Monday, March 09, 2009
the run on britain
Some $597.5bn was lost to the banks in the last quarter of last year alone, after a modest positive inflow in the summer, but a massive $682.5bn haemorrhaged in the second quarter of 2008 – a record. About 15 per cent of the monies held by foreigners in the UK were withdrawn over the period, leaving about $6 trillion. This is by far the largest withdrawal of foreign funds from the UK in recent decades – about 10 times what might flow out during a "normal" quarter. ...
Paranoia that the UK could follow Iceland into effective national insolvency and jibes about "Reykjavik on Thames" will find an unwelcome substantiation in these statistics – which also show that stricken British banks are having to repatriate similar sums back to Britain. This is scant consolation for the authorities, however, as it means the UK and sterling are, like some emerging markets and currencies, suffering from a flight of capital. By contrast some financial centres and currencies – notably the US dollar and the Swiss franc – are enjoying a boost as "safe havens" in a troubled world.
it's unfortunately no longer paranoia now that it's happening. britain is in a terrible way with short term externally-held debt, much of it related to the unwinding city financial sector. capital flight, forcing the pound lower, is only increasing the impetus to flee with some $6tn still left to liquidate. moreover, "a full blown downgrade of its sovereign credit rating which many speculate could be mere days away would only perpetuate the capital outflows".