Friday, January 23, 2009

Sorry, another currency story, but it’s a good one

What's wrong with Sterling?

How bad is this fall in the pound? In a word: hideous. Measured against a basket of other currencies the pound has fallen by a quarter over the past year This is more than any previous devaluation in the past century. Greater even than in 1931 when the UK was forced to abandon the gold standard and saw the pound plummet by more than 24 per cent against the dollar. Greater than after Black Wednesday and the abandonment of the Exchange Rate Mechanism. Greater than 1967, when Harold Wilson was forced to make an extraordinary televised statement to the nation claiming that the "pound in your pocket" would not be worth any less after his devaluation.

Posted by little professor @ 12:52 AM (1647 views)
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24 thoughts on “Sorry, another currency story, but it’s a good one

  • all us savers are getting sc*ewed, low interest rates, a falling pound and QE (coming soon), follow all the rules and end up with bugger all, typical..

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  • @amjidk

    “follow all the rules …”

    It could be argues that the popularly accepted ‘rule’ was to invest in property in the last decade. Don’t misunderstand me; I am similarly frustrated by the way that prudence is being punished but sometimes wonder if I would have been better off lining up for a government handout.

    Personal responsibility? So old fashioned!

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  • Quiet guy,

    I agree entirely. Lesson learned for next time: invest all spare cash in land and property. It’s completely backward economically and socially, but it’s the only way to protect your savings. Roll on LVT.

    A more important lesson is that democracy always trumps capitalism in the long run. The credit bubble had a large number of potential losers and relatively few potential winners; the group with the most swing voters (i.e. mortgaged homeowners) got the bailout.

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  • I agree again… thanks Gordon! I am watching my savings become worthless!

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  • mark wadsworth says:

    As a bit of a currency watcher, I have been pointing out for ages that sterling slid more over the last year than before/after Black Wednesday (or White Wednesday, depending on your point of view), I am surprised that not enough articles emphasise this.

    @ Drewster, hurray for LVT – the perfect tax that that doesn’t really cost anybody and will never happen. Or if it did, would be phased out again to give a one-off lift to house prices that will help one or other of the parties win the next election.

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  • “Greater than 1967, when Harold Wilson was forced to make an extraordinary televised statement to the nation claiming that the “pound in your pocket” would not be worth any less after his devaluation”…whereby it devalued by a piffling 14%. This is a monumental, catastrophic, deliberate devaluation of a currency by the treacherous criminals in positions of power. The media has been complicit in hiding the truth from the majority of the population who will only notice when their sterling funded holidays are much, much, much more expensive this year and next year than they have been for the past decade, Butlins anyone. No-one I have spoken to, except my parents who rely on savings to subsidise the appalling state pension and others like them have even noticed a problem with the current state of affairs. This government seem hell bent on aiding profligacy and covering the banks tails and this will I fear cause even more hardship in the future, devaluing a currency only works if the rest of the world is able or willing to buy your goods or invest in the business core of the country, neither of which are happening at the moment. I know long term this plan will pay off, but then massive inflation will be the next problem for savers and the prudent again, but not for the profligate who again will reap the benefits of seeing their debts devalued by rocketing inflation, and that includes the biggest debtor of them all HMG and the ‘prudence’ of its un-elected leader.

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  • Ok I’m contrary by nature but there has been nothing orderly about the decline of sterling over the past 6 months as is suggested nor has the rate of its decline accelerated over the past week – I took profits earlier in the week but have been unable to find an opportunity to short sterling. It’s rate of decline has been decelerating.

    As far as solution is concerned the IMF could save us if they wanted too, the debts and more particularly unknown liabilities are far too great.

    I fear the only way out is sacrificing not only the prudent but also future dependants ie slashing govt spending in the private sector, including the health service, benefits and public sector pensions.

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  • Actually, I think it’s capitalism trumping democracy: a lot of wealthy people are going to survive and prosper because of this panic reaction.

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  • ‘The Government would have to seek assistance from the International Monetary Fund which would, most likely, dole out a baleful dose of economic medicine – higher interest rates, lower government spending and immediate austerity.

    Although, in the long run, Britain does need to borrow less and save more, such an adjustment should ideally take place over years, not weeks.’

    This IMO is what will happen and accelerate the house price crash like nobody has ever seen before.

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  • Debtfree – true, if the government is stopped from keeping lots of jobs/employment afloat with borrowed money (which the taxpayer will have to pay back in the end), the amount of money in circulation and available for spending will plummet, as people either lose their jobs or get days/hours cut back, as well as pension cutbacks.

    That would make Japanes Uncle’s 80% decrease prediction come true in short order.

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  • My new wallets got handle bars and a wheel!

    Cool huh?

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  • You may know this and it may of been mentioned before but I heard the other day back in I think ’92 that Gordon Brown was having a go at the Conservatives and his speech went along the lines of :-

    A WEAK CURRENCY IS THE SIGN OF A WEEK ECONOMY, A WEAK ECONOMY IS THE SIGN OF A WEAK GOVERNMENT.

    You didn’t know he could see into the future did you !

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  • “That would make Japanes Uncle’s 80% decrease prediction come true in short order.”@beartil2010

    …this is already true if you are buying in yen (well done JU), dollar and getting close in euros. GB has well and truly shafted the people of this country and this lesson should never, ever be forgotten. Labour governments always end up stuffing the country. Its a pity there really isn’t a viable opposition, so ‘hung’ parliament I guess.

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  • “That would make Japanes Uncle’s 80% decrease prediction come true in short order.”@beartil2010

    …this is already true if you are buying in yen (well done JU), dollar and getting close in euros. GB has well and truly shafted the people of this country and this lesson should never, ever be forgotten. Labour governments always end up stuffing the country. Its a pity there really isn’t a viable opposition, so ‘hung’ parliament I guess.

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  • By stander

    Was listening to Question Time last night and the Lib Dem chap frankly seemed alot more switched on to the current situation that either the Lab or Cons offerings.

    For some reason everyone seems to consider that a wasted vote, yet now we have a wasted country.

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  • The Nationwide has more savers than borrowers and yet the management have chosen to act solely in the interest of borrowers, and they has taken on failing institutions and hence their debt and liabilities. The question has to be asked in whose interest should the management of the society be acting?

    They should be a motion to sack the board of this society and install members of this forum on the board. All that has come to pass in the economy was predicted here over the last few years. To hear Gordo refer to unforeseen events makes me want to throw the radio out of the window.

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  • I agree @14 str2007

    I have heard lots of people say that they won’t vote lib dem because “they won’t get in anyway”, and I have to explain to them that voting at an election is not like backing a horse. The aim is not to pick the winner, and there are no prizes on offer.

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  • stillthinking says:

    If the gilts that GB will be attempting to sell in the future are successfully sold, then wouldn’t that be the equivalent of buying sterling? Either somebody with sterling is going to buy, or a foreign buyer will need to exchange.
    In which case, selling sterling now before a large number of foreign buyers appears would be a foolish move, so people selling sterling must be betting that government debt will be sold domestically and not abroad. Does this make sense? And if they are not sold abroad they must be sold domestically, in which case domestic savings will be channelled not into GDP growth through investment, but into consumption through funding the governments structural deficit and increased spending due to the recession (taking the view that if savings are removed from banks but simply put back in as capital then that would not be a net change). More money into consumption leads to a lower long term level for sterling, as a lot of domestic consumption is of foreign goods.
    Gilts must be funded domestically….

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  • I Want A House says:

    inbreda

    I wouldn’t vote Lib Dem because there is an idiot in that party who wants to ban the sale of cannabis seeds and paraphernalia, he tried to pass a law for this. This will push more people to buying their cannabis from street dealers, rather than growing their own personal use, in turn giving money to criminals or terrorist. They now also poison the street cannabis with stuff to make it heavier, thus increasing profits. This is the beauty of Prohibition. Whereas the Lib Dems are meant to be for the removal of restrictions on cannabis or to reduce it back to class C (no difference to class B – Special).

    Go Tories. I know they want to ban all drugs but at least their message is clear.

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  • The Government would have to seek assistance from the International Monetary Fund which would, most likely, dole out a baleful dose of economic medicine – higher interest rates, lower government spending and immediate austerity.
    That would be brilliant! GB should have gone down this path years ago.

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  • ST not sure I follow. As there is no money domestically wouldn’t selling gilts domestically just be printing £, so called quantative easing.

    Not sure traders are betting that gilts won’t sell because can’t the the yield offered increase to compensate for the devaulation.

    Mind you you get to a point where you just don’t buy sterling or uk debt at any price – we are getting there.

    Every danger i’ve missed what you were saying!

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  • bystander:
    I would suggest all govts stuff the country. The current crisis is not so much about the incompetence of the current govt but about the inability of any govt to prevent instability in the economy under our political system. Any govt that attempted to introduce the controls to improve stability would be voted out in short order (nanny state, restrictive govt, etc etc). Just possibly that may now change. To believe that none of this would have happened under a different govt is fantasy. This genuinely is a worldwide crisis brought about by the freedom of a financial elite to pursue wealth without understanding (or having no concern for) the consequences. If you want to look for a turning point where the climate to allow all this really warmed up, look to the early 80s.

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  • letthemfall – agreed.

    bystander – selling gilts is not QE, no matter who buys them.

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  • I can’t really believe that anyone is naive enough to believe that anything is done in the interests of the people. A good way of predicting how this situation will go is to ask yourself the question – what is in the best interests of the rich and those in power? What saves the system while extracting the maximum cash? As long as we keep believing the spin that governments/banks/corporations are acting in ‘the best interests of the country/economy/people’, while the opposite happens, we will continue to be screwed.
    Consider that Microsoft is cutting it’s workforce by 5% or 5000 jobs after revenues dropped by 10% and ask yourself who is the priority.

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