Tuesday, September 22, 2009

Mervyn and Gordon devalue their way out of recession and print their way out of debt

How to protect your wealth from the plunging pound

Why do the markets hate Sterling so much? It's pretty straightforward. The Bank of England very kindly spelled it out for the market in its latest quarterly bulletin. The Bank said that "changes to Britain's relative economic outlook, the perceived riskiness of its assets and the need for the economy to rebalance away from domestic consumption" had been the major factors in the pound's 20% slide over the past two years. In other words, Britain has fallen way down the global pecking order of economies you might want to invest in. And worse still, these changes might be permanent. The risk now is that the UK will be left behind in the global economic recovery and interest rates will be on hold for longer than most. We are in the best position to destroy the value of our currency.

Posted by drewster @ 03:41 PM (879 views)
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5 thoughts on “Mervyn and Gordon devalue their way out of recession and print their way out of debt

  • Same Old Same Old says:

    Why does MoneyWeek always tout the same solution: buy gold?

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  • …. or just buy the “other currencies” – whichever you choose

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  • Hmm, so we could devalue. That means we will tend to suck in more imports. And where will these imports come from? Europe of course. This will make us even more dependent on the EU as a trading partner. If we are not careful, over the next 20 to 30 years our currency could become as valued as the Italian Lira — and it is my contention that by keep pursuing this path we will, inevitably, adopt the Euro. (It’s not that long ago that they said a Euro was worth 70p, and now it’s strengthened to 90p.)

    One of our major international ‘exports’ is financial services. Basically meaning we will help those that want to push money around the globe and keep it away from those countries that want to tax it. It was, after all, because the USSR wanted somewhere to put its dollars that the London market grew into a major financial location. But if we devalue Stirling we will inevitably lose influence in the global marketplace and become just another piddling ‘hasbeen.’

    What we, and in fact all the major western countries, need to do is to take the new technologies by the scruffs of their necks and seriously invest in them. We need to put more, not less, into our education system. Unlike the Thatcher view, that the country is to be managed like a household, where you don’t live beyond your means, on the contrary we need to sow the seeds now for the benefits to be seen in 20 years time.

    Of course it won’t happen because it means spending even more, and the public generally won’t wear it. But the middle classes, which have most of the wealth, need to pay for the investment that means we encourage and support children who are 10-15 years old now, so that in 20 years time they will have gained a good education, focussing on the skills needed to get the most out of this new technology.

    We cannot go back in time. It is already apparent that you could live in some off-beat place (well, maybe not Africa), and run your business from there. And it will be, more and more, the intangibles, such as website design, and information processing, data warehousing analysis and other such business services that will become the high-valued products that everyone wants to produce.

    This short-term view that students have to pay for their own education will be our own downfall. 30 years ago tertiary education was in effect free. Then came the ‘everything has to be run as a business’ philosophy and this is having a serious knock-on effect on our entire economy. But it will be brave government that tells its electorate to f-off and stump up the cash needed for the next generation.

    This country is doomed, I tell you — doomed. (Well, maybe…)

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  • Dude all fair enough if the wealth of the UK middle class wasn’t largely a mirage, houses are not worth what people think, investements will continue to suffer as this secular bear market growls on, tax liabilties are rising, salaries in anything link to borrowings (almost all) will shrink as we delver, public service cuts will bite, pensions will massively underperform, our demographic will continue to creak.

    We may not be doomed but it is going to be gloomy for a quite a while

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  • @Same Old,

    Yes I agree MoneyWeek’s stance can become infuriating to those who aren’t gold bugs. I posted this article for the inflation/deflation point though. I think they make a good case for inflation, since the BoE seems more intent on destroying the currency than any other central bank (bar Zimbabwe).

    If the bank keeps rates low for longer than economic conditions would normally require, then it’s just another “Greenspan put” resulting in asset inflation (HPC). If the bank keeps rates low because the economy doesn’t recover, then that’s bad news for the pound and also negative for house prices. Either path leads to devaluation and inflation of imported goods (including food and oil). Oh joy.

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