Tuesday, November 25, 2008

Oh *that* sterling crash...

Today’s leader in the Times, which offers a heartfelt plea to all Australians in England to stay here (and since I’m married to one, I can only echo this), sparked off a distant memory.

So it is with some alarm that we should greet the news that the Australians are heading home: 2,700 a month, up from 1,750 a month in 2005. This is largely a vote of no confidence in the old country. As the recession bites, the lure of home, with unemployment at a 33-year low and the dollar at an 11-year high against sterling, is very tempting.

What it reminded me of was Chris Dillow – a man to whose planetary brain on matters economic I have been referring ever since I started writing this blog.  About a month ago, when Conservative commentators were starting to get antsy about the collapsing value of sterling, Chris wrote a piece called What Sterling crash? decrying their simplicity.

The Tories are trying to blame sterling’s fall on Gordon Brown. And they’re failing. Fraser Nelson writes:

“The sterling crash has now begun in earnest. The pound has today (today!) fallen 9% against the Yen and is off 4% against the dollar to a lowly $1.56 with forecasts of $1.40 or lower next year. Against any other currency you may mention, it’s now plunging.”

Don’t mention the Aussie dollar: the pound’s near a four-year high against that. And it’s only 1.6% below its six-month average against the euro.

Well, that’s some slump, huh?  From a four year high to an eleven year low in a month.  Luckily, Chris provided himself with excellent cover:

If he knew anything about FX markets, he’d one that the one parity that does exist is the one between the value of an exchange rate forecast and that of a wet fart.

In any event, even if there was a devaluation of sterling this was actually a good thing: Far from being a sign of trouble, sterling’s weakness is actually a help. In making exports and import-substitutes cheaper, it will - with a long lag - help boost profits and economic activity and relieve the recession.  To which one might reply, with Matthew Parris

And even if Anatole is right (and is he?) that it is simply our low interest rates that have caused sterling's fall, does it end debate to remark that by making exports more competitive “the pound's decline is not a problem but a solution”? Then rejoice, Zimbabweans; prepare for boom-time, Iceland.

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