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A Lesson For Today's Currency Crises: Black Wednesday 1992 - When Intervention Failed

Tyler Durden's picture




 

The 16th of September 1992 will go down in infamy as the day intervention failed and the British government lost control. By the end of Black Wednesday, George Soros had made a billion dollars and the UK Treasury, Bank of England had blown through taxpayer money in a manner never before seen.

"We planned to intervene on a scale that would ensure the market knew we were intervening, " but as the government intervened one trader notes, "it was incredible, you could hear wave after wave of selling being met by resistance from the Bank of England."

As the Treasury waited for news, fear began to spread, "we waited minute by minute on updates from the market and then we learned that the billion or so [of taxpayer money] we had put aside Tuesday to defend the pound up to the weekend had gone in a few minutes on Wednesday morning," shattering the myth of government omnipotence.

 

Ironically the recent collapse in the Ruble is significantly worse than the collapse in the pound at the time...

 

Full BBC Black Wednesday documentary:

 

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Mon, 12/15/2014 - 23:16 | 5556654 Oh regional Indian
Oh regional Indian's picture

Who is the modern day Gehorg Sorrows?

Mon, 12/15/2014 - 23:16 | 5556655 SumTing Wong
SumTing Wong's picture

You call it intervention...we call it interference.

Mon, 12/15/2014 - 23:18 | 5556661 Fun Facts
Fun Facts's picture

Russian CDS spread 485bp and rising

http://www.dbresearch.com/servlet/reweb2.ReWEB?rwnode=DBR_INTERNET_EN-PR...$NAVIGATION&rwobj=CDS.calias&rwsite=DBR_INTERNET_EN-PROD

Mon, 12/15/2014 - 23:24 | 5556681 Cognitive Dissonance
Cognitive Dissonance's picture

The day omnipotence becomes just another flacid penis.

Mon, 12/15/2014 - 23:25 | 5556686 holdbuysell
holdbuysell's picture

Free markets.

Chuckle.

Tue, 12/16/2014 - 08:58 | 5557551 RaceToTheBottom
RaceToTheBottom's picture

I would recommend that the Putin take his shirt off.

 

It works for some people....  Not that there is anything wrong with that.....

Mon, 12/15/2014 - 23:29 | 5556692 venturen
venturen's picture

a billion...Kevin Henry blows through that before finishing his starbucks coffee.

Unfortunately Russia's Nukes are pointed in a different direction than englands. If Soros did this to Russia...he wouldn't see his evening meal

Tue, 12/16/2014 - 07:43 | 5557272 Cloud9.5
Cloud9.5's picture

MI-6 must be jsut another myth.

Mon, 12/15/2014 - 23:29 | 5556697 Okienomics
Okienomics's picture

Hear the dominos? Click... Click... Click...

Mon, 12/15/2014 - 23:29 | 5556698 razorthin
razorthin's picture

Aaaand it's gone.  All gone.

Mon, 12/15/2014 - 23:33 | 5556702 NoWayJose
NoWayJose's picture

Interventions don't usually work - Russia has been spending foreign reserves to support the ruble without any effect.  The beauty of jacking p rates is that Russia gets to keep its foreign reserves rather than selling them to the speculating banks -- yet the higher rates will use market forces to support the ruble as banks and wealthy individuals move dollars to Russia.

Mon, 12/15/2014 - 23:32 | 5556704 cnmcdee
cnmcdee's picture

Who!? Really sets the value of the RUBUSD anyways?  Consider 75 currencies are made in a single building in Germany *that's* how controlled / manipulated things are.

The central banks just make a nod agreement and the RUBUSD get's monkey hammered.  Once you realize the chart of candles you are looking at is whatever the central banks decide to make it - things start to make a lot more sense.

 

Physical war follows economic war. Get ready.

Tue, 12/16/2014 - 08:50 | 5557526 giggler321
giggler321's picture

and how exactly are you going to get ready?  It's not like a hasmat suite is really going to help in the long run.

 

OT: Pegging to yellow won't work either because it is another currency.  If it didn't work against the Deutsche Mark fiat; it will never work for any of the shiny metals.

Mon, 12/15/2014 - 23:35 | 5556708 buzzsaw99
buzzsaw99's picture

that's all central banks and gubbermints do is hand money to billionaires

Mon, 12/15/2014 - 23:42 | 5556728 AdvancingTime
AdvancingTime's picture

The strengthening dollar may be sending a signal that the whole system is unstable. Other currencies are under assault because both economies are weak and countries are buried in debt they can never repay at real market interest rates.  The change in currency values may be dramatic and using history as a guide markets often show no mercy when this shift occurs.

For months the major world currencies had traded in a narrow range as if held in limbo by some great force. This has allowed people to think we were on sound footing as central banks across the world continued to print and pump out money chasing the "ever elusive growth" that always appears to be just around the corner. Recently the major currencies have made multi-year highs or lows depending on the match-up. 

John Maynard Keynes said By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Weakness in the value of the Yen, Pound, and Euro must not go unnoticed. The article below looks at why this trend may accelerate and cause the stock market to drop like a stone.

 http://brucewilds.blogspot.com/2014/10/fed-concerned-that-stong-dollar.h...

Mon, 12/15/2014 - 23:45 | 5556735 MalteseFalcon
MalteseFalcon's picture

I was vacationing in the UK at the time.  My $$ exploded in value.

Good times.

Tue, 12/16/2014 - 00:21 | 5556842 knukles
knukles's picture

I remember the other side of the trade so to speak.  Was living in the UK and on the Continent on holiday when Tricky Dicky took us off the rest of the gold standard.  Couldn't sell a US dollar anywhere.  On crossing some borders (used to be exchanges at every border crossing back in the days when you showed your passports, etc.)   Since there was no bid for dollars, I kept asking people if they'd sell me any (cheap) and.... nope.  I do remember that gold coins and ingots (little tiny things) were selling briskly as everybody had their moment of panic.  Always carried SF and DM alongside US$ and Sterling (lived in the UK at the time) so still could eat the moules and carpachio.

Mon, 12/15/2014 - 23:49 | 5556743 Excursionist
Excursionist's picture

Someone remind me why we should care about Russia's currency.

The economy is circling the toilet bowl, thereby leaving (mostly European) lenders up shit creek without a paddle.  If it gets really bad, some central bank or three will bail out the lenders, and the fcked up status quo will continue.  In other words, business as usual and nothing to see here.

Tue, 12/16/2014 - 00:30 | 5556856 knukles
knukles's picture

Because Barry, Johnny, McCain and Valerie tell you that you should be rooting for the Godless Commies to come crawling crying Uncle (get it, Uncle!?!?!?!) so that it shows somebody or other that can't find (insert here, get it, insert here?!?!?!?) with both hands in the dark looks like a hero, legacies and some such or other shit?  I really don't know anymore... well, actually I know, but I've quit caring. 

Mon, 12/15/2014 - 23:58 | 5556782 Seasmoke
Seasmoke's picture

Ha! A Billion. What a difference 22 years makes.

Tue, 12/16/2014 - 00:24 | 5556832 noben
noben's picture

"Ironically the recent collapse in the Ruble is significantly worse than the collapse in the pound at the time..."

Yes of course. The collapse of the Pound was not intended. The 'collapse' if the Ruble was/is. Hence the greater effect.

BTW, as mentioned earlier today... How is the deeply indebted and energy-starved Ukrainian economy doing? Is its currency collapsing? No? Then WTF is this really all about, other than blatant Financial Warfare as a direct and premeditated attack on Russia?

When will Russia TANK Ukraine's currency (short the sh*t out of it)? That would only be fair and appropriate. And if they can't or won't bomb the hi-tech US arms being airlifted into E. Ukraine, then at least Putin should call up Bibi and let him do it.

Tue, 12/16/2014 - 00:42 | 5556871 The Shootist
The Shootist's picture

Comedy Gold!

Tue, 12/16/2014 - 00:58 | 5556890 Wild Theories
Wild Theories's picture

wait, are we talking about the slide of the Ruble here or the slide of oil?

I'm confused

Tue, 12/16/2014 - 04:20 | 5557077 atomicwasted
atomicwasted's picture

The difference is the UK could only scrape up a billion dollars of jack.  In contrast, the Fed can print infinite dollars to backstop any currency raid.  There will eventually be a full on currency fail in the US, but I don't think that's coming for decades.  It took the USSR 75 years to collapse and their foundations were far shakier than ours.

 

Tue, 12/16/2014 - 05:03 | 5557079 Number 156
Number 156's picture

Russia is doing the right thing by backing their currency now, while the west continues their Keynesian death march.

Now that Russia raised their interest rates 17% (maybe even more to come), this may eventually have some effect on Europe (despite Russia suffering a more painful recession), could bring foreign investment back into the Ruble, possibly at the cost of western currencies, including the Euro and Dollar, and at a really bad time for the west, I should add.

Russia is going to take the pain now and get it over with. Unlike the UK, they can endure it.  After all, they still have a functioning reliable space program while the USA has to thumb for rides to the ISS, despite everything thats happened to Russia in the last 30 years.

Regarding the west, the next bubble is the war bubble. Where else can you blow one? The west has in its arsenal the best military hardware money can buy. All thats needed now is to fuel demand.

Tue, 12/16/2014 - 09:10 | 5557604 That_shits_broken
That_shits_broken's picture

Get to work Mr. Bullard!

Tue, 12/16/2014 - 09:31 | 5557697 medium giraffe
medium giraffe's picture

Aw, you deleted my bunfight. :(

Tue, 12/16/2014 - 09:51 | 5557792 Chaos Trend
Chaos Trend's picture

How do you feel about the ZH Soviet-style dissapearance of criticism--even when it's constructive criticism? 

Tue, 12/16/2014 - 10:55 | 5558198 Manipulism
Manipulism's picture

Zerohedge is long dead.

This is only a valve for frustrated traders and other idiots.

Do NOT follow this link or you will be banned from the site!