Sterling Is Going To Go Down (a lot more)


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 problem.

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 happen.

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.

The 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.

Britain's 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

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