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When George Soros Broke the British Pound (2014)

priceonomics.com

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Re: When George Soros Broke the British Pound (2014)

#21

Post by hogFeast »

nabla9 wrote: post #14
vwuon wrote: post #5

Earlier quoted context omitted.

True. And if a kid pushes an old man and he breaks his hip, that's the old man's fault for getting old! Oh, wait. https://twitter.com/ceejayoz

Except that Soros did not hurt UK economy. Just bruised some egos at the Bank of England by showing their stupid mistakes.

The only reason he could put on the trade in the size that he did was because the BoE took the other side (they sold $27bn worth of £ and Soros had a $10bn position) and believed they were omnipotent (even amongst British civil servants, the BoE was unusually stacked with "god complex" types...and still is to a certain extent).

Documentary on this - https://www.youtube.com/watch?v=K_oET45GzMI

Re: When George Soros Broke the British Pound (2014)

#22

Post by BubRoss »

ummonk wrote: post #16
ceejayoz wrote: post #2

The "Soros broke the bank" framing I tend to see in discussions of this is really quite odd, as if it were some sort of illegal Oceans 11 style heist. He didn't break the bank. The bank broke itself. > What kept the pound from plummeting in value was the British government’s guarantee that it would keep the value propped up, and the market believed that it would. As long as everyone believed that England would stay i…

If I build a house on stilts strong enough to withstand kicks but somebody comes along with a giant sledgehammer to break the stilts, they will be at least somewhat to blame.

No one is running around and destroying healthy financial entities. Rotting posts will break eventually, a little effort can just change the timing.

Re: When George Soros Broke the British Pound (2014)

#24

Post by optimiz3 »

ceejayoz wrote: post #2

The "Soros broke the bank" framing I tend to see in discussions of this is really quite odd, as if it were some sort of illegal Oceans 11 style heist. He didn't break the bank. The bank broke itself. > What kept the pound from plummeting in value was the British government’s guarantee that it would keep the value propped up, and the market believed that it would. As long as everyone believed that England would stay i…

> If you build a house on rotten stilts, and some neighborhood kid comes and kicks one of them, it's not the kid's fault when the house collapses.

Don't like this metaphor. Maybe the the homeowner can't afford to fix their house. Now they're homeless. Hurting others for enjoyment is the basis of evil. Leave the world better at the end of the day, not worse.

Re: When George Soros Broke the British Pound (2014)

#25

Post by krmmalik »

justaguyhere wrote: post #17

A bit off topic - does anyone know other blogs like priceonomics? I'm a big fan - I think the first article I read there was the "Diamonds are bullshit" one. Must be fun having access to all kinds of interesting data and poring over them.

Check out Matt Stoller on Substack.

Re: When George Soros Broke the British Pound (2014)

#26

Post by ummonk »

What I would like to see is what led to the pound being so badly mispriced in the first place. Did they just price it at whatever was the prevailing price? And was that why the Bank of England ended up with such small reserves?

Presumably they could have priced it lower and bought up Deutschmarks to bring down the price of pounds and build up reserves to start with when they decided to fix it.

There is also the question of how much Germany was contributing to the problem by keeping its currency overly strong, making it harder for other countries to stay in sync. Presumably if the Germans had raised interest rates somewhat and / or bought more reserves from other countries they could have helped relieve the pressure.

Re: When George Soros Broke the British Pound (2014)

#27

Post by nostrademons »

It's interesting to read this with an eye on current global macroeconomic conditions.

The dollar is significantly overvalued today, a result of its status as the global reserve currency. And the consequences of that are all the same ones mentioned for the pound in the article. The U.S. has been running a large current account deficit since 1980: we import more than we export. Our jobs are moving overseas, because it doesn't make sense to employ Americans at the wages they demand, because the wages they demand are artificially inflated by the overvalued dollar they're paid in. We need to keep interest rates high relative to peer countries to maintain the dollar's reserve status. We insist - through foreign diplomacy if possible and military intervention if not - that oil-producing companies price their oil in dollars, creating demand for dollars that would otherwise flow through other currencies. And all of this has been widely reported for the last couple decades.

The U.S. has stated that they're committed to defending the dollar as the world's reserve currency. What happens when they can't, and the collective weight of the market is more than a national government can prop up?

Re: When George Soros Broke the British Pound (2014)

#28

Post by ceejayoz »

optimiz3 wrote: post #24
ceejayoz wrote: post #2

The "Soros broke the bank" framing I tend to see in discussions of this is really quite odd, as if it were some sort of illegal Oceans 11 style heist. He didn't break the bank. The bank broke itself. > What kept the pound from plummeting in value was the British government’s guarantee that it would keep the value propped up, and the market believed that it would. As long as everyone believed that England would stay i…

> If you build a house on rotten stilts, and some neighborhood kid comes and kicks one of them, it's not the kid's fault when the house collapses. Don't like this metaphor. Maybe the the homeowner can't afford to fix their house. Now they're homeless. Hurting others for enjoyment is the basis of evil. Leave the world better at the end of the day, not worse.

Those sorts of maybes don't really matter. "Please don't be a dick" doesn't even work at the neighborhood kids level. It certainly doesn't work at the international finance level.

The Bank of England propped up the currency in a non-sustainable fashion, and spent billions trying to avoid having to admit that was a bad call. Someone was always going to come along and smash it, especially with billions of dollars of upside available.

Re: When George Soros Broke the British Pound (2014)

#29

Post by LatteLazy »

ummonk wrote: post #26

What I would like to see is what led to the pound being so badly mispriced in the first place. Did they just price it at whatever was the prevailing price? And was that why the Bank of England ended up with such small reserves? Presumably they could have priced it lower and bought up Deutschmarks to bring down the price of pounds and build up reserves to start with when they decided to fix it. There is also the quest…

It was a political choice. The idea was to avoid inflation and keep prices low for consumers. Of course the same action strangled exporters but they don't vote much...

Re: When George Soros Broke the British Pound (2014)

#30

Post by danharaj »

nostrademons wrote: post #27

It's interesting to read this with an eye on current global macroeconomic conditions. The dollar is significantly overvalued today, a result of its status as the global reserve currency. And the consequences of that are all the same ones mentioned for the pound in the article. The U.S. has been running a large current account deficit since 1980: we import more than we export. Our jobs are moving overseas, because it…

Every empire has created the conditions of its collapse.
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