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European Hissy Fit Over "competitive Devaluation"!

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France’s Lagarde Says BOE Should Do More to Support Pound

http://www.bloomberg.com/apps/news?pid=206..._currency_rates

Jan. 21 (Bloomberg) -- French Finance Minister Christine Lagarde said the Bank of England should do more to support the pound after it fell to the lowest since Margaret Thatcher was prime minister.

“The Bank of England does what it can, but its monetary policy, its rate management isn’t very efficient in providing more support for the British currency” Lagarde told lawmakers at the National Assembly in Paris today. “It’s in its interests to support it a little more.”

Lagarde joins Irish Finance Minister Brian Lenihan in questioning the U.K.’s management of its currency. Lenihan said this month that Britain is engaging in a “competitive devaluation” of the pound, which helps exporters at the expense of companies in other European nations.

The pound’s slide worsened in the past two weeks after the Bank of England cut its benchmark rate to the lowest since its foundation in 1694 on Jan. 8, and Prime Minister Gordon Brown was forced into a second rescue of the U.K. banking system.

Policy makers have refused to signal concern about the pound’s slide and Bank of England Governor Mervyn King said yesterday that a weaker currency will help bring the country out of recession. The pound dropped as much as 2.2 percent today $1.3622 today, the lowest since 1985.

“Currency markets are worrying about the pound’s level looking at the British economy,” Lagarde said. The U.K. is the euro area’s biggest trading partner. The economies of Britain, Germany, France and Italy will all contract this year, European Commission forecasts published this week showed.

‘Immense Pressure’

Lenihan said in an interview with the Irish Independent published Jan. 10 that British economic policy is putting other countries under “immense pressure.” The Finance Ministry confirmed the comments.

A U.K. Treasury spokesman declined to comment on the pound after Lagarde’s comments and said that the Bank of England’s policy is to target inflation, not the currency. The central bank also refused to comment.

“The Bank of England has been burnt in the past trying to control the currency,” said George Buckley, an economist at Deutsche Bank AG in London. “Now they have one instrument and one target, and that’s interest rates and inflation.”

The U.K. was ejected from the European Exchange Rate Mechanism, the precursor to the euro, in 1992 when it failed to prop up the pound against Germany’s deutsche mark.

Lagarde also said European finance ministers need to consider whether to give the European Central Bank an increased role in financial stability and whether nations need to coordinate policies more during a crisis.

She also said that Timothy Geithner, Barack Obama’s nominee for Treasury Secretary, will be “open to European positions” and “keen to improve regulation.”

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Poetry in motion. To read this after years of hassling by French and other Southern Europe politicians hassling the ECB to bring the euro down.

Muppets at work.

And now some people will undertand why the UK stayed out of the euro (not that I'm fussed about it either way, but god have we heard incessant whinings about UK not joining the euro this last decade!).

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Someone else posted that it's called the race to the bottom - the idea being that the mad govt thinks if we're dirt cheap here we attract jobs or what have you as we become, due to a weak £, cheap to buy into.

Pretty flawed I'd have thought. As is the argument "good for exports" - since the rest of the world does not need that much stuff when there's a recession on.

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“The Bank of England has been burnt in the past trying to control the currency,

This time they'll be burnt by trying to destroy it.

Edited by OnlyMe

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Persistent trade deficit = weakening currency; persistent trade surplus = strengthening currency.

The eurozone enjoys (so far) a big trade surplus with the UK.

Cake + eating it comes to mind.

Actually they've been making the cake and we've been buying it, and that has to stop. Naturally the French patissiers (and German strudel makers and Belgian chocolatiers and...) don't like it, but there it is.

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What i don't understand is that by devaluing the pound all it's going to do is make products in the UK FAR more expensive. I know a lot of people who import, clothing and alike and they are already seeing increased prices of 30 - 40% due to the weak pound. This cost has to be passed on somewhere, i.e. the consumer and in turn this increase in prices will push up inflation.

At the moment we are not seeing these costs passed on, but come spring it will be evident.

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What i don't understand is that by devaluing the pound all it's going to do is make products in the UK FAR more expensive. I know a lot of people who import, clothing and alike and they are already seeing increased prices of 30 - 40% due to the weak pound. This cost has to be passed on somewhere, i.e. the consumer and in turn this increase in prices will push up inflation.

At the moment we are not seeing these costs passed on, but come spring it will be evident.

Like it or not, the pound will find its appropriate level and imports will reduce (because we aren't earning the foreign currency to pay for them; we've been bridging the gap with debt but now the credit card is maxed out). Many who have been making their living by importing stuff and retailing it to UK consumers will not survive (as we're already seeing on the high street).

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What i don't understand is that by devaluing the pound all it's going to do is make products in the UK FAR more expensive. I know a lot of people who import, clothing and alike and they are already seeing increased prices of 30 - 40% due to the weak pound. This cost has to be passed on somewhere, i.e. the consumer and in turn this increase in prices will push up inflation.

At the moment we are not seeing these costs passed on, but come spring it will be evident.

Yes and no.

Devaluation is by far the best solution to the recession. IMO it's not nearly enough yet. Yes, global demand is down, but it still exists. It's all about getting a larger slice of a smaller pie. The more you devalue, the bigger the slice you get. The cheaper your assets and products look internationally, the more international money floods in to buy them, as it's cheaper than anywhere else.

As for imports, IMO half the problem is that it was no longer competitive for us to produce anything due to the strong pound. Devaluation makes us competitive again. When it's cheaper to produce it here, than import it, then UK production will explode. There will certainly be a time frame where retail goods prices increase, ie, before UK manufacturing has had a chance to "tool up". But this will only force IR down further, causing the pound to lower further, and creating an even bigger incentive for UK production.

No doubt half the eurozone is freaking out. They can't devalue as effectively as us. Screw them. For years, they've held an advantage due to currency fluctuations, now it's our turn.

This is economic warfare, pure and simple. He who devalues fastest, and furthest, wins. I think the eurozone has made some fatal mistakes lately, (although due to structure, in fairness they may have had little choice) and will suffer for decades because of it.

Edited by HAMISH_MCTAVISH

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What i don't understand is that by devaluing the pound all it's going to do is make products in the UK FAR more expensive. I know a lot of people who import, clothing and alike and they are already seeing increased prices of 30 - 40% due to the weak pound. This cost has to be passed on somewhere, i.e. the consumer and in turn this increase in prices will push up inflation.

At the moment we are not seeing these costs passed on, but come spring it will be evident.

Maybe they need to stop importing clothing etc and to start making it.

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Maybe they need to stop importing clothing etc and to start making it.

And at the same time, import another million workers who know how to make clothes in sweatshops. Chinese engineering workers for the new factories on account of weve deleted ours etc.

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Yes and no.

Devaluation is by far the best solution to the recession. IMO it's not nearly enough yet. Yes, global demand is down, but it still exists. It's all about getting a larger slice of a smaller pie. The more you devalue, the bigger the slice you get.

The other side of the coin is that you get a bigger slice but you end up eating less of it (just as the Germans had a big slice of the European output pie but only took the merest nibble, leaving the rest for export).

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And at the same time, import another million workers who know how to make clothes in sweatshops. Chinese engineering workers for the new factories on account of weve deleted ours etc.

And they will all need houses to live in so prices will start to recover! Win-win all round.

Actually I think the days of brand names and high priced clothing for everyone are coming to end. Fashion as we know it is a luxury, clothes are essential (unless you like the feel of the wind and all that...) but can be made cheaply even here in the UK, take some of Asda's George range for example.

As stated already, jobs will be made at home and imports will be reduced. Currency devaluation really is one of very few good moves by Mr Brownturn, IMO (at least allowing it). But I believe sterling will strengthen again once the euro zone begins to implode and countries leave the euro.

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The other side of the coin is that you get a bigger slice but you end up eating less of it (just as the Germans had a big slice of the European output pie but only took the merest nibble, leaving the rest for export).

To be fair, I don't see us ever making as big a mess of it as germany. Talk about a lop sided economy, far worse than the UK. I can't see production rising that much. But a bit more balance would be nice.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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