The Bank of England can’t just go on doing down the pound

Devaluation has now become an end in itself at the Bank of England – but it’s no panacea and we risk a lost decade like Japan

When the banking crisis erupted, it was fashionable to dismiss as alarmist suggestions that Britain and other advanced economies at the centre of the collapse could end up like Japan, condemned to decades of economic stagnation. The US and UK were structurally different, it was argued, and adaptable enough to avoid such an outcome.

hubristheviceoftherich: No, we are not over the worst. In fact, we have postponed the death of our economy by  five years as it has been kept artificially alive by QE. We are now preparing for its proper demise! It will give those foreign currencies who wish to give us a kick up the proverbial, great pleasure to do so. That appointment with time is fast approaching. Mervyn King et al, etc., require medical help as they have proved themselves insanely delusional. Incredibly, we may even have to morph into fuller  EU participation as a result  of the inevitable stupidity of our increasingly helpless situation. Angela Merkel and Cameron know this, I think only too well. We have been betrayed.

smartrrrs: You lay the fault at "Mervyn King et al"'s feet, but what about the spending, debt, pension raids, immigration and tax cheating of the years 1997 - 2010? Only three years and already the electorate has forgotten. Labour should be banished into the political wilderness for 100 years for the carnage they inflicted on Britain. They can't be trusted to run a toy post office, let alone a country. Labour vandalised this country. Do you honestly believe they can be trusted to rebuild it? Blair bankrupted the country morally and Brown  (aided and abetted by Balls) bankrupted it financially. I wouldn't trust them to build a house with Lego bricks  (even with the step by step instructions).       Miliband's  shadow cabinet is made up of a bunch of losers and no hopers  who are a constant reminder of the catastrophic failure of labour  when in power. 

dalai guevara: No we have not forgotten - but that won't help now, blaming the past and not dealing with the future. What we do not need is more smartrrrses stating the obvious, what we need is some cleverrrrses dealing with the issues that we face today. The current set can be discounted from being rated as a viable option of any kind.

kingcanute: You mean like the 'smart-arses' among the 40% who would vote NuCommunist back into power ?

smartrrrs: "The current set can be discounted from being rated as a viable option of any kind." Really? * If nominal interest rates rise, house prices will collapse, most mortgages will become un-payable, and this will cause the collapse of all UK banks, something that nearly happened in 2008. * If nominal interest rates rise, interest payments on the enormous private debt will balloon, and similarly for the fairly large public debt. * If nominal interest rates rise, the pound will strengthen, causing exports to be even more difficult. In order to keep nominal interest rates low the present government has chosen many years of recession as their strategy, because recession keeps down imports of oil and allows nominal interest rates to be low without triggering higher inflation, which is already running fairly high because of the higher cost of imports. If nominal interest rates go up, and the housing market falls, causing the collapse of the UK financial systems, the UK will be in an situation similar to Ireland or Lithuania, with a very sharp, long depression, instead of a milder, longer recession. Those are the issues we face today. Care to retort?

dalai guevara: smartrrrs 1- 'if nominal interest rates rise' - of course, what you state is all true - but who said QE would prevent that? QE essentially fuels inflation, and with low interest rates, the discrepancy between the two creates the next little gambling bubble right in front of our eyes. But we do not need yet another gambling bubble - the gambling markets MUST be separated (eventually) from retail. Inflation vs low interest rates ought not to drift apart further. Are the current outfit really working on that? 2- sterling devaluation (what we are witnessing now): in an economy that imports far more than it produces, this will lead to two things in the short and medium term. A- further inflation (for sure) but not necessarily to higher exports, as the latter will also be driven by that inflation and are inelastic. B- no curtailing of the only artificial wealth base that currently fuels the entire thing: one-sided artificially high property prices which shut out the next generation from the wealth creation game, as all their funds will go towards servicing that economy, which isn't really one. Are the current outfit really working on that? 3- What needs to happen: A- house prices need to come down B- gambling banks need to be muzzled. The law needs to be observed to apply, like with any other 'rigging' of other parts of the economy. C- competitiveness needs to increase D- 'growth' as a mantra needs to be moved to the back burner; it is the *trade deficit* that matters most, so opportunities to generate that higher economic output whilst reducing imports are essential. Local energy production (like the North Sea reserves in the past) would help. E- unnecessary and inefficient pet projects like high subsidies to nuclear and Trident need to be phased out. Are the current outfit really working on that?

smartrrrs: @dalai guevera   -  - -  Revolution! Get the pitch forks out! I'm kidding, sort of. What you're saying, I think, are very valid points. We would be all better off with normal (to average salaries) house prices, separate deposit and investment/gambling banks, less overspending on vanity projects and white elephants, more democratic government. A government not instructed by multinational corporations, the EU and other vested interests and one interested in; Massive cuts in public sector pensions Massive cuts in public sector payroll Redirection of foreign aid to rebuilding UK manufacturing Tight border controls and clampdown on health and benefits tourism Renegotiation of EU membership with no net contributions from UK Sterling is weak but to say it's devaluing is a bit strong. The USD is strengthening, in my opinion. See gold and other commodities. Look to the Yen for more weakness. The US is tapping into its gas reserves and turning into a services economy, eventually the blue collar workers will retrain (or work in the gas fields). There is also some re-shoring going on. QE is rebuilding the banks' balance sheets via lending to the government. The BofE is lending the most money and can write it off with the touch of a key. I don't see it being used to buy food and I think the inflation within food is coming from Asia. I was in New Zealand last month and was buying lovely fish and chips for £2.50 and the most amazing beef and lamb steaks for under £2 each. All grown locally. Of course NZ only has 4m people, which is probably the  World's biggest problem overall.  Back to your question :What are this lot doing? Employment figures just released by the Office for National Statistics, for the period from October to December 2012, show the largest annual rise in employment in over two decades. Twenty more cities have been given the green light to bid for increased autonomy to shape their economic growth. For the first time ever, the UK has topped KPMG’s league of best countries to do business, ahead of Switzerland, the USA and France.  Is it enough? Hell no.

IanRutherford: grow up madam.

hubristheviceoftherich: You are correct and the Blair/Brown years are not forgotten or forgiven.

smartrrrs: I don't think King is without blame, but the bank's mandate was to keep inflation under control and that figure didn't need to include housing.  Who was King to say "About everyone making large amounts of money on their homes and spending it in the shops… a bit rum, isn't it?"  I don't like Merv, I think he's an egotistical prat and should've been let go years ago, but all he was doing was his job and nothing more. He did actually murmur, in 2004, that UK house prices had risen "to levels which are well above what most people would regard as sustainable in the longer term", but no one was listening as they thought he and Greenspan were some kind of demi-Gods.

cerberus: smartrrrs Never was a truer word spoken. That the Labour Party can ever be allowed to stand in an election again after the Thirteen Years of Raving Lunacy is a stunning indictment of our flawed system of democratic government. Not only did Labour irrevocably tear the very heart out of this country but it was done fully intentionally with malice of forethought, a process which the spineless wet Mr Camermoron and his worthless crew clearly have no intention of reversing. Not only should Labour have been barred from ever standing in an election again but the whole of Anthony Bliar's rotten crew should be doing time for their misdeeds. None of this was unintended. Frankfurt School cultural marxist doctrine calls for the long march through the institutions laying waste to everything decent and well proven in order eventually to provoke a bloody revolution that will provide organised revolutionary socialists (communists) with the opportunity they crave to take power. All three wings of the LibLabCON party are clearly committed to cultural marxism and all that goes with it.

hillbilly: May I suggest you track down and read a book called "The end of work" by Rifkin.  The problem we are in has been brewing since WWII

barncactus: An enduring, if not endearing, feature of the UK electorate is that it cannot remember a fact for more than six months. I propose a replacement for Harold Wilson's 'A week is a long time in politics', namely: 'Amnesia strikes in six short months in British politics'.  And what size of disaster would be needed for the mass of people to be unhappy enough to try to alter the power structure? Would they ever?

singapaul: Many never forget that they are dyed in the wool supporters of the political party their fathers voted for.

ffs200:  You're so right. My girlfriend has such socialist views it would make the Fabian society blush. Who does she vote for? - the Conservatives since her mum did! The lack of political savvy in this country is a joke.

tinker:  I agree, though what I've seen is the reverse - people with conservative and right wing principles…voting Labour or the Lib Dems. It's quite bizarre.

mjg: My father, said to be the last of the Christian Socialists, had five sons.  Two were staunchly Labour and two, the eldest and youngest, very Conservative.  The other was a Liberal, as was our politically active mother.  

kingcanute: I sadi above that the sheeple would meekly watch it all happen - they have in the past and they will again… All who haven't left, that is, but then, they aren't sheeple…!

slyblade: smartrrrs Well said sir, but the sad thing is, people will(in droves) vote them back in. You have to come to the conclusion that it is us the general public who are our own worst enemy. We seem never to learn from  our past mistakes. We lurch from  Tweedledum to Tweedledee then back again, in a never ending cycle of political ignorance and misplaced tribal loyalties. Just watch the result of the Eastleigh by-election, it will prove my point.  

Bohemian Grove: That bank bailout should have gone on roads, hospitals, the power grid and an aircraft carrier or two. We should have let the banks fail.

ricoos: Although yes in an idealogical world you are correct the simple fact of the matter is, that the Government HAD to bail the banks out, otherwise the domino effect would have turned the economy into a bloodbath and millions of people would have lost their jobs. Had for example you let HBOS go to the wall, then their creditors would have called in all of the loans due. Given the lack of credit available elsewhere, this would have meant multitudes of companies trying to come up with money they didn't have, which would have then had them calling in the recievers, those companies going down would have been likely to topple one or more other banks, then more companies would have gone down, all the while, all the employees of those companies and banks would have gone on the dole. Letting a bank the size of HBOS go down, without severe other means of funding in place for its debtors, would have led to financial Armageddon and would have put millions on the dole with the economy going into freefall. Do i like the bank bail outs? No, but whether you like it or not, they were an absolute neccessity

DJPainless: How much would the "liarbilities" have been without the usurious compound interest????

Bohemian Grove: Rubbish, the government would have acted as guarantor to those loans to business directly, instead of giving to the banks. The government would have inserted liquidity and all would have been fine along with a program of public sector works, such as mending our potholed roads. What's the sense in having a stagnant economy and borrowing (largely from the banks you've just bailed out, again!) for a large welfare bill!

Antiehypocrite: Unfortunately it is not quite that simple. If you let a major bank go you get another Lehman - these big banks have global connections - and when one goes it brings others down - and those others have connections so soon enough the whole financial system unravels. Governments have nowhere near the expertise to directly stand behind large banking obligations. What governments need to do when they bail out banks is: - wipe out bond holders - wipe out shareholders - claw back bonuses - jail and bankrupt corrupt executives - after nationalizing, recapitalize the banks - at a later date float them again