Thursday, September 9, 2010
What happens to a country after a 20% currency devaluation? When the existing contracts run out, you have to pay more for the same imports, but the exporters still get paid the same amount. This shows up as a huge sterling priced deficit. I think the argument that we imported more real goods all of a sudden during a downturn a bit pointless. Companies are in the business of selling whatever the specialise in, they had to pay more, and now it remains to be seen if they can sell on to the UK consumer... This IMO is an import price shock and I finally have an answer to why domestic prices didn't change after our glorious leaders dumped their own currency, basically because economic events like this go at the same speed as a UK house price adjustment (unless they go dramatically faster !!!).