tag:blogger.com,1999:blog-8764541874043694159.post6667214458635940620..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: The long decline of the Great British PoundFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-8764541874043694159.post-57320080031715850962014-09-25T00:43:18.270+01:002014-09-25T00:43:18.270+01:00I like the question, "measured in what"?...I like the question, "measured in what"?<br /><br />In the chart it is dollars. It could be bread, labor, houses, chocolate, comodity index, oil, or silver (thats sterling).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-35491346202678292032014-09-25T00:30:32.210+01:002014-09-25T00:30:32.210+01:00Floating is beter than sinking.Floating is beter than sinking.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-8192349877540513862014-03-15T03:54:33.956+00:002014-03-15T03:54:33.956+00:00I suspect the pound will be worth way less than $1...I suspect the pound will be worth way less than $1 in the next 20 years. I think English will be replaced by German, Japanese, Chinese. <br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-76013322493439949432014-02-27T03:18:22.086+00:002014-02-27T03:18:22.086+00:00The City, and other ex-colonial economic interests...The City, and other ex-colonial economic interests with assets overseas certainly did not want the pound to fall. Peter Hall has written excellently about this, in Governing the Economy (1987)Maxhttps://www.blogger.com/profile/03421761424950393455noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-21498374204802381322014-02-26T16:45:15.149+00:002014-02-26T16:45:15.149+00:00I enjoyed this, had just a few thoughts.
Using th...I enjoyed this, had just a few thoughts.<br /><br />Using the $ rate of course means that you pick up US related trends in particular as well. Looking at the sterling index instead would give a somewhat different and more meaningful picture though the underlying story would still be the same.<br /><br />Following the abolition of exchange control sterling rose in the next few years. This was in large degree responsible for the disastrous performance of British industry in the early 1980s and the return of mass unemployment at levels not seen since the 1930s.<br /><br />During the early 1980s the authorities followed a policy of 'leaning in to the wind', reflecting the correct perception that markets overshoot. By buying sterling when it was weak and selling when it was strong, the UK did rather well.<br /><br />I am bemused by comments suggesting the UK economy is healthy. Have you not noticed the appaling performance since 2007, falling living standards, falling GDP per capita over a period of numerous years, a major housing crisis in the South East? Interest rates still at emergency levels?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-46607006918033931762014-02-26T16:32:58.711+00:002014-02-26T16:32:58.711+00:00Oh dear where to start? 'Cable' (USD/GBP) ...Oh dear where to start? 'Cable' (USD/GBP) is no longer the be-all and end all since the rise of the Euro and the advent of floating rates. Cable is now the residual of EUR/USD and EUR/GBP. I would have thought the level of sterling in the last few years was as much about the Fed loosening as the Bank of England doing something (?anything) right. The Old Lady has neglected exchange rates (in the same way she ignored asset price bubbles until recently) as a result of being fixated on the inflation target.<br /><br />There's no such thing as a 'correct' level as the mix of imports exports and non-tradeable goods changes all the time and it is relative prices of those that drives exchange rates.<br /><br />We should also factor in some politics & history. The UK was bled white as the price of making the world safe for democracy twice in the twentieth century; and the US was the rising Great Power doing most of the bleeding. (I'm looking at you, Harry Dexter White!).<br /><br />There will be no ear muffs big enough to blot out the sound of the squealing when the US wakes up to the fact that they are now in the position vis-a-vis China that the UK was in vis-a-vis the US in the second half of the twentieth century. History doesn't repeat itself - but it does rhyme.<br /><br />Wall Street crash the result of a British plot? Please, take responsibility for your domestic policy choices. <br /><br />The UK made a very serious effort to revive the pre- Kaiser's War arrangements by leadership. It was only when these efforts were unsuccessful that tariff reform and 'Imperial Preference' came to dominate and free-ish trade disappeared for a generation.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-21439872906727746482014-02-26T13:09:54.461+00:002014-02-26T13:09:54.461+00:00Either full integration (United States of Europe) ...Either full integration (United States of Europe) or breakup. The halfway house will simply result in unending depression. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-7390349888175657542014-02-26T13:08:15.459+00:002014-02-26T13:08:15.459+00:00"Piece from 20 years ago, recycled". You..."Piece from 20 years ago, recycled". You missed what I said about the importance of the independence of the Bank of England, then, and the approach to exchange rate management since, then?<br /><br />Why no exchange rate crises? Precisely BECAUSE there are floating exchange rates. Currency values adjust to each other all the time in a floating exchange rate system - you can see that in the chart: the "noise" level increases considerably after 1979. I don't agree with all of Jon Livesey's remarks - I do think politicians were too wedded to the idea that a strong pound meant a strong economy - but I think he is right that the pound has now found its correct level and that is why the exchange rate is not varying as much as it used to. <br /><br />The hyperinflation question is entirely different and way beyond the subject of this post. <br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-14185747119056093582014-02-26T12:53:35.157+00:002014-02-26T12:53:35.157+00:00Piece from 20 years ago, recycled? Really the las...Piece from 20 years ago, recycled? Really the last 20 years - and the last 5 especially - have seen a period of remarkable stability, given the real extremes of monetary policy experimented with. The dog that did not bark... why no exchange rate crises in an era where fiat currencies are being minted like no tomorrow? What's stopping us from a blast of hyperinflation to wipe out that odious debt and get on with the next asset bubble?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-8910159248268007682014-02-25T22:53:17.440+00:002014-02-25T22:53:17.440+00:00Hi Frances, you mention the Euro area repeating t...Hi Frances, you mention the Euro area repeating the same mistakes. What is the solution of this? Adoption of common Eurobond & more unity. A United States of Europe? Would this provide the best solution for it's constituents? Matt Bird - Investment Bloghttps://www.blogger.com/profile/18164706201439776224noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-28863216344849480042014-02-25T19:47:06.329+00:002014-02-25T19:47:06.329+00:00Lurking at the back of all this is the difference ...Lurking at the back of all this is the difference between currency/fiscal issues and economic issues. Did the UK keep Sterling at too high a level "to stay relevant" or did a poor economy ensure that the Sterling exchange rate had to decline over time and therefore always seemed "too high"?<br /><br />The trap here is that the exchange rate is a single number which is easy to talk about, and so journalists and the public focus on it, whereas economic problems tend to be difficult to make sense of, and so are either ignored or are talked about in non-technical "morality play" terms.<br /><br />I think that one hint here is that entry into ERM punctuated a period of "DMark-envy" during which the British public fell for a fallacy that lies behind the euro today. this fallacy is that if you adopt a "strong" currency then sooner or later oyu will find you have a "strong" economy. In reality, as the UK found out via ERM and the peripheral countries are finding out today, it's the other way round; you need a strong economy to survive using a strong currency.<br /><br />The more I look at the exchange rate chart, the more it seems to make sense. The UK ended WWII with a very large overhang of Commonwealth Sterling balances and about 250% sovereign debt/GDP. That had to be worked off through a combination of above average inflation and economic growth. But high inflation implies high nominal wage settlements and aggressive organized labour, which the UK suffered from until the Eighties.<br /><br />Bretton Woods was a convenient way of giving Sterling sufficient credibility that its needed decline could be managed and not lead to chaos. By about 1970, it was safe to float Sterling. Since then it has fluctuated in a range between $1.10 and $2.00, and as Ms Coppola points out, that is partly to do with Sterling and partly to do with what was going on with other currencies. And I don't think its any accident that a currency that no longer continuously declines has led to more moderate nominal wage settlements and less industrial action. <br /><br />Since exit from ERM the Sterling exchange rate chart looks "normal" to me, so I would conclude that the stresses built up during WWII have been unwound, and from now on the Sterling exchange rate will be driven by the UK's fairly open and healthy economy. Considering what could have happened to Sterling post-1945, I think we got off quite well and the treasury showed a lot of skill in managing the situation.jon liveseynoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-20474256062628403602014-02-25T13:13:26.059+00:002014-02-25T13:13:26.059+00:00Mercantilism is Germany's raison d'etre!Mercantilism is Germany's raison d'etre!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-57738931637030608262014-02-25T11:31:54.643+00:002014-02-25T11:31:54.643+00:00Bill, if everyone devalues at once we have the ver...Bill, if everyone devalues at once we have the very definition of coordinated monetary stimulus. This is exactly what is needed at the moment.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-43602562957845654802014-02-25T11:29:58.654+00:002014-02-25T11:29:58.654+00:00Nice article. I have often thought the same, that ...Nice article. I have often thought the same, that the UK paid a high price for trying to stay relevant post WW1. I think this approach was at the root of the poor labour relations that the UK had from the 1950's through the seventies and also the big North/South divide that there is today. Essentially the high exchange rate made industry uncompetitive and the economy moved to finance, which was less interest rate sensitive. The slow growth of industrial UK relative to its peers is particularly remarkable, essentially the only way industries could survive was through automation. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-41160720342831964452014-02-25T00:02:45.470+00:002014-02-25T00:02:45.470+00:00Good comment by Mr Livesey, but the case for float...Good comment by Mr Livesey, but the case for floating exchange rates is proven to my mind, unadulterated chartalist that I am. Currencies fluctuate for a reason, market rigging excepted, and often a weak currency is a blessing in times of recession. there is also a reason central banks tend to intervene which is more about protecting vested interests than an economic rationale. As with most things it comes down to sectorial balances. <br /><br />The problems arise when everyone decides to have an "export led recovery" at the same time, if everyone devalues all at once it's a zero sum game. There will be countries that cheat, via mercantilism, but that's usually America. They seem very fond of accusing the Chines of doing exactly what they do. There will be no agreement anytime soon sadly.<br />bill40Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-83082009834130508152014-02-24T23:52:39.992+00:002014-02-24T23:52:39.992+00:00I am not sure I entirely buy this narrative. One ...I am not sure I entirely buy this narrative. One thing that strikes me is that some of the periods of fixed exchange rate lasted a very long time. 1940-50 is a long time and so is 1950-68. If the period of float after 1979 represents what the market "wants" the exchange rate to be - and I think that is so - then the Treasury was far more successful than I would have expected in resisting the market during the periods of fixed exchange rate. One thing I think would be very useful here is a second chart showing the total UK currency reserves and how they evolved during the periods of fixed exchange rate.<br /><br />A couple of points about ERM. It's not clear that the UK actually *joined* ERM at "too high a rate". What really happened was that it joined ERM at what seemed to be a reasonable rate, after which the German Government took fright at signs of inflation and raised interest rates, which pulled up the DMark/Dollar rate and thus the Sterling/Dollar rate. In your chart, you can see the Sterling/Dollar rate just touching $2.00 which was far too high, just before ERM exit.<br /><br />Also, like a lot of people you describe ERM exit in terms that make it seem like an exclusively Sterling issue, when in fact half a dozen currencies either devalued sharply within ERM or left ERM at the same time as Sterling, and when ERM was put back together, it was with such a wide allowable exchange rate margin that it really wasn't ERM at all.<br /><br />And by the way, although I agree that the euro is repeating many of the errors of the Gold Standard, I think it is also repeating the errors of ERM. That is, a single currency without a common fiscal governance produces a situation where the single currency works only until divergences in competitiveness emerge, after which it becomes under-priced for the most competitive members and overpriced for the least competitive, and so becomes an engine driving its own disintegration.jon liveseynoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-29978268944861283312014-02-24T14:50:21.978+00:002014-02-24T14:50:21.978+00:00Cheap food won votes, as do cheap foreign holidays...Cheap food won votes, as do cheap foreign holidays etc. more recently, When the voters were told that the government would "plan" industry to keep jobs, i.e. prop up those damaged by the sterling policy they believed that as well. These days the property market is the saviour of the pound and the guarantee of cheaper food. This will go to the wall (sic) as well.Demetriushttps://www.blogger.com/profile/17198549581667363991noreply@blogger.com