Sterling Is Going To Go Down (a lot
The massive fall in sterling that has taken place in the last few years
has been a great help to the nation's few remaining exporters. It has made their
products far more attractive to foreign buyers.
But the fall in sterling
also makes imports more expensive and since our imports include oil, food and
other commodities and most of the manufactured things we use (stuff like cars,
television sets, wine, building materials, toys and clothes) this can be quite a
Indeed, the fall in the currency has already pushed up
inflation. This has apparently surprised the Government and the financial
establishment though, to be honest, it always seemed pretty obviously going to
And of course if inflation goes up too much then interest rates
will have to rise in an attempt to slow things down. And that isn't something
the politicians want to do because if interest rates go up businesses and home
buyers will suffer and the country will slide back deeper into the depression we
never got out of when the people in the expensive suits said we had. (The
Government claimed just before the election that we had come out of recession.
Their evidence for this was a collection of pretty ropey figures showing that
the economy was beginning to move in a positive direction. But when I looked at
the figures behind the figures I found that the good news seemed to involve the
Government in general and the NHS in particular suddenly hiring more people.
Loads more people. Private companies, both big and small, were `letting people
go'. The Government was hiring as fast as the forms could be completed. If
that's evidence for the end of a recession I'm a panda.)
The bottom line
is that the country is buggered.
We have virtually no manufacturing
industry. Our finance industry (the banks and the hedge funds and the private
equity companies) are disgraced and in debt up to the top of their yachtmasts.
And foreigners would rather hold the Australian dollar or the Canadian loonie
than the Great British Pound.
Our country's massive debts, and the by no
means impossible chance that the nation will go bankrupt, mean that sterling's
decline is likely to continue for years to come.
There will, of course,
be ups and downs.
Currencies never move smoothly in one direction.
But if I were living in Spain or New Zealand or America or China or
Australia and relying on an income in sterling to help buy me food, I would be
trying to find some way to ensure that I would not be sitting cross legged on
the pavement with a hat between my legs and a small sign on a piece of cardboard
reading `British. Please give money for food.' hung around my neck.
pound will go down and keep going down because if it isn't by now it will soon
be the short end of the carry trade (in other words people will borrow sterling
to invest in currencies which are stronger) and that will push it down.
Another problem is that sterling risks losing its AAA rating and even
the risk (as much as the reality) will push down sterling.
debts are so bad and the political system so corrupt and incompetent that
sterling has an exceedingly poor future.
The chances of sterling
declining in value against other currencies are 90%. Or higher.
Copyright Vernon Coleman 2011