The sterling crash has now begun in earnest. The pound has today (today!) fallen 9% against the Yen and is off 4% against the dollar to a lowly $1.56 with forecasts of $1.40 or lower next year. Against any other currency you may mention, it’s now plunging. The proximate cause is news that the UK economy is shrinking far faster than expected, and there's talk about a 0.75-point interest rate cut - sooner rather than later. But on a wider prospective, this is the markets commenting more articulately than the Tories on Gordon Brown’s “scorched earth” economic policy. It is becoming clearer that Britain is perhaps in the worst position of any developed economy in this crisis. Markets are not fooled by Brown’s mendacious claims to have reduced the national debt to 37% of GDP, and will be alarmed to see a Prime Minister use debt concealment methods that would shame the most spivvy merchant bank. Official national debt was 43% before the bank bailouts of two weeks ago, and will be well over 100% if one counts PFI, B&B and the pension liabilities.Debt is how Brown governed. It was his dope. It’s the key to understanding the UK economy in the last decade and the reckless nature of Brown’s short-termist policies. Debts are steroids to unscrupulous policymakers as debt-fuelled asset bubbles give a fake feeling of prosperity, which usually translates into votes for the ruling party. That’s why Britain started this credit crunch with the largest household debt ever seen in any G7 country. Brown gambled the UK economy on a hunch that interest rates would stay low. It has failed, and now the UK public finances are going to hell in a handcart. We’re being led by a Prime Minister who ran up a 3% deficit in the boom years and we’re now looking a deficit hitting 7% by the 2010 general election – territory not seen since the IMF bailout. There is a serious prospect that Brown will try and inflate his way out of this debt problem, a prospect which terrifies currency dealers. I have heard serious people talking about parity with the dollar.
I would love to hear Brown explain why sterling’s crash is a problem that started in America. It’s a problem that started in 11 Downing Street – when he decided to conceal debt, leverage up the British economy and personally design a banking regulatory structure that allowed UK banks to be literally the most leveraged out of any outside Reykjavik. Britain is, in many ways, becoming the new Iceland. So the fall in the pound will have some time to run yet.
Terrified? You ought to be.
And as the Pound falls it wipes out the benefits of the falling price of dollar priced oil.... Which makes Crash Gordon's 'orders' to cut prices even more of a farce.
ReplyDeleteInteresting to speculate whether if the slide turned into a crisis whether cuts or hikes in interest rates would 'save' the day. In ordinary circumstance one would expect rates to rise.... But now?
Cuts in already low rates are the panacea for panic it seems. What a perilous state people must be in. More highly geared than an F1 racing car.
but look on the bright side, fewer foreign holidays, so less CO2 being emitted by planes.
ReplyDeleteapart from the yanks coming over here of course..
It might be interesting to see if an incoming Conservative administration - possibly via an all-party committee - might bring legal charges of negligence against Gordon Brown. In any other profession the recklessnss shown by him over the last decade would be classified as such, and mere electoral defeat (quite possibly by a fairly small margin - certainly lower than NuLab's current majority I think) will not be enough justice in many eyes.
ReplyDeleteThere is no sterling crash. The story is rubbish. Sterling certainly hasn't crashed against the Euro.
ReplyDeleteThis story is just another example of how desperate the Tories are becoming now the bottom has fallen out of what little economic policy they have.
Are you mad? It's at its lowest ever against the Euro and has plummeted against every major currency.
ReplyDeleteActually i do not think that was one of his best pieces Iain.
ReplyDeleteBut what does an anonymous know?
Iain - look at sterling against the euro for the last 6 months - it's flat. It has not plummeted against the euro in recent months, and to pretend that it has just damages your argument.
ReplyDeleteI've commented over on Fraser's blog (awaiting moderation) but in summary - this is about Asian + Gulf money being withdrawn from all over the West, you just can't see the effect on the USA because the yuan etc are effectively pegged to the dollar.
Dumbcluck DES now infests the Speccie blog. Here's his reaction to Fraser Nelson's post:
ReplyDeleteDirty Euro
October 24th, 2008 4:03pm
I am backing Britain Maybe you tories aren't.
Dirty Euro
October 24th, 2008 5:04pm
It is those bloody bankers.
Yep, that same DES. He'd vote for a tub of lard if it had a red ribbon tied on it.
Ian 9.51:
ReplyDeleteHave been wondering for some time now whether DES is actually a Tory mole. He could hardly be more effective in making Labour look odious.
tachybaptus 9.57:
ReplyDeleteIt's plausible: DES's speling and gramer does occasionally improve in some posts (but perhaps that's just his nurse correcting the text before he presses 'send'?)
A year ago Sterling was trading at 241 Yen. Today it was trading at 141.
ReplyDeleteIn july it was $2 and today was $1.55.
That is a crash and the blame as always belongs to Gordon Brown and yet he blames the USA, the Japanese and everyone else for our economic troubles. The markets tell the real story.
"This story is just another example of how desperate the Tories are becoming"
ReplyDeleteHa ha ha very good - desperate :) you lefty trolls are getting pretty worried as the net closes in on the prince of darkness. wooden stakes at the ready :)
stike 3 coming up (soon)
anon @ 9.08 pm, can't you understand the value of numbers? e.g. if £1 is worth $1.99 in March, and £1 is worth $1.15 in Oct, then the value of the £ has fallen. Simple really.
ReplyDeleteSterling will not recover until Brown is gone. Money is an idea backed by confidence.
ReplyDeleteWho but Derek Draper's trolls can have ANY confidence that Brown won't simply steal (sorry, tax) any improvement that might come along ?
We will continue to fall until Brown is gone, and Labour with him
Alan Douglas
Word Verif : wanter - almost right !
so what do the tories think is the right level of debt and how will they get there? writing columns is easy.
ReplyDeleteAre the 'serious people' talking about parity with the dollar the same ones who were talking about $200 oil six months ago?
ReplyDeleteTruth is, no one knows..
I can and do bash Brown with the best of them but FN would have a little more credibility if he got his facts straight.
ReplyDelete"....and personally design a banking regulatory structure that allowed UK banks to be literally the most leveraged out of any outside Reykjavik."
Bank leverage As of 14-10-08:
Germany 52:1
Belgium 33:1
Switzerland: 29:1
Denmark 28:1
France 28:1
UK 24:1
Iceland 14:1
Source NY Times
That mathematical anon genius at 09.08 is seriously out of kilter if he thinks that the pound/euro exchange rate remains unaffected. This year the pound has slid from 67p to 80p, where it currently resides, against the euro. To me that's a serious loss of spending power.
ReplyDeleteiain,i'm so glad you have highlighted this piece which i saw earlier on the spectator web-site.i was about to post a comment to you about it but got side-tracked and forgot about it.great journalism from fraser.more please!
ReplyDeleteThe main point in all this that is missing is why the Conservatives cannot make any headway with this dreadfull economic performance?
ReplyDeleteTo quote a friend of mine,'they couldn't hit a cat's arse with a banjo'. What more do they need to get themselves elected?
Fluctuating exchange change rates do exactly that. Fluctuate. In 1985 the pound was at 1.05 to the dollar. A weak pound helped us out of recession in 1992 and a strong pound from 1996 caused problems with exporting goods and services.
Since 2001 Brown has never balanced a budget.
ReplyDeleteNet borrowing since 1997 is £250bn and climbing, probably to £400-450bn before the next election in 2010. That will equate to a doubling in cash terms of the national debt, even ignoring the PFI liabilities of £100+ bn and the increased public sector pension deficit of £6-800bn depending on whose estimate you care to believe.
To put this in context - and to put a sock in Alex Salmond's gob - the total revenue to Government over 40 years of receipts from the North Sea oil and gas fields is just a smidgin under £151bn.
It is likely that Brown will not be able to borrow all this extra money other than at higher interst rates than the economy requires, hence the fall in the pound against all major currencies by 10-15% over the last 12 months.
Anyone, absolutely anyone, who claims this is not Brown's responsibility, is a blind fool!
The value of sterling is a concern and reflects markets lack of confidence in the uk economy, which is certainly exposed.
ReplyDeleteBut It is my view that sterling has been over valued from about 2004. The reason for much of that over valuation was the City, and money flowing into the UK. This has kept the pound high - now the financial institutions have been bailed out by the taxpayer international currency speculators are simply selling sterling for the dollar.
But we should not join the speculators by exaggerating the difficulties of the uk economy.
For example the issue of sterling's value is more complex than you allow for:
In the last recession when the Conservatives were in power the pound lost a great deal of its value, for example,
In 1991 the value came down to $1.762 per UK pound sterling and in 1992 the value was $1.775.
During 1993 the value stood at $1.501 and in 1994 the value was $1.530.
In the next year the figure was $1.578 and in 1996 it came down marginally to $1.560.
In 1997, however the value increased to $1.638 and in 1998 this became $1.656.
During 1999 this value was $1.617 and it came down to $1.513 at the end of the millennium. In 2001 the value of a UK pound sterling was $1.440. During the next year the value reached $1.501 and in 2003 it shot up to $1.633. The year 2004saw the figure of $1.832 per UK pound sterling. In 2005 there was a marginal decrease and the value stood at $1.820 and in 2006 the value increased to $1.842. In 2007 one UK pound sterling was worth $2.001.
The raw figures show that during the last conservative government sterling was under its current value for more than three years - from 1993-1996. If you think a lower sterling rate is necessarily a bad thing, you need to level the very same criticms of the last Tory Government and Ken Clarke in particular.
These things are much more complex than Fraser Nelson seems to understand - his `analysis' fails to recognise historical date - which is a bit poor for a historian.
The falling pound will take an awful lot down with it.
ReplyDeleteIt is good for manufacturing. Which is good for trade unions. And which is (or would again be) concentrated in the North, the Midlands, the Scottish Lowlands and South Wales.
All that, and a public stake in the banks, too.
The Revolution is being reversed in reverse.
First the turn of the century assault on the Constitution (the neutering of the Lords, the only logical end to the "process" of Scottish devolution, such economic case as there ever really was for a United Ireland) and on civil liberties.
Now the underlying 1980s assault on economic responsibility.
And before long that which underlay (and was entrenched by) Thatcherism, namely the 1960s assault on moral and social responsibility.
I can't find a commentator to defend Brown. He took all credit for the Boom but takes no responsibility for the Bust.
ReplyDeleteFraser Nelson's piece is indeed excellent but why is Brown not being seen as the architect of this disaster for bringing it to these shores?
Please someone cheer me up and tell me that the public will not be conned by yet more New Labour lies and diversion tactics...