Winds of Change Blowing Furiously in London ~ The Risk Averse Alert

Tuesday, February 05, 2013

Winds of Change Blowing Furiously in London

Are the future McDonalds managers of America even paying attention to what is going on in London these days? You know, so-called analysts CNBC and Bloomberg march before their viewers with starry eyed insights into fortunes at the bottom rung of the capital structure? These evidently are oblivious to profound crisis higher up, the likes whose alleviation remains impervious to lender of last resort machinations attempting to play Dr. Frankenstein on an otherwise dead system. How is it they fail to recognize a modern-day trade war developing, proceeding specifically from the financial arena?

The story begins with the U.K. Chancellor of the Exchequer George Osborne's Damascus Road conversion in support of an "electrified ring-fence" surrounding U.K. bank holding companies. This legislative imperative will be added to the Financial Services (Banking Reform) Bill to be presented to the U.K. Parliament this week, giving authorities ability to split up any institution that doesn’t abide by “ring-fencing” rules to insulate retail operations from investment-banking activities. As recently as November Osborne opposed this approach. Why the sudden change?

Now, this initiative is not to be confused with Glass-Steagall reform. Nor does it present a blanket threat to all U.K. bank holding companies should any one within the fraternity err. Several U.K. functionaries have recognized this shortcoming and have scored the chancellor for being "soft." As might be expected, "In general the City reacted with dismay." (We might do well to remember the U.S. State Department's "dismay"—wink, wink—over Prime Minister Cameron's E.U. ultimatum?)

Yet might this initiative be a "carrot and stick" means to an end raising the attractiveness of London as a destination for hot money flows in a manufactured crisis?

Let's forget for the moment any suggestion regulatory oversight of the U.K. banking system will be enhanced should this electrified ring-fence legislation become law. Well enough we leave this proposition to proof in pudding not served anywhere throughout the trans-Atlantic banking system for some decades now. Still, per it possibly bolstering industry claims the U.K. banking system is a safe destination for global capital in a vulnerable financial world rife with uncertainty, might this initiative serve the same purpose Prime Minister Cameron's E.U. ultimatum is thought venturing?

Imagine how much more London's developing war plans might be served were interest rates forced higher. Reading the Financial Times' report of the speech Lord Turner, the departing chairman of the Financial Services Authority, gave yesterday in London, one gets the clear impression the U.K. is finding religion whose calling is leading to this end:
"[Lord Turner] did add, however, that the country where monetary financing was least likely to be needed was the UK. There he accepts that more stimulus might lead to higher inflation as the underlying health of the economy is weak and could not 'respond to demand and price signals.'"

Cutting through unintelligible sophistry per "demand and price signals"—this evidently signaling the Bank of England is loathe to follow Capo Confetti's debt monetization lead—and turning to preaching this City representative directs at Bundesbank president Jens Weidmann, we might conclude Turner is attacking Germany's more cautious, status quo compliant crisis response perpetuating a competitive climate for capital in Europe—imploring the Bundesbank get on board with the Fed's hyperinflationary "solution," that London might become the sole destination where printing press profligacy both east and west of it might find sanctuary.

German resistance to the EMU's hyperinflationary bailout certainly makes more difficult London's task of securing both its attractiveness as a capital destination, as well as supporting the pound sterling's exchange value, which, like the U.S. dollar, simply cannot be allowed to collapse uncontrollably, being at the core of the derivatives dung pile anchoring the trans-Atlantic banking system. Should this occur, though, watch out for a sudden, sharp upward spike in interest rates to be sure. It's possible recent developments in the U.K. (including this initiative to install an electrified ring-fence around U.K. bank holding companies) largely are intended to provide cover for an upcoming operation venturing to force the Bundesbank's surrender by way of collapsing the pound sterling and/or U.S. dollar, and threatening the prospect of upwardly spiraling interest rates whose effect increases the gravity of the EMU's crisis, deeply penetrating its core in both France and Germany.

All told, growing indications of a changing disposition from London portend a breakout of financial warfare throughout the trans-Atlantic sometime in the near future. Undiscerning observers might ascribe "responsible financial stewardship" to the U.K.'s motive here (that is were they not so busy treasuring demand-challenged trash whose value increases strictly for mechanical reasons impossible to sustain). I rather suspect something far less genuine and entirely devious is afoot here. So too does Tarpley (who likewise has caught wind of an impending intrigue employing an interest rate shock, although not going into any detail about this)...

Word on the Street
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