Monday, July 5, 2010

Any excuse to crank up the printing press!

We must not be seduced by apparent attractiveness of a strong pound

The markets have welcomed the new coalition government. The pound has risen from its lows by about 20pc against the euro and about 10pc against the dollar. Governments are easily seduced by the apparent attractions of a strong currency. It gives them the seal of approval from the financial markets. This happened under the first Thatcher government in 1979-81, and again when Tony Blair was first elected in 1997. Yet the over-valued pound was right at the centre of the distorted economy that followed. So what could be done here? The Bank of England could buy foreign assets, i.e. foreign government bonds, by printing money. The monetary effect would be the same as ordinary QE but this would have the added effect of helping to keep the exchange rate down.

Posted by drewster @ 06:18 PM (1331 views)
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6 thoughts on “Any excuse to crank up the printing press!

  • The pound is now being seen as something of a safe haven.

    Don’t make me laugh. Backed by what exactly? Hopes and dreams? We have nothing substantial to back our currency with to offer as a ‘safe haven.’ When it was strong it was strong on the back of house flipping and financial misadventure in London.

    It makes me laugh that Merv has done his best to talk us down and get a lower Pound while at the same time our trade gap has continued to widen. British people don’t want to sit in factories screwing boxes together for £5 a hour, we moved away from all that.

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  • And a Indian does?

    Whats safer, the Euro or the Pound…

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  • @tom101, The Pound is safer than the Euro because we can move our interest rates up and down to suit the economic conditions.
    We can also print as much money as we like to increase liquidity. Obviously this screws savers. Perhaps the government relies on the fact that savers are not the sort that complain too much. Time will tell.

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  • It’s all rigged and right now currencies are rigged more than ever.

    Be entertained if you must.

    Recap…snide of

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  • miken, Many thanks for reply. Too much apathy. Not much point complaining when the savings have gone!

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  • ontheotherhand says:

    I agree that it’s great to have the ability to devalue in a crisis like we’re having to give the economy some time to adjust and rebalance, but in order to have the ability to devalue next time in years to come, we will need to have slowly rebuilt its value and standing – we need to get back to a place where we can devalue from meaningfully if we need to again. Otherwise we would just be competitively devaluing forever. This traps our companies into relying on being cheap rather than on producing excellent value added products and services.

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