Thailand is currently a political and economic basket-case. The new government has been paralysed by the activities of supporters of former premier Thaksin Shinawatra. When they occupied Bangkok's Suvarnabhumi International airport they destroyed the crucial tourist industry at a stroke. Vehicle assembly work has collapsed, and the cranes throughout Bangkok are at a standstill, with 60,000 unsold apartments on the market.
Despite this, the pound has slumped against the Thai Baht. Six months ago one pound would buy you 75 Baht. Today it will buy you 50. What does that say about the money market's views of the UK economy?
It also tells you that Gordon Brown's claim that we are best placed to stand the global recession is at best spurious and at worst mendacious. Virtually every economic indicator shows the direct opposite.
Does anyone have a view on my theory that the government are encouraging a run on the pound (Yvetter Cooper saying that there was 'no target' for it for example) in order to deleverage RBS?
ReplyDeleteIf 80% of loans on RBS's balance sheet are foreign currency denominated is it not likely that they have more FX exposure on the assets side of their balance sheet than the liabilities side?
Therefore if RBS unwind their FX hedges and the government allow/encourage the devaluation of Sterling they deleverage the bank at the expense of our savings / standard of living / inflation?
Just a thought, any ideas anyone?
Isn't 1GBP = 50THB still higher than any time during the Major Government?
ReplyDeleteI think you have your protesters mixed up. It was anti-Thaksin protesters who went to the airport to protest, as the PM was a puppet of his.
ReplyDeleteIt also tells you that Gordon Brown's claim that we are best placed to stand the global recession is at best spurious and at worst mendacious.
ReplyDeleteYes Iain but its all the bankers' fault. And America's. And the Tories. And the electorate because they refuse to pay higher taxes. And consumers because they refuse to spend more. An investors - when they refuse to buy up govt debt because the econonmies such a mess.
Gordon is just doing his best to save us all and, as the opinion polls show, we're just so bloody ungrateful.
Its like the Bank of England
ReplyDeleteThe reason Brown gave for making the BOE so called independent was so it could work independently of government.
What he actually wanted was that labour could work independently of the BOE. as this is what has happened.
He did not want the BOE looking over his shoulder he wanted to distance himself from it.
He then made sure that his place men would be in the majority on the monetary committee, so he could pull any strings from a distance.
If you think this is not true then just look at the facts of what has happened.
He has been a law unto himself as I am sure Blair kept away from him.
He must carry the can for Britain being less prepared than any country for the current recession.
Steven L - since the only real way the B of E have to attempt to manipulate Sterling's international value - bulk intervention in the international money markets - has already been totally devalued as a strategy by Lamont and the menace of Shorting - it seems that the central bankers have little choice but to allow Sterling to find it's own level. The only other way to do it is a Chinese-style restriction of trading in the currency, which generate a whole different set of crises. Hence Sterling is allowed to plunge. It does have some positive side-effects like the one you mention and, far more importantly, our exports getting very cheap abroad. Eventually that will start to take effect.
ReplyDeleteReading the ICM poll this morning in the Groaniad, I couldn't help but marvel at the stupidity of the voters. The one really impressive thing the current government have done - build confidence in the banking system - is apparently hated by the voters. At the same time, the voters love the idea of Japanese-style building schemes for new motorways. This sort of thing is why I have the word "despair" in my blogging title.
Over to the Tories who will get voted in on a wave of resentment, who will do nothing at all to the bankers (the public want blood) and who (at least currently) will push Osborne into the Chancellorship, a role he appears totally unsuitable for.
Oh dear.
Steven_L: Can't think you are right. If an FX denominated loan goes belly up ( that Russian springs to mind) RBS are still left with the loan in FX they took on to make the advance - so they are worse off.
ReplyDelete'since the only real way the B of E have to attempt to manipulate Sterling's international value is bulk intervention in the international money markets... '
ReplyDeleteThat's the only way to maipulate it upwards - there's loads of new and exciting ways to help it crash
'our exports getting very cheap abroad. Eventually that will start to take effect.'
So far our balance of payments has widened. It's hard to substitute more expensive food/oil for domestic alternatives that don't exist.
'Reading the ICM poll this morning in the Groaniad, I couldn't help but marvel at the stupidity of the voters.'
This is the default liberal position. Why are you lot so stupid?
'Over to the Tories who will get voted in on a wave of resentment, who will do nothing at all to the bankers (the public want blood)'
Is wanting bankers' blood a reasonable position? You may as well blame water for rolling downhill. The control of the banking system is a role of government and a clear area of this government's failure. I might say you are stupid not to realise this.
I foresee plenty more 'despair' for this liberal.
"Reading the ICM poll this morning in the Groaniad, I couldn't help but marvel at the stupidity of the voters."
ReplyDeleteHow smug and superior you must feel. Were you bullied at school by all the other children?
Praguetory - try reading the article and make an effort to concentrate. I am agreeing with you that it's stupid to go after bankers blood. Yet the polls are saying the public hate the government bail-out of the banks and that is the key reason for the Tory lead. This is presumably following Cameron's canting speechette where he promised to be tough on the bankers. Like er yeah, sure. Clever politics by him though, even though it is balls.
ReplyDelete"Hence Sterling is allowed to plunge. It does have some positive side-effects like the one you mention and, far more importantly, our exports getting very cheap abroad. Eventually that will start to take effect."
ReplyDeleteWhat exports?
"What exports?" as a comment shows the ignorance of teh writer. We are the 3rd largest arms exporter in the world, export more than 1million cars/year etc etc.
ReplyDeleteRead Roger Bootle in yesterday's Telegraph..
http://www.telegraph.co.uk/finance/comment/rogerbootle/4340158/Exaggerated-claim-that-were-going-down-the-plughole-must-be-rejected.html
Any thoughts that the Government have a plan is nuts: events are running them..
madasafish,nobodys buying cars now.Mind you the way things are going I'm seriously thinking of investing in the arms industry......
ReplyDeleteUnder our parliamentry system, are their any safeguards in place to handle the eventuality that the Prime Minister has a mental breakdown and his party are too weak and shambolic to remove him?
ReplyDeleteBritain does still have a number of successful world-leading industries, I am thinking of aerospace, pharmaceuticals, scientific and technical services and software and several others. The real point is to what extent these are sufficient to pick up the general economy against a background of general world recession. Clearly they will help but maybe not enough, even with a low pound, to avoid serious increases in unemployment. An additional problem is that many of these industries employ only very skilled people and the people most severely affected by the recession will be the young and aging workers. To help them most, the best thing to do would be to expel large numbers of economic migrants as they have competed for the jobs at the bottom of the economy.
ReplyDeleteAlthough I hate high oil prices on a personal basis, it's a shame for the economy that oil has gone back down low, as this tends to widen the deficit further. High oil prices also applied greater pressure for switching fuel technologies, something we still need to get into to avoid the coming calamity - peak oil has still happened, despite the current low price which is speculation-bubble induced. (the bubble having collapsed)
When the recession does start to ease, we will again face an oil crunch.
I'm here on holiday and it gets you less than 50 baht to the pound. Very painful!
ReplyDeleteP.S. I can see a few cranes moving from my window.
"Steven_L: Can't think you are right. If an FX denominated loan goes belly up ( that Russian springs to mind) RBS are still left with the loan in FX they took on to make the advance - so they are worse off." (kinglear)
ReplyDeleteBut 'zero' (the worth of the Russian loan) is worth the same in every currency. Surely most of RBS's FX assets are corporate paper, which has been written down, but is not worth nothing.
Surely it comes down to the total fx exposure on both their assets and liabilities. If fx exposure is greater on their assets devaluation will help, if it isn't we'll probably do an Iceland at this rate?
Tells you the money markets are money grubbing bastardos is all Iain. Everything is a commodity to Tory Man. They're trying to make as much money as they can. I'd not worry yourself about the exchange rate with Thailand. I'd worry about having currency speculators having the ear of a Tory government and I'd run a mile.
ReplyDeleteAre these Bahts actually traded? Or is this just an artifact of the pound's exchange rate with the dollar?
Chris Paul's amazing insight: "... the money markets are money grubbing bastardos ..."
ReplyDeleteReminds me of my overdrawn niece, who complained about her bank, and banks in general: "They're only in it for the money."
Labour of course have a Minister Myners who fills C Paul's description quite well.
ReplyDeleteHypocrisy knows no frontiers.
On the issue of how the Thai Baht is traded, the Bank of Thailand introduced very strict exchange and speculation controls in 2006 after the collapse - as far as I can discover from web searches, these are still in place. Since then, they have attempted to peg the value to a basket of East Asian currencies, mainly the Yen. Probably that's why it's come down against Sterling and not due to some sinister proof of utter British collapse, as Iain would have it.
ReplyDeleteThe pound seems to be rising against the dollar again a little bit but is still flat against the Euro. I suspect that the big falls in the £ over the last few weeks were primarily due to short positions being dumped in big hedge funds. Probably things will start to stabilise now.
http://www.thedailymash.co.uk/politics/politics-headlines/i-warned-of-crisis-ten-years-ago-then-did-absolutely-nothing-about-it%2c-says-brown-200901271536/
ReplyDeleteSpot on.
Brown is simply going on a spending binge and printing money to pay for it.
ReplyDeleteHence the fall in the pound.
the crunch will come when we get to see the money supply figures.
Then he will simply dump us in the Euro!!!
Despairing Liberal
ReplyDeleteNo-one is talking about "manipulating sterling". That suggests short-term efforts against the market and is, quite rightly (and as shown by that truly unpleasant socialist Soros), almost impossible. This is indeed partly due to shorting which, far from a menace, is an important check on the market.
Interesting that after pointing out that the Bank of England does not have the resources to prop up the pound you suggest that the Thai government is able to prop up the Baht.
What the bank and government should have had is a sane policy for sound money in the long-term. If the government had not overspent, and the bank had such lax fiscal policy then the market would have kept the pound strong.
The whole point is that not only can we not buck the market but we shouild not try. The point is that the market is reflecting the underlying weakness of the economy Brown has taken us into.
You are surely joking that Brown has built confidence in banking. Entirely the opposite. Brown destroyed that confidence in the first place and all his efforts, based as they are on ignorance, have failed to restore it. To say that there is now confidence in the banks suggests that you haven't seen or heard any serious news source (by which I exclude the BBC, who will claim anything that helps Brown) since Northern Rock was nationalised.
As for world-beating industries, I work in one. British aviation is a world-beater, could be dominant in Europe, but this government has always done its best to damage it, often using lies to justify their attacks (commercial passenger aviation is less environmentally damaging than high-speed rail. It uses about the same amount of fuel per passenger mile (even less by my calculation, on a par with regular rail, but I'll give them the benefit of the dispute), but doesn't need so much infrastructure).
DespairingLiberal writes (unconvincingly):
ReplyDeleteHence Sterling is allowed to plunge. It does have some positive side-effects like the one you mention and, far more importantly, our exports getting very cheap abroad. Eventually that will start to take effect.
Such vague language in your sage words: eventually, probably.
As someone says above, what exports?
Conversely products/services/raw materials bought from the Eurozone and for that matter the US are therefore more expensive.
You haven't really thought it through have you?
@ Despairing
ReplyDelete"...aerospace..."
Tosh. One local firm with a large number of employees has just closed, two others that I am aware of are on short-time and making preparations for closure.
"...pharmaceuticals...."
Tosh. Tell that to those have been (and those who are going to be) laid off by Glaxo Smith Kline, Pfizer, etc etc.
And so on. They may have been successful world-leading firms, but they ain't any more. No point in making stunning hi-tech products if no one wants them. No point in the financial services industries at all, ever. We're rapidly heading back to the middle ages.
Next up, bartering for chickens.
Iain, I wish you'd just call a spade a spade in these kind of posts. Just accuse Gordon Brown outright of being a liar and be done with it.
ReplyDeleteUnsworth, are you thinking of British Aerospace and Rolls Royce? The latter has a massive order book and I am not so familiar with the current state of the former. I didn't say unemployment would be held down by our leading companies. Royces have been cutting staff for years and moving production abroad to Germany and elsewhere. This was at least partly in response to increased costs from the strength of Sterling. Presumably that pressure eases and so there is less pressure to export jobs. It's true that I didn't say that the highly skilled jobs are also going, but I agree that they are in some cases.
ReplyDeletePharma seems less clear cut - in the East Midlands, they seem pretty steady. Which job cuts are you referring to there?
Richard, I didn't say the Thai government had succeeded in maniupulating their rate - just that they were attempting to.
ReplyDeleteI seem to recall an article in the Economist (last year some time?) about Thailand saying they were still effectively preventing trading in their currency, don't know if that's now changed.
I have thought it through Dorian Smith. NuLab has encouraged a huge trading deficit which is one of the main underlying causes of the UK's current position. Obviously a lower pound pushes up import costs (most notably if we are low against the dollar on oil) but right now I see that as a plus, since it can only help to narrow the trading gap.
ReplyDeleteMy views are incidentally supported by no less a person than Ken Clarke judging from an interview I heard with him not long ago.