Finance might not be the king in 10 years
Saturday 22nd October 2011, 2:29PM BST.
FINANCE might not be the island’s main industry in 10 years’ time, the Treasury and Resources minister has said.
Charles Parkinson (pictured) was speaking about what Guernsey could offer in future at an event this week that debated the threats to and opportunities for the finance industry.
Possibilities mentioned at the Guernsey Review included cloud computing and an increased e-commerce presence.
‘Guernsey’s economy is more diverse than people often give it credit for. One of the success stories is Moonpig,’ he said.
He said changes to Low Value Consignment Relief were again possible and some companies would be more vulnerable than others.
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Sooner the cancer (finance) leaves the island the better.
RIP The Old guernsey
Back To Family Values And Respect
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The old Guernsey has gone for ever…..Tourism – gone….Horticulture – gone….if Finance is no longer the leader (majority income to the island) then I’d very much like to know what would replace it?
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Lot’s of things might be different in ten years time but we still insist on setting land use rules which no-one can challenge for the full ten years
That’s why we were so desperate for Fred in the shed type properties in the last two or three years
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Rep Parkinson is for some reason,indulging himself in a tad of contradiction ‘swan songs’; he has made it clear for quite a while, that he intends to quit our political scene next year. His background is finacially based, he came into politics with this grounding and secured a ministerial post as a result.
I imagine he will have looked after his future and if I say, this is a man talking sour grapes, and dam our economy, am I right?
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Always look to beyond the now. Historically
the top money earners for Guernsey have been -
Import/Export : Privateering : Cattle Export :
Quarrying : Tomatoes : Tourism : today it is Finance :
We must now invest in the industry that will ultimately replace it.
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I think what Charles was getting at is the more diverse our economy is, then the less reliant we will be on one industry for our income and the finance industry may not be top of the tree in 10 years time. My view is that as long as we remain a low tax jurisdiction companies will always want to do business here. However our history shows us that nothing is forever, which is why it is important that whoever is in government makes sure we do not let potential opportunities slip through our grasp. Those from outside who would attack us are ever present and it is important that we make sure that their influence over our affairs is diminished by doing much more diverse business outside their control.
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Le Andre
The problem is that many great minds have been trying to identify a sustainable and viable replacement industry for about the last 10 years, and nobody has come up with anything yet. Therein lies the problem. We can’t diversify until we’ve got something viable to diversify into.
The world is changing rapidly. The European region is bust. Its now all about China and India. The ridiculous cost of physically shipping raw materials and finished goods to/from Guernsey rules out any sort of manufacturing activity. Very high labour costs rule out any sort of labour-intensive activity. Tidal energy and wind energy do seem viable, but very little effort seems to be being made to actually exploit them. Partnerships with major EU/French energy companies are clearly the answer but when is anybody going to start actually initiating this?
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@ Le Andre
‘We must invest in the industry that will ultimately replace it.’
I wish. Unfortunately it is more likely that they will stick their heads in the sand for 10 years because when the new industry is needed it will not be their problem.
We seem to have put all our eggs in the Finance basket a long time ago and only now that is seen as a problem.
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@ Dave Jones
Knowing you don’t like to duck a question, Why are Our entire Political Class silent on Quantative Easing and the devaluation of Sterling?
Particularly the effect of raising the money supply elsewhere and in the process shrinking our economy relative to that of the rest of Britain and the World.
Growth in a contracting economy is not growth at all unless it outstrips shrinkage, making a mockery of the States predictions. We have had hundreds of Millions wiped off our collective wealth during 3 years and no leadership.
So why are there no discussions on real solutions just total silence?
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What do you want them to say? It is something completely out of our hands. I can assure you that the current global economic crisis is discussed regularly at length by those responsible for dealing with theses issues in Guernsey’s government, from the Fiscal Working Group, Treasury & Resources, the External Relations Group and of course Policy Council itself. “Quantative easing” is just printing and circulating more of your currency in a bid to try and boost the economy. We are in the sterling area, our currency is sterling, so I am unsure what you would have us do. We have zero influence over the Bank of England or its policies and jumping up and down about a course of action that has been sanctioned by the Coalition over Sterling is a pointless exercise. We believe our economy is in reasonable shape and compared to many it is holding up well, we also believe that there will be growth in the future and while we recognise that can be jeopardised by outside factors, we have to do all we can to stimulate our economy and support those areas that have growth potential. We could of course talk our economy down and make a huge fuss over things outside our control which will only create a lack of confidence in Guernsey, or by making comments that are unhelpful and do little to change the Bank of Englands view.
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@Dave Jones
What I would like them to say is “That there is a problem and we are going to try and minimise the impact on our ecomomy. That we realise the responsibilities of our offices.”. Alternatively they could say “We are out of our depth and don’t understand so we quit!”.
The catch all “It is completely out of our hands” is frankly defeatist rubbish, worse it is dangerous to the economic wellbeing of our community!
I am sure it is discussed regularly at the highest levels but all three years of discussion have produced is this Surrender Monkey “we’re helpless” mewling.
How about the States “Man Up” and say we will print the Pro-Rata £300 million or we will float the Guernsey Pound there are alternatives. No One said these were easy times or easy decisions but hiding in the Zero Ten bunker with a pallet of toilet tissue wailing is not leadership.
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On the original subject that finance may not be king in ten years, this was really a “No shirt Sherlock” revalation for me, I had been labouring under the misconception that due to the antics in the Eurozone, one would be hard pressed to find a solvent bank between here and the Turkish border come Halloween. I apolagise to all our politicians if I had made them appear bungling incompetents in error.
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Les Beaucamps Boy
I think for the time being I would prefer to listen to our Treasury officials and people like Deputy Charles Parkinson who have huge amounts of experience in dealing with these kinds of issues. Floating the Guernsey pound is a very interesting concept, although I am not exactly sure how that might would work.
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@Dave Jones
I’m sure most politicians would prefer to wait for the time being (till the elections done) another six months sitting on the hands ain’t much more on three years inaction.
Interestingly £25 million Jersey notes rolled off the presses last three weeks and yesterday Ouzef launched a £40 million stimulus package when there was only £10 million in the pot.
Do the same stick it in the Black Hole all the way up to the Pro-Rata £300 odd Million you never know there might be enough left to sort out the islands housing crisis or maybe we should wait a little longer on that too after all another three decades is not really failure in political circles is it?
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Les Beaucamps Boy – I think you’re a little out fo your depth, boy. Or maybe you’ve inadvertently drifted beyond the textbook that you’ve read. You are right than quantative easing affects our economy since our currency is Sterling. But in your original post you said
“Particularly the effect of raising the money supply elsewhere and in the process shrinking our economy relative to that of the rest of Britain and the World”
so how does our economy shrink in comparison to the rest of Britain if the BoE prints more money? The rest of the world, yes. But not the rest of Britain.
And in any event our economy is holding up a lot better than that of the UK and so we are not shrinking in relation to it in any event.
You then suggest that we “print pro-rata £300m” – so how would that help? It does not matter whether it is printed by the BoE or by the States, it all has teh same effect across the Sterling area. Your suggestion would actually worsen the problem that you are complaining about!
And as for “floating the Guernsey pound”. Nice idea, but that is never going to be viable.
Let’s hope you pay more attention in your Economics class once half-term is over.
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Terry
Are you sure your correct? If the UK print more cash the rest of the world can adjust via exchange rates….. but Guernsey continues to give full value to sterling at £ for £ and thus if it does not print pro rata is effectively being weakened both globally and in relation to the UK curerency is it not?
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Les Beaucamps Boy
We have invested millions over the last 8-10 years in housing, with developments at Delancy, the Petit Bouet, Victoria Avn, Mont Arrive, the old bus garage site, Roseair Court and Roseville, the next two phases of the Grande Bouet, one phase already has people moving in to it Baubigny Arsenal, with another £48 million next year not counting the Brock Road development, with much of the funding coming not from the taxpayer but from the private sector through the GHA. We are also to build two new facilities for older people replacing the old residential care model and further social housing in St Martins. We have rewired and re-roofed hundreds of existing States houses, removed old back boilers and replaced them with modern central heating units, completely refurbished many more houses adding small extensions where room allowed, upgraded the drainage and parking facilities on many of our estates, replaced hundreds of widow and doors, bathrooms and kitchens, overseen a huge insulation programme both cavity wall and loft insulation in addition we have torn down several old tired estates and replaced those homes with modern eco friendly housing.
This does not indicate a department that has been dragging its feet and we have made real progress in a reasonably short time, so you must be living on a different island to me. The States own investment in stimulating the economy over recent years has been huge with new schools, hospital facilities, housing and improvements in our road and sewerage networks. With future expenditure on the Harbours and Airport, a new sewage treatment plant and a waste management system.
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simon – whether the BoE prints a pound or we print a pound, it can be spent anywhere in the UK or the Channel Islands and so all of the currency is diluted no matter where you are in the sterling area. We go up and down with “UK” sterling, we are not weakened in relation to it. Guernsey is not ring-fenced from the UK currency, we are in the same pot.
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Terry
For every pound that Guernsey prints it earns money, so there is a difference between us printing it and the BoE printing it.
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Heres another view:
In a globally connected economy Guernsey needs to retain its position as a number 1 place to live. This means retaining and developing the highest quality housing stock and environment. While the UK government is applying ever more forcefull tax rules we need to make sure we are negotiating with the UK, and in fact through the european courts to ensure that Guernsey is getting what is due to it in the form of taxes to pay for the burden of local residents who work in the UK and overseas.
Then we can worry less about the industry we have locally, and more about a group of individuals being connected to the global economy who happen to live in Guernsey but not necessarily work here. They are globally mobile and connected to the ‘cloud’.
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@Les Beaucamps Boy
“Why are Our entire Political Class silent on Quantative Easing and the devaluation of Sterling?
Particularly the effect of raising the money supply elsewhere and in the process shrinking our economy relative to that of the rest of Britain and the World.”
I don’t know that they are silent on it, although I don’t really care. Anyway inflation comes from a large number of sources, and the latest round of quantitative easing will be a tiny contribution to the overall rate of inflation. As long as the Guernsey Pound is pegged to sterling it is being devalued whilst there is inflation, QE is almost an irrelevant footnote. The rising value of commodities and assets have a far more significant impact on declining value of currency, where no money is printed. (Interestingly, in this round of QE they didn’t print any money either, it’s all electronic). QE will have an effect, sure, but far less than about a billion other things, which politicians in Guernsey also have no influence over.
“Growth in a contracting economy is not growth at all unless it outstrips shrinkage”
Er well no, because that’s a contradiction in terms. Contracting economies are not growing by definition, if growth outstrips shrinkage, the economy is not contracting.
“What I would like them to say is “That there is a problem and we are going to try and minimise the impact on our ecomomy. That we realise the responsibilities of our offices.”. Alternatively they could say “We are out of our depth and don’t understand so we quit!”.
The catch all “It is completely out of our hands” is frankly defeatist rubbish, worse it is dangerous to the economic wellbeing of our community!”
How is it defeatist to acknowledge you have no control over something? Frankly that’s the most sincere victory you can achieve. You focus on the things you can control. Anyway, QE is a tiny part of inflation, as discussed above. I’m pretty sure people have made it clear they’re aware of the wider economic climate (and relatively high inflation) and are not sitting on their hands, or if they are, they’re saying they’re not.
“I am sure it is discussed regularly at the highest levels but all three years of discussion have produced is this Surrender Monkey “we’re helpless” mewling.
How about the States “Man Up” and say we will print the Pro-Rata £300 million or we will float the Guernsey Pound there are alternatives. No One said these were easy times or easy decisions but hiding in the Zero Ten bunker with a pallet of toilet tissue wailing is not leadership.”
Terry is right, the Guernsey Pound is in the same pot as other sterling. That’s not to say that Guernsey couldn’t issue its own currency and float the Guernsey Pound (or whatever) but this would be hugely unstable. Currency markets are not fun places to be small fish. No currency mechanism in perfect – the hypothetical value of the whole thing scares the hell out of me if I’m honest – but floating the Guernsey Pound would be a pretty terrible move, and an unnecessary barrier to trade with…everyone.
On the face of it though, I can’t find an issue with your printing £300m pro-rata suggestion. But what does pro-rata mean? If we do it by number of people, then £300m = roughly £5 per person in the UK. In Guernsey that means £5 x 60,000 = £300,000. Considering the States budget each year, that’s a small amount, and you are running the risk of higher local inflation which is already susceptible to the problems in the UK.
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Phil – sure, but LBB was saying that there was a problem with devaluation, and any printing by us would simply increase that devaluation further. As far as devaluation is concerned, it makes no difference who prints it.
QE might work to kickstart the UK economy (so that devaluation is a price worth paying), but I am not convinced it would have any beneficial effect here, for the following reasons:
1. I doubt that the local banks can issue/sell the types of assets that the States would buy in any QE programme, so the money would not end up in the local eonomy but would end up in London or elsewhere
2. even if the local banks could issue/sell the right types of assets, there would be nothing to stop them up-streaming the money to the UK parent, so again we would have devalued sterling further without stimulating the local economy
3. there is nothing to suggest that the local economy needs a QE stimulus. I am not aware of a big increase in people out of work or in failing businesses. Our local economy is doing pretty well (certainly compared to the UK or Jersey), so we would be increasing inflation to solve a problem that does not exist. Most people in Guernsey complain about the cost of living, not the lack of jobs – QE would simply make that worse.
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Example:
Threre are four tables each with an equal value of currency on them, 20 rand, 20 pounds, 20 dollars and 20 bolivars.
By coincidence S.A sells gold at 1 rand per ounce and Bolivia coffee at 1 bolivar per sack, ie 1pound/dollar/rand/bolivar buys 1 unit coffee or gold during QE pound and dollar supply increases by 50% to 30 of each.
On trying to buy gold and coffee Britan and America find that as they have devalued they now have to spend 1-50 to buy one rand or bolivar to purchase the goods which were previosly a single pound or dollar the exchange rate now being 1-5 £/$ to 1 rand / bolivar. The principal of devaluation.
Now if we look closely at the Sterling table we see that before QE there was 2 piles of £s,the UK pile with £18 and the Guernsey pile with £2, Guernsey can purchase 2 units of goods.
After QE there are now £30 on the Sterling table but in the UK pile is £28 and the Guernsey pile still only £2! So Guernsey can now only buy one and a bit units of goods.
This is because QE has disadvantaged us the solution was to QE ourselves to maintain our money supply ie print one more pound.
Since QE is over £300 billion Kieth the £300 million was ours.
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For those that still cannot grasp the concept I can rework the previous example using various sized slices of humble pie if required.
NEXT!
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Terry
If what your saying is true then Guernsey can print off some cash and fill the black hole or alternatively pay the UK based contractors for major projects i.e. The runway etc without it having any negative impact here….. We could call it GQE and all would be good ?
Would we need permission from BOE to print cash?
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simon – sadly not as Guernsey does not have a central bank i.e. the Bank of England.
We could ask them to print some money for us but I can’t see that going down too well.
However here’s a question: if Sterling becomes “unatractive” at some stage in the future would Guernsey re-allign its currency to the Euro or US or Canadian Dollar?
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oh dear LBB, you really have illustrated how you don’t understand QE at all
are you saying that all of the Gsy £ is contained within Guernsey and held by the States? Of course it is not.
Using your example, there is £20 on the on the sterling table, and then there is £30 on the sterling table. The extra £10 is released to a limited number of individuals so that they can spend it in order to drive the economy. The economy is not better off, it still has the same GDP, it is just that the £ in everyone’s pocket is worth a little less. The GDP of Guernsey is exactly the same as when there was only £20 on the table. If you think that increasing the money on the table from £30 to £31 would help us (when the extra £3 would not be spent here and there is no need to stimulate our economy) then you are bonkers.
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simon – if governments could simply print money to pay off government debt or to pay for capital projects, and suffer no consequences, then they would all do it tomorrow. Unfortunately, it has serious wider effects – domestic inflation, devaluation compared to other currencies, loss of investor confidence in the country, etc.
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Gilthead
Thanks for the reply, so does that effectively mean that Guernsey does not have any control over its own currency?
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@Terry Langlois
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if governments could simply print money to pay off government debt or pay for capital projects and suffer no consequenses, then they would do so tommorow.
Well Terry they actually did that and to hell with the consequences, where have you been the last three years?
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The GDP of Guernsey is exactly the same as when there was £20 on the table.
It might be Terry in Sterling figures but not in Rand or Bolivars or even as a percentage of Serling having dropped from 20% to 15%.
Good old Gordy Brown was a friend of ours he wouldn’t have tucked us up! We are talking 5 grand a head for all of us, not peanuts, stop shooting the messanger and ask who let us be fleeced of £300 million and explain why we should be taxed for that mistake, over to you Dave and co,
PS. did your statement that you prefer to rely on Parky’s advice amount to an addmission that you were out of your depth?
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@Gilthead,
Realign with the Euro or the US Dollar you really are having a Giraffe now do you not see that the Carribean economies pegged to the devaluing Dollar are in the same position? The Euro sorry I am actually lost for words.
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simon – no problem.
Terry has summed it up pretty well.
Yes you are correct though in that Guernsey has no control over Sterling – it’s not our currency and we therefore have no absolute control. Thats with the fools of Threadneedle Street.
However, there was talk of the Island going into debt to pay for capital projects…this would require the Island going to the markets and raising money via bonds.
In my view this is something to be avoided at all costs.
It would have been interesting to see how that could have been acheived as we don’t have the aforementioned Central Bank – we therefore couldn’t issue govenment gilts a la the UK and other sovereign states.
My guess is that bonds would have been issued on “Guernsey PLC” and offered to the commercial bond market in the same vein as Tesco or whoever.
Yeilds on these types of commercial paper tend to be higher than gilts (although not necessarily at the moment!).
Terry might have a different view on this…
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LBB – I’d leave it there if I was you – as Terry has pointed you really haven’t got a clue.
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History lesson,
1971 Nixon removes the Dollar off the Gold standard devaluing it.
The Opec Nations seeing their Petro-Dollar returns fall cut prouction to raise the price.
A chain of evens ensues which sees the pound devalued and Dennis Healey at the IMF, the UK economy (not Guernsey) is reflated on borrowed money.
Guernsey misses the devaluation bus and by the end of the decade our traditional industries are dying.
It matters not a peep wether QE is “Electonic Money” or rolls of the printing press or dumping 20% lead into the Bullion reserves, it is still a Con trick! Devaluation with the Government creaming off the top.
I despair that in a mad world where all are out to cheat us, albeit unintentioally that people are still trying to make a virtue of playing by the old rules when the rest of the World has thrown the rule book away.
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@Les Beaucamps Boy
My bad on the numbers, but as Terry said, QE is not without its consequences, which can easily be local inflation (already high because of inflation in the UK) and the perception of ‘radical’ solutions in a fragile economy deterring investment. I don’t think anyone would agree that the Guernsey economy is in bad enough shape to warrant ‘rocking the boat’ and causing such instability.
@Gilthead
I thought the States could ‘print money’ so to speak, or rather create currency via QE the same as the Bank of England, and that it had done in the past but it was a rare thing to do, or am I mistaken?
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LBB – “Well Terry they actually did that and to hell with the consequences, where have you been the last three years?”
No they didn’t – otherwise the UK govt would not be stressing about reducing the deficit. QE is effectively printing money, but the purpose is not to allow the govt to simply cancel govt debt, the purpose is to put it in the hands of people who can generate real economic growth. It is that growth which reduces the deficit.
The QE programme is peanuts in comparison with the UK economy and the BoE is accutely aware that if it overdoes QE then it will impact negatively on the economy. A small amount could kick-start the economy and the negative effects are maangeable, but with a bigger amount the negative consequences outweigh the benefits.
“It might be Terry in Sterling figures but not in Rand or Bolivars or even as a percentage of Serling having dropped from 20% to 15%.”
what??! twenty bags of flour are still twenty bags of flour, it does not matter whether you price it in pre-QE sterling, post-QE sterling or any other currency.
the size of an economy is not measured by its currency. Currency can be an indicator of the market perception of the underlying economy, and currency movements have an effect on the future growth of the underlying economy, but nothing more. If you print money you are changing the currency through factors unconnected with the underlying economy, which remains unchanged (at least until the effects of QE start to kick in, if at all).
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Keith – I don’t think so (print money as in QE).
“Our” money is backed by the BOE i.e. Sterling – so QE can only be performed by the BOE. See Terry’s post above. The Guernsey Treasury prints notes but this is just a representation of Sterling in a Guernsey context.
Unless we create a central bank we cannot issue our own currency – we therefore have to allign to another…and be at the mercy (to a point) of that system. Much to LBB’s consternation!
If we did go it alone we’d create the CB and also commercial banks to create money via small assets (and larger debt) by what’s know as Fractional Reserve Banking (FRB) – which would require borrowing via the money markets. Frankly we’re far too small for this and its way too risky.
LBB poo pooed the idea of alligning to, say, the Euro – but if he does the maths he’d realise that had we done it at the outset we’d all be better off than we are now.
Its all swings and roundabouts though.
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Thursday, the European central bank used fairy dust to purchase the devalued Greek Snake Oil bonds and prolong the illusion of solvency in the Euro Zone, Cameron got his way that the UK’s Magic Beans would not go to the IMF to bail out the Euro, Obama sat on his golden goose eggs, Merkal fed up with printing money warned Euro peace was at stake, Cameron put his “peace in our time” e mail in the safe at Downing st and the Poles moved their Army up to the border. Meanwhile at the Krupp steel works Germany’s econonomy began to drive out of recession…………….
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@T.L.
Yawn, in the 70′s I had a poster of a motorcycle the caption was “If I have to explain, you won’t understand anyway!”. A fortnight ago Jersey’s Office of Economic Developement issued a statement that was not extensively reported in the media that stated ” The UK’s debt restructuring may be damaging Jersey’s economic recovery” are they “bonkers” too?
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LBB – I have never said that the UK measures do not damage us – they do. What I have disputed is that if we tried to do our own QE we could counteract that damage (your original assertion). It would actually make it worse.
to paraphrase your poster – “If you still don’t understand after I’ve explained it ad nauseum, you never will”
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Good to see you back Deputy Jones
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@ Niel
Jonesy is “indespose” aka in the Zero Ten Bunker invoicing the Andrex pallet!
Pete Roffey, could not a man of your experiance dumb down the explanation to the point where our elected represantatives grasp the concept?
@ Terry,
thank you for that, our options seem very limited; print pro-rata £300 million, float our pound or see our economy trashed, I take no pleasure in pointing that out or satirising people, I am a patriot to our island Nation and only want the best for us.
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LBB – I agree that our options are limited, but I would assess them as follows:
1) print “pro-rata” – even if we do have freedom to just decide to print money (and I’m not sure that we do), what would happen to it? As mentioned above, our local banks are not structured to allow this to be fed directly into the local economy and so I would expect that it would leak to the UK. Anyway, our economy does not currently need a kickstart. So we would increase the devaluation problem “pro-rata”, for no benefit
2) float our pound – simply not viable. we are too small and would be at the mercy of currency markets
3) do nothing – which you take to mean “see our economy trashed”. But look around you, our economy is not trashed. We are doing pretty well compared to the rest of the sterling area and pretty well compared to other parts of the world with which we deal. The UK measures hurt us just as they hurt the UK, but only a little bit. If the UK measures work as intended, we will also benefit as a lot of our economy is driven by the success of the UK economy. To my mind, the “keep calm and carry on” option seems perfectly reasonable and the best option available.
As for your last sentence, me too!
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