Tuesday, August 13, 2013

Pound in your pocket…

Devaluing the pound will not lead to a 'race to the bottom'

John Mills, a UK exporter, who has foreign currency revenue with sterling costs, is of the opinion that he'll do much better if sterling devalues. This is a slightly worrying whispering campaign. Sterling does need to be lower but..

Posted by stillthinking @ 05:24 AM (2067 views)
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31 thoughts on “Pound in your pocket…

  • Economic illiteracy of the highest order. This sentiment has no support from the economic grown-ups or from his readers (see survey). Whenever I read rubbish like this I like to look under the hood. I inevitably find something like this …

    This old fool is hardly a shining beacon of the British export scene. He mostly sells Chinese tat on video demos/infomercial/home shopping channels and managed to lose £900,000 according to his last accounts (he’s going down). This worthless unpopular article is a cry for help from yesterdays man. All this country requires from him is that he shuts his doors and his mouth. We need businesses like his, like we need a hole in the head.

    He’s also a major Labour Party donor although his last big donation was in the form of shares in his failing company – a bit like giving beads to Red Indians.

    Yesterday’s men like this ran businesses that did nothing for Britain. His products are boot sale fodder that lined the pockets of foreign sweatshop owners. The new breed of exporters make innovative products in state of the art UK plants and they are beginning to find a market (very early days but they’ve just set a record). They do not need cheap short-term tricks like devaluation because they have quality products that are made efficiently. The old German export powerhouse did very well with an extremely strong Deutchmark. Innovation and quality was and is their hallmark.

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  • I do not think they can control the currency. This could be propaganda if the pound is about to fall as a result of failed policy. Certainly, a falling pound benefits exporters but, collapses domestic demand and yet the domestic market is our greatest market. Destroying the domestic market in Africa with constant devaluation never helped them.

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  • Parity with the Euro 20% devaluation is not outrageous.

    The only agenda is supporting house prices. Devaluing the Pound will bring fresh money into the London market, so the second that begins to falter the pound WILL be devalued.

    Government don’t give a toss about workers or exporters, all they care about is their portfolios. I would think that anyone who has been reading this site long enough would realise that.

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  • “I do not think they can control the currency”

    Correct. The markets control the currency. A previous Tory government took on the currency markets (ERM) with everything they had and failed badly. Classic David and Goliath

    “I would think that anyone who has been reading this site long enough would realise that”

    I think most people who’ve read the site long enough would have realised that the collective opinion is infallibly wrong. techie recently joked that he had made money doing the opposite to that suggested by a poster. It was a light hearted comment but there’s probably something in it. HPC, the ultimate contrarian indicator?

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  • @flashman – The party is not over yet, in fact it has not yet begun, time will tell if the collective opinion is right. Don’t forget a stopped clock is always correct twice per day.

    Why your at it flashy why not just add in the following:

    Small island growing population
    Property prices only ever go up.
    Get on the ladder before it’s gone
    Noting to see here
    0% Interest rates, 0% growth and food banks are perfectly Normal
    During the war….
    When I was a lad
    Feckless youth of today
    I had to save for a whole month to buy my house.
    Lack of supply..
    It’s not credit its demand that makes prices go up.

    I am sure you can add a few to the list.

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  • “Don’t forget a stopped clock is always correct twice per day”

    I think the HPC clock must be running the Quipu numbering system. It’s never right.

    Joking aside, the tragedy of people who’ve listened to the collective wisdom of this site is that the human life span is so short. It’s no good being eventually right (if it ever happens) when you can no longer get a 25 year mortgage because you’re too old or your deposit has shrunk to nothing compared to house prices and inflation. It’s no good saying that gold will eventually go to the moon when you’ve being desiccated by a landlord for 15 years and you’ve had to sell your few badly depreciated coins to pay the rent. It’s no good being wrong so often that you spend your life praying the economy collapses to make you feel better about the wrong turns you took.

    In life, you’re only really right if you’re right now. To turn khards’ analogy on its head, you’ve got to be right while the clock is moving

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  • “Joking aside, the tragedy of people who’ve listened to the collective wisdom of this site is that the human life span is so short.”

    Ok, hands up who has taken into serious consideration, like me, the advice provided on this site and…. well….. not bought a house.

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  • mark wadsworth says:

    Sterling meltdown, race to the bottom, house price bubble, kleptocrat foreigners, trade deficit, fiat currencies, drowning in debt, laundering trillions, chem trails, robbing savers.

    Have I missed anything off?

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  • Gold, Student debt bubble.

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  • flash @1 – your arguments are getting very ‘ad hominam’ these days. It’s not easy to support what you say by producing figures that break down exports (mainly services) into innovative and non-innovative, price-sensitive and non price-sensitive but you have to do so to support what you say.

    @6 – As JMK said – markets can stay irrational longer than you can stay solvent

    Many posters here have not been predicting imminent falls in house prices (arguably those who have been doing so are right anyway if you take any serious measure of inflation into account and take into account London and some places nearby, where international money is looking for a relatively safe place – ‘safe’ partly because other international money is flocking there, so to that extent it is a bubble). Most make the point that QE/ZIRP and other forms of govt support (factors other than the traditional ‘fundamentals’) have been holding up asset prices, including shares and bonds as well as real estate, and thus supporting shaky bank balance sheets.

    Nationwide average real house price: Q1 2007 £214k Q1 2013 £163k (in 2013 pounds).

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  • Same list every week for five years. Same level of excitement every week

    agree with the chem trails and would like to add the Mayan colloidal water car one sided derivatives

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  • Recent events prove without a doubt that it is the availability of credit and not demand that is driving house price inflation.

    More (poor quality) homes will be built because the volume house builders will take the opportunity to off-load sites they paid top dollar for back in 2007/08 making development “economic”.

    The market was not allowed to correct 5 years ago to save the banks and they threw everything at it.

    When this bubble pops they will have nothing left to support the market or the banks. They will inflate for they will have little option. We will have a currency crisis without question. At that point foreign investors will pull out of London en-mass.

    You do the maths. This is electioneering at it’s worst and the result of placing your electoral strategist in the Chancellors chair.

    In London I have friends earning 60k upwards who cannot afford a decent flat in zone 3. I am compeltely out of the game on my above average salary, even combined with my partner we still cannot afford anything remotely worthwhile.

    THIS IS MADNESS AND WILL END BADLY FOR EVERYONE. NO ONE WINS.

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  • icarus, regarding exports. A 10 second google search will confirm the figures. They have been so widely reported that I didn’t imagine anyone could miss them. Exports of manufactured goods are up sharply. I posted an article on the subject that also gave some numbers. Can’t do any more than that.

    Regarding your claim that house prices have in fact crashed. That’s all very well but now try to buy a house where you can actually get a job. You’ll find them close to or above peak prices. Of course tighter credit and diminished wages trump inflation if you want to put together a ‘real, real, real house price index’.

    I now see that even poor old Europe is about to come out of recession. Once we get that market back our exporters can add it to the penetration they’ve achieved in the rest of the world. Bit daft to call for devaluation when exports are growing.

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  • mark wadsworth says:

    Flash, Mayan calendar is a busted flush, world didn’t end last December. I think I forgot the Bilderbergs though.

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  • mw, it’s been revised. It’s ending next Tuesday. I think the Bilderbergs must have laundered trillions of my socks. I’ve got thirty three odd ones and before you say anything, 33 is clearly a similar number to 3 trillion. Anyone who picks me up on that is a communist, Marxist, Stalinist, Maoist, Michael footist

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  • Back to the article – How can we make an export led recovery?

    1. Reduce Property Prices/Rents as these are just a ‘private tax’ by banking and landowners on doing business
    2. Reduce all Taxes on labour and trade that distort our functioning markets both export and internal
    3. Real Education & Training

    If you subscribe to Ricardo’s Law then, on aggregate, much of all the fantastic innovation of the new and dynamic Industries of ‘Today’s Men’ will of course be captured in ‘Rent’ of one description or another, and the labours of many these dynamic export minded entrepreneurs will not be enough to get over the barriers of the state taxes and the ‘private taxes’ of high rents and property prices. If you only care for money then why compete on a world market when you can suck money by being a monopolist, especially when our system seams geared to reward monopolists and harm productive work.

    I agree the exchange rate is of little importance in the long term and should be left to the market, sans manipulation of course. We must look at the cost of doing business in this country.

    Of course the Georgists have been banging on about this for 140 years, and Adam Smith and the Physiocrats before. Time to tax monopolies, chiefly land, and leave earned wages untaxed.

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  • mark wadsworth says:

    Flash, the whole “missing socks” and “odd socks” problem is easily surmountable.

    every few years, I throw away my entire sock collection and go to M&S and buy twelve pairs of identical black socks, there’s no need to match them up or anything, obviously, occasionally one of them goes missing (but you don’t notice) and one tears or wears out and you chuck it away until you’re down to your last ten socks or so, then you chuck those away and start again.

    Pete Green, I completely agree as you well know, but by wanting to untax private enterprise, you have shown yourself yet again to be a Commie (or something like that).

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  • flashy @14 – the issue you raised @1 is the quantity or proportion of exports that are innovative and relatively independent of price (the traditional idea that German engineering is so good that it will sell at any price). How do you show that for the UK?

    The house price / wages problem has been around for a decade or more (I think Harrogate is top with HP:Wages @ 10:1).

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  • MW @ 18

    That spooks me as I do pretty much the same (except I get Asda el cheapo steal toe cap boot socks).

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  • mark wadsworth says:

    PG, same taste in socks, same taste in tax and land reform, great minds think alike.

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  • Icarus, it’s a bit of a myth that German exports are/were so good that they were ‘independent’ of price. Their manufacturing sector was/is efficient enough to be price competitive despite the strong Deutchmark (also their strong currency enabled them to import raw materials cheaply). Their product was often expensive but was good enough to still be considered good value. Think VW Golf.

    Our nascent manufacturing/export sector is finally following the same path as the Germans. We don’t need cheap tricks like devaluation, we need capital investment in state of the art production and good solid products. High tec, capital intensive methods like 3D printing are helping us to compete with the Far East on price and our well known talent for innovation and creativity is finally not being squandered by poor quality. Do you remember the Jaguars of the early 70s? They were better than their equivalent Mercedes in almost every regard and they were also cheaper. The problem was that they rusted and leaked everywhere. We still design the good stuff but now it actually works. Shame Jaguar is now Indian but onwards and upwards.

    In this hyper competitive world it’s a fair bet that almost everything we export is price competitive AND good. Devaluing is a retrograde protectionist policy that temporarily preserves the old crap which in turn strangles investment in the new.

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  • @flashman
    Engineers in the UK are not paid enough to motivate them to design “good solid products”, well that’s from my experience of manufacturing anyway.
    I have known many good engineers who roll into work not really giving a toss because their BTL landlord is giving them hassle etc. or they spend the whole time complaining about the older engineers now in their 50’s and 60’s have a company pension and decent house and they don’t and never will working as an engineer,

    Back in the 70’s when those enthusiastic engineers were Jaguars they were being paid well enough to motivate them to do a good job.

    Pay crap, get crap. Why would they do a good job for peanuts, and the salaries on offer are peanuts compared to unproductive jobs in the public sector, banking etc. Which is another problem of Banking attracting all the talent.

    The UK will never be good at manufacturing again now that all of the infrastructure and expertise have relocated to the far east. It isn’t coming back.

    You could argue that house prices are too high and wages are at the correct level on an international basis.

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  • I recently read Economist Ha-Joon Chang’s book Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. It had a chapter on the ‘Myth of German productivity’ but the book was mostly about his Native Korea and thier protectionism fostering there productive success.

    Unfortunately for free market enthusiasts its premise was that German ‘quality’ only came about by protectionism and state intervention through a quality Mark system in the 1920’s. Before that Germany was renowned for producing unreliable, poorly designed, tat. But it was used as an interesting example of how modern perceptions the economic advantages of different countries can change quickly and are based on Government policy. So the Germany of today was born out of the cultural changes imposed after the economic crisis of the post World War 1 period.

    I think I preferred a more Georgist analysis in that Germany prevented ‘Economic Rent’ extraction in the 20’s and 50’s from overburdening their manufacturing sector. This analysis works well for Japan as well. Favourable trading terms with America’s growing trade empire did not hurt also. Interestingly there is some evidence of a pact between noted Georgist General MacArthur and Hirohito and they forced the Japanese provisional government to write land reform into their new democratic constitution that limited Rent paid by tenants to owners. South Korea adopted a similar Rent reform. Japan of course abandoned its suppression of Rent extraction and allowed unfettered property speculation and sucombed to ‘Ridcardo’s Law’, and Germany staved it off to some extend through the control of lending practices into natural monopolies, which explains today’s situation.

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  • flash @22 – I said the German ability to sell relatively independently of price (or the high DM) was a ‘traditional idea’ – not necessarily true. A lot of it was down to the US reconstituting Germany after WWII primarily as an exporter to the US.

    I was just asking for some numbers (rather than examples and impressions) to support your idea @1 that innovation, quality and efficiency of UK goods and services are making a significant impact in export markets. Such numbers are admittedly difficult to get (and then there are complications such as countries with low company tax, to attract FDI, might thereby be exporting lots of innovative products and services). And there’s khards point – how many maths/engineers are being sucked into the city to make innovative and creative [email protected]?

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  • should have added……and therby denying those engineers to companies who want to use them to make innovative and creative goods and services.

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  • Icarus, it’s really not hard to draw a conclusion. As you know record numbers were just posted. Now I can say with absolute confidence that the numbers were achieved via innovation, quality and cost effective manufacturing. Anyone who believes otherwise would have to be suggesting that we achieved these numbers with out of date, expensively made, poor quality goods that nobody wanted. I’m out there on a daily basis and I can tell you that it’s just not possible to do it that way in this super-connected, hyper-competitive world. We went down the [email protected] trying it the wrong way in the 70s, so we know you can’t achieve manufacturing growth without being good. Apologies for saying it but I would have to suspect that this line of questioning derives from having your core beliefs intruded on by these rude numbers. Sorry

    Khards, I am just reporting on the headline numbers rather than the socio-economic story behind them. We’ve been told that machines would impoverish manual workers for two hundred years. Unfortunately it’s finally happening. Regarding engineers…yes engineers are made to work for a pittance and they are hit over the head with cheaper competing foreign workers if they complain. This is caused by globalisation rather than mechanisation but they have a similar effect. The absolute top end engineers are making a fortune but the majority are making a pittance. The owners, directors and managers of the companies that make and export the goods are doing very well indeed but most of their workers are not doing nearly so well.

    UK manufacturing is growing. The numbers are simple, transparent and they don’t lie. Unfortunately it’s the same story as the economy. It’s growing but many people won’t get a decent share of the pie. I sincerely wish it weren’t so. It’s better that this cruel process happens in a growing economy but its not better by much for many. Don’t shoot the messenger.

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  • regarding the city/engineers, as a few of you know, a friend of mine (cough) is a silent partner in a company related to the financial quant industry. There really aren’t a significant number of them and there isn’t much hiring these days. Most are involved in the ‘dreary’ risk management side of the business. The ‘exciting’ blow up the world, earn a billion quants have mostly gone. Do a google quant job type search. You will find hundreds of people chatting about low pay, boredom and the lack of hiring. Sounds familiar?

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  • Just received this email:

    “Hello, I hope you are well.
    We are looking for a Senior Web Developer. You will be a key part in the implementation of high availability web applications under big traffic conditions using some of the latest web development frameworks. You will be an expert in their field operating within an agile, clean development environment maximizing use of modern technologies and tools.
    The role is based in London and pays up to £60k + benefits. ”

    “Requirements:

    5 years of proven experience developing enterprise web applications using Ruby, PHP, Java… Expertise in OO programming and use of design patterns AngularJS experience (or other JS framework) is a plus Strong knowledge of Javascript/JQuery
    Experience in latest web/mobile technologies (HTML5/CSS3) Good understanding of web architecture (GNU/Linux, Apache, Varnish, nginx, MySQL…) Knowledge about W3C standards, CSS layout, and web services Understand the importance of test driven development (TDD) and continuous integration environments Experience working with Subversion, GIT… University degree in Computer Science or a related field ”

    Great I could rent a 1 bedroom maisonette in London with that salary! Well worth 5 years of experience and training. Live like a king on a post tax salary of £37,836 and rent of £14,400! Net salary after public and private taxes (inc student tax) = £23,436 – good luck saving for a deposit in London with that money. Also forgot to mention council tax, VAT and transport taxes.

    Now go back to the 70’s and see what an engineer could afford then! I know dam well what you could afford then because my father worked as a BT engineer back then.

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  • mark wadsworth says:

    There are a lot of myths about German efficiency and exports and so on, but they believe them, that is almost like a religion.

    When I trained as an accountant (twenty years ago) we did a bit of macro-economics, and in one lesson, the teacher announced, “The global trade figures are in for this year – and guess which country has the highest total value of exports?”

    Tentative answer from the back “Germany?”

    “Yes” said the teacher “We are world champions again”

    And blow me down with a feather, the rest of the class (aged late teens early twenties) all clapped and stamped their feet!!! In the UK, the average bloke on the street wouldn’t have a clue what our trade deficit is, let alone apprentices.

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  • flash @27. Nothing to do with my ‘core beliefs’. There are more determinants of export performance than just innovation. E.g. You could just find more buyers for the same old same old. A report on the web ‘Innovation and Export Performance: Evidence from UK and German Manufacturing Plants’ states (1st para of the Abstract) that for Germany “there is some evidence for a negative relationship between the scale of innovation activity and export performance”.

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  • Legaljapanese says:

    Flashman @22: “In this hyper competitive world it’s a fair bet that almost everything we export is price competitive AND good. Devaluing is a retrograde protectionist policy that temporarily preserves the old crap which in turn strangles investment in the new.”

    To Flashman: Do you agree there are export industries which require either cheaper house prices or devaluation to survive? I would give the example of the translation industry. Most participants are one-man bands looking to earn a ‘decent living’. Specifically to the ‘Japanese into English’ language pair, I am mainly competing with translators in the US and Japan. Cost of living (of which housing comprises the greatest percentage) in those countries is far cheaper than in the UK (I don’t have figures, but anecdotally that is the impression I have), therefore they can offer lower rates than me to achieve their ‘decent living’. The result is that I’m undercut and have to consider either changing industry or downgrading my lifestyle.

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