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The Bank of England to the Rescue - The Threadneedle Hotline

Interest-Rates / UK Interest Rates Sep 06, 2007 - 09:16 AM GMT

By: Adrian_Ash


"...The lowest interest rates for 40 years! Employment at a record high! More debt per working family than any other people in history..."

THE BANK OF ENGLAND chose not to raise Sterling base rates on Thursday, despite the UK money supply growing at a two-decade record.

It also made fresh short-term loans available to London 's illiquid money market. But might the UK authorities be considering a more "prudent" response to the credit crunch, too?

GB: Mervyn? It's Gordon.

MK: Ah, good morning Chancell...I mean, Prime Minister. How's the smile coming along?

GB: No time for small talk, I'm live on air on the Today programme. John Humphrys might let me get a word in edge-wise at any moment...

MK: At least it's not Naughtie...

GB: Look, we need to get the gold back.

MK: Sorry?

GB: The gold, Mervyn – we need it back.

MK: What gold?

GB: You know perfectly well what gold, Governor.

MK: What – all of it?

GB: Correct. All 415 tonnes. Safe in a vault, deep underground.

MK: What in the...

GB: All this sub-prime shenanigans...those hedge-fund charlies in Mayfair ...that bampot at Barclays...

MK: But this is no time to panic, not in public at least. Kaletsky's still on side at The Times . And besides, the economy's sound, remember?

GB: Do I remember? This is no time to be facetious...

MK: How does it go again? "The lowest interest rates for 40 years! Employment at a record high! More debt per working family than any other people in history..."

GB: Save your jokes for your banking numpties, please Governor, and stick to your football gags while you're at it. I'm simply saying that the prudent course here would be – hold on, Humphrys is taking a breath...

[ Mumbles, indistinct. "A new type of politics...the tough questions, not the easy path of short-term slogans..." Humphrys starts shouting – again – in the background. ]

GB: Where was I?

MK: The prudent course...

GB: Oh yes, the prudent course would be to buy and hold gold.

MK: Well really, Prime Minister, I'm speechless...

GB: Aye, I noticed that. About time you spoke up, no?

MK: And say what exactly? That we're going to slash lending rates? Prime Minister, the banks won't lend to each other for much less than 7 per cent as it is. Barclays came to us twice in one week because they couldn't raise cash in the market. Things won't suddenly get all free and easy if we tell the lenders they should settle for a lower rate of return...

GB: My point exactly. Desperate times. Credit crunch on. Recession looming. Buy and hold gold.

MK: And you're going to go to the country on those slogans? The Gold Price has nearly doubled in Sterling ! How do you propose we go about buying it back?

GB: That's not my job today, it's yours. And Darling's, of course, poor nugget. Why don't you just print some more money or sell a few gilts?

MK: Didn't you see July's money supply numbers? "No return to boom and bust," you kept telling the nation. Now M4 is rising faster than at any time since the Lawson Bubble got started...

GB: Okay, so why don't you just make something up? Always seems to work here in Whitehall . Say it was...I don't know...say it was a gold loan...write it down as a P.F.I. project...

MK: Sorry, did you just say "gold loan"? This is Gordon Brown that I'm speaking to, yes? Not a prank call...

GB: Look, I know you're not Eddie George, but can't you at least pretend to be calm? Just open the taps and buy gold at the same time. The government gets a solid, valuable asset to help back the value of Sterling, and the Gold Price would be sure to go higher thanks to all that new money supply. Ed Balls says it's moving already. His model projects we might even recover that two-billion loss from the gold that we sold back seven years ago...

MK: The gold that "we" sold? With all due respect, Prime Minister, the Bank of England played no part in your decision! We were as shocked as the bullion banks when you told us. It was like going back to Robin Leigh-Pemberton's day...taking phonecalls – at work – to say Mrs Thatcher had changed the interest rate.

GB: Aye, and that's the other thing, Mervyn – you're not going to do anything stupid with interest rates on Thursday now, are you? I repeat: Nothing stupid with interest rates.

MK: You print the posters, and I'll get the badges made up. Really, how could we raise interest rates anyway? The Fed's been desperate to slash Dollar rates since subprime housing topped out in summer last year. Now's it got the excuse that it needs from Wall Street. Tricky John over in Frankfurt is about to lose his nerve, too. And as for the Japanese, well...

GB: So that's settled then. Cheap money for all. A new inflation measure if the CPI ever plays up again. Forwards, not backwards. Britain 's bright home-owning future.

MK: But about the gold, Prime Minister. It's simply out of the question. Just where in the world would we find gold bars – at spot price – that we can buy directly with Pounds Sterling?

GB: Hmmm, have you not heard about BullionVault ...?

By Adrian Ash

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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