Exchange Rates

This is a disappointing piece making the old comparisions - I'd say modestly fleshed out on this 'blog some time ago - about how exchange rate movements have altered the relative standing of the US, Eurozone and UK over the past four years. But we all know that when discussing dollar (or any other common currency) GDP you can talk about exchange rates, but when you start talking about 'living standards' you need to make a lot more explanations. This statement is clearly nonsense:

The Oxford Economics consultancy, which only a few months ago reported that Britain’s living standards had overtaken those in the United States,

It's disappointing because David Smith knows all of this more than just about anyone else around. And see post above.

Sterling is sterling

Rather unfortunate article this one. You can see what they are trying to do - to note that in local currency UK aid now buys less real goods and services, or perhaps more relevantly, in most international currencies (as aid clearly goes to buying foreign goods, otherwise it's a bit pointless). But for some reason they decided the reader wouldn't understand it unless it was converted back into sterling, so we have the nonsensical suggestion that a fall in sterling means a sterling amount is equal to less in sterling.

Pound slips below euro...

...is the Observer's headline, which is pretty poor stuff. The actual article adds 'on Britain's High Street', which should alert you that there's some smoke and mirrors going on here. Ah the tourist rate is below one euro! Well actually it's not even that impressive. It's the tourist rate when you take off the commission.

There's nothing wrong in noting that many tourists will essentially be getting 1 euro to 1 pound. But to dress it up as the actual exchange rate, which you normally quote, has fallen below that level, is silly. If one converted euros into pounds in Europe one would find the opposite.

Finally the article talks about euro entry, which I support, but makes no reference to, or asks the economists quoted, whether there is any viable prospect of Britain being allowed to join the euro at a rate of near 1 to 1. One issue that is rarely raised about the benefits of a floating currency is one benefit, the boost to domestic industry of a massive devaluation, is only available at any one time to one side of the exchange. For every winner a loser so to speak.

Confusing Guardian article on economies

Apparently due to the falling pound the UK will have a smaller economy than Italy in 2009 (and France) so say the CEBR (btw I've checked the numbers and they're right as long as the pound is around or below 1.1 euros). This is not a well written article, I'm afraid to say, as it doesn't make clear the rather artificial nature of currency-movements in judging economic size. Sometimes this might not matter, but as the article doesn't make this distinction clear, the last paragraph will seem rather odd to many readers:

Richard Snook, one of the authors of the report, said: "The UK economy is likely to be the hardest hit by the credit crunch due to its reliance on consumer borrowing and the financial sector for growth. We see the economy taking four-and-a-half years to return to the peak in the second quarter of 2008. Only the Italian economy, which is beset by structural weaknesses, is set to do worse."

Only the Italian economy will do worse? Eh? I thought it was doing better. The Times article is better, but not much.

Also the quote from the CEBR staff member:

Ben Read, managing economist at the CEBR, said: "The UK economy overtook both Italy and France in the 1990s. However, this position was based on an over-valued sterling and debt-fuelled growth; it is set to be reversed."

is also dubious. On a PPP basis the UK economy is quite a bit larger than Italy's, and whilst this might be due to an error in measuring PPP, if the CEBR staff member believes this it should be spelt out.