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Notes -
Inspired by a comment from Twitter;
Everyone is talking about the US relative decline, but they are really flexing his power in a way that we have not seen from Iraq
In one year they;
Destroyed every possible reconciliation between Europe and Russia
Became a next exporter of natural resources and the ones from who a lot of allies depend
They basically sent a fuck off to Germany, and the Germans not only are not complaining, but are applauding
They strongly limited the military of power of Russia with few money.
China is slowing her growth, and they created a ring of allies in the Pacific
The cultural grip on the West is becoming stronger, and the US successfully fused Neoliberalism and Leftism in a zombie ideology who is, against all odds, successfully working
The pro-Atlantist view have never been so strong.
I doubt that these strategies will work or be healthy in the long term, but it is incredible to see how an ill and polarized country can still do whatever it wants without any reaction.
Also , the collapse of Euro, Yen, AUD, and Pound, and the surge of US dollar. Even when things seem to be going badly here, things are worse overseas, like higher inflation, worse energy shortages , more unrest (like in Iran now).
I was hoping one of the resident fin* people here with connections to London would have a top level on what's going on with the pound in particular. Seen some analysis that the new governments financial policies were a mismatch for ground level economic realities especially combined with energy subsidies for the coming winter. Then a much further downstream technical analysis of how a volatile bond market might have almost nuked pension funds.
The short version of what happened to the pension funds is:
Pension funds have future-dated liabilities. Falling interest rates raise the NPV of these liabilities, potentially causing the pension fund to become accounting-insolvent.
UK regulation makes it a bad idea to allow a pension fund to be accounting-insolvent, so pension funds want to manage this risk. The main way they do this is using long-dated interest rate swaps. Effectively this is a side bet on interest rates - if interest rates fall, you win enough on the swap to cover the increased liability.
Market interest rates rose, fast. This meant that pension funds lost money on the swaps, and faced margin calls which needed to be paid in cash in the very short term (days, not weeks). But the offsetting gain from a falling NPV of liabilities is a purely paper gain. So pension funds were in danger of becoming cash-insolvent.
In addition, rising interest rates reduce the value of long-dated government bonds, which are a popular form of collateral. The 50-year gilt was briefly trading at 40p in the £ (not because anyone was afraid of a default, just because the interest rate suddenly became below-market). If you were using this gilt as collateral, you would be facing a margin call even if you hadn't lost money.
Whatever you call it, the BoE was forced to print money to cover government (planned) deficits that the bond market couldn't bear. This is bad.
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