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When George Soros Broke the British Pound (2014)

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Re: When George Soros Broke the British Pound (2014)

#61

Post by nostrademons »

ClumsyPilot wrote: post #60
nostrademons wrote: post #31

Earlier quoted context omitted.

Market prices for currencies reflect what you can buy with them. If a country's economy is strong, they're exporting a lot of things that the world wants to buy from them, and the world wants to invest in a bunch in a number of securities denominated in their currency, the currency will be strong. If the country's economy weakens (relative to other countries in the global economy), the currency will weaken. There cou…

> "A generation of lazy people who don't work hard" I am sorry for derailing, but how does that happen, did they come out like a faulty batch from a factory? The mantra of "It's important to work hard" needs to die. Today we have fewer friends than ever, population is unhealthy and the biggest killer of young men is suicide. Please don't perpetuate this nonsense. It should be: "Work smart, and look after yourself/ yo…

It's one of many mutually reinforcing factors. I'm not trying to assign blame here (of which there is plenty to go around), but observing a dynamic.

That dynamic is essentially that success begets success. If you have a population that has the experience, from an early of age, of teams where everybody works hard at an uncertain goal and accomplishes their objective, it builds more than just the objective. It also builds trust among the team and the population in general; it builds a number of ancillary skills that were necessary to accomplish the objective; and it builds courage, and the belief that even if obstacles look hard, they can be surmounted. If you set out to build & market a computer game by yourself and fail, you've accomplished a lot more than failure. You've also taught yourself to program; taught yourself game design; taught yourself graphic design; taught yourself marketing and differentiation; taught yourself how to listen to early users and make decisions; and taught yourself perseverance.

And conversely, if you have a society where corporate leaders habitually throw young employees into the meat grinder, burn them out on busywork, and pay them little, there will be very little incentive for these employees to do anything other than put in the bare minimum amount of work and spend the remainder of their workday on Facebook or HN. They build no ancillary skills; they learn distrust rather than trust; they learn that perseverance is a waste of time; and they learn nothing about how to break down big goals and make them achievable.

Say that a nation full of the former has to compete (either economically or militarily) with a nation full of the latter. Who do you think is going to win?

There's nothing wrong with "Work smart, and look after yourself & your family" from the perspective of an individual. There is something gravely wrong with it from the perspective of a nation, which has effectively disintegrated at that point. We're talking about national currencies, which are an abstraction of the national economy as a whole. If there is no national economy, but a bunch of independent producers who search for whatever personal advantages they can get for themselves, that national currency is not going to be worth much.

Re: When George Soros Broke the British Pound (2014)

#62

Post by andybak »

ClumsyPilot wrote: post #60
nostrademons wrote: post #31

Earlier quoted context omitted.

Market prices for currencies reflect what you can buy with them. If a country's economy is strong, they're exporting a lot of things that the world wants to buy from them, and the world wants to invest in a bunch in a number of securities denominated in their currency, the currency will be strong. If the country's economy weakens (relative to other countries in the global economy), the currency will weaken. There cou…

> "A generation of lazy people who don't work hard" I am sorry for derailing, but how does that happen, did they come out like a faulty batch from a factory? The mantra of "It's important to work hard" needs to die. Today we have fewer friends than ever, population is unhealthy and the biggest killer of young men is suicide. Please don't perpetuate this nonsense. It should be: "Work smart, and look after yourself/ yo…

That phrase alone gave me a poor feeling about the whole comment. It was unnecessary and glib.

Re: When George Soros Broke the British Pound (2014)

#63

Post by makomk »

ummonk wrote: post #26

What I would like to see is what led to the pound being so badly mispriced in the first place. Did they just price it at whatever was the prevailing price? And was that why the Bank of England ended up with such small reserves? Presumably they could have priced it lower and bought up Deutschmarks to bring down the price of pounds and build up reserves to start with when they decided to fix it. There is also the quest…

It was priced based on the prevailing price, whereas the actual value fluctuated depending on the economic state and interest rates in the various countries. The UK wasn't the only country which had this problem; the allowed margin of variation had to be massively expanded shortly afterwards to keep a bunch of other European states in the ERM.

Also, the fact that the ERM was structured in a way that effectively benefited Germany over the other members was probably a major contributing factor. Remember, this was right after the fall of the Berlin Wall and German reunification which had huge economic consequences - East German industry was basicsllly wiped out and a huge amount of money was spent on rebuilding its infrastructure to West German standards. Germany got to set its interest rates in a way that minimised the impacts to them, and everyone else was dragged along.

Re: When George Soros Broke the British Pound (2014)

#64

Post by drawkbox »

freewilly1040 wrote: post #44
drawkbox wrote: post #40

Earlier quoted context omitted.

There are upsides and downsides to being a reserve currency though that other nations might not want to take on, a non nation state currency that wants/needs to inflate might be a better bet. The US built up on the good side of being a reserve currency. > The advantages of reserve currency status for the dollar are well known. The world’s willingness to accumulate dollar reserves in the post World War II period first…

What specifically does dollar velocity indicate with respect to consumers? Is it more or less a measure of purchasing power?

Velocity is the exchange of dollars domestically between people and companies.

From FRED:

> The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.

Less interaction and transactions are happening between individuals because it is mostly debt to large/global corporations or GDP gains and productivity gains going to the top wealth class.

Essentially low share of GDP productivity and gains are going to labor, consumers have less money to spend due to wage stagnation due to less share, consumers then exchange less money with one another. By itself it could be explained as many things, but coupled with the debt economy and low wages and low worker share of GDP it impacts it.

Real wages and purchasing power have barely budged in 40 years for lower/middle class. [1]

[1] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

Re: When George Soros Broke the British Pound (2014)

#65

Post by m-i-l »

nabla9 wrote: post #14
vwuon wrote: post #5

Earlier quoted context omitted.

True. And if a kid pushes an old man and he breaks his hip, that's the old man's fault for getting old! Oh, wait. https://twitter.com/ceejayoz

Except that Soros did not hurt UK economy. Just bruised some egos at the Bank of England by showing their stupid mistakes.

"Soros did not hurt UK economy. Just bruised some egos at the Bank of England by showing their stupid mistakes."

From the article:

"At 11AM, the British government announced they would increase interest rates 200 basis points, from 10% to 12%. ... [later that day] an interest rate increase of another 300 basis points, from 12% to 15%."

That means millions of ordinary people suddenly, not even overnight but on the same day, found themselves paying 5% more on large loans such as mortgages. To make completely clear, that had a very significant negative impact on a very large number of ordinary people.

Also from the article:

"The cost to British taxpayers was estimated at roughly £3.3 billion."

That's an average of over £128 per tax payer (3,300,000,000 / 25,700,000 tax payers in 1991-92 according to [0]). Again, to clarify, tax payers are not some "egos at the Bank of England", but ordinary people like me and you.

Or to summarise in simpler terms, a small number of the very rich got significantly richer by making a large number of ordinary people significantly poorer.

EDIT: Corrected figures. Thanks @philipkglass for spotting.

[0] https://assets.publishing.service.gov.uk/government/uploads/...

Re: When George Soros Broke the British Pound (2014)

#66

Post by philipkglass »

m-i-l wrote: post #65
nabla9 wrote: post #14

Earlier quoted context omitted.

Except that Soros did not hurt UK economy. Just bruised some egos at the Bank of England by showing their stupid mistakes.

"Soros did not hurt UK economy. Just bruised some egos at the Bank of England by showing their stupid mistakes." From the article: "At 11AM, the British government announced they would increase interest rates 200 basis points, from 10% to 12%. ... [later that day] an interest rate increase of another 300 basis points, from 12% to 15%." That means millions of ordinary people suddenly, not even overnight but on the sam…

"The cost to British taxpayers was estimated at roughly £3.3 billion."

That's an average of over £100,000 per tax payer. Again, to clarify, tax payers are not some "egos at the Bank of England", but ordinary people like me and you.

There were only 33,000 tax payers in the UK in 1992?

I don't know how many tax payers there were, but dividing by the population at the time comes out to £58 per person.

Re: When George Soros Broke the British Pound (2014)

#67

Post by dageshi »

makomk wrote: post #63
ummonk wrote: post #26

What I would like to see is what led to the pound being so badly mispriced in the first place. Did they just price it at whatever was the prevailing price? And was that why the Bank of England ended up with such small reserves? Presumably they could have priced it lower and bought up Deutschmarks to bring down the price of pounds and build up reserves to start with when they decided to fix it. There is also the quest…

It was priced based on the prevailing price, whereas the actual value fluctuated depending on the economic state and interest rates in the various countries. The UK wasn't the only country which had this problem; the allowed margin of variation had to be massively expanded shortly afterwards to keep a bunch of other European states in the ERM. Also, the fact that the ERM was structured in a way that effectively benef…

I think there was a danger that France would've had to leave due to similar pressures the UK faced, Germany bent for France in a way they wouldn't for the UK.

I am thankful though, the UK leaving the ERM meant the euro was dead in the UK.

Re: When George Soros Broke the British Pound (2014)

#68

Post by aazaa »

> ... Countries weren’t ready to give up their national currencies, but they agreed to fix their exchange rates with each other instead of “floating” their currency and letting capital markets set the rates. Since Germany had the strongest economy in Europe, each country set their currency’s value in Deutschmarks. They agreed to maintain the exchange rate between their currency and the Deutschmark within an acceptable band of plus or minus 6% of the agreed upon rate.

Germany's economic policies in particular have had a big effect on the course of the last 100 years of European history. The hyperinflation following Versailles and ensuing economic dislocation led in no small part to the rise of the Nazi party.

The commitment of Germany in particular among European countries to strict budget controls to avoid another hyperinflation laid the groundwork for Soros' attack on the Pound.

Continued fiscal discipline has helped make Germany a dominant economic force in the EU. It set the stage for the Greek debt crisis, and several others in the works. These all resemble the Pound crisis in that the unusually strong vigilance against excessive debt in Germany is/was a driving factor.

Re: When George Soros Broke the British Pound (2014)

#69

Post by m-i-l »

philipkglass wrote: post #66
m-i-l wrote: post #65

Earlier quoted context omitted.

"Soros did not hurt UK economy. Just bruised some egos at the Bank of England by showing their stupid mistakes." From the article: "At 11AM, the British government announced they would increase interest rates 200 basis points, from 10% to 12%. ... [later that day] an interest rate increase of another 300 basis points, from 12% to 15%." That means millions of ordinary people suddenly, not even overnight but on the sam…

"The cost to British taxpayers was estimated at roughly £3.3 billion." That's an average of over £100,000 per tax payer. Again, to clarify, tax payers are not some "egos at the Bank of England", but ordinary people like me and you. There were only 33,000 tax payers in the UK in 1992? I don't know how many tax payers there were, but dividing by the population at the time comes out to £58 per person.

Good spot. I must have been either using the British definition of billion (million million) rather than the US definition (thousand million), or failed to spot that the 25,700 taxpayers in the referenced document actually represented 25,700,000. Anyway figure corrected. Thanks.

Re: When George Soros Broke the British Pound (2014)

#70

Post by lbeltrame »

It also happened to the Italian lira at the same time. Up to the point (or perhaps, the consequence) that the government at the time forcibly withdrew money (not large amounts, mind you, but if you do some sums...) from all bank accounts throughout the country overnight.
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