A sterling crash is a godsend

Britain twice averted disaster over the past century, in a timely manner, if I may say so – he brought down the pound sterling. In both cases there was no apparent confidence that this recovery in the economy will last more than 10 years.

Commentators have told us in 1992 that exit from the European exchange rate mechanism will cause inflation. They underestimated the stagnation in the UK economy and the collapse of money supply M3. Cheap Asian exports, in any case, started to influence global commodity prices.

Thanks to him, made possible the low rate of inflation for 14 years, which was the longest period of uninterrupted growth in British history. The last stage has already been forged, driven by 120% increase in mortgage and tax thrust Gordon Brown for the loss of 5% of GDP, the cyclically adjusted. But the first decade, was indeed successful.

Error ERM (European exchange rate mechanism) was that it was not the exchange rate as such. What really mattered – so this limitation in monetary policy. It has forced us to import the German interest rates set for the suppression of the boom, while England faced a sharp decline in the real estate sector.

With today’s events it has nothing in common, though, and should look at the forced departure of Britain from the “gold standard” in September 1931. That event was catastrophic, gold was the anchor currency of the Empire era.

Failure to reduce costs has led to the final denouement. Labor government had collapsed. Navy refused to set sail to protest against the reduction of pay. These events reported with headlines such as “rebellion. The Bolsheviks were singing “red flag” around campfires. Those who read the newspapers in New York, Berlin and Paris thought that the British Empire collapsed.

Keynes triumphed as the “giggling boy, who had just detonated fireworks under the feet of someone who is not fond of” – wrote Skildelsky. Treasury’s fears about inflation were incorrect. This was followed by industrial expansion in Midllends. 1930’s were rare a decade in which Britain far ahead of the U.S. and Europe for growth. Therefore, defeatist attitudes of France and not entrenched in Britain.

France was a mirror image. She had gold reserves, so as not to fall completely in spirit, but their use would signify the loss of resilience. Social spending increased every year. Pierre Laval has resorted to dictatorial powers in order to enforce its “500 deflationary decrees.” Machine guns were deployed against the strikers in Toulon. By 1936 the country became neupravyalemoy, the Communists came to power in the Popular Front. Investors are rolling up their funds, France was forced to abandon gold, one way or another. By the time she was a broken nation.

Today, there are similar echoes in the borders of the euro area. Countries caught in the trap of debt deflation because of the excessively powerful currency or euro / “dirty” floating exchange rate, now faced with the trials of Laval. Latvia is more or less accurately reproduces the 500 decrees of deflation.

Greek conservatives have paid for trying to austerity. Greek Socialists won an impressive victory in the elections by promising voters castles in the air. Portugal also limps with a minority government after voters went to the Maoists and Trotskyists. The Romanian Government has collapsed after it was unable to reduce the amount of loans from the IMF.

Irish deflation has reached 6,5%. “We’ve never seen a fall in prices on such a scale: the illusion that money can not rise in its value – it is something that should be seriously reconsidered,” – said the head of CB Patrick Honohen. Good luck.

In political terms, these countries are faced with the fact that traders are called “time decay”. The longer it goes on – all the more aggravated the situation.

ECB President Jean-Claude Trichet, said this week that the euro was not created in order to become the world reserve currency. ” – Too late, sir! China and support its exports, the country’s foreign exchange reserves increased by $ 413 billion in the third quarter. Barclays Capital said that 63% of these assets are in euros and yen.

Thus, the euro is worth 10 yuan, or $ 1.49 against the dollar, as well as close to parity against the sterling. While Asian countries to maintain the desired level of their currencies in order to get their share of exports, this slow torture could continue, nazivisimo the state of affairs in the euro area. Euro is doomed to be strong, unfortunately for them, “- said HSBC strategist David Bloom.

This does not underestimate the gravity of the crisis in the UK. We are in a worse position today than in 1992 or 1931. Our budget deficit is 13% of GDP. We live on £ 175 billion a year beyond our capabilities.

Reduction sterling can be very expensive at this time, and can be run outflow of capital from the capital market. But the risk is in any case, whatever we did. My (unpopular) view is that the Bank of England had saved the country from depression due to the excess of the printing press, offering a market to sell sterling.

David Cameron was not supposed to question the strategy of the bank so easily. The only solution is to cut spending, as did Canada in the early 1990’s, and to offset the impact, it prints as much money as necessary and as long as necessary. The biggest mistake would be repeated mild fiscal and monetary tightening, as it was in Japan in the first part of the lost decade, those actions led to gosudarsvtennomu debt of 215% of GDP. This path leads to death.

Collapsing currency does not look very attractive. Yet there is an iron rule: as soon as the economy of your country has become reckless, you must give the exchange rate correspond to reality. To deny this – then dig deeper and deeper hole for his nation.

The Telegraph
October 18