Saturday, October 8, 2016

Brexit and the Pound

The Pound has fallen almost 20 percent, against both the Euro and the Dollar, since the vote in June of this year severed British ties to the European Union.  This is a large drop but has no obvious implications.  Nevertheless, the pundits who regularly beat the drums for big government control of the private markets are citing the fall in the value of the pound as "proof" that Brexit will be disastrous for Britain.

The economy and the financial markets haven't gotten the message apparently.  Britain's economy and stock market are, if anything, stronger today than prior to the Brexit vote.   Hoping and praying for a British collapse, the modern day collectivists point the finger at the pound.

Meanwhile, for other countries (Greece and Italy as examples), the Krugmans of the world cite absence of the ability to depreciate your currency as the major weakness of a currency union.  Can these economists have it both ways?  Currency depreciation is good for you; currency depreciation is bad for you.  I guess which way the wind blows depends upon your current political stance, not the underlying economics.

The truth is that the drop in the pound is largely irrelevant.  Where is the need for a decline in the value of the Texas currency against the Oklahoma currency?  Is the single expedient of a common currency enough to extinguish the constant clamors about the significance of the value of one's currency.

The value of one's currency against another is largely irrelevant unless there is some special pathology, such as denominating one's debt in terms of another country's currency.  Short of some special circumstance, this is much ado about nothing.

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