The Parallax Brief

Icon

Unrepentant Subjectivity on Economics, Politics, Defence, Foreign Policy, and Russia

Redwood Supporter in Sense of Humour Shocker; the Pound

So coldly logical is John Redwood’s delivery that he has been dubbed “Mr Spock” in his time, but for one of his supporters at least, wit is not “a difficult, alien concept, captain.”

Responding to Redwood’s short blog on the pound’s latest fall, one poster drolly asked, “I wonder if we can persuade Obama to invade us in the name of ‘regime change’?”

Of course, he then went on to spoil it with a paragraph of right-wing invective about the UK going bust, his sterling savings being devalued along with the pound and me-me-me, but at least his opening gambit managed to raise a cackle from here in Moscow.

On this matter, I’ve been rather irritated by the right’s response to sterling’s drop. Although the phrase “strong pound” sounds very nice, in a chest out, chin up patriotic kind of way, it really wouldn’t be very beneficial in current times.  

A weak pound lowers the relative cost of British goods and raises the relative cost of foreign goods. This has three, extremely beneficial effects: First, British goods become cheaper in both the home market and export markets, materially aiding British companies. Second, encouagement to buy British will help rebalance the UK’s current account deficit. Finally, making foreign goods more expensive will bring at least a small amount of inflationary pressure to bear on the British economy. The Bank of England’s precipitous interest rate reductions, and the current yields on British gilts, give a pretty terrifying indication of just how very close we are to slipping into full blown debt deflation. Anything to encourage inflationary expectations in this environment can be considered A Good Thing.

In boom times, these factors might be negative, as they would likely fan the flames of inflation and discourage saving. And of course, much more of a drop, and investors may get frightened off British investments, and especially our gilts, making financing our current, essential-for-survival budget deficit more expensive — or perhaps impossible — which would be an outright Russia 98-style disaster.

But so far so good.

Advertisements

Filed under: Economics, Politics, , , , , , , , , , , , , , ,

2 Responses

  1. […] sooner had the Parallax Brief written to defend a weak pound as counter-intuitively desirable for the UK economy, than sterling took a savage mauling on the forex markets. The pound plunged […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: