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Realistbear

Miracle Economy Is Wobbling As Trade Flattens

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http://news.bbc.co.uk/1/hi/business/5334064.stm

Last Updated: Monday, 11 September 2006, 09:20 GMT 10:20 UK
Exports were weak in July
The UK's trade deficit in goods and services was barely changed at £3.77bn ($7bn) in July after a
sharp fall in both exports and imports.
The deficit in goods edged
higher
to £6.34bn
from £6.29bn in June. Goods exports in July fell 13% to £19.7bn while imports dropped 10% to £26bn.
The surplus in trade in services rose to £2.6bn from £2.5bn.
For the three months to July, the goods and services deficit fell to £12.8bn from £13.5bn in the previous quarter.
"The latest estimate of the trend suggests that the UK trade deficit is
fairly flat
in recent months," the Office for National Statistics (ONS) said.

Slowing trend and growing deficts will become worse if, which is likely, the US goes into recession.

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Guest Alright Jack

http://news.bbc.co.uk/1/hi/business/5334064.stm

Last Updated: Monday, 11 September 2006, 09:20 GMT 10:20 UK
Exports were weak in July
The UK's trade deficit in goods and services was barely changed at £3.77bn ($7bn) in July after a
sharp fall in both exports and imports.
The deficit in goods edged
higher
to £6.34bn
from £6.29bn in June. Goods exports in July fell 13% to £19.7bn while imports dropped 10% to £26bn.
The surplus in trade in services rose to £2.6bn from £2.5bn.
For the three months to July, the goods and services deficit fell to £12.8bn from £13.5bn in the previous quarter.
"The latest estimate of the trend suggests that the UK trade deficit is
fairly flat
in recent months," the Office for National Statistics (ONS) said.

Slowing trend and growing deficts will become worse if, which is likely, the US goes into recession.

So what will that do for sterling?... Along with a government that needs to print more money to cover its costs.

With a falling currency, what happens to prices (including houses)?

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According to this there is no change since last month:

199.gif

http://www.statistics.gov.uk/cci/nugget.asp?id=199

If the US economy does, as you say, head for the rocks what shall happen to your stock of dollars?

IN relation to sterling, I believe the $ will fare better. The 10 year average is in the 1.60's and the rise since 2003 has been mostly on the back of HPI-MEW and the perception that Gordon had pulled off a true miracle. As the UK economy unwinds through falling exports (brought on by an overvalued currency and inability to compete together with loss of a manufacturing base from which to export) rising unemployment, higher levels of financial default, plotical uncertainty the pound will start to settle back down to a more realistic level.

Sterling is now the number 3 reserve currency after the US $ and Euro. Once the speculators begin to shift out of sterling toward a more stable Euro and $ the correction will take place. Perception is reality and right now the world believs in Mr. Brown but I do not think it will last through the winter. If the TUC turn militant and the world sees its business as usual in the UK sterling will revert back to its long term status as a marginal currency good for a short term bet.

http://framehosting.dowjonesnews.com/sampl...0084&Take=1

...../
The dollar strengthened because of the "continued unwinding of carry trade, or reduction in carry trade, which puts downwards pressure on all currencies against the yen," said John McCarthy, director of foreign exchange at ING in New York. "The downward pressure on currencies resulted in a higher dollar across board."
Mr. McCarthy also said that the break in key levels helped the dollar to appreciate widely, as 1.2690 was seen as a critical support level that had trapped the dollar in narrow ranges.
"It seems to be a bit of a defining point both as resistance on the way up and support on way down," said Mr. McCarthy.
In addition he said that a decline in oil prices and comments from Cleveland Fed President Sandra Pianalto were factors in keeping the dollar lofty Friday.
"It was the unwinding of some of these carry trades that started the ball rolling, and it's being supported by some secondary and tertiary issues," Mr. McCarthy said.

http://www.iii.co.uk/news/?type=afxnews&am...;action=article

LONDON (AFX) - The pound edged lower amid indications that
inflationary pressures in the UK may be easing
, in turn weighing on rate hike expectations.
In data out this morning, it was revealed that producer prices have eased substantially in August.
The office for National Statistics said input prices on a seasonally adjusted basis fell by 1.2 pct in August from the previous month. The monthly decline was the first since May and the largest since December 2004. Producers were unable to pass on cost increases. On a non-seasonally adjusted basis, output prices were unchanged in August from July for an annual gain of 2.6 pct.
"The sharp decline in the headline PPI should ease some concerns about pipeline pressures," said Daragh Maher at CALYON.
Also out today, there was no change in the UK's trade in goods position with the rest of the world, staying at a deficit of 6.3 bln stg for the second month in a row in July.
Maher said the slip in exports was a key concern as the Bank of England hopes exports can take up some of the slack from consumer demand in driving growth.
"Overall, the combination of a sharp deceleration in PPI and a wider than expected trade deficit will put the pound under more downward pressure," added Maher.
The pound fell further under 1.86 usd after the data while the euro climbed convincingly above 0.68 stg.
Edited by Realistbear

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IN relation to sterling, I believe the $ will fare better. The 10 year average is in the 1.60's and the rise since 2003 has been mostly on the back of HPI-MEW and the perception that Gordon had pulled off a true miracle.

The $1.60 per pound though was the lowest consistant level of the pound against the dollar in history.

As the UK economy unwinds through falling exports (brought on by an overvalued currency and inability to compete together with loss of a manufacturing base from which to export) rising unemployment, higher levels of financial default, plotical uncertainty the pound will start to settle back down to a more realistic level.

Whilst I agree that the UK might suffer from all those problems, I think the situation in the USA could be a lot worse.

It is well known that the US has an enormous trade defecit, as a percentage of exports the trade deficit in the UK is 25% of exports, whereas in the USA it is 84% of exports. If we were to think how this situation might be corrected it would seem that the dollar has a lot further to fall than the pound. This unhappy situation of dollar overvaluation has arisen because Asian countries are proping up the dollar, but they can't keep that up forever.

Trade deficit/exports

USA: 780/927*100=84%

UK: 84/327*100=25%

(US and UK trade defecits are anualised from the most recent months figures, the exports are from the CIA factbook)

To be in a similar situation to the UK with the trade defecit being 25% of exports without reducing imports the USA would have to export $3,120 billion, which is implausable, the 236% growth in exports would take too long to achieve and is too large a fraction of total world trade to be believable. Therefore the only way the situation could be corrected is to drop the value of the dollar to increase the price of imports and improve exports, I don't know how much it would have to drop because I don't know the shape of the demand curve for imports but I suspect the dollar may have to drop a lot.

BTW:

The Euro area has a trade surplus of €12billion on an anualised basis.

EDIT:

If you consider that imports need to drop by a two thirds then the Argentinian experience suggests that reducing the value of the dollar by 75% would do the trick (1998-2002).

http://en.wikipedia.org/wiki/Foreign_trade_of_Argentina

http://en.wikipedia.org/wiki/Argentine_eco...%281999-2002%29

Edited by Della

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The $1.60 per pound though was the lowest consistant level of the pound against the dollar in history.

Whilst I agree that the UK might suffer from all those problems, I think the situation in the USA could be a lot worse.

It is well known that the US has an enormous trade defecit, as a percentage of exports the trade deficit in the UK is 25% of exports, whereas in the USA it is 84% of exports. If we were to think how this situation might be corrected it would seem that the dollar has a lot further to fall than the pound. This unhappy situation of dollar overvaluation has arisen because Asian countries are proping up the dollar, but they can't keep that up forever.

Trade deficit/exports

USA: 780/927*100=84%

UK: 84/327*100=25%

(US and UK trade defecits are anualised from the most recent months figures, the exports are from the CIA factbook)

To be in a similar situation to the UK with the trade defecit being 25% of exports without reducing imports the USA would have to export $3,120 billion, which is implausable, the 236% growth in exports would take too long to achieve and is too large a fraction of total world trade to be believable. Therefore the only way the situation could be corrected is to drop the value of the dollar to increase the price of imports and improve exports, I don't know how much it would have to drop because I don't know the shape of the demand curve for imports but I suspect the dollar may have to drop a lot.

BTW:

The Euro area has a trade surplus of €12billion on an anualised basis.

With the US being the largest world economy others are dependent upon US consumption. A low dollar and exports into the US does not work very well which is why sterling is having a hard time going much aboove 1.90 and the Euro above 1.28. If the $ collapses significantly I believe we would see depression of a 1929 scale. The the country first to dig itself out will have the stongest economy and currency.

As of this moment, the UK is dependent on the perception that the Miracle Economy will continue in the face of a deteriorating trade surplus, unemployment, personal debt and twin government deficits.

Given the high cost of most things in relation to Europe the forces of equilibrium should pull the pound down to Euro levels over the longer term. A HPC could well be the medicine needed to fix the misalignment that makes this country so overpriced and heavily debt burdened. When you price your own people out of owning a house you know you are in deep trouble.

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With the US being the largest world economy others are dependent upon US consumption. A low dollar and exports into the US does not work very well which is why sterling is having a hard time going much aboove 1.90 and the Euro above 1.28. If the $ collapses significantly I believe we would see depression of a 1929 scale. The the country first to dig itself out will have the stongest economy and currency.

I do think there could be a really bad recession in the US, all the economic indicators indicate that that is what is likley.

As of this moment, the UK is dependent on the perception that the Miracle Economy will continue in the face of a deteriorating trade surplus, unemployment, personal debt and twin government deficits.

All these problems are only a fraction as bad in the UK as they are in the US. Also if you look at the graph above it has a hopeful looking trend line on the trade deficit which takes us back to trade surplus, this still might come to pass.

Given the high cost of most things in relation to Europe the forces of equilibrium should pull the pound down to Euro levels over the longer term. A HPC could well be the medicine needed to fix the misalignment that makes this country so overpriced and heavily debt burdened. When you price your own people out of owning a house you know you are in deep trouble.

Just because the values of the currency units are not equal that doesn't mean the pound is really 46% overvalued to the Euro becuase the Euro is €1.46 per pound, just as it is not 21,792% overvalued against the Yen because you get 218 Yen per pound.

We did the thing where we compare stuff you can buy on the Internet in the US and the UK and you can get pretty much the same or more for your money here, no doubt it is the same with the Euro area countries, some of which when I have been there I have found to be very expensive (Italy,Spain).

EDIT:

US trade deficit for comparison (currently it is worse than this):

1.gif

Edited by Della

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I do think there could be a really bad recession in the US, all the economic indicators indicate that that is what is likley.

All these problems are only a fraction as bad in the UK as they are in the US. Also if you look at the graph above it has a hopeful looking trend line on the trade defecit which takes us back to trade surplus, this still might come to pass.

Just because the values of the currency units are not equal that doesn't mean the pound is really 46% overvalued to the Euro becuase the Euro is €1.46 per pound, just as it is not 21,792% overvalued against the Yen because you get 218 Yen per pound.

We did the thing where we compare stuff you can buy on the Internet in the US and the UK and you can get pretty much the same or more for your money here, no doubt it is the same with the Euro area countries, some of which when I have been there I have found to be very expensive (Italy,Spain).

House prices are the most seriously misaligned commodity. If the pound were devalued to the Euro level house prices would be on more or less the same level as Europe in relation to wages. At 1.86 the pound is seriously overvalued in relation to the $ which must be why our exports are faltering.

Given the UK's debt, 1.3 trillion* pounds of it, it seems that our currency has been artificially inflated to dangerous levels. OUr prosperity has not been as a result of industry but borrowing. Thus a highly valued pound based on an economy that has borrowed its way to "prosperity" cannot last long. The world will not collapse if sterling drops 30 or 40% but it will collapse if the dollar drops another 5 or 10%.

_________________________

*The US "debt" is 11.2 trilion $. On a per capita basis each UK citizen owes a great deal more than the equivalent US citizen given the size of the population at 5 times as big.

Miracle Economy will wobble a little more if strikes begin reminding the world of the bad old days. How can Gordon jack up house prices and then expect people to be content with less than commensuarte wage hikes? Its unwinding:

http://uk.news.yahoo.com/11092006/325/brow...ike-threat.html

Brown defends reforms despite strike threat

Reuters Monday September 11, 08:09 AM
BRIGHTON (Reuters) - Chancellor Gordon Brown says Labour will press on with controversial public-sector reforms despite strike threats from unions representing more than 1 million workers.
Labour has planned thousands of job cuts and capped wage rises in an attempt to slash costs and improve delivery in the sprawling public sector, but unions say services such as state health care are being crippled.

It will not be enough for Gordon to say: Ah but your houses are worth twice as much!

Edited by Realistbear

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If the pound were devalued to the Euro level house prices would be on more or less the same level as Europe in relation to wages.

If the pound was devalued to 1:1 to the Euro, it would make _ABSOLUTELY ZERO DIFFERENCE_ to the level of house prices relative to wages, because wages would 'devalue' just as much.

At 1.86 the pound is seriously overvalued in relation to the $ which must be why our exports are faltering.

The British economy is a basket case, but so is the US economy. You're clinging to the coat-tails of a dying Empire.

The US "debt" is 11.2 trilion $.

The US national debt including unfunded liabilities is around $60,000,000,000,000... and increasing all the time. Using standard accounting practices as required for a business rather than a government, I believe last year's US budget deficit would have been around $3,000,000,000,000.

A trillion here, a trillion there, and pretty soon you're talking real money.

Edited by MarkG

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Winter of discontent brewing?

http://uk.news.yahoo.com/11092006/325/nhs-...nal-strike.html

NHS staff vote for national strike
Reuters Monday September 11, 03:53 PM
BRIGHTON (Reuters) - Up to 1,000 NHS supply workers plan to strike against privatisation in the health service, the country's largest union Unison said on Monday.
Nearly 1,000 workers in NHS Logistics voted by 74 percent to take industrial action over the outsourcing of contracts to German company DHL -- the first England-wide strike in the NHS since 1988, Unison added.

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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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