Britain\’s spending cuts have been branded as \”absolutely insane\” by one of the world\’s leading currency traders, who expects the pound to tumble beyond the low it has set this year.
As we know, fiscal contraction in a recession isn\’t being very Keynesian. However, there is another potential driver of growth: the external balance.
If the pound declines we raise the costs of imports, thus stimulating domestic demand for domestic production and we also lower the costs of our exports to others: thus stimulating domestic demand via exports.
We have thus stimulated domestic demand without continuing to throw vast gobs of cash at the public sector. So it\’s rather nice that the £ will be falling, isn\’t it?
Hey, it worked for us in 1931….one of the lessons of the 1930s that all too few seem to want to recall.
So we will spend more time sending useful goods and services abroad in return for bits of paper? Isn’t this highly undesirable?
Tell me that it is this straighjtforward:
Isn’t ignoring the deficit, causing gilt yield demands to shoot up and thus a corresponding spike in interest rates going to fuck the economy far worse than some short term decrease in state demand?
“If the pound declines we raise the costs of imports,” … that’s the same as wage cut, which is a bad thing – just thought I’d remind you.
Yes it is a wage cut but one that wage earners don’t notice as the amount that goes into the bank each month is the same, it just the price of imports which goes up. The only alternative is a wage cut which is what eurozone countries must do to improve thier competitiveness.
wage cuts aren’t necessarily bad for the economy. Germany has managed to build a very efficient export economy based on wage restraint over a decade.