The Bank of England planned to reduce its balance sheet as early as next week. She will finally take out her money board…
The Bank of England go Brrrrr…
The BoE said on Wednesday it will buy long-term UK government debt “on whatever scale necessary”.
This formula obviously recalls the “Whatever it takes” (‘whatever the cost’) by Mario Draghi during the European debt crisis of 2014.
The Bank of England has committed to buy for 65 billion pounds ($69 billion) of long-term debt.
This restart of QE (Quantitative Easing) aims to lower government borrowing rates. Indeed, the 30-year rate rose to 5%, more than for Italy or Greece.
– Pension funds risk going bankrupt
– £65 billion bond purchase program
– GBP exchange rate at its lowest
‘At one point this morning I was afraid this was the beginning of the end’ – London-based banker’
In other words, the old lady has just put the brakes on the four irons when she was about to start selling the 838 billion pounds (891 billion dollars) of government bonds she holds.
These sales of government bonds intended to control galloping inflation are postponed. However, the BoE has declared that it still intended to reduce its balance sheet by 80 billion pounds over the next 12 months. Wait and see…
The tremors came from the unexpected scale of Her Majesty’s Government’s borrowing plan which promised to release more than 60 billion pounds to reduce the energy bill. (And it will be 200 billion euros for Germany).
A figure to be compared with the British budget deficit of 39 billion in 2019. A figure pulverized following the Kafkaesque and expensive Covid year (324 billion deficit in 2021).
Added to this is the tax reduction plan announced by the new government of Mary Elizabeth Truss. The straw that made the bond market overflow.
Debt vs Bitcoin
According to Reuters, “Traders say it’s getting harder and harder to buy and sell UK debt because no one wants to take the risk of holding such a volatile asset.”
Indeed, who would want to hold a debt yielding a few percent when inflation is above 10%…
Not to mention the fact that this debt is denominated in a sinking currency. The British pound lost 27% against the dollar between the May 2021 high and this week’s low.
It is therefore better to hold Bitcoin rather than participate in this Ponzian headlong rush guaranteed to be derailed in the face of the explosion in energy prices. Especially in these troubled times with the hints of world war.
Some are starting to realize this if we are to believe the trading volumes between GBP and BTC. According to Kaiko Research, the daily volume on BTC/GBP approached 1 billion pounds at the start of the week (846 million), against only 54 million pounds on average since the beginning of the year.
In other words, when a FIAT currency is threatened, investors now turn to Bitcoin. As expected… According to Gabor Gurbacks, the strategy adviser at investment giant Vaneck, the UK will soon be “orange pilled”.
Chancellor Olaf Scholz probably did not foresee these scenarios. The small skirmish in Ukraine which was to offer him the opportunity to accelerate the energy transition has turned into a war. And all this to the delight of the United States, which is sacrificing the old continent on the altar of the petrodollar.
The winter promises to be as long as it is fruitful for bitcoin. You can’t tap a ponzi…
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