Is the current run on the pound a repeat of 64 - 67?

[Cornytiv34]

I have been reading an excellent book “Business Adventures” by John Brooks which has 12 chapters each about specific financial happenings around Wall Street. The best is saved to last and is headed “In Defence of Sterling”.

The chapter goes in some detail to the runs on the pound in 1964-1967 and how the Federal Reserve Bank with with co-operation from many other National Banks eventually saved the pound.

I have never fully understood how the system works and this writer explains in detail the fears of what might happen, how the rescue was arranged and what happened afterwards.

The similarities to the UK and Government today are stark! Our politicians should read this!

Not sure if this is the correct place, please move if it is not.

Mike

[Nimrod103]

Very different now compared to the 1960's. Then the £/$ exchange rate was fixed under Bretton Woods (until Harold Wilson was forced to make a significant devaluation in order to protect UK industry and reduce the negative balance of payments).
Now the currency is floating, the room for manoeuvre is much greater, though there will be a big political price to pay if the £ falls below parity with the dollar.

[scrumpyjack]

The long term dreadful performance of the pound reflects the financial incontinence of successive British governments since the war and the permanent balance of payment problems of this country. This has always been an open invitation to speculators when we have tried to maintain a fixed exchange rate.

We are not so exposed to speculators now as we allegedly don't try to maintain a specific exchange rate but the underlying problems are still there so there is a very good argument for keeping one's cash in some currency other than sterling. Maintaining its purchasing power is not high on the BoE's priorities.

[Nimrod103]

The long term dreadful performance of the pound reflects the financial incontinence of successive British governments since the war and the permanent balance of payment problems of this country.

Which is all very strange when you consider that the ratio of UK Govt debt to GDP is approximately the same as for the EU as a whole, and considerably less than the USA and France.

https://tradingeconomics.com/country-li ... ebt-to-gdp

[Mike4]

The long term dreadful performance of the pound reflects the financial incontinence of successive British governments since the war and the permanent balance of payment problems of this country. This has always been an open invitation to speculators when we have tried to maintain a fixed exchange rate.

We are not so exposed to speculators now as we allegedly don't try to maintain a specific exchange rate but the underlying problems are still there so there is a very good argument for keeping one's cash in some currency other than sterling. Maintaining its purchasing power is not high on the BoE's priorities.

Ok I can see the point of doing this, so dumb question 101:

How does one actually do this, practically? Without ending up with a fistful of (say) Dollars in a biscuit tin under one's bed?

[scrumpyjack]

The long term dreadful performance of the pound reflects the financial incontinence of successive British governments since the war and the permanent balance of payment problems of this country. This has always been an open invitation to speculators when we have tried to maintain a fixed exchange rate.

We are not so exposed to speculators now as we allegedly don't try to maintain a specific exchange rate but the underlying problems are still there so there is a very good argument for keeping one's cash in some currency other than sterling. Maintaining its purchasing power is not high on the BoE's priorities.

Ok I can see the point of doing this, so dumb question 101:

How does one actually do this, practically? Without ending up with a fistful of (say) Dollars in a biscuit tin under one's bed?

You can easily open accounts with major banks in other currencies
eg https://www.hsbc.co.uk/international/currency-account/

[Lootman]

The long term dreadful performance of the pound reflects the financial incontinence of successive British governments since the war and the permanent balance of payment problems of this country. This has always been an open invitation to speculators when we have tried to maintain a fixed exchange rate.

We are not so exposed to speculators now as we allegedly don't try to maintain a specific exchange rate but the underlying problems are still there so there is a very good argument for keeping one's cash in some currency other than sterling. Maintaining its purchasing power is not high on the BoE's priorities.

Ok I can see the point of doing this, so dumb question 101:

How does one actually do this, practically? Without ending up with a fistful of (say) Dollars in a biscuit tin under one's bed?

You can easily open accounts with major banks in other currencies
eg https://www.hsbc.co.uk/international/currency-account/

There are also money market funds available in a variety of currencies. I used to have one in Danish Krona back when Denmark had very high interest rates.

[Nimrod103]

The declining value of Sterling vs the US Dollar has historically been partly offset by the higher interest rates offered by the BoE. The average base rate in the USA 1971-2022 was 5.43%, while in the UK it was 7.15%. The UK base rate has nearly always been higher than the US - Until now that is. The Fed has been so aggressive, and Bailey so tardy that the interest rate differential has reversed. Which is perhaps the main reason why the Truss budget exploded, and we find ourselves in financial problems. Those problems will not resolve themselves until the UK base rate goes back above that of the USA.

[1nvest]

The long term dreadful performance of the pound reflects the financial incontinence of successive British governments since the war and the permanent balance of payment problems of this country. This has always been an open invitation to speculators when we have tried to maintain a fixed exchange rate.

We are not so exposed to speculators now as we allegedly don't try to maintain a specific exchange rate but the underlying problems are still there so there is a very good argument for keeping one's cash in some currency other than sterling. Maintaining its purchasing power is not high on the BoE's priorities.

Ok I can see the point of doing this, so dumb question 101:

How does one actually do this, practically? Without ending up with a fistful of (say) Dollars in a biscuit tin under one's bed?

With a ii broker/trading account you can hold/trade multiple currencies. It's quite expensive, something like 1.75% IIRC to convert smaller amounts, but once converted they sit in your account, alongside any other currencies that you might hold. You can then trade using the currency of your choice. For instance I hold US$ alongside £'s and if I buy a stock that trades in US$ I'll select to 'spend' from the US$ holdings to buy those shares, and any US$ dividends expand the amount of US$'s held. Then when you sell the shares again opt to sell into US$. i.e. convert once, and trade many times with no further FX conversion costs. Just be careful to select which currency to buy (or sell) from (to) when placing trades, and ensure that the fund/stock that you're buying (selling) trades in that currency or otherwise you'll get hit with a FX conversion cost. Not available in ISA, as you're not permitted to hold foreign currencies within a ISA (general rule, not a rule limited to ii alone).

Whether you'll sleep better with money instead under the mattress is subjective. Some do, personally I find I wake up with a cranked back

[1nvest]

The declining value of Sterling vs the US Dollar has historically been partly offset by the higher interest rates offered by the BoE. The average base rate in the USA 1971-2022 was 5.43%, while in the UK it was 7.15%. The UK base rate has nearly always been higher than the US - Until now that is. The Fed has been so aggressive, and Bailey so tardy that the interest rate differential has reversed. Which is perhaps the main reason why the Truss budget exploded, and we find ourselves in financial problems. Those problems will not resolve themselves until the UK base rate goes back above that of the USA.

LT/KK's idea was to lower the Pound, along with low taxation, and more open/flexible regulations. Short sharp pain followed soon thereafter by serious growth. BUT they couldn't broadcast that as the markets wouldn't have reacted as they did and in the desired manner. A good choice IMO, rather than just continued slow progressive decline/austerity/prolonged dull-pain. But MP's opted to revert back to the latter. A big clue was the deferral of the budgetary statement until November, i.e. get most of the pain over and done by then, and from there likely strong growth/feel-good, well in time for the next General Election. Sunak is just taking the UK into prolonged pain/decline, and people will feel the real cost of that over the next few years and likely beyond, whilst LT/KK could have had the UK being a roaring successful economy as from 2023 onward. The UK's problems will not resolve themselves until after Sunak and his supporters have had their time in the limelight and he was prepared to kill (politically) all/any that got in his way for him to get into the limelight. His actions/policies will result in a double-whammy cost upon the population, but he cares not, as he now has centre stage. Neither do the Tories seem to care that LT/KK could have had them being re-elected come the next GE, whereas as-is their doomed to be in opposition, at best.

[1nvest]

Current Pound buys 30% fewer Russian Rubles than it did pre-Ukrainian invasion. 2000 Pound bought 5 times more gold than it does in 2022.

1964-67 and gold remained much the same, as did the US$/GB£ exchange rate. The subsequent high inflation was also energy price driven, but this time around we've got both energy price inflation AND declining Pound. Unlike more regular recessions that tend to be short lived, inflation based recessions can be very deep and prolonged, where really the only choice is to ramp up interest rates (which can devastate investments/house prices etc.).

Other countries Parliaments do professional work. The UK's Parliament is just a joke. Australia for instance had laws already defined where in a crisis it could compulsory purchase all gold at a price it set. For national security reasons the UK could have had similar for the energy that it produces, during a national stability/security crisis all UK produced energy first to be sold to UK customers at a fixed government set rate. Instead we're left with having to pay the same as any other country that may not even produce any of their own energy. No competitive advantage to the UK having oil/gas/wind/etc.. etc domestic sources/production. And without such controls/options high energy costs have a massive knock on effect right across the economy.

Official CPI reported rates that pensions/benefits/wages might normally be increased by will for may be vastly below their personal rates of inflation, where much of disposable income is spent on food/energy - that are rising at 50% and multiples of 100% respective type inflationary rates. Worse still is that Sunak will seek to not even increase benefits/pension/wages in line with the 10% CPI rate, hurting many further still. By the time the next GE arrives most will be well pleased to be rid of the Tories/Sunak and rightfully so. How Labour might resolve the problems arising from the Tories being untrustworthy of managing the economy??? Under Sunak the UK will become pretty much uninvestable and is likely to see a the flight of the 1% that pay a third of the total income tax take, leaving the rest having to pay 50% more in taxes just to cover that hole alone. But he's in that 1% and may very well also flight the country after leaving politics, so for him it isn't a issue.

The 'cure' for the 1970's energy crisis was pretty much for very high inflationary erosion of the problem, stock values for instance dropped around 65% whilst inflation raged in 20%+ type levels. Borrowing to cover government spending at those sorts of levels had a cash flow issue, such that the UK had to get a overdraft cover from the IMF. That was never actually called upon but it came close to the UK not having enough cash to cover paying its debt interest rates. As part of that, previous individuals who felt comfortable/rich saw much of their wealth vanish within a couple of years. Lost to taxes/inflation/lower prices. Maybe along the lines of a retired widow living in her own £500K valued home having enough to cover 5 years of £100K/year care home costs at present prices, but where that could see the house value halve, whilst care home costs double, to barely have enough to just cover a single year of care. In effect 5-fold poorer. And what use a 10K/year state pension that is increased to 11K/year in reflection of reported 10% CPI, when food prices have doubled and energy prices quadrupled and where food/energy previously made up 50% of a pensioners budget but had risen to being more than their entire available pension. The usual Tory response is that they provide personal choice - such as the pensioner having their own choice of whether to eat or have some heating.

[Mike4]

Current Pound buys 30% fewer Russian Rubles than it did pre-Ukrainian invasion. 2000 Pound bought 5 times more gold than it does in 2022.

1964-67 and gold remained much the same, as did the US$/GB£ exchange rate. The subsequent high inflation was also energy price driven, but this time around we've got both energy price inflation AND declining Pound. Unlike more regular recessions that tend to be short lived, inflation based recessions can be very deep and prolonged, where really the only choice is to ramp up interest rates (which can devastate investments/house prices etc.).

Other countries Parliaments do professional work. The UK's Parliament is just a joke. Australia for instance had laws already defined where in a crisis it could compulsory purchase all gold at a price it set. For national security reasons the UK could have had similar for the energy that it produces, during a national stability/security crisis all UK produced energy first to be sold to UK customers at a fixed government set rate. Instead we're left with having to pay the same as any other country that may not even produce any of their own energy. No competitive advantage to the UK having oil/gas/wind/etc.. etc domestic sources/production. And without such controls/options high energy costs have a massive knock on effect right across the economy.

Official CPI reported rates that pensions/benefits/wages might normally be increased by will for may be vastly below their personal rates of inflation, where much of disposable income is spent on food/energy - that are rising at 50% and multiples of 100% respective type inflationary rates. Worse still is that Sunak will seek to not even increase benefits/pension/wages in line with the 10% CPI rate, hurting many further still. By the time the next GE arrives most will be well pleased to be rid of the Tories/Sunak and rightfully so. How Labour might resolve the problems arising from the Tories being untrustworthy of managing the economy??? Under Sunak the UK will become pretty much uninvestable and is likely to see a the flight of the 1% that pay a third of the total income tax take, leaving the rest having to pay 50% more in taxes just to cover that hole alone. But he's in that 1% and may very well also flight the country after leaving politics, so for him it isn't a issue.

The 'cure' for the 1970's energy crisis was pretty much for very high inflationary erosion of the problem, stock values for instance dropped around 65% whilst inflation raged in 20%+ type levels. Borrowing to cover government spending at those sorts of levels had a cash flow issue, such that the UK had to get a overdraft cover from the IMF. That was never actually called upon but it came close to the UK not having enough cash to cover paying its debt interest rates. As part of that, previous individuals who felt comfortable/rich saw much of their wealth vanish within a couple of years. Lost to taxes/inflation/lower prices. Maybe along the lines of a retired widow living in her own £500K valued home having enough to cover 5 years of £100K/year care home costs at present prices, but where that could see the house value halve, whilst care home costs double, to barely have enough to just cover a single year of care. In effect 5-fold poorer. And what use a 10K/year state pension that is increased to 11K/year in reflection of reported 10% CPI, when food prices have doubled and energy prices quadrupled and where food/energy previously made up 50% of a pensioners budget but had risen to being more than their entire available pension. The usual Tory response is that they provide personal choice - such as the pensioner having their own choice of whether to eat or have some heating.

Just to say, I do find some of your long and detailed analyses of economic matters such as this, an extremely good read, so thank you for all of them.

The bit I highlighted is happening already. An elderly lady near me with a tiny little house, leasehold, all-electric including heating has had her electricity DD put up to £700 a month, pretty much matching what I estimate to be her state pension as a widow. Her freeholder is refusing permission to install oil-fired heating or a heat pump, or even solar panels on the roof to reduce her fuel costs.

[vand]

I suspect any people are looking mainly at GBPUSD, but USD has been strong against everything in the last 18 months. GBPEUR has been rangebound mostly between 1.10 - 1.20 since mid 2016, so despite the headlines there is no real trend there. In fact, it was at its current level as far back as 2013.

[stevensfo]

The long term dreadful performance of the pound reflects the financial incontinence of successive British governments since the war and the permanent balance of payment problems of this country. This has always been an open invitation to speculators when we have tried to maintain a fixed exchange rate.

We are not so exposed to speculators now as we allegedly don't try to maintain a specific exchange rate but the underlying problems are still there so there is a very good argument for keeping one's cash in some currency other than sterling. Maintaining its purchasing power is not high on the BoE's priorities.

Ok I can see the point of doing this, so dumb question 101:

How does one actually do this, practically? Without ending up with a fistful of (say) Dollars in a biscuit tin under one's bed?

With a ii broker/trading account you can hold/trade multiple currencies. It's quite expensive, something like 1.75% IIRC to convert smaller amounts, but once converted they sit in your account, alongside any other currencies that you might hold. You can then trade using the currency of your choice. For instance I hold US$ alongside £'s and if I buy a stock that trades in US$ I'll select to 'spend' from the US$ holdings to buy those shares, and any US$ dividends expand the amount of US$'s held. Then when you sell the shares again opt to sell into US$. i.e. convert once, and trade many times with no further FX conversion costs. Just be careful to select which currency to buy (or sell) from (to) when placing trades, and ensure that the fund/stock that you're buying (selling) trades in that currency or otherwise you'll get hit with a FX conversion cost. Not available in ISA, as you're not permitted to hold foreign currencies within a ISA (general rule, not a rule limited to ii alone).

Whether you'll sleep better with money instead under the mattress is subjective. Some do, personally I find I wake up with a cranked back

Actually, that picture isn't so far from the truth.

I was working in Italy, very close to the Swiss border just when they were changing from lire to euros, c.2003. In the weekend, I often drove across the border to do some shopping. The stores had far more choice than the very conservative Italian shops. In the months before the lire was due to be withdrawn for good, I found tremendous queues to cross the border.

When I asked about this at work, they laughed and explained that Italians, especially the elderly, generally kept tons of cash at home and were anxious to get it changed and into their Swiss accounts before the rules changed. Apparently, they couldn't do this in Italy as their Italian bank would be obliged to ask 'difficult questions' and report all large amounts to the Guardia di Finanza.

Steve

[Nimrod103]

When I asked about this at work, they laughed and explained that Italians, especially the elderly, generally kept tons of cash at home and were anxious to get it changed and into their Swiss accounts before the rules changed. Apparently, they couldn't do this in Italy as their Italian bank would be obliged to ask 'difficult questions' and report all large amounts to the Guardia di Finanza.

Steve

And the Swiss ask no questions, as usual.

[stevensfo]

When I asked about this at work, they laughed and explained that Italians, especially the elderly, generally kept tons of cash at home and were anxious to get it changed and into their Swiss accounts before the rules changed. Apparently, they couldn't do this in Italy as their Italian bank would be obliged to ask 'difficult questions' and report all large amounts to the Guardia di Finanza.

Steve

And the Swiss ask no questions, as usual.

Not true. Swiss banking has changed a lot since the financial crisis. There are, I believe, still small private banks where extremely rich people can obtain a certain amount of privacy, but pressure from the USA has forced banks to be more transparent.

But true story: Berlusconi wanted to show the world he was clamping down on tax evasion by asking Swiss banks to charge a fee to all non-residents. It was/is about 4 euros/month. 48 euros per year. Yeah, sure!

So all the innocent plebs immediately closed their accounts. I was one. I loved telling my friends that I had a Swiss bank account, even though there was only about 200 euros in it.

The rich simply laughed and thanked Berlusconi.

But Swiss banks are still supposed to report accounts when requested under the CRS scheme, equivalent of the USA FACTA.


Steve

[UncleEbenezer]

I was working in Italy, very close to the Swiss border
Steve

Offtopic, but was that by any chance JRC at Ispra?

[stevensfo]

I was working in Italy, very close to the Swiss border
Steve

Offtopic, but was that by any chance JRC at Ispra?

Yes, it was. Happy memories. I believe it has changed a lot since then. I was there when they changed to euros and when shopping centres started to ban smoking. I found Italian shops overpriced and lacking in choice, so enjoyed my Saturdays in Lugano. I'd also worked in France for a long time, so used to frequent the Auchan and Bennet supermarkets closer to Milan.

My first year in Italy was spent driving around in an old Saab 900 I'd bought in the UK. It got me down to Italy no problem but leaked oil and drank the petrol. Thank God I never had an accident cos I'd assumed that my UK insurance covered me for at least a year, but later found it was only 3 months!

I remember taking it to an Italian scrap yard and the guy insisting that I take the plates with me, to stop it being stolen and used by criminals. When I informed the DVLC, I discovered that the car was still officially registered with the previous owner.

I do miss it. Built like a bloody tank, very safe, engine easy to work on.

Steve

[modellingman]

The long term dreadful performance of the pound reflects the financial incontinence of successive British governments since the war and the permanent balance of payment problems of this country. This has always been an open invitation to speculators when we have tried to maintain a fixed exchange rate.

We are not so exposed to speculators now as we allegedly don't try to maintain a specific exchange rate but the underlying problems are still there so there is a very good argument for keeping one's cash in some currency other than sterling. Maintaining its purchasing power is not high on the BoE's priorities.

Ok I can see the point of doing this, so dumb question 101:

How does one actually do this, practically? Without ending up with a fistful of (say) Dollars in a biscuit tin under one's bed?

I think that Wise, formerly known as TransferWise (and possibly other currency convertors) have accounts which allow multi-currency balances and transfers between currencies. See: https://wise.com/help/articles/2897226/ ... se-account

I haven't got such an account but I do use them for currency transfers - mainly GBP to EUR. Over the last year or so the service has transitioned to being as fast as the UK's faster payments service when transferring and converting GBP from my UK bank account to EUR in my Spanish bank account. A fintech success.

modellingman

[vand]

USD has probably reached a cyclical high
GBP back to USD 1.24 - hardly a crisis