Interesting Links for 18-01-2013

[andrewducker]

• Mobile operator 3 are censoring political satire as if it was porn.
  (tags: censorship uk phones )
• Some impressive tech came out of this year's CES. I'd like to try at least four of these.
  (tags: technology thefuture )
• How do you manage geeks? (It turns out, a lot like, well, everyone else.)
  (tags: geeks management )
• Dysaethesia Aethiopica -

Comments

[philmophlegm]

Sterling is probably artifically high at the moment anyway because we have a central bank willing to buy bonds and also that the UK has been seen since 2010 (for political reasons) as a safe haven. However, since those political reasons were all about belief that the UK had a government that would bring some sense to public expenditure (i.e. reduce it), and that has singularly failed to happen, the UK's debt situation is a) one of the worst of the major economies and b) not likely to get better for the forseeable future, especially with the wrong election result in 2015.

And let's not forget a) quantitative easing and b) a trade deficit.

Accordingly, I would expect the markets to adjust and for Sterling to fall to a more appropriate level against the Dollar and the Euro.

So is this good or bad?

Potentially good - help for exporters certainly (although I 100% agree with danieldwilliam that there is a significant lag on this effect) and for industries like tourism, such that the trade deficit should decrease. Inflationary pressures because imports were more expensive - yes, and so people might be complaining about food prices and having to holiday in Cornwall instead of the Algarve this year. On the other hand, inflation would reduce the real value of the national debt.

And that would be the key concern - the national debt. It is true that most of the UK national debt is denominated in Sterling and is not linked to inflation. (There is some foreign-denominated debt and some index-linked bonds, but most of our national debt is denominated in Sterling.) Inflate and you reduce the real value of that debt.

However, if the real value of that debt and future borrowing (needed for the foreseeable future because of our frankly enormous budget deficit) is reduced, then investors are less likely to want to buy UK government debt at low interest rates. So, new government debt has to be financed at higher interest rates to make it more attractive. This means that not only does government expenditure increase again (because of higher interest charges, already a massive proportion of government spending), but domestic interest rates rise making it harder for the private sector to invest - a classic example of what economists call 'crowding out'.

In the end, the UK's economic situation for the foreseeable future comes down to the debt and the budget deficit. I'm only 40 years old. In my lifetime I can remember a time when the government seriously talked about a timetable to pay off the entire national debt. Now, it is difficult to imagine the annual budget deficit getting down to zero, let alone into surplus for long enough to pay off the national debt.