Saturday, February 21, 2009

UK£sterling vs Euro/Eurozone

In a way the devaluation of the £ sterling
is UK protectionism although as the devaluation
results from market reactions rather than from government
action, it is not proactive protectionism of the kind
that the Americans Chinese and some European nations
seem to be embarking upon.

The reaction of the £ to market forces
seems positive for the UK economy because
the devaluation will eventually force us to adjust to
the effects of previous personal and government
over borrowing and spending.

The easiest looking
path for over borrowers to follow is often that of
consolidating loans or borrowing more but eventually
that path comes to a dead end. A currency
devaluation on the other hand forces a different path
on the nation as the price of goods and services
imported from abroad with borrowed monies, eventually
increases so painfully as to deter their purchase.

At the same time the worth to the lenders of their
sterling loans decreases so the cost of borrowing
would begin to increase which in turn should
reduce indebtedness. This process will be delayed by
government still trying Canute-like to take the easiest but
dead end path. However eventually market forces will
force through the neccessary changes for rebalancing
the economy.

The Eurozone countries however are presently stuck with their rigid
system of currency value which may have been ideal before
the current global financial breakdowns but which now
seems too rigid and to have been overtaken by events.

The £ is reacting to financial breakdown events almost as they occur;
the Euro seems stuck in pre-financial breakdown times and
risks reacting far too late for some of its member states.

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