Question Time

MikeTV

I don't think I've ever suggested there was any difference depending on who does the spending. The point is, nobody is spending.

karkus30

That is not true, there is a difference who does the spending. The Government continues to increase the deficit by spending more than it can afford yet no improvement is noted in the economy.

johntheexpat

So,did it do any good?  I can see scant evidence but some must believe it did because they seem to be about to do it again.  So, if nothing else you can soon expect even higher petrol prices.

sidicks

But I assume that you're basing your opinion that 'it didn't do any good' simply because we haven't had massive growth, ignoring the fact that due to the extent of debt (and hence the size of deleveraging required) without the devaluation the fall in GDP would have been much more pronounced.

I don't know the answer!

karkus30

Same old, same old. Its all about monetary inflation. Someone always benefits first as the new money is injected. So, in the case of exporters and their shareholders, the reduced price of exports puts new money into their pockets first. Following this, the new money circulates driving up import prices for everyone else. Eventually, even the exporter suffers if his business depends on imported raw materials.

Monetary inflation seems to be the only trick in the bag. It can have short term gains as long as other countries are not trying the same trick. If they are it becomes a race to the bottom. Where that ends is debatable. Some say the complete collapse of the entire system of currency.

Monetary inflation simply props up the debtors and lets the savers rot. The question is always to ask 'how are my real wages effected ? ' if your money is generally buying less then your standard of living is falling. Of course you might ask 'by how much your standard of living improved because of loose financial policies and cheap credit in the pre crash years ?'.

MikeTV

That's a different question - that's how the spending is financed, not whether or not it increases GDP.

johntheexpat

But if it didn't do any good, why do it again.  And if it did do good and is worth doing again, what good did it do?

The next governor of the BoE is apparently going to approve devaluation of the £ by 15%.  That's 15% increase in crude oil, other imports and foreign services.  It must have done some good in the past for him to be considering it, what is that good?


15% is massive, its not a tweak, yet everyone is just sitting there, shrugging their shoulders and avoiding a direct answer.

And if it makes no difference, why have floating currencies and variable exchange rates in the first place?

Wild Weasel

Some great questions here:

MikeTV

Brian Farnet from Friern Barnet.

karkus30

Governments have been doing it for centuries. Its really just financial farming. It benefits some at the expense of others. It creates mock growth that satisfies the population to a lesser or greater degree depending on where you sit in the income/debt table. If you have a stock of real estate debt then it keeps you floating, if you are a pensioner with savings it drowns you. Its just a fiddle that generally reduces real wages, boosts exports and rewards those with large debts and penalises those with savings while keeping a Government/system looking effective.

Eventually the monetary inflation results in price rises for commodities and people begin to notice. The real estate owner might see a fall in the value of property, the exporter a rise in energy and material costs, unemployment rises. The cry will go up for more monetary inflation aka currency devaluation. Its like a drug addict that gets used to the high and needs greater doses to maintain the effect.

If we devalued unilaterally then it can provide a short term boost and reduce real wages. Its like a sale event at a furniture store. However if all the stores are also having sales and are slashing prices arbitrarily then it becomes a race to the bottom where each store attempts to maximise sales in the corkscrew decline in monetary value.

So you see there isn't an easy answer to it being good or bad. It depends on personal circumstances and the response of other countries. Selling cheap is only ever a short term answer to cash flow and sustainability. Eventually it has a rebound effect. Its just another boom and bust. It might be a huge bubble or several tiny bubbles. You can only judge it on your own personal circumstances. If you are finding it increasingly hard to keep your head above water its bad, if you have a large mortgage with low interest rates and no savings then its good. I think that if something isn't good for everyone then it fails.