Sterling Crisis Looms as U.K. Unraveling Points to Budget Cuts

baileysbattlebus

Can someone explain to me what is the difference between the run on sterling last year and this year, when sterling almost reached parity with the euro and was sub $1.30, and a sterling crisis? I thought that was viewed as not an entirely bad thing - as it reduced epxort costs etc

I thought we had a "free" currency unlike the 1970's and 1990's - we must already have seen falls that were equivalent to 1970's when the £ went from $2.40 to $1.60, we have seen falls from $2 to $1.26 or something similar and back to $1.65.

Is our government debt any worse than any other - given the fact it will never be paid back - by any government - it will just be paid down and rolled over. And, yes, I've read the differing views on the size of government debt vs other countries government debt.

Are we the only country who will have to implement tax increases and reduce public spending - I would have thought that most countries in the western world would, at some point have to do the same - or are we unique in this?

So can someone explain why it is going to be so much worse here than anywhere else?

mbga9pgf

Is our government debt any worse than any other - given the fact it will never be paid back - by any government - it will just be paid down and rolled over. And, yes, I've read the differing views on the size of government debt vs other countries government debt.

Are we the only country who will have to implement tax increases and reduce public spending - I would have thought that most countries in the western world would, at some point have to do the same - or are we unique in this?

So can someone explain why it is going to be so much worse here than anywhere else?

Because we also have mind-blowingly huge personal debt to go with it, which will make rising taxes and public sector cuts all that more painful. Its all inextricably linked; pay off more debt, the banks are going to see rising losses on unsecured lending. Dont rise taxes and cut, face a bond strike...

https://www.creditaction.org.uk

Total UK personal debt

Total UK personal debt at the end of May 2009 stood at £1,459bn. This has slowed further to 1.4% in the last 12 months which equates to an increase of ~ £17.9bn (the increase was ~£116bn in January 2008).
Total secured lending on dwellings at the end of May 2009 stood at £1,226bn. This has slowed further by 0.2% to 1.3% in the last 12 months.
Total consumer credit lending to individuals at the end of May 2009 was £233bn. This has continued to fall to 2.3% in the last 12 months.
Total lending in May 2009 grew by £0.6bn; secured lending grew by £0.3bn in the month; consumer credit lending grew by £0.3bn (total lending in January 2008 grew by £8.4bn).
Average household debt in the UK is ~ £9,305 (excluding mortgages). This figure increases to £21,640 if the average is based on the number of households who actually have some form of unsecured loan.
Average household debt in the UK is ~ £58,360 (including mortgages).
If you add to this the 2009 budget figure for public sector net debt (PSND) expected in 2013-14 then this figure rises to £116,200 per household.
Average owed by every UK adult is ~ £30,480 (including mortgages)

kennyboy66_2

baileysbattlebus wrote: »

Can someone explain to me what is the difference between the run on sterling last year and this year, when sterling almost reached parity with the euro and was sub $1.30, and a sterling crisis? I thought that was viewed as not an entirely bad thing - as it reduced epxort costs etc

I thought we had a "free" currency unlike the 1970's and 1990's - we must already have seen falls that were equivalent to 1970's when the £ went from $2.40 to $1.60, we have seen falls from $2 to $1.26 or something similar and back to $1.65.

Is our government debt any worse than any other - given the fact it will never be paid back - by any government - it will just be paid down and rolled over. And, yes, I've read the differing views on the size of government debt vs other countries government debt.

Are we the only country who will have to implement tax increases and reduce public spending - I would have thought that most countries in the western world would, at some point have to do the same - or are we unique in this?

So can someone explain why it is going to be so much worse here than anywhere else?

It wasn't sub 1.30 v USD, it briefly went below $1.40.

The $2.40 crash you are thinking about was from Jan 1981 ($2.40) to Feb 1985 ($1.07).

A decline of 55% in 4 years.

How's it going to be worse here ?
Don't know, the Eurozone and USA have similar problems, similar magnitude.

You could argue that we have a "political risk" - with a year of paralysis before the election.
How can Gordon Brown cut spending either before or after the election ?
I don't believe Labour has the political will.

Wookster

I think this is a very real risk. The UK has maintained a large trade deficit for many many years now. It is just unsustainable and must unwind at some point.

Andrew64

We'll know the Pound is up the creek when Gordon appears on TV to talk about the Pound in our pockets and to assure us that there's no crisis!

purch

I thought we had a "free" currency unlike the 1970's and 1990's

We have had a 'free floating' currency for many years.

The problems of the late 80's were due to Fatty Lawson's pathetic attempts to shadow the DEM, which led to us cutting interest rates at the wrong time, and was part of the catalyst to the property boom that followed, and the problem in 1992 was again due to Major's Government trying to shadow the ERM, and hold GBP at an unrealistic level.

what is the difference between the run on sterling last year and this year, when sterling almost reached parity with the euro and was sub $1.30, and a sterling crisis?

I don't think either event could be called a "run" on Sterling.

purch

Well he's written a book, must be true then

Well, it was a pretty good book.

ruggedtoast

I think it would cost the government a lot more to issue debt as the yields offered on bonds would have to be proportionately bigger. I imagine it would also be pretty disastrous if we have debt in foreign currencies that we have to pay back.

baileysbattlebus

purch wrote: »

We have had a 'free floating' currency for many years.

The problems of the late 80's were due to Fatty Lawson's pathetic attempts to shadow the DEM, which led to us cutting interest rates at the wrong time, and was part of the catalyst to the property boom that followed, and the problem in 1992 was again due to Major's Government trying to shadow the ERM, and hold GBP at an unrealistic level.



I don't think either event could be called a "run" on Sterling.

I called what happened last year a "run" on sterling - because that was what the news media were calling it.

If a currency loses 25% of it's value is that a run? If not how much would it have to lose in value for it to become a run?

I'm not being funny - I don't know myself and I am interested.

StevieJ

baileysbattlebus wrote: »

I called what happened last year a "run" on sterling - because that was what the news media were calling it.

If a currency loses 25% of it's value is that a run? If not how much would it have to lose in value for it to become a run?

I'm not being funny - I don't know myself and I am interested.

I think a run would be where the govt don't want it to happen e.g. Lamont in the early 90's where he kept increasing interest rates to fight it. In the recent case it was the opposite as the effects were beneficial and welcomed by the govt..