1 march 2010, déjà vu

Monday 1st March 2010

This is going to seem rather samey, but not for the first time willem buiter seems to be reading my blog. Previously he penned his famous "rekjavik on thames" article shortly after I first made the connection in the economist (ditching the krona – is sterling next ?), and now he’s rolled out my “hour of the sterling crisis cometh” thesis. Even though my old ecb colleagues don't, and even though he's citibank's new chief economist, you have to like willem. Today, "Britain’s economic fundamentals are uniquely awful. As regards public debt and deficits, Britain’s true fiscal circumstances are about as bad as Greece’s reported situation... Britain has four, inconsistent, features. It is a small, open economy, with a large, internationally-exposed financial sector, its own minor-league currency and limited fiscal spare capacity. This makes it uniquely vulnerable. Its central bank is limited in the liquidity support it can give banks with short-term foreign-currency liabilities. Its fiscal authorities may discover that major banks are not just too big to fail but also too big to save.” Now, hark back to my October 2008 letter, “about the fate of a small country on the fringes of Europe. Its mostly foreign-currency denominated markets dived to the point where the government had to nationalise its banks, only to discover that its own, highly exposed local currency declined so much the country became bankrupt”. We are teetering...