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Chapter 1320: Financial Warfare, Part 3

Although gas streetlights had become a taboo subject in England, William Pitt Junior, a statesman of the highest caliber, clearly understood their importance for national development.

He therefore planned for the government to allocate secret funds to covertly research the related technology, then gradually roll it out, starting with a smaller city.

Henry Pearce drained the remaining tea in his cup, frowning and shaking his head once more.

He could hardly taste any sweetness.

Sugar prices were soaring, forcing even mid-to-high-ranking officials like himself to economize on sugar. As for the common people, many had already started using cheaper malt sugar for cooking.

Pearce looked at Nathan, the committee's financial officer, sitting opposite him. "Mr. Tennant's progress has been quite good recently; next year's funding should increase significantly, shouldn't it?"

Charles Tennant was the chief technician of the Fuel Committee, responsible for researching the industrial preparation of coal tar.

The financial officer was looking down, lost in thought, and didn't reply.

Pearce raised his voice. "Mr. Nathan, I'm speaking to you."

"National debt? What's happened?"

Nathan lowered his voice. "Rumors are spreading everywhere lately that the government might not be able to service the national debt because the war isn't going well."

Pearce waved his hand dismissively. "How could that be? Austria and Prussia were defeated, not us. We've only lost a few soldiers."

"It's precisely because of Prussia and Austria," Nathan leaned forward. "Apparently, the government loaned them a large sum, and now they have no money to repay it. Consequently, the Bank of England lacks the funds to service the national debt."

Since the British public was generally optimistic about victory before the war, anyone with spare cash would buy national bonds.

"Don't mind those rumors. Let's talk about next year's funding instead. We need to ensure MP Egerton receives a bit less, otherwise everyone else..."

As Pearce was speaking, his attendant swiftly approached, placing several newspapers, still smelling faintly of ink, by his hand. He bowed slightly and said, "Sir, these are the newly delivered 'Times' and 'Morning Post'."

As they were quite far from London, the day's newspapers only arrived by afternoon tea.

Pearce casually opened The Times. The front page reported the Chancellor of the Exchequer stating that sugar subsidies would absolutely not be reduced.

Nathan, across from him, saw a line of text on page two and suddenly reached out, snatching the newspaper away.

"You could have just asked me for it..."

Nathan turned the newspaper around, interrupting Pearce. "Look at this!"

Pearce saw that his finger was pointing at an advertisement: "200,000 Pound Sterling of British national debt for sale, held by the Nassau government, safe and reliable, divisible... discounted yield of 10.2%."

The coupon rate for long-term British national bonds was 9.5%. Usually, holders would sell them at a discount to recoup funds after having collected some interest. However, this batch of bonds had only been sold for just over a year, yet it was being offered at a significant discount of 0.7%!

This meant that if it were a ten-year bond, the Nassau government would have practically lost all the interest accumulated thus far.

This typically only occurred when sellers were severely lacking funds, yet there had been no news of a financial crisis in Nassau.

Pearce instantly recalled the rumors Nathan had just mentioned and hastily shook his head. 'This must just be a coincidence.'

Nathan seemed disinclined to pursue the matter further and shifted the conversation to the allocation of funds.

However, the very next day, Pearce read in The Times news of the Bavarian royal family and Barings Bank completing a transaction for 160,000 Pound Sterling worth of British national bonds.

If one country selling British bonds could be a coincidence, then two entities doing so one after another inevitably led to speculation.

For instance, had the leaders of these nations caught a whiff of trouble concerning British bonds?

Pearce hastily entrusted his committee duties to an assistant and, with Nathan, his confidant, rushed to London to gather information.

The day after their arrival in London, news broke that Hesse was also dumping British bonds, with the amount reaching as much as 300,000 Pound Sterling.

When Pearce and Nathan arrived at the Bank of England, the hall was already packed with people. Fortunately, they were VIP clients and could use a special entrance; otherwise, even getting through the door would have been difficult.

Soon, a senior official from the Bank of England came out to clarify, stating that there were no issues with national debt repayment, and the bank had sufficient funds on account, so everyone should not worry.

He had already repeated those words three times today.

Pearce then asked the bank's brokers for detailed information on the national debt, and it wasn't until he left the bank that afternoon that he finally felt slightly reassured.

But his reassurance lasted only a day, as he then read in the newspaper that the Genoa United Credit Rating Company had downgraded British national bonds to an A2 rating.

For national bonds, whose main selling point was low risk, this rating was already considered a 'not recommended for purchase' level.

Following this, Bavaria announced a second large national bond sale transaction.

The entire British national bond market was instantly gripped by extreme panic.

...

10 Downing Street.

William Pitt Junior frowned, looking at the report on his desk. "Clearly, someone is trying to short our national debt," he stated gravely.

After Henry Petty departed with the Grenville Cabinet, William Pitt Junior had not appointed a new Second Financial Minister, instead personally managing financial affairs.

Indeed, after a major war on the European continent, Britain's financial situation had become extremely grim.

Sir John Watkin, Governor of the Bank of England, nodded. "These German states have most likely been pressured by the French. While the national debt market hasn't yet descended into chaos, such a sudden surge of sell-offs will severely impact our new bond issuance."

These bonds being dumped had short maturity periods and large discount margins, so anyone interested in buying national bonds would certainly prioritize them.

William Pitt Junior hesitated for a moment, then gritted his teeth and declared, "Have Barings Bank and major securities brokers like Stiles step forward to buy up all the sell orders. The Ministry of Finance will inject capital into them."

Sir Watkin's eyelids twitched. He hesitated. "Prime Minister, the total amount is already approaching one million Pound Sterling... Perhaps we could use some 'technical means' to halt their selling?"

"No, market confidence is more important than anything," William Pitt Junior declared decisively. "As long as the wave of sell-offs ends, we can recover by issuing new bonds."

After Watkin took his leave, William Pitt Junior immediately began drafting a proposal to issue one million Pound Sterling in banknotes, to be put to a vote in the House of Commons.

However, what he didn't expect was that this was only the beginning.

Over the next month or so, eighteen German states successively participated in dumping British bonds, with the total amount nearing 2.2 million Pound Sterling.

Worst of all, 700,000 Pound Sterling of these bonds found no buyers, and Württemberg directly offered a discount rate as high as 1.1%.

This meant that newly issued long-term British national bonds would have to offer an interest rate exceeding 10.6% to be marketable.

And what even William Pitt Junior hadn't noticed was that the impact of national bond interest rate fluctuations had already begun to spread to bank deposit and loan interest rates.