The Race To The Currency Bottom: CEBR Predicts Pound At $1.40, Below €1
The cremation of the dollar is spreading as other Central Banks realize what a nifty trick currency devaluation is. The BBC notes that tomorrow the CEBR (Centre for Economics and Business Research) will present a new forecast which calls for the BOE rate to remain at 0.5% until 2011, and to hit 2% in 2014 at the earliest. Furthermore, the pound will be the next carry currency, as it is now expected to drop to $1.40, and below €1. The culprit is the same as in the US: out of control budgets, which will be "moderated" by tax rises (precisely the thing Goldman was warning against earlier) and spending cuts. And, lastly, the CEBR sees the UK's QE program increasing by nearly 50% from £175 billion to £250.
"We are likely to see an exciting policy mix, with the fiscal policy lever pulled right back while the monetary lever is fast forward," said Douglas McWilliams, CEBR chief executive and one of the report's authors.
"Our analysis says that this ought to work. If it does so, we are likely to see a major rerating of equities and property which in turn should stimulate economic growth after a lag."
Last week the Bank of England held interest rates at a record low of 0.5% for the seventh consecutive month.
The CEBR added that the Bank programme to increase the amount of money in the economy - so-called quantitative easing - would increase by £75bn from the £175bn so far announced.
And it predicted that the UK economy would grow by 1.3% in 2010 - having shrunk by 4.3% this year.
A few points: how is it that all countries whose CBs have taken a weak currency approach are expected to grow purely on that basis? Do prognosticators assume that rising stock markets alone (as a function of relative debt reduction due to domestic currency debt denomination) will be sufficient to compensate for the rolling drop off in international trade? Or is China now expected to somehow awaken every single economy in the world, while in the process not blowing up its own (contrary to Andy Xie's warnings)? Curiouser is that even as the US and now the UK seem to have written off their currencies, Germany is somehow expected to support the euro, which even now is rapidly approaching its new all time high. With the eurozone held captive by such economies as Spain and Italy which are arguably in a depression (as Evans-Pritchard recently speculated), how on earth will Angela Merkel be allowed to sustain global economic growth. Or is that presumed US and UK growth going to come exclusively on the back of an unemployment ridden German economy?
Probably the best thing is to pull a Goldmanesque "it does not compute" so the models must be patently wrong, and the best course of action is to avoid logical thought for the duration of the bubble inflation. After it pops... the flood.