Pound - Euro fx rate

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Maud
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Re: Pound - Euro fx rate

Postby Maud » Fri Aug 02, 2019 2:46 pm

I think you are missing the point Peebee. What was predicted did happen, but financial institutions stepped in to mitigate the damage! It might not have been as bad as predicted but We have not left the EU yet.

Today The Governor of the Bank of England stated that if we do a ‘cliff edge Brexit’ there will be an ‘instant shock to the U.K. economy.’ What is your opinion on that Pebee? It will be interesting to see who is right later in the year.

Jeffstclair
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Re: Pound - Euro fx rate

Postby Jeffstclair » Fri Aug 02, 2019 3:58 pm

It's the millennium bug effect ...

peebee
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Re: Pound - Euro fx rate

Postby peebee » Fri Aug 02, 2019 5:50 pm

Maud wrote:
Today The Governor of the Bank of England stated that if we do a ‘cliff edge Brexit’ there will be an ‘instant shock to the U.K. economy.’ What is your opinion on that Pebee? It will be interesting to see who is right later in the year.

Well if it does happen, it will be the first thing that this idiot gets right.

Kilkis
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Re: Pound - Euro fx rate

Postby Kilkis » Fri Aug 02, 2019 7:41 pm

Very little that is said by either side has any logical basis. Predictions by leave that we would be able to trade with the EU on exactly the same terms as before Brexit were stupid. We now know that they were stupid. The May deal or no-deal doesn't look anything like being in the EU. Predictions by remain as to what would happen the day after a leave vote were stupid. We now know they didn't happen. Why would they? To quote a famous person, whose name I can't recall, the day after a leave vote "nothing has changed". The UK was still in the EU exactly as it was the day before. Only one thing happened and that was totally predictable. In the lead up to the vote Sterling was steadily falling against the Euro. As the vote got closer it started to look like the result would be remain so Sterling started to level out or even recover a little. As soon as the leave vote was revealed it rapidly dropped back to its previous downward trend. It's been doing the same ever since. Remain looks probable and Sterling goes up, leave looks probable and Sterling goes down.

Some things have happened but they aren't always what they seem. For example investment has reduced considerably and that will certainly be felt further down the road. However, many companies have been spending a lot of money on no-deal preparations. If you add together what they have spent on investment and what they have spent on no-deal preparation it comes to about the same as they would have probably spent on investment based on previous years. Guess what, companies only have so much money to spend each year, who would ever have guessed that? I am not saying it doesn't matter, it very much does, but it doesn't cause the sort of instant problems that people like the Chancellor and the BoE predict.

Even on 1 November there should not be sudden shocks for most businesses, unless our government screws it up, because the EU has put in place contingency measures to allow trade to continue to flow at least in the short term. I think some businesses will get a very rapid shock because I think EU tariffs will be imposed pretty quickly and that will have a massive effect on those sectors where the tariffs are large, especially agriculture, but there shouldn't be immediate disruption to the free flow of goods. A few months down the road and it is a different story. Most of our trade is in the service sector so even whole product sectors ceasing to trade or having much reduced trade is not that catastrophic. I think it is more likely that there will be a steady worsening of the UK economy over months as negative effects start to bite.

I think one thing the BoE did get right is the high risk of the economy going into recession but probably not instantly. The UK has had very weak growth for a long time, at least since the financial crisis. It wouldn't take much of a downturn to change weak growth into recession. The financial sector gradually moves chunks of its business into the EU. Companies like Nissan choose an EU based production plant for their next model. Beef and lamb exports to the EU collapse and there is no immediate alternative market for them etc etc. None of this happens overnight but gradually over months.

Then there are non-Brexit related factors. Recession in the USA looks very possible. The yield curve for Treasury Bonds has inverted and is steepening. Every time that has happened in the last 50 years a US recession has followed within 6 months to 2 years. When the US sneezes everybody catches a cold. Germany is teetering on the brink of recession. If trade wars between the USA and China worsen I think it is virtually certain Germany will go into recession but if they ease off it may not. The Fed, the BoE and the ECB will undoubtedly turn on the printing presses if any of these things look likely so nothing is certain.

A far more nuanced assessment but it doesn't fit well in 280 characters does it? "Economic shock/recession highly probably in the event of a no-deal Brexit" fits nicely.

Warwick

Guy M
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Re: Pound - Euro fx rate

Postby Guy M » Fri Aug 02, 2019 10:11 pm

peebee wrote:
Maud wrote:
Today The Governor of the Bank of England stated that if we do a ‘cliff edge Brexit’ there will be an ‘instant shock to the U.K. economy.’ What is your opinion on that Pebee? It will be interesting to see who is right later in the year.

Well if it does happen, it will be the first thing that this idiot gets right.


Who are we to believe? An expert with years of experience in financial markets or someone on social media? I know who I’d go for - unlike MGove I haven’t had enough of experts.

scooby
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Re: Pound - Euro fx rate

Postby scooby » Fri Aug 02, 2019 10:29 pm

Carney’s forecasts have been abysmal, fact.
Get Brexit done.

Kilkis
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Re: Pound - Euro fx rate

Postby Kilkis » Fri Aug 02, 2019 11:06 pm

The IMF have the best financial experts in the world and their predictions about what effect their austerity programme would have on the Greek economy were wrong, twice, by about an order of magnitude. At least they admitted that they got it completely wrong which is more than the Eurogroup have ever admitted.

The BoE has an economic model that is deeply flawed. They feed assumptions in one end that usually bear little relationship to reality. They wind the handle and get a result that is usually wrong. Σκατά in and Σκατά out. If it really gets bad print a load of money.

The Fed repeats the same three mistakes endlessly. 1 Drop interest rates because the markets are not doing what they want. 2 Hold interest rates low for too long because the markets don't respond to their low interest rates. 3 Raise interest rates because they need them higher to respond to an imminent crisis and hence create the crisis they need the higher rates to respond to. Go back to stage 1. If it really gets bad print a load of money.

The ECB and the Bundesbank in particular cannot admit the underlying flaw in the Euro so they can never solve it. It's permanently bad so print a load of money.

The Bank of Japan - oh the hell with it just print a load of money.

The Bank of China is so shrouded in mystery that nobody has the slightest idea what it is doing but the visible indications are that it is printing a load of money.

I am all in favour of experts but "economic" and "expert" in the same sentence almost always strikes me as an oxymoron. If the facts don't fit the model the facts must be wrong. They call it economic science but in science if the facts don't fit the model you change the model.

Warwick

Guy M
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Re: Pound - Euro fx rate

Postby Guy M » Sat Aug 03, 2019 6:28 am

Economics doesn’t necessarily tell you how to get things right but it does tell you how to get things wrong:

Print money (shorthand for run a budget deficit) = inflation

Protectionism = low growth

Excess regulation = stifled businesses

Etc. Etc. Etc.

Over-politicise economic decisions = be like Zimbabwe or Venezuela

TweetTweet
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Re: Pound - Euro fx rate

Postby TweetTweet » Sat Aug 03, 2019 8:16 am

Kilkis wrote:The IMF have the best financial experts in the world and their predictions about what effect their austerity programme would have on the Greek economy were wrong, twice, by about an order of magnitude. At least they admitted that they got it completely wrong which is more than the Eurogroup have ever admitted.
Warwick

I don't agree - the IMF members knew (in general terms) what the effects would be but (for whatever reason(s) chose to "predict" something different.

(Like all Institutions) The IMF is full of corruptions - they changed the Rules re Greece's entry to the Euro and stitched up the unpleasant rutting gorilla Struss-Khan at about the same time.

mouche
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Re: Pound - Euro fx rate

Postby mouche » Sat Aug 03, 2019 9:52 am

Guy M wrote:Print money (shorthand for run a budget deficit) = inflation


The U.S. budget deficit widened by 23% to $747.1 billion in the first nine months of the fiscal year, as rising spending eclipsed a small bump in revenue from the Trump administration’s tariffs.
Source; https://www.bloomberg.com/news/articles ... rough-june

and resulting inflation?

The annual inflation rate for the United States is 1.6% for the 12 months ended June 2019 compared to 1.8% previously, as published on July 11, 2019 by the U.S. Labor Department.

Hmm.

Kilkis
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Re: Pound - Euro fx rate

Postby Kilkis » Sat Aug 03, 2019 10:34 am

You need to differentiate between "inflation" and "price inflation". Printing money, i.e. increasing the money supply is, by definition, "inflation". It is what "inflation" means. We have a tendency to use the word "inflation" as shorthand for "price inflation". Where in the economy price inflation occurs depends on where the newly created money goes. In the case of QE, in all regimes around the world, the money has gone into the bond market, mainly government bonds, and, to a lesser extent, into the equity market so that is where the inflation has occurred. Almost none of the money has gone into the general economy so it has had virtually no effect on price inflation there, i.e. quite modest CPI.

The above is quite deliberate and not an accident:

    1 QE going into the bond market suits the governments who are using it, through their central banks, because high bond prices means low yields and they can then issue new debt with a low coupon. Governments rarely have any mechanism to repay debt. When a bond matures they just issue a new bond to repay the first one. In order to sell that new bond it must have a coupon, i.e. the issuing rate of interest, that is at least as attractive as the yield, i.e. the effective rate of interest taking into account any increase in the price, of existing bonds. High bond prices = low yields on existing bonds = low coupons on new bonds. Happy days.

    2 QE going into the bond market also suits the central banks. They are the bankers' bank, i.e. the large investment banks are their main customers. They are willing to pay high prices to buy existing bonds held by investment banks because it makes their government happy and they don't really care because it is all done with printed money. The large investment banks are happy because they can make a profit selling the existing bonds to the central bank and they can use the new money to buy more assets that will also make them a profit by one means or another. All businesses want happy customers

It is a classic Ponzi scheme with the tax payer on the hook when it blows up. It would have been possible to have a QE mechanism that did feed money into the general economy, did stimulate the economy and was sustainable but then CPI would have risen. No government wants that so they won't do it. Also, without intervention from the central banks the coupon on government debt would have steadily increased as it always does under normal market conditions if a government starts to increase its debt beyond what the market thinks is responsible, e.g. see Greece before the bailouts.

Warwick

mouche
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Re: Pound - Euro fx rate

Postby mouche » Sat Aug 03, 2019 7:20 pm

So when Fed is refering to inflation, inflation target of 2%, they do not refer to price inflation but to money supply? Interesting.

Kilkis
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Re: Pound - Euro fx rate

Postby Kilkis » Sat Aug 03, 2019 8:37 pm

No, you are completely misunderstanding what I am saying, again.

They refer to price inflation as measured by some index like CPI. They control what is in the basket of goods included in the index so they can control what the reported number is. For example if something is showing rapid inflation they take it out of the basket and replace it with something that is not inflating or inflating slower. The argument is that if something is going up rapidly in price people will buy something else. It may be true but there is no convincing evidence. If beef is going up rapidly and fish is going up slowly then they replace beef with fish claiming people will buy fish instead of beef. Do you believe that? If you want to eat a steak will you buy a Tsipoura? Also if something like a computer is 20 % more powerful today and has increased in price by 20 % as far as they are concerned it has not gone up in price.

Things like bond prices and stock prices are not included in the index so inflation there is not recorded but that is where the QE money is going and that is where the price inflation due to QE occurs.

Warwick

mouche
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Re: Pound - Euro fx rate

Postby mouche » Sun Aug 04, 2019 8:53 am

So it's all fake news and manipulation?

https://www.bls.gov/news.release/pdf/cpi.pdf

Kilkis
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Re: Pound - Euro fx rate

Postby Kilkis » Sun Aug 04, 2019 1:03 pm

Most of it, yes. If they report that CPI rose by 1 %, say, then it is certainly true that the index rose by 1 %. Whether that index represents what people are experiencing is another matter.

I cannot comment specifically on the US indices because I am not familiar with the detail of their construction but I know from reports from US financial commentators, who I respect, that the indices in the US are manipulated just as they are in the UK and the EU. For example Shadow Government Statistics* continues to calculate CPI using the rules that were used in the US up to 1990 and rules that were used up to 1980 and compares them with the official figures. Their 1980/1990 based calculations better reflects the price inflation that real people are facing in their lives. When the new rules were adopted in both cases they produced virtually the same results as the old rules but they have steadily diverged ever since. The level of divergence is a measure of the amount of manipulation. In the case of the 1990 based inflation the index is more than double the current version and for the 1980 based calculation it is around 5 times more.

In the UK the government changed from using RPI to CPI on the grounds that it is a "better measure". In reality CPI is virtually always lower than RPI, except in the short periods of time when house prices are falling. They are almost always rising in the UK. CPI excludes housing costs while RPI includes them. For the average person housing costs are the biggest single item in their monthly spend and housing costs mostly increase more rapidly than all other expenditure**. That alone allows the government to report a lower price inflation rate than people are experiencing in their everyday lives. For example the cumulative increase in CPI from 1988 to 2019 is 130 % while the cumulative increase in RPI for the same period is 180 %. It should be noted that the difference in the UK is not as big as in the USA because RPI was also manipulated in the same way as CPI during that period. The US comparison is between manipulated figures and unmanipulated figures. They also changed the basis for pension increases from RPI to CPI*** so it also means that pensions do not keep pace with real price inflation.

Warwick

* Some economists do disagree on the validity of the Shadow Stats figures. They don't criticise the calculation as such but believe that substitution and discounting for higher performance is more valid.

** Energy might have higher price inflation in times of crisis but it is in both indices.

*** To be fair the UK State Pension now has what is known as the triple lock in which it is increased by the higher of earnings growth, CPI or 2.5 %. Going back to before the Thatcher era, UK State Pensions were increased in line with earnings growth but Thatcher altered that to RPI. Over a long period of time accumulated earnings growth was bigger than RPI so pension incomes were slipping backwards relative to workers incomes. The amount each year was small but the accumulated effect became large. The triple lock was introduced in 2011 to try to reverse the impoverishment of pensioners but many private/company schemes changed their increases from RPI to CPI without the triple lock so pensioners on these schemes are worse off. Whether they could do this depended on the wording of the rules of the pension scheme. If the rules explicitly stated that increases would be based on RPI then they had to maintain that. If, however, the rules stated that the increase would be based on "official rates of increase" then they could use the change in State Pensions to justify a switch to CPI. I have three company pensions and they all switched to CPI.


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