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scepticus

The Subtle Nature Of Prices And Currencies

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Please take a look at the promised land (CHF):

http://nihoncassandra.blogspot.com/2011/06/limey-beans.html

Remarkably similar to Norway in many regards.

"There are no shortage of decent Pizzerias in London replete with iconic red-chequered table-cloths, wood-burning ovens and genuinely-accented servers. The median price for a reasonable fresh-cooked bubbling edible disc is somewhere in the GBP7.50 (USD12-) though this can rise to USD15 depending upon the venue and extras. Our favourite (and we are not alone as it can be annoyingly busy and raucous) Geneva-based pizza fabricator, Luigia, will spin and prep his freshly-made offerings for CHF16.50 (nearly USD$20) with a topping or two taking you to CHF22 (USD26). Two glasses of Nero d'Avola (USD13ea) , a shared generous plate of Calamari (USD35!!!!), and departs significantly poorer than one entered. I would pity the Swiss, except most of the patrons are NOT local Helvetians. For they, I can tell you, are all in France shopping.

One could reasonably argue these examples have been cherry-picked. And they might be right. But they are the most obvious every-day manifestations of The Wrong Price I see in my weekly travels. One could of course, go on: UK airport sandwich $5; Swiss airport sandwich $9; Swiss modern italian chaise USD1,500, indentical in UK USD800. And so on. Switzerland is - in its entirety - the The Wrong Price. And not by a little. Perhaps sterling is cheap. Perhaps the dollar is VERY cheap. Yet Americans seem more than willing to supply both labour and goods as well as services at what seem like - on a relative basis - to be absurdly cheap prices and rates. And for the most part, this does not look set to change dramatically, not on the scale discrepancies. Granted taxes, energy and social costs are much diminished, but this is not so in the UK. It seems to be purely a matter of the Wrong Price, driven by financial flows, with the real economy apparently ignorant of these flows - excepting those who live on borders. "

Consider the above in connection with:

http://nihoncassandra.blogspot.com/2011/06/other-kind-of-inflation.html

One wonders what the point of an expensive currency really is, and whether such a thing can actually persist in a world of cheap currencies.

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"There are no shortage of decent Pizzerias in London replete with iconic red-chequered table-cloths, wood-burning ovens and genuinely-accented servers. The median price for a reasonable fresh-cooked bubbling edible disc is somewhere in the GBP7.50 (USD12-) though this can rise to USD15 depending upon the venue and extras. Our favourite (and we are not alone as it can be annoyingly busy and raucous) Geneva-based pizza fabricator, Luigia, will spin and prep his freshly-made offerings for CHF16.50 (nearly USD$20) with a topping or two taking you to CHF22 (USD26). Two glasses of Nero d'Avola (USD13ea) , a shared generous plate of Calamari (USD35!!!!), and departs significantly poorer than one entered. I would pity the Swiss, except most of the patrons are NOT local Helvetians. For they, I can tell you, are all in France shopping.

Surely they must be doing good business otherwise they would have cut their prices to match?

Seems a bit of a silly comparison when it's a zero sum game. If you want a pizza to cost the equivalent of £5, price it accordingly.. the raw materials (imported or otherwise) still cost the same.

The only thing which would put you at a competitive disadvantage would be if one country imposed huge taxes to support government spending, while the other didn't. In that case the latter would obviously be more competitive. Nothing to do with the nominal value of the currency though..

[ Edit to add: If you had also borrowed far too much as a nation such that you could no longer afford to pay your creditors then there is an argument for trashing the nominal value of your currency to default on your debts. But I guess that is a different discussion right? ]

Edited by libspero

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[ Edit to add: If you had also borrowed far too much as a nation such that you could no longer afford to pay your creditors then there is an argument for trashing the nominal value of your currency to default on your debts. But I guess that is a different discussion right? ]

Last time I looked Switzerland had higher private debt/GDP than the UK.

Also there was talk in recent threads about swiss workers facing pay cuts because the strength of the currency is threatening their export related jobs.

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Surely they must be doing good business otherwise they would have cut their prices to match?

If the swiss are shopping abroad due to high domestic prices that's a bad sign. Likewise the blog post points out that the majority of the people paying the high prices are not local.

Does that remind you of anything at all?

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The cost of the currency is irrelevant.

If the Swiss shops accepted USD, would the prices be the same as the prices in America?

Nope.

Trashing a currency transfers wealth from savers to borrowers of that currency, and all other effects are transitory.

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Trashing a currency transfers wealth from savers to borrowers of that currency, and all other effects are transitory.

During the build up of the UK's own disaster, GBP reached $2.10, and wealth was being transferred to savers via a long epoch of positive real rates when in retrospect there was nothing in the underlying economy that would have warranted such a return, especially to risk free investments.

So the trashing of the currency started a long time ago.

All currency related financial blow ups begin with a transfer from borrowers to savers which is not warranted by the returns in the underlying economy. This holds true for the icelandic krona, the dollar, pound and euro and the yen in the late 80's.

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Please take a look at the promised land (CHF):

http://nihoncassandr...imey-beans.html

Remarkably similar to Norway in many regards.

"There are no shortage of decent Pizzerias in London replete with iconic red-chequered table-cloths, wood-burning ovens and genuinely-accented servers. The median price for a reasonable fresh-cooked bubbling edible disc is somewhere in the GBP7.50 (USD12-) though this can rise to USD15 depending upon the venue and extras. Our favourite (and we are not alone as it can be annoyingly busy and raucous) Geneva-based pizza fabricator, Luigia, will spin and prep his freshly-made offerings for CHF16.50 (nearly USD$20) with a topping or two taking you to CHF22 (USD26). Two glasses of Nero d'Avola (USD13ea) , a shared generous plate of Calamari (USD35!!!!), and departs significantly poorer than one entered. I would pity the Swiss, except most of the patrons are NOT local Helvetians. For they, I can tell you, are all in France shopping.

One could reasonably argue these examples have been cherry-picked. And they might be right. But they are the most obvious every-day manifestations of The Wrong Price I see in my weekly travels. One could of course, go on: UK airport sandwich $5; Swiss airport sandwich $9; Swiss modern italian chaise USD1,500, indentical in UK USD800. And so on. Switzerland is - in its entirety - the The Wrong Price. And not by a little. Perhaps sterling is cheap. Perhaps the dollar is VERY cheap. Yet Americans seem more than willing to supply both labour and goods as well as services at what seem like - on a relative basis - to be absurdly cheap prices and rates. And for the most part, this does not look set to change dramatically, not on the scale discrepancies. Granted taxes, energy and social costs are much diminished, but this is not so in the UK. It seems to be purely a matter of the Wrong Price, driven by financial flows, with the real economy apparently ignorant of these flows - excepting those who live on borders. "

Consider the above in connection with:

http://nihoncassandr...-inflation.html

One wonders what the point of an expensive currency really is, and whether such a thing can actually persist in a world of cheap currencies.

I think perhaps (and it is late), that you are confusing strength with price;

and subtle with subtile.

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Under normal circumstances currency variations result from differences in productivity but globalisation and currency war has distorted that. The Swiss are a hot-flow recipient, it will break them in the end.

The only thing which would put you at a competitive disadvantage would be if one country imposed huge taxes to support government spending, while the other didn't. In that case the latter would obviously be more competitive. Nothing to do with the nominal value of the currency though..

Such as UK vs. India, we will break in the end.

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Much, much more likely that everywhere else is being massively underpaid, not that those prices are mysteriously high.

:)

We'll find out shortly when the CB's start to fall.

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During the build up of the UK's own disaster, GBP reached $2.10, and wealth was being transferred to savers via a long epoch of positive real rates when in retrospect there was nothing in the underlying economy that would have warranted such a return, especially to risk free investments.

So the trashing of the currency started a long time ago.

All currency related financial blow ups begin with a transfer from borrowers to savers which is not warranted by the returns in the underlying economy. This holds true for the icelandic krona, the dollar, pound and euro and the yen in the late 80's.

Maybe. Perhaps a stealth default is exactly the right course of action, that is not what I am disputing.

What I disagree with is the notion that a high currency leads to a high cost economy, and that we can become 'more competitive' by fiddling with the value of the pound. I don't believe that. US consumers pay for our products in dollars. We use those dollars to buy products and services, including labour, in a global marketplace. Excluding the time it takes for prices to readjust, and contracts to be renegotiated, the currency you happen to measure costs in doesn't matter.

For example, you have a factory paying minimum wage to its workers. All of a sudden, the value of a pound halves. Either you can pay more, or you can say goodbye to your Polish workforce.

The UK isn't expensive because our currency is overvalued, nor because our workers are overvalued. It is expensive because the productive economy is supporting far too many unproductive rent-seekers.

Low interest rates won't fix that.

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Maybe. Perhaps a stealth default is exactly the right course of action, that is not what I am disputing.

What I disagree with is the notion that a high currency leads to a high cost economy, and that we can become 'more competitive' by fiddling with the value of the pound. I don't believe that. US consumers pay for our products in dollars. We use those dollars to buy products and services, including labour, in a global marketplace. Excluding the time it takes for prices to readjust, and contracts to be renegotiated, the currency you happen to measure costs in doesn't matter.

For example, you have a factory paying minimum wage to its workers. All of a sudden, the value of a pound halves. Either you can pay more, or you can say goodbye to your Polish workforce.

The UK isn't expensive because our currency is overvalued, nor because our workers are overvalued. It is expensive because the productive economy is supporting far too many unproductive rent-seekers.

Low interest rates won't fix that.

Prices are set by the bankers and taxman.

Swiss prices are set higher to keep people out of banker tax evasion paradise.

You can't be rich without poor people!

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I heard most these kebab/pizzerias in the UK are loss making, at least on food sales. Namely because they are not primarily eateries, but revolving doors to provide a short employment stint to allow for immigrants to enter (the fictional 'skills' shortage). Staff then leave the kebab shop to go on welfare (supplemented by cash in hand work) allowing new staff to start, work a few weeks, then do the same.

Thats why you can get food for next to nothing at them. Their 'income' comes from immigration services.

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Much, much more likely that everywhere else is being massively underpaid, not that those prices are mysteriously high.

:)

We'll find out shortly when the CB's start to fall.

Funny, theres always a brand new Range Rover Sport parked outside my nearest kebab places belonging to the proprietor. Even the delivery boys have £20k new Golfs.

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Funny, theres always a brand new Range Rover Sport parked outside my nearest kebab places belonging to the proprietor. Even the delivery boys have £20k new Golfs.

Is it one of the ones where the sign over the door changes every 12 months, or one of the ones you can order draw and chips once they know you?

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I'm not sure I understand the point. It sounds more like a sterling story to me.

But then expensive rents, expensive regulations, expensive local goods and expensive employees all adds up to an expensive product targeted at customers with high purchasing power. Didn't stop the bloke going for a pizza though, did it? Doesn't stop people paying 4x more for a pizza in central London than they do in a Lancashire immigrant ghetto. Do we blame that phenomenon on the expensive pound too?

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I would pity the Swiss, except most of the patrons are NOT local Helvetians. For they, I can tell you, are all in France shopping.

I'm not sure I understand the problem. Is there any reason to think this is structural rather than just a simple equation of whether bumping up the prices (and losing local customers) makes more money?

Obviously, this is a strategy that only works if you've got a lot of captive, well-off foreigners knocking around. That would be Switzerland then...

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I'm not sure I understand the problem. Is there any reason to think this is structural rather than just a simple equation of whether bumping up the prices (and losing local customers) makes more money?

Obviously, this is a strategy that only works if you've got a lot of captive, well-off foreigners knocking around. That would be Switzerland then...

The above was not written by me, its a snippet from the original article. Did you read it?

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I heard most these kebab/pizzerias in the UK are loss making, at least on food sales. Namely because they are not primarily eateries, but revolving doors to provide a short employment stint to allow for immigrants to enter (the fictional 'skills' shortage). Staff then leave the kebab shop to go on welfare (supplemented by cash in hand work) allowing new staff to start, work a few weeks, then do the same.

Thats why you can get food for next to nothing at them. Their 'income' comes from immigration services.

So you've been to Elephant and Castle. Its why the food is so awful - nobody can actually cook and they've only been working there two weeks.

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The above was not written by me, its a snippet from the original article. Did you read it?

Yes - sorry, I should have made that clearer.

Surely, the only 'wrong price' is one which doesn't allow you to make a profit (either because the price is too high or too low).

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Yes - sorry, I should have made that clearer.

Surely, the only 'wrong price' is one which doesn't allow you to make a profit (either because the price is too high or too low).

Yes, markets tell us what the right trade is.

...and with a nod to the forums purpose I'll add - over time.

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Yes, markets tell us what the right trade is.

...and with a nod to the forums purpose I'll add - over time.

... as long as government doesn't intervene/distort the market.

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I'm not sure I understand the point. It sounds more like a sterling story to me.

But then expensive rents, expensive regulations, expensive local goods and expensive employees all adds up to an expensive product targeted at customers with high purchasing power. Didn't stop the bloke going for a pizza though, did it? Doesn't stop people paying 4x more for a pizza in central London than they do in a Lancashire immigrant ghetto. Do we blame that phenomenon on the expensive pound too?

I would agree, comparing prices not long after USD and GBP have crashed circa 50% against CHF where prices are generally sticky says more about the comparison currencies than anything else. By the same logic, salaries have doubled in USD and GBP terms, so what?

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I live in Switzerland. Earn swissies but spend most in Euroland.

If you think CHF 22 a pizza is expensive you ain't seen nothing yet. In Zurich get prepared for CHF 32 a pop at a decent Pizzeria next to the lake.

The percieved price difference compared to other countries is mostly due to currency appreciation which central bank is reluctant to supress at the moment. The country can afford it because it is to certain extent self contained economy which is much less dependent on import of raw materials than the UK (fuel, etc.), or at least these imports are balanced by high valued exports.

You would be surprised how many manufacturers of building materials, precise electronics are actually Swiss based, or founded by Swiss.

If there were not enough opportunities to spend your earning in Switzerland, the currency would inevitably fall compared to others.

Also every single town or village has functioning manufacturing outfits unlike most of the UK. Another reason is that the government is not running fiscal deficit.

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Much, much more likely that everywhere else is being massively underpaid, not that those prices are mysteriously high.

:)

We'll find out shortly when the CB's start to fall.

How much is a pizza in Bangdladesh?

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  • 311 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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