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Los Sueños

A Change In The Rules: Devaluation

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Hello from Spain:

I would like to notice one of the tricks used in past years in Spain: devaluation.

My grandfather made a lot of money because he used to have savings in british pounds. As the "peseta" was allways devaluated, he did not lose purchasing power.

About 30 years ago people paid their mortages with a great devaluation of the "peseta". In 4-5 years the yearly wages of the people were equal to the initial mortages.

Would it be possible that EU may do it again? If the answer is yes, how that will be possible? How would they do it? Should we step into the ladder in order to not to miss the forecoming devaluation? Will the EU be able to do it without losing their reputation?

Edited by Los Sueños

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Hello from Spain:

I would like to notice one of the tricks used in past years in Spain: devaluation.

My grandfather made a lot of money because he used to have savings in british pounds. As the "peseta" was allways devaluated, he did not lose purchasing power.

About 30 years ago people paid their mortages with a great devaluation of the "peseta". In 4-5 years the yearly wages of the people were equal to the initial mortages.

Would it be possible that EU may do it again? If the answer is yes, how that will be possible? How would they do it? Should we step into the ladder in order to not to miss the forecoming devaluation? Will the EU be able to do it without losing their reputation?

The problem is this requires requisite wage rises, and settlements have been kept farily low because of the rigged CPI/RPI inflation data. Even though it would erode lots of debt it's the wrong stage of the cycle go on an inflationary binge, if there is ever a good time to do this anyway (printing money always ends in tears), private companies would just off-shore more UK/European jobs if wages rose too much, or they would avoid this region entirely when it comes to investment.

Also, the public sector would require even more generous wage settlements which would push the public finances into greater deficit so the government would have to borrow more, all this puts pressure on the currency so interest rates would have to rise substantially for borrowing to continue,

So government would be borrowing ever greater sums of money at higher rates... and I thought this was about eroding debt?

If a country/region was self-contained then maybe this trick could work, unfortunately the forex rates, energy costs and trade balances are all set externally. Look at Argentina for evidence of this, if you play fast and loose with economic fundamentals instead of just taking the pain you might end up destroying the reputation of Sterling or the Euro.

Edited by BuyingBear

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If a country/region was self-contained then maybe this trick could work, unfortunately the forex rates, energy costs and trade balances are all set externally.

I agree with BuyingBear. Previously I believe that Spain was not so entangled in trade and foreign capital etc. so the economy was less sensitive to the foreign exchange rate. Therefore the government could muck about with devaluation more or less independently. I think the chances of this happening to the Euro are absolutely zero.

frugalista

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I agree with BuyingBear. Previously I believe that Spain was not so entangled in trade and foreign capital etc. so the economy was less sensitive to the foreign exchange rate. Therefore the government could muck about with devaluation more or less independently. I think the chances of this happening to the Euro are absolutely zero.

frugalista

Only one hint here, never make a bet unless you can afford to loose :ph34r:

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  • 301 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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