So, I’ve just read the “what does it mean for you” blog on the BBC website, but that was quite simplistic, and didn’t really tell me anything I wasn’t already aware of…

What I haven’t heard a decent explanation of is this:

Both the Eurozone and the US have been in the spotlight regarding debt repayment. OK, so the markets seem to be putting more pressure on the Eurozone, rather than the US, but how come both of those currencies remain stubbornly high against Sterling?

Are we just so shafted that we don’t even register…!?

Govt tell us that our austerity package has the IMF seal of approval (FWIW), and that other Govmts need to follow our example.

I understand that UK banks are exposed to Euro debt, but if I visit France Italy, say, why do I still feel like a pauper compared to pre-recesssion???

OK, I’l precise that down…

… please sir, when can I afford to go skiing again 😀

We’re in just as much merde as the French etc

Despite not being in the euro we’re still affected by Europe, even the BNP/UKIP/CON assertion that we should trade withthem and not be govorned by them woudn’t help, it’s those trade links that are at risk! A piint that people who lament the lack of manufacturing fail to note is that someone has to buy it, ditto a financial service, so when everywhere else crashes, the finiancial markets take a hit as does everything else we produce.

Thus we’re deep in it too.

Also, low interest rates and the issueing of bonds (AKA Quantitative easing) at the BOI make it cheep to borrow money off them, thus there are a lot of £’s in circulation, and so £’s are cheep on the markets.

Pre recesion you felt rich because the £ was wayyyyyy over valued. In reality it’s now probably much more realistic.

OK, I’l precise that down…

… please sir, when can I afford to go skiing again

Prices for next year aren’t looking too bad actually! France certainly seems to be trying to be as competitive as possible from what I’ve seen so far. Prices of kit are going up a lot, though. Seek out a 2011 bargain if you need anything. That said, some of the new skis I’ve been looking at are lovely….! Apart from K2s, which are as ugly as ever. Great skis, but ugly.

😉

It is very poor that the news does not provide a good explanation of whats happening.

I deal with brokers / money markets via work, they all have a very different story to what you hear on the news.

In short – recession will continue. Growth will not happen, austerity measures need to be much, much greater than they are – but this does not win votes or support from “hard pressed front line staff” / unions, civil servants, daily wail readers etc – so it wont happen.

Basically the UK owes more than it spends, waiting for growth to help out is not going to happen for decades.

We need a gov and opposition with the balls to say there is no more money and we must stop spending now. The short term consequenses will be insignificant to the longer term ones. Since there is no one to bail everyone out I expect more QE (printing of money) in the vain hope that putting more money in the system will create growth, i dont think it will though.

Put even more simply – if you loose your job you dont keep spending on your credit card.

An extract from one of our informants this morning:

So the United States is now a AA rate country (according to at least one ratings agency). Who’d have thought it? S&P took the decision late on Friday night to downgrade the US’s credit rating over fears that the country’s budget deficit would and will not be reduced quick enough. This caused a sell-off late Friday which has continued through the Asian session and now laps at our European shores.

While significant on a political front, and a real smear on the Obama Presidency, the actual downgrade will mean very little in the short term. Costs of debt for the government and credit for businesses and consumers will rise in the short term, depressing growth, but all in all that is what the market is so het up about. The lack of growth. There is a decent argument to be said for the US downgrade actually being worse for the European situation than it is that of the States.

This was not the only bomb dropped over the weekend however with the ECB pledging to buy Spanish and Italian debt in a bid to depress yields and reduce their borrowing costs. The Italians and the Spanish both also pledged to reduce their deficits by imposing strict budgetary plans and to reduce their borrowing activity in the long run. Whether this was a definitive and universally backed measure by the ECB will remain controversial, we expect that the Bundesbank would have not have been too happy with it. Unfortunately the last time we saw the ECB intervene and buy debt the yields of that debt doubled. Further downgrades and contagion may be yet to be felt and we could see France as the next head on the block. At the moment it is German and French bond yields that are rising whilst those of the periphery are relaxing.

What these things will do to markets are unclear at the moment; they have simply made choppy seas that much more volatile. What they may cause however is a more wholesale global round of quantitative easing causing stocks to rally and businesses to grow. What the ratings agencies will make of that is anybody’s guess but as I have said above it is growth, or the lack thereof, that is the root cause of these financial tremors.

In the world of FX the G7 currencies have reacted remarkably mildly to the issues. USD is slightly weaker while everyone else is roughly on par with where they ended up on Friday evening. We expect speculators to be “trading the tape” today; waiting for new news on either the US or European and basing judgements around them. This is not a market where you wanting to take any risks.

Isn’t it good for exports, hasn’t more money printing taken place in the UK to drive down the value than has in the Eurozone.

Also interest rates are lower here.

Germany benefit from exporting manufactured goods because they have a reputation for quality and export stuff to Oil rich countrys who have money and demand.

We dont have the same reputation and there are few places with demand for anything.

We export financial services and banking services – which the public dont like right now, but it is our source of income. Most of our trading partners are as skint as us though.

Money printing is the only tool in the box once you make interest rates as low as they are. Problem is they are using the wrong tool box.

Germany benefit from exporting manufactured goods because they have a reputation for quality and export stuff to Oil rich countrys who have money and demand

Germany also benefits from having a currency that is lower than you would expect from a strong exporter because the Euro is dragged down by the Piigs. If they still had the Deutchmark I would expect it to be pretty high at the moment which would to some extent rebalance things; they’d import more and export less giving the rest of us a chance. I guess the price they have to pay for this is the continued bail-out of the Piigs.

The pound is low for the simple reason of supply and demand we import a lot. of course this also leads to inflation. I expect with about a million EU workers here who send there pounds home (after swapping them for Euros)Doesn’t help. Although I don’t work I hope it remains that way. I am not that selfish that I don’t care about British peoples jobs. Eventualy this will almost certainly lead to increased manufacturing exports and therefore jobs (will take a while of so called low exchange rates). Some componies are bringing back there call centres to the UK because it is cheaper to do so. Remember there are other cost in call centre than just labour cost and the pound fallen against the Rupee (excuse spelling)as well. I hhope this continues with more people taking UK holidays.

We brought our call center back here because we could give a better customer service (accent, advice, language, humour, relavance etc), it cost more, but provided a much better service for customers in the end.

This article today explains things pretty clearly

The money in your pocket is effectively worthless. The government declares it as legal tender and will accept taxation payments with this bill of exchange but the £5 note is no longer backed by anything. When push comes to shove, a £5 note is just a piece of paper and ink with no intrinsic value at all. It certainly isn’t worth £5.

The history of fiat currencies is unsurprising. All have failed. The Roman denarius, a silver coin, was diluted from 100pc silver to 84pc, then 43pc and finally to 0.05pc until nobody would take the coin as a means of exchange because it had no value.

Scottish economist John Law became the most hated man in France 300 years ago. He had to flee to Italy after introducing a fiat currency that almost brought the country to its knees. History shows that fiat money loves failure.

I also blogged about the psychological aspects on Saturday:

China rebukes US for its “addiction” to debt

Rio – Member

Germany benefit from exporting manufactured goods because they have a reputation for quality and export stuff to Oil rich countrys who have money and demand

Germany also benefits from having a currency that is lower than you would expect from a strong exporter because the Euro is dragged down by the Piigs. If they still had the Deutchmark I would expect it to be pretty high at the moment which would to some extent rebalance things; they’d import more and export less giving the rest of us a chance. I guess the price they have to pay for this is the continued bail-out of the Piigs.

Massively so but oddly enough they want there Duetchmark back they are very very scared of inflation. History has a long term effect on German bankers and even the German people. The hyper inflation of the 30s will remain in the German mindset for long time to come. And high Deutchmark = low inflation. They would probably not have gone the Euro if they had not been blackmailed by the french over East Germany joing the EU

Germany benefit from exporting manufactured goods because they have a reputation for quality and export stuff to Oil rich countrys who have money and demand.

We dont have the same reputation and there are few places with demand for anything.

I’d agree with you, except I think you’re wrong.

I can’t think of a single thing I own that was made in Germany? Parts of my car and washing machine maybe? The vast bulk of everything I own was either made in the UK or Asia.

Trimix – Member
We brought our call center back here because we could give a better customer service (accent, advice, language, humour, relavance etc), it cost more, but provided a much better service for customers in the end.

Although clearly important a very recent article in the Times clearly stated that some companies said they were bringing back call centres to the Uk Based on costs.

relavance

If you mean by this getting an answer based on the question you asked not one from a script which had no relation what so ever then you are to put it mildly right. But I have noticed an improvement in the Indian call centres over the last few years still not great though

Although clearly important a very recent article in the Times clearly stated that some companies said they were bringing back call centres to the Uk Based on costs.

The problem is a lot of people worked there to fund a degree, we had offices out there doing backroom stuff, 90%+ of the people working there were working towards the same qualifications we had in this country and now they’re working as an independant office! Not a bad thing, but more competition for us. Same thing as happened in SE Asia in the 90’s

Give it 5-10 years and once the economy picks up I’d bet that call centers and backroom office jobs are being done out of Africa.

simonralli2 – Member
This article today explains things pretty clearly

The money in your pocket is effectively worthless. The government declares it as legal tender and will accept taxation payments with this bill of exchange but the £5 note is no longer backed by anything. When push comes to shove, a £5 note is just a piece of paper and ink with no intrinsic value at all. It certainly isn’t worth £5.

The history of fiat currencies is unsurprising. All have failed. The Roman denarius, a silver coin, was diluted from 100pc silver to 84pc, then 43pc and finally to 0.05pc until nobody would take the coin as a means of exchange because it had no value.

Scottish economist John Law became the most hated man in France 300 years ago. He had to flee to Italy after introducing a fiat currency that almost brought the country to its knees. History shows that fiat money loves failure.

I also blogged about the psychological aspects on Saturday:

Backed by what exactly? Gold? why has gold got a value? Only ABout 40% has a value in use further more year in year out the supply increases as it does not oxidise there is only one way for it go in the long run down. How can you back your currency up with that It goes up and down like a yo yo. It has not even kept up with inflation over the last 100 years. It fell to 270$ from over about a $1200 under Gordon Brown.
Times change it is not 300 years ago and most people don’t even know that it is not backed by Gold and would not understand your belief in the consequences (psychological aspects) anyway?

SD-253, ‘relavance’ as you said.

Our call center staff now sit between the sales team, finance team and tech team, so all questions can be answered without a wait. No scripts either.

Cost is a bit of an issue, some of our staff in our India office are poached by other companys over there paying more. Soon wage inflation in certain sectors will realign some labour costs – especially in IT development work.

Your pound is backed by the fact the UK gov promises to pay it, nothing else. And now that is looking less likely.

thisisnotaspoon – Member

Germany benefit from exporting manufactured goods because they have a reputation for quality and export stuff to Oil rich countrys who have money and demand.

We dont have the same reputation and there are few places with demand for anything.

I’d agree with you, except I think you’re wrong.

I can’t think of a single thing I own that was made in Germany? Parts of my car and washing machine maybe? The vast bulk of everything I own was either made in the UK or Asia
Good for you thisisnotaspoon – Member

Germany benefit from exporting manufactured goods because they have a reputation for quality and export stuff to Oil rich countrys who have money and demand.

We dont have the same reputation and there are few places with demand for anything.

I’d agree with you, except I think you’re wrong.

I can’t think of a single thing I own that was made in Germany? Parts of my car and washing machine maybe? The vast bulk of everything I own was either made in the UK or Asia
No you are wrong they export a few high end consumer goods (my Meile washing machinne) but there main exports are machinery when I was last working they provided my firm with a 500,000 pound ultra sonic test machine for example (A load of shite by the way) Anyway what you own is not a statistic you need a few more people. By the way my computer has no pound sign anyone know how to put one on?

our paper money is merely a way people exchange goods and services which do cleary have a value

The money in your pocket is effectively worthless. The government declares it as legal tender and will accept taxation payments with this bill of exchange but the £5 note is no longer backed by anything. When push comes to shove, a £5 note is just a piece of paper and ink with no intrinsic value at all. It certainly isn’t worth £5.

Even with my very limited knowledge of Economics I know that that is so full of wrong it’s difficult to knwo where to start. It’s clear that whoever wrote it has no idea what legal tender actual is, and also don’t understand that a basic principle of money is that the thing you use to represent money must be worth less than it’s face value.

The credit crunch has been bought about by people and bank lending and borrowing more than they could afford. This is turn supported an artificially high level of growth and consumption in the UK economy. Growth that was purely funded by debt – nothing more, nothing less.

Sure everyone felt good because everyone felt rich, and with all that extra borrowed money sloshing around then house prices have gone to the moon.

But guess what the party was unsustainable and now we have the fallout. And the fallout has only just started – there’s much more to play out yet.

To stimulate growth (and massage the figures) the Labour government has leaned on the BOE to start up the printing presses. This de-valued the pound and this is why we have high inflation. This has effectively bailed out the borrowers and the reckless but screwed over those who have saved and have been responsible with their finances.

The current government are trying to reign in the spending and borrowing but guess what – those people who have been enjoying the party are now up in arms because their standard of living is under threat. These people seem out of touch to say the least – more concerned with their own short term standard of living rather than looking at the long term health of the nation as a whole.

I’m afraid a double dip is on the way people. It’s always been on the cards from day one. People might not like it but it’s absolutely necessary to cull off the weak and to re-balance the books. Only then can we start off on a sustainable footing and start real growth in the economy – not artificial growth masked by ever increasing property price.

Perhaps when (and if) this real growth starts then the GBP will be much, much stronger. But who knows what will have happened to the Euro in the process. What will happen full stop is anyone’s guess.

That’s why the smart money at the moment is piling into Gold. At least gold can’t be printed like money can. Gold seems at the moment to be the ultimate insurance policy and that’s why it looks likely to go on increasing on a daily basis until this whole mess in the world economy resolves itself.

gonefishin – did you watch what happened in zimbabwe when the currency devalues to nothing ?

I’ve always looked at this recession in a fairly pessimistic way, and therefore don’t disagree with what’s been posted…

… we are in a world of doo doo and not getting ut anytime soon.

BUT, on a purely comparative, rather than absolute basis, the news commentary would lead to an expectation of a lower euro vs pound…