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Drifting To Disaster

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Won’t a modest devaluation correct the position?
Unfortunately the nature of the imbalance is not one that will be easily corrected by a small change in the exchange rate. The problem is that a modest adjustment may not be enough to improve the trade position significantly. A larger devaluation will probably be needed.
Whilst a modest devaluation would help exports it may do very little for the cheap imports to which we have become addicted. Although it would lead to a higher price for these imported goods, it is hardly likely to lead to widespread manufacturing in the UK. The UK minimum wage is around £40/day, whereas we are competing with countries where the daily wage is a small fraction of this (“dollar-a-day countries”). The most relevant question in most product groups is, “how much would the pound have to be devalued in order to choke off demand so that less sterling was being spent on those goods?” The fear is that to reduce demand for foreign goods the pound may have to be devalued a great deal
.

IMO, this sums up why Sterling is grossly overvalued in relation to the US$, Euro and Yen. Our economy is at the top of the cycle and credit (expansion) is maxed out. We can no longer compete with other nations whose currencies are lower relative to the UK but in equilibrium relative to their own countries. I believe sterling will have to come down 20%.

Currency traders favour thew pound today because they believe we have a stable housing market. They have been reading too many VI reports IMO. As we have nothing else going for us the continuation of HPI-MEW is essential to keep sterling going. This is not a good long term basis upon which to value a currency.

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Won’t a modest devaluation correct the position?
Unfortunately the nature of the imbalance is not one that will be easily corrected by a small change in the exchange rate. The problem is that a modest adjustment may not be enough to improve the trade position significantly. A larger devaluation will probably be needed.
Whilst a modest devaluation would help exports it may do very little for the cheap imports to which we have become addicted. Although it would lead to a higher price for these imported goods, it is hardly likely to lead to widespread manufacturing in the UK. The UK minimum wage is around £40/day, whereas we are competing with countries where the daily wage is a small fraction of this (“dollar-a-day countries”). The most relevant question in most product groups is, “how much would the pound have to be devalued in order to choke off demand so that less sterling was being spent on those goods?” The fear is that to reduce demand for foreign goods the pound may have to be devalued a great deal
.

IMO, this sums up why Sterling is grossly overvalued in relation to the US$, Euro and Yen. Our economy is at the top of the cycle and credit (expansion) is maxed out. We can no longer compete with other nations whose currencies are lower relative to the UK but in equilibrium relative to their own countries. I believe sterling will have to come down 20%.

Currency traders favour thew pound today because they believe we have a stable housing market. They have been reading too many VI reports IMO. As we have nothing else going for us the continuation of HPI-MEW is essential to keep sterling going. This is not a good long term basis upon which to value a currency.

Won't devaluing sterling open the door to more foreign investors in UK property and therefore prop up the market? However, such a move will also push up inflation further...

Gordon may prefer this inflationary route politically but capital won't like it...house prices would hold firm nominally but fall in real terms. As Joe Voter doesn't really understand inflation they might think Gordon's pulled another miracle out of the bag!

Ideally Gordon needs another George Soros to come along so they can blame it all on him. ;)

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Guest mattsta1964

It ain't rocket science is it?

A country has to earn a living for itself.............but the UK doesn't

We have fooled ourselves (or have been fooled) into thinking we can borrow our way to prosperity.....indefinitely

How can something so bloody obvious be totally ignored in the media, politicians and by the vast majority of people who should know better.

We are sleepwalking towards disaster.

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Won't devaluing sterling open the door to more foreign investors in UK property and therefore prop up the market? However, such a move will also push up inflation further...

Gordon may prefer this inflationary route politically but capital won't like it...house prices would hold firm nominally but fall in real terms. As Joe Voter doesn't really understand inflation they might think Gordon's pulled another miracle out of the bag!

Ideally Gordon needs another George Soros to come along so they can blame it all on him. ;)

The pound needs to fall to induce inflation!!!!...that's right!!!!!..induce it!!!!

.....the way to reduce the above is to raise IRs and/or taxes.

inducing inflation like this helps to erode the defecit we have,and higher IR's and taxes can be reversed at a later date so as to provide the ILLUSION of a stable,sustainable economy.

....the US is playing quite an obvious long-term gain.

1)deliberately harass asian currencies to strengthen agains dollar.

2)weaken dollar to improve export potential

3)rise IR's to compensate for inflation,while keeping a lid on consumer pay rises.

4)get rid of the over-hang in bond holdings,so yield rise ready for future weapon against deflation.

...come 2012 when the boomers retire we will end up reversing this course and trying to persuade overseas investors that US bonds are the place to invest with rock solid 10%+ per year for doing nothing.....easily achieved by slashing IR's and providing consumers with extra money/debt/credit.

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The pound needs to fall to induce inflation!!!!...that's right!!!!!..induce it!!!!

.....the way to reduce the above is to raise IRs and/or taxes.

inducing inflation like this helps to erode the defecit we have,and higher IR's and taxes can be reversed at a later date so as to provide the ILLUSION of a stable,sustainable economy.

....the US is playing quite an obvious long-term gain.

1)deliberately harass asian currencies to strengthen agains dollar.

2)weaken dollar to improve export potential

3)rise IR's to compensate for inflation,while keeping a lid on consumer pay rises.

4)get rid of the over-hang in bond holdings,so yield rise ready for future weapon against deflation.

...come 2012 when the boomers retire we will end up reversing this course and trying to persuade overseas investors that US bonds are the place to invest with rock solid 10%+ per year for doing nothing.....easily achieved by slashing IR's and providing consumers with extra money/debt/credit.

Don't make the mistake of thinking anything the US is doing is 'smart'. You think this bunch incompetents int he WH cares what happens in 5, 10, 15 years? You think they understand basic economics? It's about handing money to your friends, and letting the public pick up the tab. 'Privatise the profit, socialise the risk' is their motto. Look at Iraq and how FUBAR that is, and then apply that to economics.

China is the one playing the smart game, followed by Russia and Iran.

This bunch of clowns is running the US into the ground, and as amazing as it may seem, many of them want this to happen. It sounds nuts, but they believe government is too large and needs to be reduced, and the way to do it is to 'starve the beast' - that is run up expenditure and cut taxes to the point where debt is so large there is no choice but to reduce govt to a minimal role. They think a land without courts and good roads etc will be better for all. They're nuts, and they hold the reigns of power. Google up 'Grover Norquist' and 'drown in the bathtub' and see what you get - and this is a guy with the ear of the President.

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Guest pioneer31

It ain't rocket science is it?

A country has to earn a living for itself.............but the UK doesn't

We have fooled ourselves (or have been fooled) into thinking we can borrow our way to prosperity.....indefinitely

How can something so bloody obvious be totally ignored in the media, politicians and by the vast majority of people who should know better.

We are sleepwalking towards disaster.

because many people have:

no, or little common sense

are poorly educated (they are tea boys/girls made good. May earn a fair whack now but their grey matter has never been put through its paces)

don't understand basic economics/science or the notion of scientific research. (I've studied both to a reasonable level. This doesn't make me an expert or a clairvoyant but I do see that there are some basic unchangeable facts in this world)

Most people:

believe what they want to believe. This is why conmen and get rich schemes will ALWAYS prosper.

"Surely I really have won the readers digest comp this time? I'm sure this chain letter/pyramid scheme will work. You'll see, one day when I'm rich!"

Edited by pioneer31

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OK.

How is the currency to be devalued? The government is not doing anything artificial to prop up the pound, there is not a fixed echange rate, interest rates are not abnormally high, the goverments accounts are as transparent as they come so there can be no suprise that we lack foreign exchange.

This guy says there is a problem with people buying UK assets, but if we were somehow to devalue wouldn't that just make them cheaper and apparently looking like they would go up in price to there old real value?

Wouldn't somehow reducing the value of the currency put our trade defecit up enormously (due to worse purchasing power) because even if we wanted to replace all our imported goods with local goods it would take many years to build the factories to produce them. Since we have low unemployment in our economy just who would work in these factories to produce all these goods?

The UK has had a persistant trade deficit for many decades if this was actually a problem it couldn't have gone on for so long.

Edited by Della

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Della,

The UK has had a persistant trade deficit for many decades if this was actually a problem it couldn't have gone on for so long.

See below.

Import_Export.jpg

post-273-1155978481_thumb.jpg

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Della,

The UK has had a persistant trade deficit for many decades if this was actually a problem it couldn't have gone on for so long.

See below.

Great graph. The fateful point at which the lines cross takes one's breath away. What an indictment of Gordon Brown. He managed it even while still within Tory spending limits?!

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Great graph. The fateful point at which the lines cross takes one's breath away. What an indictment of Gordon Brown. He managed it even while still within Tory spending limits?!

indeed.... it looks like it took gordonron 6 months to balls the job up.

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Della,

The UK has had a persistant trade deficit for many decades if this was actually a problem it couldn't have gone on for so long.

See below.

Well according to this from the National Statistic Office we have had a negative current account balance since 1984 (22 years)

Page 24 (which Acrobat thinks is page 30) column entitled "Current balance" and "Current Balance as % of GDP"

http://www.statistics.gov.uk/downloads/the...inkBook2006.pdf

EDIT

Current Balance includes investment income, strangely we seem to have gained I would estimate about 240 billion pounds of capital in 2002 if it was invested at 5% (12 billion extra income)

Edited by Della

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Well according to this from the National Statistic Office we have had a negative current account balance since 1984 (22 years)

Page 24 (which Acrobat thinks is page 30) column entitled "Current balance" and "Current Balance as % of GDP"

http://www.statistics.gov.uk/downloads/the...inkBook2006.pdf

EDIT

Current Balance includes investment income, strangely we seem to have gained I would estimate about 240 billion pounds of capital in 2001 if it was invested at 5% (12 billion extra income)

The trade in goods and services displays the same trend as the previous graph, just starting from a different level and never actaully going into positive territory? Note however how the inflexion point is the same - El Gordo gaining control and also the trend that pressaged the previous recession - a rapid decline in trade deficit and that of now. Note also that even the trade in services may not be continuing its upward trend.

Trade_Goods_Services.jpg

post-273-1155985214_thumb.jpg

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The trade in goods and services displays the same trend as the previous graph, just starting from a different level and never actaully going into positive territory? Note however how the inflexion point is the same - El Gordo gaining control and also the trend that pressaged the previous recession - a rapid decline in trade deficit and that of now. Note also that even the trade in services may not be continuing its upward trend.

Nominaly I will agree it looks worse that ever before, but in real terms the deficit was twice as bad in the late 1980s, and I believe that whilst it looks bad at the moment it will get better as it did before without too much of a palaver.

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Guest AuntJess

Won't devaluing sterling open the door to more foreign investors in UK property and therefore prop up the market? However, such a move will also push up inflation further...

Gordon may prefer this inflationary route politically but capital won't like it...house prices would hold firm nominally but fall in real terms. As Joe Voter doesn't really understand inflation they might think Gordon's pulled another miracle out of the bag!

Ideally Gordon needs another George Soros to come along so they can blame it all on him. ;)

I don't really understand inflation either :blink: , but I do understand that ( in the words of the song from the Sound of Music) " nothing comes from nothing, nothing ever could............" :rolleyes: The economy here seem to have been positioned upon shifting sands, and I am left wondering, when do we all get "sucked down!" B)

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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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