The pound is on the brink

[Jako]

When you run an economy with a huge debt, what is the last thing you want?- Deflation, because this increases the real value of your debt.

What do you want very much?- Inflation, this not only decreases the real value of your debt, it  acts as 'taxation for all' and gives you the chance of 'cheating' with the inflation figures thus creating the opportunity of not compensating salaries, pensions etc.

How to create inflation?- Ask Zimbabwe,  at 231 million per cent inflation- you simply print money.

What solution would Gordon promote?....

[just john]

absolument! mere coïncidence the announcement of economy improving just before eh![Www]

[tom.daniel]

This has shocked me, esecially with much better fugures coming trough recently about the economy! Now worried i was greedy and missed the boat at 1.18

[parsnips]

[quote user="tom.daniel"]This has shocked me, esecially with much better fugures coming trough recently about the economy! Now worried i was greedy and missed the boat at 1.18[/quote]

Hi,

      The experts ,as  reported on Bloomberg, are predicting the £ at 1.25€ by year-end.

[Jako]

Not "The" experts, just one expert.

From another Bloomberg expert:

` Economists say King’s

move risks stoking excessive inflation as the bank pumps a total

of 175 billion pounds into the economy, equivalent to 12 percent

of gross domestic product.´

[allanb]

You want an absolutely reliable prediction on the exchange rate?  Stealing a line from J.P. Morgan, I can tell you that it will fluctuate.

No other forecast should be trusted.

[tom.daniel]

well said. The only advice i would ever give is that it depends on your budget. If you can't afford for it to go down, pre fix your rate in advance, don't jeapodise your purchase waiting for it to go up!

[parsnips]

[quote user="parsnips"]

Hi,

     They're at it again! Just as the pound is showing signs of sustained recovery, the BOE unexpectedly dumps an extra £50Bn of "printed money"into the economy and drives it down again.

[/quote]

Hi,

      When the £ recovered from that, they did it again, saying we were heading for a Japan-style depression!  When is the EU going to take action against this deliberate competitive devaluation?

[Braco]

I think the real question is when are UK residents going to wake up to the fact that their government is in the process of merging sterling with that other great currency that is used to purchase game board houses and hotels.

[baypond]

Yep, it's the usual Labour policy. Spend spend spend, then borrow and tax, until they are voted out. They had a good run this time, including a pointless war in Iraq to boot.

[Sprogster]

I am now a lot less positive about the £, as it is now clear that the BofE and Uk government will deliberately talk the £ down, everytime it shows any strength. The problem with that strategy is you have to be careful what you wish for, in case you trigger a full blown sterling crisis.

I don't think we will see any significant improvement in the value of the £, this side of the Uk general election.

[allanb]

There seems to be an underlying feeling on this forum that the UK government is somehow at fault if the value of sterling falls, and that influential people should not express their opinions if they might depress the exchange rate.

A "strong" pound means the same as an expensive pound.  The UK government's job is to do whatever is best for the economy as a whole.  Probably the most important problem they have to deal with is unemployment.  If they take action to deal with that, and as a result the exchange rate falls, so be it.

Those of us who live in France on a sterling pension may not be happy about this, but people who need to find work in the UK are also important, and it's better for them if the pound stays cheap.

Sadly, there are more of them than there are of us.

[chessfou]

Trouble is that UK government action/inaction smacks of the "competitive devaluation" that was such a disaster in the 1930s.

[allanb]

[quote user="chessfou"]Trouble is that UK government action/inaction smacks of the "competitive devaluation" that was such a disaster in the 1930s.[/quote]Consider: if Leclerc lowers its prices to compete with Carrefour, would you say that the authorities should prevent it?

Competitive devaluation wasn't the disaster in the thirties; I would say it was under-employment.

 

[baypond]

The problem with depreciation is that it is generally seen as a way to solve economic issues without the political cost of adressing fiscal and/or moetary imbalances. I.E Governments don't like raising interest rates and/or raising taxes during times of economic hardship. Unfortunately, any competetiveness gained from a weaker currency is often squandered through inflation and uncompetetive buisness.

If you look at Germany post the reichmark and the UK, it is fair to say that manufacturing has survived far better despite being saddled with expensive exchange rates than in the UK where we tend to look for currency weakness to keep our manufacturing sector competetive.

[Jako]

[quote user="allanb"]

Competitive devaluation wasn't the disaster in the thirties; I would say it was under-employment.

 

[/quote]

'Competitive devaluation' is exactly the same as 'protectionism' and that was definitely one of the main drivers for the big depression: The 'beg thy neighbour' policy. Under-employment is never the cause, it is the result of a downturn. ( never leading, always lagging)

In the long run it has always been the economy with the strongest currency that recovered best from the downturn.

[tom.daniel]

another issue is the fact that the UK isnt really an export based economy, . It might have the reverse effect of causing inflation as prices are being driven up by higher costs of production, as we have alot more importers than exporters

[allanb]

[quote user="tom.daniel"]It might have the reverse effect of causing inflation as prices are being driven up by higher costs of production...[/quote]Probably true.  But I think a bit of inflation is the price you pay for trying to maintain a decent

level of employment.  It's a reasonable trade-off, especially from the

point of view of people whose jobs are at risk.

And for the sake of employment, it isn't only exporters who need a competitive exchange rate.  Anybody who competes with foreign products and services benefits when the pound is cheaper and suffers when it is more expensive.  This means most UK producers; not only exporters, and not only manufacturers.

This has been pointed out before, but journalists and others keep on repeating the  slogan "a low exchange rate for sterling is good for exports" as though it was only good for exports.  In fact it's good for just about everybody in Britain.

Unfortunately this doesn't include expatriates on a sterling pension.

[allanb]

[quote user="Jako"]Under-employment is never the cause, it is the result of a downturn. [/quote]I didn't say it was the cause; I said it was the disaster.

[WJT]

It looks as if France and Germany are out of recession. A strong currency didn't appear to hurt them.

I can remember many forum members here saying that Europe was in a much worse shape than the UK and the strong Euro would really hurt them in the end. It appears now that perhaps they knew best all along!

http://uk.biz.yahoo.com/090813/140/ip8dc.html

[Quillan]

I can remember an 'expert' on the forum saying exactly that although they have not been around lately, probably still crying in to their coffee. I have always maintaned that there was nothing much wrong with the Euro, it had not got stronger it was Sterling and the Dollar that had serious problems and sunk.

I also remember that the French president refused to put any more money in to the economy on the basis that it would be more prudent to a little in and wait and see what happens much against the advice of GB. Perhaps the word prudent has two meanings, one for GB and another for everyone else.

[Jazzer]

I dont't think France and Germany were/are the main problem.Spain is virtually bankrupt,Problems also with the balkan states in particular Latvia and Bulgaria,2 nations which had their currency pegged to the euro with very negative results as GDP is dropping sharply with unemployment and fiscal deficits rising,The worry is this could spill over into Greece and Hungary,and this could cause downward pressure on the euro.

[Jako]

[quote user="Jazzer"]Spain is virtually bankrupt [/quote]

The UK is in a much worse state than Spain. Spain has healthy banks and can issue gilts at a low interest rate.

The UK is bankrupt ( not virtually), it can no longer raise enough money on the market and is printing money to finance its debts.

[velcorin]

Bankrupt? In what way? Presumeably, you've never seen a comparative analysis with other countries? If you were embarking on a fiscal simulus voyage, where would you prefer to start Japan, Germany, USA, Canada, France...........

Quote from an article in Canadian Business from today

Over the past decade, Japan’s debt-to-GDP level has jumped to more than 170%, from below 100%. And that’s not counting debts held by local governments. All in, according to IMF data, the debt-to-GDP figure breached 200% in 2008 and will top 225% in 2010. (Canada’s debt sat around 60% of GDP at the start of this year. In the U.K., the number was 50%. The United States’ accumulated fiscal shortfall was 68.7% of GDP at the start of the year. Even with Washington’s deficits, the U.S. debt-to-GDP level isn’t expected to hit 100% for half a decade or more.)

IMF figure for 2008 France 68%, Germany 72% (http://www.imf.org/external/country/index.htm)

Japan's example says you can borrow/print money to your heart's content in a G-7 economy. If you go to the IMF data you can get the figures without any media spin.Or I can post the PwC GDP analysis.

[Alan Zoff]

Bankrupt mean liabilities exceed assets. Liabilities tend to be easily identifiable sums but an asset's "value" can be any figure you trust at the time of the valuation. Which is why confidence is everything in a capitalist economy.