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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)

#191

Post by User23 »

Wynne Godley's Maastricht and All That[1] is a great explanation of why the Euro was, and in fact is, doomed to failure and the UK was correct to stay out. This essay was written less than a month after Black Wednesday, so I assume it was probably influenced by the event. Sadly the lesson was evidently not learned, as the word "fiscal" doesn't appear a single time in the article.

The key lesson here for states is only ever acquire financial obligations in your own sovereign currency. This is why the Swiss were able to put a ceiling on the value of the CHF during the European Debt Crisis. Their ability to spend CHF is unlimited, so they could just keep expanding their balance sheet indefinitely buying Euros, which devalued the CHF. A sovereign can always devalue, but not necessarily do the opposite.

[1] https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-al...

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

#192

Post by dang »

Sidious wrote: post #73

Just read: culture of critique - Kevin M and some stuff by e. M. Jones. To grasp the truth and the bigger picture, you cant get it on controlled sites such as this, where truth is suppressed.

We've banned this account. As you know, HN is no place for this. Would you please stop posting it here?

https://news.ycombinator.com/newsguidelines.html

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

#193

Post by mcintyre1994 »

elmar wrote: post #79
elmar wrote: post #56

This incident was the main reason the UK didn't enter the Euro. This wonderful BBC documentary explains everything on detail. https://youtu.be/K_oET45GzMI

Sometimes I wonder if this incident didn't happen, would the UK had entered the Euro and Brexit wouldn't be on the horizon today.

That would be pretty ironic: https://www.politico.eu/article/second-brexit-referendum-geo... - he backs Best for Britain who have been campaigning for a second referendum.

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

#194

Post by viburnum »

singingboyo wrote: post #54
viburnum wrote: post #39

I don’t understand why it is that the hike in interest rates had to fail. Had the speculators bought tied up so much liquidity that nobody had pounds to sell to the UK’s central bank?

I think you've got it backwards. If no one is buying and everyone is selling, the value drops. The central bank couldn't sell back the pounds it had bought, and couldn't feasibly keep buying more forever. And, well, no one else would buy pounds in the fixed range: * The currency spent the morning dropping in value. * This despite the government buying up pounds. * There had been news stories about possible devaluatio…

I think that’s begging the question, though. They could have fought it out, like the Volcker shock in the US from just a few years earlier. Maybe everybody assumed they wouldn’t do anything as dumb as that.

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

#195

Post by rienbdj »

wheels wrote: post #126
skokage wrote: post #118

Earlier quoted context omitted.

>So you have countries like Germany that are effectively subsidized by poorer countries. Could you explain this comment further, or have links to stories that go in depth on how that works? Not saying you are wrong, but I don't understand how germany, which is an economic powerhouse and exports a lot of goods, are being subsidized by poorer countries.

The gist of it is that if Germany were still on the Mark, then the Mark would be significantly stronger than the Euro is today. Having weaker economies on the same currency causes Germany's currency to be artificially weak, which makes its exports artificially cheap on the world market. In contrast, the poorer Eurozone countries have an artificially strong currency, which makes their exports more expensive than they…

Is this also true within a country? Does Wales (for example) pull down GBP for the benefit of the rest of the UK?

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

#196

Post by knzhou »

_delirium wrote: post #167
Analemma_ wrote: post #166

Earlier quoted context omitted.

I don't like how you're being downvoted for asking a legitimate question in apparent good-faith. This idea can be genuinely counterintuitive the first time you encounter it. The issue is that, normally when a country with its own currency is economically uncompetitive, its currency weakens, which helps give a boost to domestic industry by making their exports cheaper than those of richer nations. So there's a natural…

To add to this, one of the parts that's counterintuitive is that in principle currencies are just accounting mechanisms, so you can achieve the same effects in a currency union. The problem is that it requires a lot more coordination. When you devalue a currency, a bunch of things in the country move together: wages go down in external terms (e.g. $ or € denominated terms), but housing costs, domestic service prices,…

This is the clearest explanation of this topic I've ever seen -- my sticking point has always been exactly what you just explained. Is there a good place to get more macroeconomic explanations like this?

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

#197

Post by stephen_g »

rienbdj wrote: post #195
wheels wrote: post #126

Earlier quoted context omitted.

The gist of it is that if Germany were still on the Mark, then the Mark would be significantly stronger than the Euro is today. Having weaker economies on the same currency causes Germany's currency to be artificially weak, which makes its exports artificially cheap on the world market. In contrast, the poorer Eurozone countries have an artificially strong currency, which makes their exports more expensive than they…

Is this also true within a country? Does Wales (for example) pull down GBP for the benefit of the rest of the UK?

Usually not if you have a central/federal taxing and spending Government. That generally balances things out.

That's why this isn't as much a problem for the US as the EU.

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

#198

Post by eru »

Despegar wrote: post #105
elmar wrote: post #79

Earlier quoted context omitted.

Sometimes I wonder if this incident didn't happen, would the UK had entered the Euro and Brexit wouldn't be on the horizon today.

The Eurozone is fatally flawed because they share a currency but have no transfer payments between rich and poor members. So you have countries like Germany that are effectively subsidized by poorer countries. It's been a great setup for 20 years if you've been in the German capital class, not so great for anyone else.

I agree that the Euro is flawed, but I don't think your reasons are right.

Other commenters point out that there's some transfer payments in the EU, a superset of the Euro zone.

Also around the world you have other currency unions that don't involve transfers and that are doing just fine. Eg Hong Kong effectively uses the USD. See https://en.wikipedia.org/wiki/Currency_substitution for some more background.

And, of course, Scotland, Canada and Australia were doing just fine on the gold standard in the 18th and 19th centuries; without any fiscal transfers between countries in the gold block. (I explicitly mention those countries, and not eg the US or England for specific reasons. I also explicitly not mention the interwar gold standard.)

See https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-... for an empiric demonstration of the Euro's flaws. And https://marketmonetarist.com/2015/07/19/the-euro-a-fiscal-st... for a follow up.

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

#199

Post by StanislavPetrov »

Analemma_ wrote: post #166
lol_wut wrote: post #161

Earlier quoted context omitted.

how is having an artificially weak currency a subsidy to Germany? isn't that like underpricing their goods? and wouldn't that imply that countries who import German goods are being subsidized, because they are able to get German goods at artificially low prices? also can you suggest a place where I could read more about this? its awfully confusing, and somewhat counter-intuitive and it would be helpful to read where…

I don't like how you're being downvoted for asking a legitimate question in apparent good-faith. This idea can be genuinely counterintuitive the first time you encounter it. The issue is that, normally when a country with its own currency is economically uncompetitive, its currency weakens, which helps give a boost to domestic industry by making their exports cheaper than those of richer nations. So there's a natural…

Not only that but when when a country issues their own currency and controls their own finances they control the level of debt they want to take on in a crisis, and aren't bound by the Eurozone.

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

#200

Post by eru »

_delirium wrote: post #165
Despegar wrote: post #163

Earlier quoted context omitted.

The Czech Republic isn't in the Eurozone and doesn't face the structural disadvantages that Greece or Portugal do.

The Czech Republic definitely shows one way to approach the EU: get the transfer payments from a political union and partial economic union (in trade policy, etc.), as well as remittances from emigrants employed elsewhere in the free-movement zone, but retain an independent floating currency and avoid monetary union. Greece would've been in a considerably different position if they had taken the Czech route and staye…

See https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-... for the importance of a floating currency. (Or rather, the importance of not joining nor pegging to the Euro. Other currencies might not be as toxic?)
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