EU referendum aftermath

[NickFaulks]

Jim O'Neill has resigned from the Government. Could the Goldman Sachs grip on the country, directly as well as via the EU, be weakening?

They still have the Bank of England, of course.

[Christopher Kreuzer]

May has set Brexit to start in March 2017.

In other news, we should be thankful that we weren't voting on something like the Colombians have just done:

"Colombians reject a landmark peace deal with Farc rebels in a shock referendum result, with 50.24% voting against"

Now that is close.

[Paolo Casaschi]

May has set Brexit to start in March 2017.

...and immediately the pound falls to a new low against the dollar and the euro
http://www.bbc.co.uk/news/business-37538459

[NickFaulks]

...and immediately the pound falls to a new low against the dollar and the euro

Only a few months ago there were general complaints that British companies needed a weaker pound to allow them to compete. Does it seem strange that now it's happened, it's being presented by the BBC etc as a dreadful disaster? [ Hint, no it doesn't ].

[Paolo Casaschi]

...and immediately the pound falls to a new low against the dollar and the euro

Only a few months ago there were general complaints that British companies needed a weaker pound to allow them to compete. Does it seem strange that now it's happened, it's being presented by the BBC etc as a dreadful disaster? [ Hint, no it doesn't ].

It does not seem strange that the BBC presents it as a dreadful disaster because it is in fact a dreadful disaster.

[NickFaulks]

it is in fact a dreadful disaster.

I'm not saying you're wrong, but don't tell me, tell every central banker in the "developed" world. They're all trying to bash their own currencies.

Personally, I've been much more entertained by the ongoing Monte dei Paschi revelations. This could be the dagger in the heart of the corrupt EU banking system, and not before time.

[Paolo Casaschi]

it is in fact a dreadful disaster.

I'm not saying you're wrong, but don't tell me, tell every central banker in the "developed" world. They're all trying to bash their own currencies.

You seem very confused. If the bank of England deemed in the best interest of the British economy to devalue the pound, they could have done that very easily at any time during the last 10 years. It really takes very little, I'm not an expert but just "printing money" would probably do. The fact is, they did not make that choice and instead the bank of England fought against inflation. By their own admission, the bank of England even took active measures to mitigate the downward trend following the referendum result.
The current devaluation of the pound is not an active choice, rather an unstoppable consequence of a totally separate ill-thought-out policy. Pretending this is actually good for you seems to me very delusional.

[Michael Farthing]

It depends, remarkably simply, on whether "you" is buying or selling.

[John McKenna]

Not quite that simple (unless you are a currency trader) and more than a little confusing if you don't make clear the distinction between currency 'devaluation' & fluctuation, 'inflation' & deflation and "not printing" & QE and FLS.

Paolo began his discussion of the recent fluctuations of the pound sterling with -

"If the bank of England deemed in the best interest of the British economy to devalue the pound, they could have done that very easily at any time during the last 10 years..."

While I agree that the BoE could have devalued the pounnd in the last 10 years I do not agree that they could have done so "very easily at any time" during that period. Devaluation of a currency is a major decision for any country and it will only be done if absolutely necessary.

The UK has only devalued twice since the end of WWII.

The last time was in 1967 -

The government announced last night (18 Nov. 1967) it was lowering the exchange rate so the pound is now worth $2.40, down from $2.80, a cut of just over 14%.

See link(s)below for details -

http://news.bbc.co.uk/onthisday/hi/date ... 208396.stm

The previous time was in 1949 -

The pound was devalued by 30 per cent on September 18 1949. The enormous postwar balance of payments deficit was just too much for the UK. Lend lease and debt due America had taken its toll. Sterling's weakness and decline then became glaring. National banks wanted dollars not pounds.

You can read it in a potted history of sterling in the following link (worth a quick read) -

http://www.telegraph.co.uk/news/1399693 ... rling.html

"I'm not an expert but just 'printing money' would probably do. The fact is, they did not make that choice and instead the bank of England fought against inflation."

I am not an expert either, Paulo, but my understanding is that the BoE did have a longstanding policy of keeping inflation at about 2%. However, when the 2008 crash happened the problem became one of deflation and I believe that the BoE then undertook measures to fight that and actually tried to increase, not fight, inflation.

Those measures included a certain amount of "quantitative easing" (QE, which is in effect "printing money"), see link below for details -

https://bankunderground.co.uk/2015/07/1 ... k-lending/

After the failure of QE to boost bank lending by any significant amount the UK Gov. & BoE turned to other money printing schemes to achieve their aim of fighting deflation and keeping the UK economy from going into recession. The "Funding for Lending Scheme"(FLS) was the most recent example, see below for details -

http://www.bbc.co.uk/news/business-18460302

So much for 'devaluation', "fighting inflation" and "not printing money" then.

Instead read fluctuation, fighting deflation and QE(D.)

[Paolo Casaschi]

While I agree that the BoE could have devalued the pounnd in the last 10 years I do not agree that they could have done so "very easily at any time" during that period. Devaluation of a currency is a major decision for any country and it will only be done if absolutely necessary.

Completely agree. Therefore I find delusional anyone suggesting that the weakening of the pound is not a disaster or that it's even good for the UK economy overall. If if was good for the UK economy overall, the bank of England would have done it already...

[NickFaulks]

If if was good for the UK economy overall, the bank of England would have done it already...

Occasionally you see a comment that is so extraordinary that it seems best ignored, but I feel that I have to try.

If your currency becomes weaker against that of a trading partner, theirs becomes stronger against yours. When every country wants their currency to be weaker, it cannot happen.

Hence the "race to the bottom" in which central banks have competitively tried nonsense such as negative interest rates and unlimited money printing in desperate attempts to hold down their currencies. They haven't achieved their aim ( because it was by definition impossible ) but have certainly stored up unimaginable chaos for the future. Creating a flood of money is easy, anyone can do it, but mopping it up is not.

[Paolo Casaschi]

If if was good for the UK economy overall, the bank of England would have done it already...

Occasionally you see a comment that is so extraordinary that it seems best ignored, but I feel that I have to try.

If your currency becomes weaker against that of a trading partner, theirs becomes stronger against yours. When every country wants their currency to be weaker, it cannot happen.

Hence the "race to the bottom" in which central banks have competitively tried nonsense such as negative interest rates and unlimited money printing in desperate attempts to hold down their currencies. They haven't achieved their aim ( because it was by definition impossible ) but have certainly stored up unimaginable chaos for the future. Creating a flood of money is easy, anyone can do it, but mopping it up is not.

I think you should clarify and rephrase what you just wrote. For a second I got the impression that you suggest the pound remained relatively strong to the other currencies prior to brexit despite every attempt of the bank of England and the British government to make it weaker. What a nonsense.

[John McKenna]

Nick is right about the currency "race to the bottom", Paolo. The race is a funny one and currencies are only being manipulated by sureptitious means.

(Apart from an overt move by the Swiss, not too long ago, that put a limit on how high their currency could be made to jump, particularly against the euro. The weakness of other major currencies so strengthened the Swiss franc that their exports were being killed off so they were forced to act.)

No major country is overtly just going to devalue their currency as far as I know becuase it would turn a distance race into a short sprint with immediate winners and losers.

They have mainly, as in the case of Japan, USA, EU and the UK, been making great use of QE ("quantative easing", i.e. printing money), which has the effect of keeping their currencies down and their exports up. But, since they are all at it nobody comes out ahead by much for very long.

The major exception is China which - although it makes some use of QE - sets its own exchange rates against foreign currencies and refuses to float the yuan on the world market.

(The only thing they are interested in floating at present is a deepwater navy to project their power into the Pacific, beyond the Great China Sea Wall they are busy building right in their neighbours' territorial waters.)

I haven't mentioned the Russian rouble because it has lost all credibility as an international currency and a great deal more of its value than the pound sterling in recent years, I believe.

Spare a thought for the dearly-departed Deutschmark.

Would Germany be where it is today if it hadn't ditched it and embraced the euro, at the expense of most other Eurozone countries who all saw their domestic prices rise when they joined that currency of modern kaiserinadom convenience, so beloved by that ministering angel Merkel.

Finally, Brexit may turn out to be an example of serendipity if the Brits can keep their heads. If not it could spell the end of UK plc if the Scots Nats get their way.

There are only two kingdoms in the UK, remember, and Saint Theresa has thrown down the gauntlet right in front of Lady Nicola. Talk about a game of thrones, eh what?

[NickFaulks]

For a second I got the impression that you suggest the pound remained relatively strong to the other currencies prior to brexit despite every attempt of the bank of England and the British government to make it weaker.

Yes, that is an excellent summary of the past eight years of central banking. Not just in the UK, but also ( even more so ) in Europe and Japan and ( slightly less so ) in the US.

[NickFaulks]

(Apart from an overt move by the Swiss, not too long ago, that put a limit on how high their currency could be made to jump, particularly against the euro. The weakness of other major currencies so strengthened the Swiss franc that their exports were being killed off so they were forced to act.)

That didn't go so well, though. The Swiss National Bank said they would print and sell as many francs as anyone was willing to buy. Their opponents retaliated by printing as much of their own currencies as anyone wanted to buy francs with, to the point that the SNB was heading for bankruptcy. The Swiss people don't like that sort of thing, and the SNB famously caved in in January 2015.