Thursday, November 13, 2008

Why is a 30% Fall in the Value of the Pound Not Headline News?

So the Pound has fallen to $1.45 tonight - more than 30% less than it was worth only a few months ago. Against the euro, the Pound has fallen by 10% over the last month.

The economists among you will no doubt confirm that this is at least in part because the money markets feel the government is borrowing too much and our debt is too high.

And yet we are told we are still best placed to withstand a recession. Don't make me laugh. People aren't going to be taken for fools. They can read the tealeaves. They know that it is because contrary to what Gordon Brown tells us about our economy, it has been built not just on sand, but on a desert of debt and profligacy over the last ten years.

Forty one years ago, in November 1967, James Callaghan lost his job as Chancellor of the Exchequer after he devalued the Pound from $2.80 to $2.40 - mere 14%. Yet our supine financial media has let this incredible current day devaluation pass almost without comment.

In a recession, there are advantages to a fall in the value of your currency as it makes it easier to export - that's if you have anything left to export. But as John Redwood points out...
A modest devaluation to make our exports more competitive is one thing, but this sterling rout is now out of control and very damaging. We have fallen around 30% against the dollar since the summer. They will discover that this will make it more difficult to sell all the debt they wish to sell, as foreigners will be wary.

The value of the Pound is about to become the big story in town. And if not, why not?


Anonymous said...


I think this is the reason that so many of us are so frustrated with George Osborne.

The UK economy is in dire straights yet Gordon seems to have escaped with no blame. The oppositiion is either silent or impotent.

Not good.

Newmania said...

It is as we have foretold it.

Wrinkled Weasel said...

Strange that. I wondered why nobody was talking about it too.

The Pound has been devalued. Big Time. This is mostly due to the reduction in interest rates and the flow of foreign investment out of the country. This was going to happen as sure as night follows day.

This also means that the pound in your pocket is worth bugger all.

There are at least two reasons for this. The first is that as soon as you leave Britain everything costs more and even Gordon Brown cannot hide that one. The second is that although goods and services on the high street are cheap, nobody can afford them. Consequently unemployment will rise to over Two Million in the new year. The third (ok, three reasons)is that the real level of inflation is a lot higher than has been revealed.

Ok, I am not an economist, I admit, but I challenge a proper economist to prove that the pound has not been devalued, by stealth, in the same way every other major policy has been done by this government - BY STEALTH.(Mavis Boothroyd need not apply)

Anonymous said...

It's not news because the BBC and other NuLav cronies decide it isn't news, when Liebour is in power, anyway. It is the Left's manipulation of the news narrative.

Akheloios said...

In 1967 Britain was part of the Bretton Woods agreement. Since Nixon scrapped Bretton Woods, the major world currencies have been allowed to float about like this.

In 1967 such a large change in the value of a currency was to break rather a lot of important agreements. That's why it was such a big deal. Since the dismemberment of Bretton Woods currencies have been free to fluctuate wildly on speculation. It was only in the last few months the £ was over $2, as everyone was speculating wildly against the $. Now they're speculating against us, rather like George Soros did on John Major's Black Monday in 1992.

Right now, the world is struggling because of the lack of a Bretton Woods. It's nice to see a Tory stand up for superstrong regulation of the international financial markets. Good on you.

Anonymous said...

I'm not any kind of expert, but I understand from others that the chart patterns have just become really difficult to trade since the summer as well. There are rumours of central bank interventions, lack of follow through and sudden large movements in the price action all of which makes even more people feel edgy about getting involved. As recently as 23 July sterling was trading at over $2. You don't need to be an expert at decoding japanese candlestick charts and MACD to know that represents quite some decline.

Anonymous said...

Actually foreigners will be happier to buy the debt if they think the pound will fall further.

Man in a Shed said...

I have the pound / dollar exchange on my blog under the title "The pound in your pocket".

The problem is that confidence in the UK is bust. Remember that exchange rate change means that the borrowing Brown is going to announce just got 30% more expensive.

Brown can fool some of the electorate with his global crisis needing Super Brun to wear his underpants over his trousers, but the markets will have none of it.

The choice is between a Conservative government and the humiliation and pain of the IMF.

John Pickworth said...

"In a recession, there are advantages to a fall in the value of your currency as it makes it easier to export - that's if you have anything left to export."

Arhhh, but here's the other problem... it only works when you're in recession but other countries are not. The situation now is that ALL economies are contracting. The buyers simply aren't buying.

Want proof? Look at the first industries to suffer from the 'downturn', all highly geared to exports and all going onto short time working months ago... luxury cars (Landrovers etc), steel, chemicals and hi-end engineering. In 3 months (when outstanding contracts have been serviced) about the only things being exported from the UK will be Scots wiskey, medicines and the Russian's and Arab's bank accounts.

This is something a first year economics student would understand. Clearly though, the Great 'Spender of First Resort' has never studied economics in his life.

We're in big BIG trouble and yes Iain, the fall in the currency SHOULD be front page news. Not least because its been devalued deliberately and recklessly by a PM desperate to save his own neck.

Anonymous said...

Callaghan resigned, he was not sacked. He did so because Labour had promised no devaluation in the 1966 Election, and was forced to do so the following year.

The difference in significance is that the above was operated under fixed exchange rate mechanisms, where the government of the day make a conscience decision on the exchange rate level, and today we operate under a floating system where no such conscience decision was made.

The reason the headlines are not as significant as you might think/wish is because most people, as you correctly point out, believe a fall in exchange rate to be a healthy boost to British exports. At present, despite the rumblings from Redwood, the pound has yet to reach such a level that it is teetering on the brink of collapse as you are inferring from your post. However, that is not to say that much more of a drop in value will be tolerated as it appears to be now.

Anonymous said...

Iain you write - "The value of the Pound is about to become the big story in town. And if not, why not?"

Because the opposition have painted themselves into a corner with their stategic obsession with branding.

They daren't say boo to a goose, 'cause if we do, the focus groups will say we're nasty'.

So, sod principle, sod the County, and most of all don't ever mention or think ideology.

Bah humbug!

Anonymous said...

One reason for the fall is the way Brown used the anti-terrorist legislation against the Icelandic banks.

Which foreigners are going to invest in UK if there is a danger they won't be able to get their money out again?

Anonymous said...

One has to wonder if there is some sort of level, some line in the sand, where the BoE will step in to raise interest rates to prevent a catastrophic run on Sterling. Only yesterday the Russian authorities raised interest rates to 12% to protect the Rouble, and yet the Governor of the BoE hints that rates in the UK could go to zero % if need be. What planet are these guys on? Are they trying to beat the Zimbabwe Dollar in a race to the bottom?

As for the so-called independence of the BoE, draw your own conclusions.

And I wholeheatedly agree with your views, Iain, on how the MSM are downplaying Sterling's collapse. I well remember the embarrassing exit from the ERM in 1992 and Wilson's "Pound in your pocket" devaluation in the 60s. This was really big in the news for weeks. Over the past few months, Sterling has fallen faster and further then on either of those two occasions, and yet the press, and particularly the BBC, are obviously downplaying this. Why is this? Is there something that we are not being told? And why are Osborne and Cameron not making a big play of this?

Very, very puzzling.

Duncan Crow said...

I covered this three weeks ago.


I fully expect Brown to claim that the run on Sterling is not his fault (nothing ever is!) but because we did not join the Euro.

The penny will soon drop with the media and the public that this man is a total economic liability and that he should not be trusted with running a market stall, yet alone a Country.

North Briton 45 said...

You are losing it if you are quoting Redwood. He is still an alien.

Anonymous said...

As my income and total cash assets have just been devalued by some 30% over the past couple of months, can I suggest that all MPs (especially current and ex-Ministers), quango heads, NHS CEOs, and other trough snufflers have their salaries and allowances reduced by the same percentage? Or is that just too radical for words? Regrettably, the niceties of this blog prevent me from properly expressing my opinion of these parasites.

Tapestry said...

$1.45 is the only known support level. If that goes there aren't any more. $1 to GBP1 becomes a possibility.

The problem is all about funding Gordon Brown's Enron accounting methods. No one trusts the sub-prime minister.

Britons will pay a heavy price for reelecting labour three times. You would have thought one election victory was enough to show that the Blair/Brown method of government was a disaster. But no. Dear old Britain loves to party and allow future generations to pick up the tab.

Thank God I left the place. But it's sad to see such an unnecessary disaster taking place. Maybe the new Britons will relearn something they obviously had lost - respect for money.

Anonymous said...

not than keynes 11.20pm...

"Actually foreigners will be happier to buy the debt if they think the pound will fall further."

WFT?? Wrong way round! Why would you buy something (sterling-denominated debt) if you think it is about to be devalued against your own currency? The coupon payments will be less, and when (if) you come to sell those bonds they will be worth less to you, against global currencies, than when you bought them.

Anonymous said...

Yesterday, PM's top story was the government's decision to leave the distribution of certain benefits with the Post Office.

Afterwards their political correspondent was invited to give his opinion. His view of the how the government would wish this policy reversal to be portrayed was, almost word for word, the same as the original headline.

You'd almost think a couple of ace media manipulators had recently returned to the government team and was dictating the Beeb's script. Though I'm sure that's just me being paranoid.

And Eddie Mair didn't seem at all happy about it.

Newmania said...

"Now they're speculating against us, rather like George Soros did on John Major's Black Monday in 1992."

Oh well thats encouraging , sadly speculators are not always wrong

Anonymous said...

The Tories could get a bit of traction here if they ran a line such as;

"Brown and Darling are making next summer's holiday a lot more expensive".

But they won't, will they?

Anonymous said...


You are right about the dealued Pound NOT making the news.

I wrote to Cameron just yesterday to raise the following in the PMQs as
Brown our country's economic wizard today from Newyork is lecturing the whole world how to run their economies! He lectured in early 2000 to French, they rightly ignored him and France is less afflicted by the woes we have.

My argument is as Brown trumpetting that Britain is best placed to ride out this storm coming from the otherside of the pond ( he wants us to believe this, otherwise we are party political!) why:
1. Pound has lost heavily against Dollar? It is down to 1.48 from roughly around 2.0 a few motnhs ago.
This is against the backdrop of Wall Street heavy convulsions like Lehman bankruptsy, Fannie and Freedy take over, Morgan Staley demise as an independent investment bank etc.. If anything USA has greater woes.

But the world believes them not Brown. Dollar is hence strong.

2. The Euro is strong against Pound. How come according to Brown the Infidels who are running the Euro Zone economy including the dreaded French needing his dose of medicine, are getting away with strong Euro?

Again the world believes Europe not Brown. Euro is stronger than Pound.

Brown may think that he should be the fixer of world econmoies but the world thinks otherwise.

I had once a student like Brown doing his PhD and his arguments were full of fallacies and egoistic clap trap. Needless to say he failed his viva and blamed us. The university sent his thesis to as far away as Australia to ensure fair judgement. The verdict was worse, that we were very generous in our comments! It later turned out that he had some kind of mental problem which needed help and the student did not believe it.

Sounded like what Campbell allegedly said about Brown!

Anonymous said...

Britain has

One of the largest current account deficits of any developed country in the world (falling pound will help trade, but we did have a huge surplus on financial services...)

One of the largest budget deficits of any developed country in the world- due to hit 6% of GDP next year EXCLUDING the "fiscal stimulus" Brown is promising + the "Enron" acounting of PFI, public sector pensions, bank bailouts etc- Govt tries to keep that all off-balance sheet

Other countries (eg France) are worried about budget deficit hitting 3% of GDP, ours is double!

Huge public debt (Govt number of 43% is total nonsense- need to include the off balance sheet stuff- forgetting that is why Enron went bust; or indeed ahy many banks got in trouble)

Fundamentally overvalued currency on a long term basis (well, it was)

Worst expected growth of any major developed country next year (per IMF)

And hence interest rates expected to fall to 2% or less (some talk of 0%)

What reason exactly is there for pound not to fall?

Now the question is will it hit 1 USD or 1 Euro first?

Mark Wadsworth said...

Yup. If the Tories had any backbone, every time Nulab mention 'Black Wednesday' (aka White Wednesday) they could hit back with a chart like this and talk about Black 2008.

Word veri: ducts

Alex said...

"In a recession, there are advantages to a fall in the value of your currency as it makes it easier to export - that's if you have anything left to export."

That assumes that you are exporting commodities, which to a large extent the UK does not. I don't imagine any airlines are going to order an extra aero engine from Rolls Royce just because sterling looks a little weak. It does mean that some of these exporters can jack up their prices because they look cheaper to overseas purchasers, but that is just inflationary.

If there is anything that will support the pound, albeit temporarily, it will be the rush of of money that comes chasing UK government debt when Brown inevitably starts issuing vast amounts of new gilts, but to get those away the bond yields will be far higher than current rates and the result will be higher ineterest rates all round.

One of the reasons the fall in sterling is not mentioned is the fact that recent GDP growth is reported as -2%. When you take into account how much of GDP relates to government spending and the fact that in the period this probably represented a 6% growth year on year, then you have to ask just how poorly the private sector is doing to give an overall rate of -2%. Could it be -6, -7, -8%.

Richard Edwards said...

Yeup. Its bad news. Scare yourself by reading this. Not even Houdini Broon could "save" us if Buiter is right...

David Lindsay said...

More 4 News was having kittens the nightbefore last. There might be unemployment in your very own Tunbridge Wells, instead of in "Northern and Western areas", where it belongs. Imagine!

I do not wish unemployment on people in Tunbridge Wells or anywhere else. But the weak pound will restore the manufacturing base of this country (at least if we have the wit to protect both our goods market and our jobs market properly) in those "Northern and Western areas". So why don't they just move?

After all, they would bring with them demand for the grammar schools to which, being from Kent, they are accustomed.

John Pickworth said...

Well its headlines now!

While Gordon is out begging for more cash and knocking the BoE for not lowering interest rates fast enough; George Osborne has this morning warned of the dangers to the Pound in The Times

Brown risking a run on the pound, says Osborne

Its actually a pretty good article but already Labour have their spin merchants onto it. As told by Skynews, it seems Brown's lot are saying it will be Osborne's fault if the Pound crashes now. Huh?

That Brown, he's a slippery snake ain't he?

Philip said...

I am ex-Pat living in Spain and have seen my income fall by 21% due to the fall in the value of the pound against the Euro. Are we the forgotten people?

Anonymous said...

2 weeks ago, the Nigerian rate was £1:N250, yesterday, it was £1:180. The US $ and Euro have stayed steady. Ultimate insult to the £sterling, Western Union is advising people to send money to relatives in US $ or Euros, instead of the £. The problem is the media have chosen to speak on behalf of the Labour party instead of presenting us with the facts.