One of the (almost) hidden treasures of British journalism is Ambrose Evans Pritchard in the The Telegraph. I say hidden because some of his best stuff is tucked away on his Telegraph blog.

Take this article on the deeply unhappy euro currency area:

“… the last decade has shown once again — if such a demonstration were necessary — that Britain’s rumbustious, credit-driven, Mid-Atlantic economy is incompatible with the economy of Greater “Carolingian” Germany [Germany, Netherlands, Belgium, Luxembourg, Denmark, and France above the Loire]. The UK cycle is at least a year ahead. The trade and capital flows are more intertwined with the dollar zone.”

As Neil Mellor from the Bank of New York Mellon points out, the pound has been perfectly hedged in this cycle. Sterling has fallen hard against the euro, giving a shot in the arm to British manufacturers (yes, they still exist, 13pc of GDP) who rely heavily on Europe’s markets: yet it remains overvalued against the dollar, softening the effect of oil, metal, and commodity inflation.

Read the whole article.

The Bank of England today refused to be drawn down the U.S. route of swingeing rate cuts as it held them steady at 5pc.

New Irish Premier Brian Cowen with President Mary McAleese

The hiatus was fuelled by the inflation clause in the Bank’s remit from the Treasury in the face of unremitting pressures on world and national prices.

Other voices were insisting that the credit crunch will be with us for two more years leading to widespread mortgage “rationing” by banks and lenders.

However, a consensus is building that a “Great Depression” is not in the offing as the resilience of the banking sector — with plentiful central bank support in america, Britain and Europe — is proving greater than many expected. Some commentators are even forecasting a “soft landing” for Western economies.

However, a two-year credit crunch will decimate the housing sector on both sides of the Atlantic. Particularly hard hit will be be the Club Med countries and Ireland, which is undergoing a particularly harsh decline in its house markets.

New Premier, Brian Cowen, has a hard road to travel, as the principal driving force of the Celtic Tiger economy comes to a standstill.

The Bank of England has announced a scheme to inject £50 billion ($100bn) into British banks as a means of easing the liquidity drought and stimulating mortgage lending.

In theory the package is unlimited since the banks are thought to need to raise £750 billion (($1.5tr) this year, but £50 billion is the estimate in the short term. This is billed as the biggest ever such package anywhere in the world.

The Bank will exchange its 9-month Treasury Bills, which are as good as cash, for the tainted debt obligations that many banks now hold. It will do so at around a 70/100 swap, what the markets call a “haircut”.

The haircut itself is variable according to movements in the markets, so taxpayers will be well insulated from large losses through defaults.

Instead of the normal auctions of Government Bonds on specific dates, this money will be available at any time, and will be confidential.

The only way outside observers will know if the scheme is working is by watching the LIBOR rate, which represents the rate at which banks will lend to each other in the money markets.

If it goes down from its present 5.9pc or so, the scheme will be having an effect on liquidity. If it goes up, which is unlikely, it’s back to the drawing board for the Bank and the Treasury.

Yet another huge loser in the American subprime mortage market is set to announce big writedowns next week.

Royal Bank of Scotland (RBS), Britain’s second largest bank, is understood to be seeking to raise capital from its shareholders in a rights issue thought to amount to £10 billion ($20bn), which is probably the biggest rights issue ever demanded in the UK.

The bank, which bought troubled NatWest and ABM Amro, has been running on low capital ratios for quite a while. It also has major exposure to subprime debt instruments. It has been linked with Spain’s Banco Santander for many years.

When such a major player is caught short like this, it brings home the extent and depth of the crisis in transatlantic financial markets, with all the knockon effects to the rest of the world.

Vince Cable, a spokesmen on Treasury matters who carries more weight than the Treasury these days, believes all the banks should follow the example of RBS, since they will need a great deal of liquidity from the Bank of England and that should be underwritten by shareholders, not taxpayers.

We await next week’s announcement, which will surely be leaked over the weekend.