Once upon a time the country was obsessed with the balance of payments and now we're not. In this video I explain why.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
what you say is true…. but I am a bit more worried than you are.
As you observe, the deficit itself IS a problem in that it is telling us that we are producing less than we consume. It is signalling what a dire position our businesses are in…. and have been in for many years. You detail the shortcomings of UK business well in your video.
You suggest that this is not an immediate problem because those that sell stuff to us accumulate GBP balances and hold them either in cash, gilts or other investments (look who owns our industry). This is true……. until it isn’t!
Our suppliers are prepared to bill us in GBP and hold GBP assets because, historically, the UK has been a safe place to keep your money. This is largely due to confidence in the rule of law and efficient/pragmatic government over many, many years. Will this be the case in the future? Possibly, but with the UK’s reputation be trashed daily I fear that investors will become less willing to continue the accumulation of more GBP and cause a currency crisis . They do not necessarily to sell, just stop accumulating more.
Currencies behave like Wiley Coyote – they keep on running until they look down…. and then they plunge as trading becomes a game of “pass the parcel” until we reach a level where speculators are prepared to accumulate long positions again.
I fear that we are already in thin air and at some point we will look down.
OK – our risk appraisals differ!
Richard,
Thank you
Two points though
Firstly the UK has been seen as a ‘safe haven’ and not that fussy about who can deposit money or buy land and property here. Weer we to be more picky as to whose money we look after or what they can buy here, what then?
Secondly you talk about UK steel, clearly we recycle a lot of steel in the UK and should maximise our use of this and process it in the UK, BUT to what extent does it make environmental or economic sense to import raw materials for steel making when we could import the finished product made at the point where the ore/coal is mined? (And, yes there are significant issues involving the quality of some imports at the moment but that could be addressed)
We have been talking to still companies
They can make this steel
“not investing in manufacturing” – Kynaston”s “City of London” is interesting, particularly in the section just before WW1. Key ciriticsm: too much bank centralisation and…. not investing in UK manufacturing. (the focus was “trading”). The problem is + 110 years old.
it was Nixon ending Bretton Woods that moved the $ off gold and which then led to currencies trading against each other. Up to 1979 there was a “dollar premium” for exchanging £ into “something else”. I recall the Torygraph reporting cases of the middle class trying to smuggle money out of the country to buy houses in France – & getting it all confiscated by customs. The current ability to export money is based on an “Order in Council” which removed the dollar premium. Thatcher implemented it as an early “thank you” to those rich enough to buy a house in France. Of course it can be restored in an instant.
The £ rate against a basket of currencies is based mostly on confidence – that the UK & the Uk gov is a “going concern”. Doubts about that & system shocks (Brexit) lead to a worsening exchange rate. Events are coming down the track (Scotland, possibly Wales, certainly NI) which might shake that confidence further. I predict a great deal of turbulence. As for the UK gov of any stripe have any sort of industrial strategy: functionally incapable of producing such a thing.
“Everything was forever Until is was no more” – Alexi Yurchak – fall of the Sov U. I wonder what the book will be called covering the break up of the UK and the events that follow. It will not be pretty and the £ is likely to tak a real kicking..
Because Right wing extremists like the Tories create their own reality don’t they? Forget convention. Forget history.
If we don’t have to worry about it, the expensive American health providers and Russian oligarchs can get on with it unimpeded.
You’ve said yourself we are in a proto-fascist world. And you are right.
It doesn’t matter until the markets suddenly decide it does. As they did to Portugal, Italy, Greece etc fairly recently.
IF Scotland leaves the Union and Sterling Zone taking our oll reserves, fish stocks, exports out of the Sterling zone then the markets may suddenly decide that the rUK’s balance of payments matters because now it is worse and Sterling has been weakened by this.
Fortunately Sturgeon looks like being FM of Scotland for another 5 years so that prospect has receded. She has already put ‘recovering from the pandemic’ a very elastic measure, before any chance of IndyRef2. So breathe easy Sassenachs, sadly Scotland is going nowhere in the near future.
‘Once upon a time’ was the correct way to start this. All it needed was to end with ‘and they all lived happily ever after’.
An economy crippled to satisfy Tory political spite.
When does the UK take back control?