EU referendum aftermath

[Paolo Casaschi]

The Western world, not just the UK, has been living beyond its means for a quarter of a century.

For me the prospect of lowering my own standard of living (even after living beyond my means for a while) is a disaster.
If for you this translates to "everything is going to be fine", then it's just a matter of wording.

But still, and I realize I'm completely out of my depth here, if the whole of the western world has been living beyond its means, why is the "proper level" for the pound closer and closer to parity with the Euro? Shouldn't the markets acknowledge the upcoming failing of the EU and the inevitable collapse of their banking system? Why are they so hung up on the negligible short term hiccups of brexit?

[Michael Farthing]

It must be said that the more you both talk the less convincing you both sound...

[Paolo Casaschi]

It must be said that the more you both talk the less convincing you both sound...

Good point. It happened. You can't tell the difference anymore between the fool and the other.
Time to take a break, see you when the pound is disastrously at 0.99 Euros.

[NickFaulks]

It must be said that the more you both talk the less convincing you both sound...

Very witty, but can you point to a single point I have made that doesn't stand up?

edit : I did write to Ashoka Mody, and he replied straight away. It turns out that the Telegraph article was based on a longer piece he had written for The Independent, which AEP had rather cheekily failed to mention.

I hope you will take the trouble to read this, because I would be interested to know whether you find his arguments as unconvincing as mine.

http://www.independent.co.uk/news/busin ... 53846.html

[Nick Grey]

Some good news though. My Poker Stars account in dollars not pounds.

Expect cost of playing chess abroad will go up, as well as accommodation, food, drink etc.
Also taking longer to get through customs, & possibility of having to get visas.

Still lets wait until US elections?

[Matthew Turner]

It seems to me that the pound was in something of an unstable equilibrium before the referendum vote. The UK was in a 'better' position than the rest of Europe because we could set interest rates/print money etc. i.e. the UK had the ability to create inflation, which however bad that might be is universally viewed as better than deflation. As a result the outlook for the UK looked good, money flowed in and the pound strengthened. How long can you maintain a position that the currency is strong because it has the ability to be weak?
After the referendum vote the pound is obviously depreciating very rapidly, this has good effects and bad effects, but the speed of adjustment is certainly a bit of a worry. However, it is far from clear to me that the general direction of the adjustment is not something that would have happened whatever the result of the referendum.

[NickFaulks]

the UK had the ability to create inflation, which however bad that might be is universally viewed as better than deflation.

No it isn't. The "deflation problem" is a recent fad, emanating from academic theories with no evidential basis whatsoever in the real world. Evidence of the damage caused by price inflation is overwhelming.

but the speed of adjustment is certainly a bit of a worry.

Why? If something needs adjusting, there is no benefit in dragging out the process.

[Michael Farthing]

It must be said that the more you both talk the less convincing you both sound...

Very witty, but can you point to a single point I have made that doesn't stand up?

It wasn't intended to be witty. The thread had got to the point where you were playing around with words to each other and throwing in what other people were saying to support your different viewpoints. I haven't said that either of you is right or wrong or that either of you have made points that were wrong. I said you had ceased to be convincing.

[NickFaulks]

I said you had ceased to be convincing.

I hope you will read Prof Mody's article anyway. It is a good antidote to the wild claims and exaggerated language found elsewhere.

[Matthew Turner]

the UK had the ability to create inflation, which however bad that might be is universally viewed as better than deflation.

No it isn't. The "deflation problem" is a recent fad, emanating from academic theories with no evidential basis whatsoever in the real world. Evidence of the damage caused by price inflation is overwhelming.

This is simply not true. Countries that experience inflation, even hyper inflation can go through very difficult times but come out in the end. There is no way out of deflation as per Japan.

but the speed of adjustment is certainly a bit of a worry.

Why? If something needs adjusting, there is no benefit in dragging out the process.

Because investment decision are made in advance. These can adapt to small changes in parameters, but large sudden changes cause structural problems which have longer term effects.

[Brian Valentine]

The deflationary situation in Japan is no big deal. GDP change per capita in Japan is not unreasonable. However the Japan situation does exhibit the usual case - it takes a long time to get out of an embedded deflation, whereas there are relatively quick (albeit usually nasty) ways of controlling inflation.

[Alex Holowczak]

Some good news though. My Poker Stars account in dollars not pounds.

Indeed - I got paid by FIDE in Euros a few weeks ago for the Olympiad, rather than before the Brexit vote.

MEPs are paid in Euros, so there's the ironic twist of all of the UKIP MEPs, who presumably live in the UK still, getting a relative pay increase.

[NickFaulks]

There is no way out of deflation as per Japan.

That is the biggest economic myth of this century. Deflation is a result of Japan's lack of growth, not its cause. Check which came first.

The ultimate nonsense of Japanese policy appeared when they decided they needed to invigorate their economy by introducing price inflation, and that they should do so by increasing sales tax. What??

Because investment decision are made in advance.

Precisely. If a significant move is believed to be needed, then better get it over with so everyone knows where they are. The greatest uncertainty occurs when a partial move takes place, but it is widely suspected that further adjustment will be required.

[Matthew Turner]

There is no way out of deflation as per Japan.

That is the biggest economic myth of this century. Deflation is a result of Japan's lack of growth, not its cause. Check which came first.

The ultimate nonsense of Japanese policy appeared when they decided they needed to invigorate their economy by introducing price inflation, and that they should do so by increasing sales tax. What?? .

It doesn't matter which came first. Price deflation and economic stagnation feed off each other. Creating inflation doesn't work because as inflation kicks in interest rates increase and more and more of the economy's wealth is sucked into payments on the debt mountain. The economy stagnates or contracts, putting downward pressure on prices and we are back to square one.

Because investment decision are made in advance.

Precisely. If a significant move is believed to be needed, then better get it over with so everyone knows where they are. The greatest uncertainty occurs when a partial move takes place, but it is widely suspected that further adjustment will be required.

Businesses have contingencies in place for normal moves in inflation, interest rates etc. Large unexpected moves in these parameters will catch out even successful businesses. Morgan Stanley said this week that the Pound was trading like an EM currency (and it was) this cannot possibly be in the interests of British businesses.

[NickFaulks]

Price deflation and economic stagnation feed off each other.

A popular belief nowadays, but historically flat wrong. The latter part of the 19th century is the most obvious case in point, when for decades deflation and economic growth coincided quite happily. The 1920s were a more recent example ( I know that one ended badly, but you can't blame consumer prices for that ). There hasn't been much evidence since, because governments have built up piles of debt and have therefore tended to nurture inflation as a way of devaluing them - until the music stopped.