Defaulting banks - where will it stop?

[Jan Klimkowski]

"Spooky" Ambrose Evans-Pritchard forgets to take his meds:

The Bank of England has not run out of ammo yet. It can cut rates to zero if necessary and then escalate to direct infusions of money by purchasing bonds – or indeed by buying a vast range of securities, assets and even houses if necessary. Ultimately it can print money to cover the budget deficit.

As the late Milton Friedman put it, governments can drop bundles of banknotes from helicopters. If they really want to defeat to deflation, they can. Mr Friedman may have overlooked the fact that gunmen can shoot down the helicopter – the Bank of France in October 1931, when it ditched the dollar; perhaps Asian bond investors today? – but that is to quibble.

Professor Spencer says the Bank of England has learned the hard lessons. Without the constraints of the ERM, Gold Standard, or any other fixed exchange system, it retains great freedom of action.

"They are very aware of the deflation risk. They are cutting rates very fast, and if necessary they too will turn to helicopters. But in the end they will keep the wolf from the door," he said.

http://www.telegraph.co.uk/finance/comme...ation.html

However, it appears Gordon Brown is singing from the same delusional hymnsheet to the Usual Suspects at the CFR:

Speaking to the Council on Foreign Relations, a New York-based thinktank, Brown said: "We need to make monetary policy work to better effect. In the US, interest rates have been reduced to 1%. The European area has been slower - rates are 3.25% in the euro area and 3% in the UK. There is scope for a further reduction in interest rates. It is an essential part of what we are doing."

He said lower interest rates needed to be accompanied by tax cuts and spending increases. The government wanted to avoid a financial giveaway being saved rather than spent, as happened to half the 1% of GDP rebate handed to US taxpayers.

http://www.guardian.co.uk/business/2008/...-brown-g20

George Soros must be licking his lips at the prospect of destroying the pound sterling. Again.