Alasdair Macleod: How not to manage a currency

By Alasdair Macleod
GoldMoney.com, St. Helier, Jersey, Channel Islands
Thursday, October 13, 2016

Make no mistake, sterling's collapse is a very serious development, and has serious consequences for sterling interest rates.

While it is becoming apparent that interest rates are going to have to rise possibly for all currencies on a one-year view, sterling's problems are the consequence of bad judgement, and perhaps intellectual arrogance on the part of the Bank of England's Monetary Policy Committee. The committee in turn is not and cannot be independent from the influence of Mark Carney, the bank's governor, who made the expensive error of intervening in the Remain campaign.

Many commentators are saying that sterling was overvalued, and the fall will stimulate exports. But value is wholly subjective and not formulaic, as the ivory-tower economists would have us believe. The idea of stimulating exports through lower currency rates overlooks the depressing effect of the transfer of wealth it triggers from ninety per cent plus of the population, in favour of foreigners and owners of export businesses. That is the point about stagflation. ...

It is a process that cannot continue indefinitely, because, as the adage goes, markets eventually reassert themselves. This adage is a summation of all that's wrong with monetary and financial collectivism, the inability of central planning to allocate capital resources as efficiently as free markets. Sooner or later, a mistake, changing circumstances, or a black swan event leads to a financial or currency crisis. This happens from time to time, and every time the lenders of last resort manage to save their carefully constructed artifices, they say there are lessons learned, and it won't happen again. Hubris. ...

... For the remainder of the commentary:

https://wealth.goldmoney.com/research/goldmoney-insights/how-not-to-mana...