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This topic contains 9 replies, has 5 voices, and was last updated by Profile photo of Chopera Chopera 5 years, 6 months ago.

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  • #56223
    Profile photo of Anonymous
    Anonymous
    Participant

    Stephen King, the other one, has written a thoughtful piece in the Independent, pointing out that the Eurozone is lucky not to have the UK as a member.

    http://www.independent.co.uk/news/business/comment/stephen-king/stephen-king-the-uks-monetary-independence-is-a-blessing-for-the-eurozone-2284765.html

    I thought, ‘what a cheek’ while reading it, and felt sad after I finished reading.

    The cheeky sod compared us to the PIGS.

  • #104532
    Profile photo of Chopera
    Chopera
    Participant

    @Rocker wrote:

    Stephen King, the other one, has written a thoughtful piece in the Independent, pointing out that the Eurozone is lucky not to have the UK as a member.

    http://www.independent.co.uk/news/business/comment/stephen-king/stephen-king-the-uks-monetary-independence-is-a-blessing-for-the-eurozone-2284765.html

    I thought, ‘what a cheek’ while reading it, and felt sad after I finished reading.

    The cheeky sod compared us to the PIGS.

    He is correct – if the UK had adopted the euro in 2002 then interest rates in the UK would have been much lower than they were and the boom/bust would have been even bigger. The UK would be like Ireland now. It’s just a bit pathetic that the euro-worshipping Indy can’t admit this directly. Instead of admitting that they were wrong and it would have been a disaster for the UK to have joined the euro they twist it round and say that it’s a blessing for the eurozone that the UK didn’t join.

    However the article makes a very good point that devaluing the pound has not really helped rebalance the UK economy away from credit driven consumerism and towards export driven production (Jeremy Warner made the same point in the Telegraph a few months ago). Devaluing your currency only helps the exports of raw materials, or products derived from raw materials that are sourced in the same currency (usually from the same country). These days the UK manufacturers have to import most of their materials before they can add value to them and then export them, so devaluing the currency doesn’t particularly help many exporters.

  • #104534
    Profile photo of peterhun
    peterhun
    Participant

    @chopera wrote:

    Devaluing your currency only helps the exports of raw materials, or products derived from raw materials that are sourced in the same currency (usually from the same country). These days the UK manufacturers have to import most of their materials before they can add value to them and then export them, so devaluing the currency doesn’t particularly help many exporters.

    Thats wrong. Manufacturing add far more value that raw materials could. The reason why the Uk hasn’t had an export recovery is that its takes at least two years of lower exchange rates before export manufacturers gear with new investment. And the Pound has recovered much of its value agianst the US dollar, where a very large part of the FTSE100’s income is derived.

  • #104539
    Profile photo of Chopera
    Chopera
    Participant

    @peterhun wrote:

    Thats wrong. Manufacturing add far more value that raw materials could.

    My point is that if you import something (doesn’t have to be raw material) do something to it to add value to it and then export it, then to cost-benefit from a devalued currency the cost of the thing you imported has to be significantly less than the cost of adding value to it. I have no idea of what the figures actually are in the UK, but if for example you are making a car but import things like the engine management box, the suspension system components, the engine, etc, etc then I doubt if the cost of those components is significantly less than the cost of putting them together.

    @peterhun wrote:

    The reason why the Uk hasn’t had an export recovery is that its takes at least two years of lower exchange rates before export manufacturers gear with new investment. And the Pound has recovered much of its value agianst the US dollar, where a very large part of the FTSE100’s income is derived.

    The UKs main export market is the eurozone, and the pound is still low against the euro. However I guess if we still use the car example above then the car assembler might eventually look to source components from the same country rather than import them, so there will eventually be a knock-on effect that will benefit manufacturing.

  • #104542
    Profile photo of peterhun
    peterhun
    Participant

    @chopera wrote:

    My point is that if you import something (doesn’t have to be raw material) do something to it to add value to it and then export it, then to cost-benefit from a devalued currency the cost of the thing you imported has to be significantly less than the cost of adding value to it. I have no idea of what the figures actually are in the UK, but if for example you are making a car but import things like the engine management box, the suspension system components, the engine, etc, etc then I doubt if the cost of those components is significantly less than the cost of putting them together.

    Bad example as all those components will be made in the UK.

    The raw material cost in manufactured good is a small percentage of the raw material cost. The ‘putting them together‘ cost is the design, development, machining, testing and supporting of products and its worth far more that a bunch of metal. Hence, lower exchange rates results in higher GBP profits – which is exactly what history and economics tells us.

    For example, scrap value of a aircraft carrier, about £60K. Buying it new would cost £500million. Scrap Harrier aircraft, £10k, new £40million. The difference is the ‘putting them together‘ cost .

    @chopera wrote:

    The UKs main export market is the eurozone, and the pound is still low against the euro. However I guess if we still use the car example above then the car assembler might eventually look to source components from the same country rather than import them, so there will eventually be a knock-on effect that will benefit manufacturing.

    Outside the EU, and even inside it, prices are quoted in USD. Weapons and Aircraft for example (two of UK biggest exports). Which is why the FTSE100 companies have over 50% of their income in USD and why the FTSE-100 rises when the pound falls.

  • #104543
    Profile photo of Anonymous
    Anonymous
    Participant

    Over the past three years, the pound Sterling has lost 30% of its value against the Euro and slightly less against the Dollar, an intentional policy by the BoE to boost our exports.

    It may have been the correct policy, but it relies on heavier borrowing to balance the books, and it’s the borrowing disaster that haunts us, leading to articles like the one i quoted.

    I didn’t know the Independent was a particularly pro-European newspaper, but living abroad I tend to concentrate on foreign newspapers more relevant to my (short-term) fortunes. The Telegraph is obviously Eurosceptic, as is Der Spiegel, from a German perspective, but El Pais and the Times appear more balanced.

    As an aside, I remember, not so many years ago, when the pound bought 8DMs and the same in Dollars. It is an aside, because at those rates we wouldn’t have any exports, no matter where we wanted to export to. I saw a graph concerning the fall of the pound recently and it wasn’t far from disappearing off the page.

  • #104545
    Profile photo of katy
    katy
    Spectator

    Uk,s largest exports are pharmaceticals and petroleum products. The country which buys the most from the UK is the USA.

  • #104547
    Profile photo of Anonymous
    Anonymous
    Participant

    Katy:
    Do a google search & you’ll find that whilst the USA is the largest single importer from the UK, the EU as a whole imports considerably more from the UK.

  • #104549
    Profile photo of katy
    katy
    Spectator

    I know that but only because a lot of countries are grouped as one. Europe is not a nation….is it 🙂

  • #104550
    Profile photo of Chopera
    Chopera
    Participant

    @peterhun wrote:

    @chopera wrote:
    My point is that if you import something (doesn’t have to be raw material) do something to it to add value to it and then export it, then to cost-benefit from a devalued currency the cost of the thing you imported has to be significantly less than the cost of adding value to it. I have no idea of what the figures actually are in the UK, but if for example you are making a car but import things like the engine management box, the suspension system components, the engine, etc, etc then I doubt if the cost of those components is significantly less than the cost of putting them together.

    Bad example as all those components will be made in the UK.

    Of course they won’t. A company such as Bosch that makes engine management systems will not have a factory making its systems in every country where it has a client. They will ship them in from somewhere. Even if it did have factories all over the place, the sub-components such as the chips that go into its engine management systems will be sourced from various companies elsewhere. We live in a globalised economy. The notion that all the components that go into a car are built in the same place along with all the sub-components went out the window years ago.

    @peterhun wrote:

    @chopera wrote:

    The raw material cost in manufactured good is a small percentage of the raw material cost. The ‘putting them together‘ cost is the design, development, machining, testing and supporting of products and its worth far more that a bunch of metal. Hence, lower exchange rates results in higher GBP profits – which is exactly what history and economics tells us.

    For example, scrap value of a aircraft carrier, about £60K. Buying it new would cost £500million. Scrap Harrier aircraft, £10k, new £40million. The difference is the ‘putting them together‘ cost .

    I’m compairing the imported goods costs, not just the raw materials. The imported goods don’t have to be raw materials, they can (and nearly always are) sub-components built elsewhere that have already added considerable value to the raw materials.

    If you don’t like the car example then consider a computer “built” in the UK. The chips get imported from all over the place, the raw material value is negligible (as you say above) but those chips have a significant additional cost because they have to be built somewhere else before they are imported. Devaluing your currency will increase those import costs.

    @chopera wrote:

    The UKs main export market is the eurozone, and the pound is still low against the euro. However I guess if we still use the car example above then the car assembler might eventually look to source components from the same country rather than import them, so there will eventually be a knock-on effect that will benefit manufacturing.

    Outside the EU, and even inside it, prices are quoted in USD. Weapons and Aircraft for example (two of UK biggest exports). Which is why the FTSE100 companies have over 50% of their income in USD and why the FTSE-100 rises when the pound falls.[/quote]

    I repeat, the UK’s main export market is the eurozone, where most business is done in euros. But even if they did decide to use US dollars instead it wouldn’t make any difference. Sure the pound has strengthened a bit against the dollar, but so has the euro. Currencies are ultimately a zero sum game – they are measured in terms of each other and can’t all go up in value at the same time. And you can’t have a situation where the pound is steadily rising against the dollar, which in turn is rising against the euro, which in turn is rising against the pound. Well if you can then I’d really like to know about it.

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