Thursday, Aug 27, 2009
Interest Rates down, pound down, energy & food prices up!
Daily Telegraph: Pound weakens on strong UK housing data
The pound remained anchored near the two-and-a-half month low struck against the euro and six-week-low against the dollar. The market is wary the Bank of England might act again if there isn't clear improvement in the broader economy. The Bank of England's printng money to buy government bonds to keep borrowing costs down has hit sterling hard this month.
So lets sum it up in laymans terms. BOE prints money, Sterling falls as nobody has confidence in its value, Energy and food prices as well as other imported goods rise, thus the average house hold has less disposable income so house prices must come down to make them more affordable! What a mess but it seems we must go the whole way before people realise that a sterling crisis is looming.
5 Comments
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1. alan said...
Lots of articles I've read suggest a sterling crisis coming up.
Does anyone have a nice handy article entitled "what to do in the next sterling crisis"? I know this isn't mainstream HPC, but whether we like it or not, the government seems fixated on keeping house prices high - and damn the consequences.
Many folk have ventured ideas on how to get the UK back on its feet, but not many are advising what to do when it all (inevitably, I think) goes wrong.
2. mountain goat said...
Alan I am not convinced we are in for a sterling crisis. But I suppose if you are, then holding anything but GBP cash works, even taking on a mortgage because the debt will be in depreciating pounds. Personally I believe GBP wont crash because QE will only be done to try off set the deflation taking place while people pay off debts. The deflation process is actually bullish for GBP. The government won't purposely QE itself into a sterling crash. This would amount to a stealth default and no one would trust this country again when it needs to borrow money.
3. stillthinking said...
The UKs spending power is perversely being supported by the vast number of "closing down everything must go" type sales, witness the governments sopping up off excess car inventory, now car prices are expected to rise... and a collapse in demand across the board.
"WE" can't recover. We already spent income stretching off decades into the future. The big question is can we start paying it off now please sir, and also can we have a bit of working capital please sir, in order to buy some burgers before grilling them for sale. The UK is a Blanche Dubois economy.
There cannot be a UK recovery because all that would mean is that substantial funds start to flow out of the country again, a UK recovery would be a dagger in the heart for sterling. We need the external countries to recover and also lift their demand for UK goods, which seems a bit of a bridge too far considering that there was a kind of admittedly unhealthy balance up to 2007 i.e. to lift demand for UK goods of necessity means taking business from elsewhere. Are we up to it? Personally I don't think so 'cos we are still outsourcing now, our labour is still hugely overvalued. Which is why anybody with savings needs to run far far away from the UK like the wind, and also to repeat, if you are aged between 50 and 55, some of you must be, you must ! now ! as you are legally allowed to do, take 25% of your pension fund out (tax free) and either pay off your existing debts or hold your b*lls and put that money wherever you think is safest, before the first of many doors closes. In this case, in a few months you lose access to your pension savings. Pensions are going to be completely gutted by this fiasco.
You mark my words.
4. alan said...
Thanks for the advice.
5. clockslinger said...
Stillthinking, I agree with what you say. However it seems that folk will, rather than buying foreign currency or exotic asset, opt for a cosier option and do something "known" like buy to let here because, as you say, the QE /low rate environment keeps debt repayment low or inflates away debt? It might end in tears but it does not require an enormous paradigm shift in thinking about how the future might look.