British Pound Collapsing Under Weight of Bankrupt Banks Liabilities

Currencies / British Pound Jan 31, 2009 - 02:06 PM

By: Money_and_Markets

Jack Crooks writes: Great Britain's Prime Minister, Gordon Brown, is meddling in the Bank of England and U.K. Treasury, much the same way that our Hank Paulson and Ben Bernanke have done. And now everything that Mr. Brown is struggling with underlines why his home currency has performed so poorly recently … and will continue to disappoint.

I first warned readers of the pound's problems on December 22, 2007 , in my Money and Markets column. At that time I forecasted that the British pound would be the U.S. dollar of 2008. And that forecast did not disappoint.

Back then, the pound traded above $2, and now it's sitting at a measly $1.43, a whopping 27% decline!

And the damage isn't limited to just U.S. dollar gains …

The euro has risen to a record high against the pound as recently as December 30, 2008 … even while the euro had fallen to $1.40.





And in my opinion …

Things Aren't Going to Get Better For the Pound Anytime Soon —

We learned last week that the Royal Bank of Scotland (RBS) will probably post somewhere near $41 billion in losses for 2008. This puts it in-line to be the largest annual loss by a British company. We also learned the U.K. government will up its stake in RBS to 70%.

This intended move sent tremors rippling through the entire U.K. banking system.

Talk is that RBS will be required to loan out certain amounts of money to “credit worthyâ€