Whitehouse.gov – change has come
Before and after:
Pound driven out of the ERM
[youtube]http://www.youtube.com/watch?v=AHDsO7gvXHQ[/youtube]
Markets punish UK for saving markets
It’s been another terrible day for the pound as markets punish the British government for stepping in to prop up… the markets:
Analysts said the [latest bailout]… shone a particularly unflattering light on the state of the British government’s finances as it was forced to take an ever-increasing role in the private sector.
James Hughes at CMC Markets said: “Any support seen through yesterday’s session for sterling is looking to be little more than wishful thinking as currency markets take on board the fact that the UK government is risking looking like a huge bank with some legislative functions attached, as RBS now seems to be teetering on the brink of full nationalisation.”
Credit ratings agencies are also enjoying the party, despite being utterly discredited. When they downgrade the UK’s credit rating, the current devaluation (which has upsides) may turn into a rout (which won’t):
The Commonwealth Bank of Australia lowered its forecast for the pound to $1.50 by the end of June from a previous estimate of $1.60, citing a high risk of a cut to the UK’s credit rating outlook. Richard Grace, CBA’s chief currency strategist, warned in a note on Tuesday that UK debt may now be greater than forecast due to the government’s additional bank bailout plans and cited the “high risk” of a downward revision to the ratings outlook for the UK.
Any downgrade wil force many investors to sell their UK government debt, raising the government’s cost of borrowing. The FT’s Lex thinks there’s one thing that will stop a run on the pound – all the world’s other major currencies are screwed too…
Thinking like an engineer
Chris Blattman is experiencing a moment of epiphany. As he notes, Africa suffers from the fact that much of its road and rail infrastructure was built during colonial times, to shift raw materials from the interior to the outside world; there’s rather less infrastructure that runs between African countries, which makes regional trade a whole lot harder. So, Blattman continues,
What is a poor landlocked country to do? There was a time when I imagined roads, rail and regional integration were the answer. Now I know I dream too small. I need to dream like… an engineer.
And what might that look like in practice? Well, perhaps a bit like this.
The map comes from a 1954 book that Blattman has discovered, entitled Engineers’ Dreams: Great Projects That Could Come True. And lo, some of them actually have (like the Channel Tunnel). But as for the concept depicted above, well, that was
a plan to totally reconfigure the interior of Africa by creating a series of huge inland seas. The plan was originated by the German architect and engineer Herman Sörgel in 1935. His plan was to dam the Congo River where it passes through a string of deep, narrow gorges after it merges with one of its tributaries, the Kwa River. It would create a lake 350,000 square miles in area – larger than the areas of California, Nevada and Oregon combined.
For Blattman, this leaves the question, “What were they going to do with all those Congolese and Chadians? Give them beach-side holiday properties? Millions of USAID water wings?”
As for me, I’m reflecting anew on the point explained to me by a friend at the British Embassy in Beijing, who explained to me few months ago that “what you have to understand about Chinese government is that it’s run not by political scientists and lawyers, as in Britain, but by engineers“.
How the Crash affects the global balance of power
Former US Deputy Treasury Secretary Roger Altman has a piece in the new edition of Foreign Affairs on the Great Crash of 2008, which takes the following as its opening premise:
The financial and economic crash of 2008, the worst in over 75 years, is a major geopolitical setback for the United States and Europe. Over the medium term, Washington and European governments will have neither the resources nor the economic credibility to play the role in global affairs that they otherwise would have played. These weaknesses will eventually be repaired, but in the interim, they will accelerate trends that are shifting the world’s center of gravity away from the United States.