What Happens If We All Devalue At Once?

[BBKing]

Musing on economies, I notice that Switzerland has started printing money, too, following in the footsteps of economic titans like Gordon Brown and Robert Mugabe.

The reason for this is that deflation is a Bad Thing, and devaluing your currency (by printing a lot more of it) prevents deflation, partly by keeping the value of imports high as well as the usual inflationary effect of giving everyone wads of crisp fivers to spend, which they hopefully won't spend abroad since it now doesn't buy them very much. Result: more poonds circulating round the UK, which generates inflation to counteract the deflationary effects of the economy going down the crapper and everyone cutting back on spending. When your interest rates are down near zero, this is basically all you can do - you've already made it pointless to save and (at least nominally) cost less to borrow.

You actually get more return from spending money on infrastructure rather than giving it to people, but we didn't have much in the way of infrastructure projects to spend it on*, plus there's all these bust banks, there's not a lot else we can do.

However, surely if everyone devalues, we're back where we started?

Incidentally, one thing Ireland would dearly like to do now is devalue, but they can't because they're in the Euro. This isn't going to be pleasant for them. Us being out of it, we can effectively print money, devalue first and fastest and hopefully steer clear of the deflation trap, which is a sod to get out of. This is all a bit hard on the parts of the world which can't, but there you go, there has to be a loser. No one (except British tabloid readers) currently wants their currency to appreciate in value, since that's a recipe for dropping into a deflationary spiral. This is the mirror world, where a strong currency weakens your economy.

* We are *really* lucky to have the Olympics. Seriously. We should probably be gold-plating the stadium, too, and inventing some new sports so we can build venues**. Indoor Zorbing, perhaps?

** People laughed at the Millennium Dome, remember? Now look at it.

[Osem]

I wonder if Prudent Gordon will emulate his visionary predecessor Harold Wilson:

"....It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued...."

[Angua]

Would hardly say this government is lacking infrastructure projects when our local college now has to work from temporary buildings for the foreseeable future, as the funding has been removed completely just at the point when the old buildings have been demolished in preparation for the new build. This is just one of several similar projects round the country which have had the plug pulled.

Infrastructure projects we could spend wads on right now:

1. High Speed 2. A new railway line from St Pancras to Glasgow and Edinburgh, capable of running those lovely TGV-esque Eurostar trains.
2. The new Forth Bridge. Stop haggling with John Swinney and just pay for the whole party, then use it as an example of how Scotland doesn't have the clout to go it alone outside of the UK.
3. A complete fibre-optic communications network for the whole country. It would cost billions, but that's still cheaper than a failing bank.

Any more for any more?

[LondonRoad]

Originally Posted by Chris

Infrastructure projects we could spend wads on right now:

1. High Speed 2. A new railway line from St Pancras to Glasgow and Edinburgh, capable of running those lovely TGV-esque Eurostar trains.
2. The new Forth Bridge. Stop haggling with John Swinney and just pay for the whole party, then use it as an example of how Scotland doesn't have the clout to go it alone outside of the UK.
3. A complete fibre-optic communications network for the whole country. It would cost billions, but that's still cheaper than a failing bank.

Any more for any more?

A local one- but I'd like to see an Extension to the Glasgow underground to include the East end where the new velodrome, indoor arena and commonwealth games village will be. It could even be extended to riverside west end and would be a legacy for future generations.

Not quite expensive as you think since there are disused railway tunnels all the way up London Road and past Celtic Park.

I'm sure most major British Cities have projects that could improve the transport infrastructure.

[Stuart]

Greater expansion of the London Underground south of the River..

[Raistlin]

Higher pay for public sector workers?

Gordon used out of control inflation as an excuse for keeping public sector pay low, perhaps now that he needs people to spend he should be putting more money in Civil Servants' pockets

[BBKing]

Would hardly say this government is lacking infrastructure projects

It's lacking what's called 'shovel ready' projects, which are just held up by financing. Of course, there are a number of projects held up because PFI is going the way of all flesh, so funding some of them properly would help, which is in fact sort of happening, but they can't face the fact that PFI only works if the Asians let you have lots of their savings cheap.

HS2, while a good idea, wouldn't turn a shovel over for probably ten years. The Olympics is half-built, Crossrail is just coming up at the right time. Outside London it would have been good if a certain Transport Secretary* hadn't scrapped all those tram projects in Liverpool, Leeds etc.

"....It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued...."

Or as Mrs. Thatcher said after the pound declined 54% against the dollar between 1980 and 1985 ($2.40 to $1.10, apparently).

...

It's only a currency crisis if it's doing something you don't want. In this case, we can make things better for ourselves regarding competitiveness and deflation risk by allowing the pound to devalue, so there isn't a crisis. There'll be a crisis if George Osborne is allowed anywhere near Number 11, of course, but he's a flake. Get Vince Cable in. man.

Anyone heard about the financial crisis in Canada? No, because it's doing about the best of the major economies right now. Their currency declined about 30% against the dollar, from just over parity to $1.28. No one flees to the Canadian dollar when they're scared, of course.

* Alistair Darling.