Radical British Pound Devaluation Strategy Begins

Here we go then. I postulated some time ago, before all the talk started I may add, that there was a window for printing money in a real deflationary trap. The basic idea being, that with money being destroyed by the collapse in asset values so quickly, then the replacement of it into the system will not cause immediate hyperinflation.

However, the markets are not going to take this lightly and the Pound will sink further. This is now being actively encouraged by the Government. I cannot remember when Government last public wanted a lower currency ( I don’t think the 1992 ERM crisis can be referred to here, as it finished the Tories for a generation, I am sure they did not want that). It is perhaps a sign of the times that we are to be congratulated for being amongst the first to join the race to the bottom.

However, the window the Bank of England have is actually very small. Despite all the assurances, CPI inflation is not negative and may only be so for a quarter or so this year. The UK is not Japan and the weakened Pound will ignite inflation.

The key here is that hyperinflation does not happen over many months, it happens very, very quickly. The Government and Bank of England are courageous try the ‘Quantitative Easing’ experiment for now, but I would suggest one very small burst at best is enough to see if it works or not. Further efforts will kill the patient due to political interference.

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