Guest Post: Is The UK About To Engage In A Stealth Default?

Tyler Durden's picture


Submitted by Mike Krieger of Libertblitzkrieg

Is the UK About to Engage in a Stealth Default?

If there was ever an article that should spark every British citizen to immediately shift their savings into physical gold this is it.  Basically, proposals are on the table to change the way inflation is calculated for bonds that payout based on the rate of change in prices.  Unsurprisingly, they are purposely attempting to use an alternative measure of inflation that allows substitution (so when people can no longer buy a steak and must spend the same amount of money on spam this shows up as no inflation)!  If this goes through, it is blatant theft.  This is why owning TIPS in the U.S. is a total fool’s game.  They will mark inflation to whatever level they want at the end of the day.  To whatever is most convenient at the moment.  You know, just like the banks mark their balance sheets.  But don’t take my word for it…

Key quotes from the FT article:

Holders of some UK index-linked gilts could see more than 40 per cent wiped off the value of their bonds, according to M&G Investments, as a result of technical changes to the way the retail price index, which underpins these “linkers”, is calculated.


The mooted changes are designed to eliminate “unjustified” causes of the persistent gap between inflation as measured by the RPI and the normally lower consumer price index, narrowing the “wedge” between the two measures by altering the way the RPI is calculated. Some industry figures believe the gap between the two measures could be eliminated entirely.


“To eradicate the wedge altogether would be tantamount to an event of default,” said Ben Lord, portfolio manager at M&G.

Full article here.

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Mon, 06/04/2012 - 12:41 | 2492352 bigdumbnugly
bigdumbnugly's picture

stealth default?

quiet desperation is the english way.

Mon, 06/04/2012 - 12:45 | 2492370 nope-1004
nope-1004's picture

"Blatant theft" is all they have left Mike.  This has been going on now for some time.  I'm not surprised - disappointed, but not surprised.  TPTB have no remorse at all about grabbing all they can.


Mon, 06/04/2012 - 12:52 | 2492378 Ahmeexnal
Ahmeexnal's picture

Happy Diamond Jubilee, Lizzy Dei Gratia Regina!!
Let the sheeple eat melamine fish and chips!!

And don't remember BoE is also about to embark in more QE:

Mon, 06/04/2012 - 12:53 | 2492401 sunaJ
sunaJ's picture

We live in both a different and similar time to our grandparents of the 1930s.  Back then, people had to wait in lines to get food and to withdraw their money from banks.  Today, it is all done digitally.  You do not have to wait in line for your SNAP card or to withdraw your money from the bank.  We do not see long lines to do so because it is all done with conjured ones and zeroes over computers and telephones.  It remains, however, a clear indicator of the failure of economic fundamentals.  50 million people on SNAP in this country and tens of billion$ fleeing the most vulnerable economies each month are klaxons that would traditionally alarm even the most complacent. 

For me, all it means is that when the cardiac arrest comes, it will be fast and systemic.  Under the veneer of business-as-usual are the lurking fundamentals that someday (I pray soon) can no longer be manipulated to appear as if everything is okay (I could give a shit about how many DOW or S&P points they can conjure).  Until then, there can only be fraud and oppression.

Mon, 06/04/2012 - 12:54 | 2492404 Ahmeexnal
Ahmeexnal's picture

Ambrose Evans-Pritchard throws in the towel.
The euro is unsaveable:

Mon, 06/04/2012 - 13:00 | 2492424 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Buy Silver - Crash JPM, the ultimate British Banking House!

The Silver Movement:

Mon, 06/04/2012 - 13:07 | 2492446 The Big Ching-aso
The Big Ching-aso's picture



Well if they just keep a stiff upper lip the climax should be satisfying.

Mon, 06/04/2012 - 13:18 | 2492498 SilverIsKing
SilverIsKing's picture

Soon they will start mixing tungsten in the gold bars and tell you it's still a gold bar.


Mon, 06/04/2012 - 13:36 | 2492601 Pinto Currency
Pinto Currency's picture


This internet thing is a bloody nuisance old chap.

Everyone is watching us.

It simply won't do.


On a serious note, see that the Real Inflation is yet higher than the RPI:

Mon, 06/04/2012 - 13:54 | 2492678 PivotalTrades
PivotalTrades's picture

When you accept the concept that 20 % of one persons income is confiscated and 40% of another persons income being extorted by the government as each paying his fair share the you will accept anything as being fair. 

Mon, 06/04/2012 - 13:21 | 2492519 JPM Hater001
JPM Hater001's picture

I'm in. Ill head the party committee.

Mon, 06/04/2012 - 14:29 | 2492838 francis_sawyer
francis_sawyer's picture

"Yeah baby"

~Austin Powers

Mon, 06/04/2012 - 13:28 | 2492562 Treeplanter
Treeplanter's picture

JPM may become the biggest buyer in a couple more dips.  They know they can't prevail much longer.  The only thing that can save their sorry ass is to be on the moon shot.   

Mon, 06/04/2012 - 13:01 | 2492431 Oh regional Indian
Oh regional Indian's picture

And this again brings up the QuEstion. Why was the UK one of the biggest buyer of American Paper last year?

The city of Londonium continues to fleece it's own populace, to make their prized plantation survive another day/week/year. 

And Ahexuhmeenal....

The Stone, Of Scone, Is not a treat With Tea.

It's a Pillow, For Jacob. This shit you cannot make-up.

The UK is a Joke, going up in Smoke.

Regina get's the Jubilee, While her Sub-jects go Broke.




Mon, 06/04/2012 - 13:03 | 2492436 Ahmeexnal
Ahmeexnal's picture

Breakdown in Ogolfer's Choom cabinet: Eric placeHolder about to be fed to the wolves?


Eric Holder, who heads Mr Obama's justice department, is said to have become "incensed" after being accused by David Axelrod of complaining publicly about political interference in his office.

"That's bull****," Mr Holder said in a confrontation after a cabinet meeting, according to author Daniel Klaidman. He writes: "The two men stood chest to chest. It was like a school yard fight".

Mon, 06/04/2012 - 12:48 | 2492380 ITrustMyGut
ITrustMyGut's picture

one word.. PURPOSEFUL

expand -> contract -> buy it all up kids at pennies on the dollarzzz..


no idiot could makes this many "mistakes" in a row... statisically impossible!

listening to this helps remind me who runz the joint..

Mon, 06/04/2012 - 12:56 | 2492417 grove300
grove300's picture

So... the Queen took her toys out for a ride this past weekend before she needs to give all her stuff back.


Mon, 06/04/2012 - 12:48 | 2492382 timbo_em
timbo_em's picture

+100 for the Pink Floyd quote

Mon, 06/04/2012 - 12:54 | 2492405 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

how can you have your pudding if you don't eat your Ponzi

Mon, 06/04/2012 - 13:07 | 2492445 sdmjake
sdmjake's picture

Who are you and who am I

To say we know the reason why?

Some are born, Some men die

Beneath one infinite sky

There'll be war, There'll be peace

But everything one day will cease

All the iron turned to rust

All the proud men turned to dust

And so all things, time will mend


"on a long enough timeline....."

Mon, 06/04/2012 - 12:55 | 2492407 redpill
redpill's picture

The time is gone, the song is over, Thought I'd something more to say.

Mon, 06/04/2012 - 13:11 | 2492464 XitSam
XitSam's picture

For the want of the price of tea and a slice 

The old man died

Mon, 06/04/2012 - 12:57 | 2492420 Rusticus
Rusticus's picture

"quiet desperation is the english way."

... funny, that's not the prevalent trait  observed when they lose a football game.



Mon, 06/04/2012 - 13:23 | 2492530 JPM Hater001
JPM Hater001's picture

This is all really groovy...I saw Waters last night in St. Paul.  Really cool...and man is he getting old.

Mon, 06/04/2012 - 12:59 | 2492426 Joshua_D
Joshua_D's picture

Ahh ... hitting "Play" as we speak.

Mon, 06/04/2012 - 13:15 | 2492489 Jumbotron
Jumbotron's picture

the time is gone, the song is over....thought you'd something more to say.   :)

Mon, 06/04/2012 - 13:23 | 2492538 London54321
London54321's picture

Desperate people soon lose all civility.



Mon, 06/04/2012 - 13:26 | 2492550 Uchtdorf
Uchtdorf's picture

So you run and you run to catch up with the sun but it's sinking...

Remember those haughty days of yesteryear when it was said that the sun never set on the British Empire? Frothy nonsense designed to get parents to ship their sons off to malaria-stricken places to fight for the elites.

Mon, 06/04/2012 - 12:41 | 2492353 lasvegaspersona
lasvegaspersona's picture

Don't the Brits see that we in the US have been dealing with this same data abuse for years?

Mon, 06/04/2012 - 12:48 | 2492379 Zero Govt
Zero Govt's picture

to be fair the British used data abuse before the Americans ...and Rome and China before us

the politburo lying is an ancient game

Mon, 06/04/2012 - 12:43 | 2492360 achmachat
achmachat's picture

"engage!"  (Patrick Steward)

Mon, 06/04/2012 - 12:45 | 2492367 midgetrannyporn
midgetrannyporn's picture

usa tips don't behave like bonds, they move with stocks. the cpi is a lie. :fools rush in:

Mon, 06/04/2012 - 12:44 | 2492368 monopoly
monopoly's picture

They are just taking a picture from our playbook. Nothing new. And love the way all I could find this AM, outside of ZH was bears on gold. Bloomberg advised nothing but a massive short covering. Gold going lower.

Marketwatch advising gold not "worth the trouble". Another blog has GDX right at resistence and time to load up on shorts. And gold down 10 bucks so those who just trade the only currency worth anything selling. That all tells me to buy more, right here. 

Mon, 06/04/2012 - 12:45 | 2492371 CPL
CPL's picture

Lucky me, finished getting my physical lined up along with all the other prep.


Let the world burn as required.  Beer is in the fridge, fresh pot of coffee on the counter.

Mon, 06/04/2012 - 12:45 | 2492373 Dermasolarapate...
Dermasolarapaterraphatrima's picture

Snickers bar packs have gone from 80 cents for a 10 $1.40 for a "Six Pack of Fun Size bars."

So how does the CPI count that?

Mon, 06/04/2012 - 12:52 | 2492397 ParkAveFlasher
ParkAveFlasher's picture

So how does the CPI count that?

You are paying a $.15 premium / bar for "Fun", ergo, apples and oranges. 

Mon, 06/04/2012 - 13:38 | 2492617 Winston Churchill
Winston Churchill's picture

As a price reduction according to the hedonistic (not kidding )rule.

Mon, 06/04/2012 - 15:45 | 2493123 Meatier Shower
Meatier Shower's picture

It's not hedonistic, it's hedonics.



Mon, 06/04/2012 - 17:38 | 2493637 HungrySeagull
HungrySeagull's picture

4 decades ago they stopped making Hershey bars because there was not sufficient amount of choclate that is able to last more than one or two bites for a nickel, then a dime then a quarter.

Gas was all Leaded, divided by octqane and .29 a gallon back then too.

Mon, 06/04/2012 - 12:47 | 2492375 Dr. Engali
Dr. Engali's picture

I agree TIPS are bullshit but people still buy them thinking they are protected from inflation. Uncle Sam wouldn't lie ...would he?

Mon, 06/04/2012 - 13:27 | 2492558 MachoMan
MachoMan's picture

It only makes sense that if one is going to dilute the dollar to repay bonds that one would also jigger with CPI to ensure that repayment of TIPS are likewise diluted.  The error here is thinking that there is escape after reaching the event horizon...  our monetary and fiscal policies prohibit the morts from winning.  Jump in the water and get eaten by the sharks, fail to jump in the water and wither away from inflation.  Simple proposition, difficult at best to navigate...

Mon, 06/04/2012 - 12:49 | 2492385 q99x2
q99x2's picture

I think the new propaganda law covers financial fraud so we likely won't get a recession this year. Plus EU governments are getting their own predator drones in case anyone says there is a recession anywhere.

Mon, 06/04/2012 - 12:49 | 2492387 Roland99
Roland99's picture

Been doing that for years here in the U.S.  About bloody time they caught up, eh?


Mon, 06/04/2012 - 12:49 | 2492389 Transitory Disi...
Transitory Disinflation's picture

I am still waiting for the UK house price crash... it has been a long time coming...


Anyone have any ideas?  Do I really have to wait for UK interest rates to go up a couple of percent?

Mon, 06/04/2012 - 12:51 | 2492395 Ahmeexnal
Ahmeexnal's picture

UK real estate can keep inflating longer than you can stay solvent.
Remember the UK is THE place to buy a second home for the power elite. Has been for centuries.

Mon, 06/04/2012 - 12:54 | 2492406 Enkidu78
Enkidu78's picture

Apart from over here and our old Empire the Queen owns the lot... God bless the Queen



Mon, 06/04/2012 - 12:56 | 2492416 Transitory Disi...
Transitory Disinflation's picture

Yes true but mostly in london.  This distorts the average price across the country and so you get 99% of the UK having prices at 10 times average salary, low wages in most parts of UK, unstable job, low interest rates for mortgagees..


surely it cannot go on...

Mon, 06/04/2012 - 13:08 | 2492448 Ahmeexnal
Ahmeexnal's picture

Chelsea winning UEFA champions league 2012 will give the most violent of the sheeple a year to get drunk and celebrate. And don't forget they also get the upcoming uglympics.  Real UK housewives about to go on air too.

Mon, 06/04/2012 - 13:26 | 2492551 Acet
Acet's picture

London has been subsidized by the rest of the country at the tune of £700 bln, which is the amount that was officially spent on the bailout of financial institutions (which, surprise, surprise, have the vast majority of their employees in London) which has kept unemployment from increasing too fast in the capital and thus sustained house prices at the low and mid-levels. At the high-levels prices were sustained by flight-to-safety purchases from abroad (from the likes of Chinese billionaires and Saudi Arabian princes).

So things won't rally blow up in London.

The rest of the country, however, has been in pain. Maybe things will blow up there?

Not holding my breath though - with their class system and the miriad social ways in which people both at the lower and higher levels "keep people in their rightfull place" (I had a long talk with some English friends of mine the other day and it was an eye openner) most brits seem to be far too prone to bend over to their "betters" ...

Methinks they will believe the lies and bend over and take it for far longer than, say, the French.

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