Where to put my money now that £ is tanking?

Charles1968

gozomark wrote: »

one risk is quantitative easing

in my mind an even bigger risk is not quantitative easing

yes, central banks will need to very very careful in reversing it, and also in the timing of their other monetary and fiscal tightening, but lets solve the definite current problem rather than the future possible problem. The US and UK are doing this - there is a real risk the ECB is way behind the curve (partly due to their mandate)

I think you're mixing up the UK's problems with savers' problems here. They aren't exactly the same. QE might well be the best option for the UK economy given the mess it's in, but it's bad for savers because it devalues our currency.

gozomark

QE doesn't necessarily devalue the currency. QE is required because the velocity of money supply is shrinking, so money supply needs to be pumped up to compensate. As long as the QE is reined in when the velocity starts to rise again, then there needn't be inflation and/or currency devaluation

gozomark

Europe will eventually follow the QE of US and UK, but with a lag, and that lag could cause massive problems for some European countries, and may mean they have do do even more QE than the UK and Europe. As such, I'd expect £ to rise against the € over the next 2-3 years

neil324

gozomark wrote: »

Europe will eventually follow the QE of US and UK, but with a lag, and that lag could cause massive problems for some European countries, and may mean they have do do even more QE than the UK and Europe. As such, I'd expect £ to rise against the € over the next 2-3 years

I agree, their in the denial stage. Pound will rally agaisnt the Euro in 2009 i think.

tradetime

Charles1968 wrote: »

inflation is what happens later. In the meantime quantitative easing will cause sterling to dive because investors will pull out of sterling. So two stages to sterling's future devaluation: (1) run on sterling as QE begins and investors' fears are confirmed; (2) inflation soars a year or two after, devaluing sterling by an as yet unknown amount.

Ok, that doesn't constitute a definition of inflation, but not to worry. Just to clear some things up. The US$ is the worlds reserve currency, not one of them, but the one. So yes, that may protect it to a major degree, rather depends on whether another currency can take the mantle, I don't think another is up to the task yet, but dollar debasement will certainly have people looking.

Going back to inflation, it is an increase in velocity and volume of money and credit relative to goods and services. Ergo all other things being equal if you print money you create inflation, the side effect of that will be rising prices and thus the devaluing of your currency, thus you cannot separate the concepts, cause and effect, as you are trying to do. Currently we are experiencing deflation, that is a massive contraction in velocity and volume of money and credit, you can see that all around you, in housing markets, stock markets, commodities markets, trillions have just disappeared, wiped off the balance sheets, it's across the board, pounds, dollars, euros, any currency you care to mention is shrinking, quantitative easing is an opposing effort to counteract this, getting the balance right and sterilizing it afterwards will be the challenge.

In the meantime as you single pound and dollar out, since this is a global market place what do you suppose everybody else is going to do? The UK and US are large consumer markets, do you think exporter nations will stand idly by while they debase their currency to a level where those exporting economies can no longer export to them? I somehow doubt that. What you are more likely to see is a competitive devaluation emerge.

Charles1968

tradetime wrote: »

Ok, that doesn't constitute a definition of inflation, but not to worry.

I wasn't trying to define inflation. My point was that it is not synonymous with quantitative easing, which you'd implied above. One can cause the other, but they aren't the same thing.

tradetime wrote: »

Just to clear some things up. The US$ is the worlds reserve currency, not one of them, but the one.

No, it's one of them.
http://en.wikipedia.org/wiki/Reserve_currency

tradetime wrote: »

if you print money you create inflation, the side effect of that will be rising prices and thus the devaluing of your currency.

Not if you're trying to fill a black hole caused by a credit crunch. In the short term any increase in the money supply will disappear as banks and other financial institutions hoard cash and deleverage. Once the black hole has been filled, further increase in the money supply should in theory counteract deflation. But it won't cause positive inflation just yet.

tradetime wrote: »

In the meantime as you single pound and dollar out, since this is a global market place what do you suppose everybody else is going to do? The UK and US are large consumer markets, do you think exporter nations will stand idly by while they debase their currency to a level where those exporting economies can no longer export to them? I somehow doubt that. What you are more likely to see is a competitive devaluation emerge.

that's speculative. At the moment we know for sure that the UK and US have record levels of debt and are being hit by delfation faster than any other major economies. That's is scaring the wits out of the central banks. No country has ever experienced deflation with such levels of debt to my knowledge. The combination is lethal. Hence quantitative easing is much more likely to happen in these countries.

Charles1968

gozomark wrote: »

QE doesn't necessarily devalue the currency. QE is required because the velocity of money supply is shrinking, so money supply needs to be pumped up to compensate. As long as the QE is reined in when the velocity starts to rise again, then there needn't be inflation and/or currency devaluation

the problem is getting the balance right. It can't be done. Hence the danger of runaway inflation further down the line.

If you stay in sterling until that happens, it will be far to late to get out. Better to take evasive action during the deflationary stage or before.

tradetime

Charles1968 wrote: »

No, it's one of them.
http://en.wikipedia.org/wiki/Reserve_currency

Fair comment, a mis-understanding due to common expression, the US$ is commonly referred to as "the world's reserve currency" denoting the fact that it is the Primary reserve currency of the world, as your link denotes Sterling is the third most widely held. I was simply responding to what seemed to me to be your implication that the Sterling was of no significance in the world stage, but I acknowledge my comment as stated was factually incorrect.

Charles1968 wrote: »

I wasn't trying to define inflation. My point was that it is not synonymous with quantitative easing, which you'd implied above. One can cause the other, but they aren't the same thing.

No sorry, it may have seemed like that was what I was trying to imply, in fact what I was actually implying was that if you fear a significant permanent fall in the value of the currency then it will be tied in with inflation. The true value of a currency is not in whether it is stronger than X or weaker than Y at some point in time, but its purchasing power, everything else is just noise caused by speculation. I would have assumed my subsequent post cleared that up, but I see you quoted it out of context, so likely you would not have seen that.
Let me put it back in context,

tradetime wrote: »

Going back to inflation, it is an increase in velocity and volume of money and credit relative to goods and services. Ergo all other things being equal if you print money you create inflation, .

All other things are not equal, we are in a significant deflationary environment, credit is being destroyed as fast as it is being created and velocity is at a standstill, thus quantitative easing will not produce inflation until this is overcome, nor will it significantly devalue the currency. As you acknowledge here

Charles1968 wrote: »

Not if you're trying to fill a black hole caused by a credit crunch. In the short term any increase in the money supply will disappear as banks and other financial institutions hoard cash and deleverage. Once the black hole has been filled, further increase in the money supply should in theory counteract deflation. But it won't cause positive inflation just yet.

So, if what you are concerned about is a permanent devaluation of the currency, then it will be a result of quantitative easing gone too far, a permanent devaluation in the pound will come hand in hand with inflation, which brings us full circle to my earlier comment, rather that speculate on who may end up devaluing their currency and who does not, why not shelter your money from inflation since that will be the end result of a permanently devalued currency.

Charles1968 wrote: »

that's speculative. At the moment we know for sure that the UK and US have record levels of debt and are being hit by deflation faster than any other major economies. That's is scaring the wits out of the central banks. No country has ever experienced deflation with such levels of debt to my knowledge. The combination is lethal. Hence quantitative easing is much more likely to happen in these countries.

The whole discussion is speculative at the moment, since we are in uncharted waters no-one posting here has really any better idea than anyone else where it will lead. I do incidentally agree, given a choice I would not be a debtor nation in the current environment.

My take on currencies:
US Dollar, Ben Bernanke openly has stated in the current environment he favours a weaker dollar
Japanese Yen, current strength due to unwinding of the carry trade. Proven interventionist government that favours weaker currency.
Chinese Yuan, proven interventionist government that favours a weaker currency
Euro, barely 10 years old, a collection of economies who are, as this crisis unfolds demonstrating that they are not best suited to share a common currency.
Swiss Franc, one move from zero % interest rates

Charles1968

which just leaves shiny metals that earn no interest..

jon3001

Charles1968 wrote: »

which just leaves shiny metals that earn no interest..

Yes... my precious...