That's a monthly chart of the British Pound (GBP) against the US$. Notice the Waterfall-like fall from 200 to 140. It's currently at pretty strong support going back to the lows in 2001 and 1993. I expect this support to hold .. for now. When this support breaks, and it SHALL, its goodbye and goodnight.
The British government has taken on the liabilities of its banking system. RBS alone has liabilities of £1.8 trillion, three times the annual government spending, against assets of £1.9 trillion. While RBS is notionally solvent, the true value of its assets is considerably worse.
Meanwhile National Debt is approximately 630 Billion GBP and GDP is approximately £1.4 trillion. The total Debt load is thus conservatively 100% of its GDP. Niall Ferguson in his excellent book "Empire" showed that the UK has in the past consistently carried and serviced Crown Debts between 2-3 times its GDP. Unfortunately in those days, Great Britain was the world's paramount superpower and the Sterling was the reserve currency of the world.
In attempting to fight deflation and unleash a storm of liquidity the BoE governor Mervyn King has said "Despite those big cuts, there remains a risk that inflation will fall below 2 percent," ..... "It is sensible for the Monetary Policy Committee to prepare for the possibility -- and I stress that we are not there yet -- that it may need to move beyond the conventional instrument". Translation: Rate Cuts are doing F%$@-all to solve the crisis, we must start monetizing government paper.
I had thought Russia would be first major economy to default, it looks like I was wrong. That honour might be bestowed upon M/S King and Brown. Welcome to Reykjavik on the Thames.
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