredictability”

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