Should the UK remain a member of the EU

[Captain]

Groundhog day.

 

Fucking hell.

[jimmycase]

http://www.economicshelp.org/macroeconomics/bop/policies-to-reduce-deficit/

 

Policies to reduce a current account deficit

A current account deficit occurs when the value of imports (of goods, services and investment incomes) is greater than the value of exports. (See: Causes of current account deficit)

The UK has had a persistent current account deficit since the mid 1980s.

Policies to reduce a current account deficit

 

1. Devaluation

This involves reducing the value of the currency against others. (e.g. selling pounds would cause the value of the Pound to fall)

• If there is a devaluation in the currency, the price of importing goods increases and therefore the quantity demanded of imports falls.
• Exports will be become cheaper and there will be an increase in the quantity of exports.
• Therefore, assuming demand is relatively price elastic, we would expect a devaluation to lead to an improvement in (X-M) and therefore the current account on the balance of payments.
• However it does depend upon the elasticity of demand for exports and imports.

The Marshall Learner Condition

This states that a devaluation will improve the balance on the current account, on the condition that the combined elasticity’s of demand for imports and exports is greater than one.

• If (PED x + PED m > 1) then a devaluation will improve the current account.
• If (PED x + PED m > 1) then an appreciation will worsen the current account.

This is because the effect on the current account depends on the total value and not just the quantity of exports.

The J Curve effect

In the short term, demand for imports and exports tends to be inelastic. Therefore, after a devaluation, the current account tends to get worse before it gets better. However, over time, demand becomes more price elastic and the current account improves.

Another problem with devaluation is that it can lead to imported inflation. Basically imports will be more expensive. Higher inflation can reduce the countries competitiveness. Therefore the improvement in the current account might only be temporary.

See more on devaluation

Deflationary policies

Policies aiming at reducing the growth of aggregate demand and reducing inflation. They can include a tightening of fiscal policy or monetary policy, this will reduce aggregate demand.

2. Monetary policy

Tight monetary policy involves increasing interest rates –

• Higher interest rates will increase the cost of debt and mortgage repayments and leave people with less money to spend. Therefore, this will reduce their consumption of imports, improving the current account.
• Also, higher interest rates will cause a fall in AD and therefore reduce economic growth. This will reduce inflation and help to make UK exports more competitive.
• Deflationary policies will also put pressure on manufacturers to reduce costs and this will lead to more competitive exports and so exports may increase in the long run because of this effect.

Evaluation of monetary policy for reducing current account

• The main issue with using monetary policy to reduce a current account deficit, is that an increase in interest rates will tend to cause hot money flows and therefore an appreciation in the exchange rate. This appreciation makes exports less competitive, and imports more attractive. Assuming demand is relatively elastic, this appreciation will worsen the current account.

Therefore, monetary policy has two conflicting effects.

1. Higher interest rates reduce spending on imports – improving current account
2. But, higher interest rates cause an appreciation in the exchange rate – worsening the current account.

• The overall effect is uncertain – it depends which effect is bigger. It maybe that since the UK has a high marginal propensity to import higher interest rates will cause a reduction in AD improves the current account significantly.
• It depends on many other factors, for example, if the economy is growing strongly, a rise in interest rates may not actually reduce consumer spending – because income growth is high and confidence high.

Deflationary fiscal policy

• An alternative to using monetary policy is to use fiscal policy. For example, the government could increase income tax. This would reduce consumer discretionary income and reduce spending on imports.
• The advantage of fiscal policy is that it would not have an adverse effect on the exchange rate. Higher income tax would also improve government finances.

• However this policy will conflict with other macroeconomic objectives – with lower aggregate demand (AD), growth is likely to fall causing higher unemployment. A government is unlikely to want to risk higher unemployment just to reduce a current account deficit.

3. Supply side policies

Supply side policies can improve the competitiveness of the economy and help make exports more attractive. This can improve the current account position, but it may take considerable time to have effect.

For example, if the government pursued a policy of privatisation and deregulation it may help to increase the efficiency of the economy because of the profit motive in the private sector. This increased efficiency would translate into lower costs of production and more exports

See: supply side policies

4. Lower wages

A policy used by many Eurozone economies facing a large current account deficit (but unable to devalue within single currency) is to reduce wages. Lower wages will reduce costs of production and improve competitiveness.

• However, lower wages will also lead to lower aggregate demand and could lead to deflation and low growth.
• If the government cut public sector wages, it may have limited impact on improving competitiveness of exports.
• Reducing wages is also known as internal devaluation.

5. Protectionism

The government could increased tariffs on imports or even impose quotas. Both these measures would have the impact of reducing imports and therefore improve the current account.

However:

• Protectionism may lead to retaliation – with other countries placing tariffs on our exports – so exports could decrease.
• Protected by tariffs – domestic industries may become uncompetitive, because there is less incentive to cut costs.

 

Policies to reduce a current account could also be classified into two types:

1. Expenditure switching policies

• This involves changing the goods that people buy. For example
  • Devaluation makes domestic goods relatively cheaper,  and foreign imports more expensive. Therefore consumers will switch from buying foreign imports to domestic goods
  • Supply side policies make British goods relatively more attractive

2. Expenditure reducing policies

• Policies to reduce overall spending on imports.
  • This can involve tight fiscal or tight monetary policy.

[jimmycase]

I'm staggered this has come up again. I thought we'd put it to bed.

 

Because you're forgetting a lower pound means imports cost more and presuming imports stay at the same level.

 

That's not a given.

[Dr Nowt]

Anyone get the feeling the leave camp sans farage are all shitting themselves, like they didn't expect to win?

The people who are going to have to make this work are in meltdown.

I thought, even allowing for the inevitability of the snake feigning a humble, sober reaction to victory, that Johnson just looked really worried on Friday, his eyes told their own story.

 

Looked to me like it was still sinking into his low animal cunning what this would mean personally, let alone overall, and he was flying by the seat of his pants.

[kalasoma]

Juncker was elected by members of European Parliament with a majority 58% of the votes. I'm not sure where this "unelected Juncker" thing comes from. What am I missing here?

[FanchesterCity]

 

britain's trade deficit narrowed more sharply than expected in April after a record monthly jump in goods exports, offering a hint that a weak recent trade performance may be turning a corner.

 

The Office for National Statistics said Britain's total trade deficit narrowed to 3.294 billion pounds in April from an downwardly revised 3.532 billion pounds in March, its lowest level since September 2015.

 

Britain's large current account deficit hit a record 7.0 percent of the economy in late 2015, which the Bank of England has said potentially leaves Britain vulnerable if the country votes to leave the European Union in a referendum on June 23.

 

However much of the deficit is due to the weak performance of British overseas investments, rather than its trade deficit.

 

The deficit in goods alone narrowed to 10.526 billion pounds from 10.646 billion pounds, compared with economists' forecasts for it to hold broadly steady at the original March estimate of 11.2 billion pounds.

 

Goods export volumes jumped 11.2 percent on the month, the biggest rise since records started in 1998, taking the total value of goods exports in April to 26.123 billion pounds, not far from an all-time high set in June 2013.

 

British economic growth slowed to a quarterly rate of 0.4 percent in the first three months of 2016, down from 0.6 percent in the last three months of 2015, with Britain's trade deficit accounting for an increased drag.

 

The ONS said that revisions to March trade data pointed to less of a drag on GDP from trade than first estimated.

Thursday's figures showed that goods export volumes in the three months to April rose by 4.3 percent after dipping 0.1 percent in the first quarter of the year, the biggest increase since the three months to June 2013.

 

Higher exports of chemicals, oil and machinery -- as well as aircraft, which can lead to outsize jumps in volumes -- lay behind much of the rise, the ONS said. The value of aircraft sold in the three months to April was an all-time high.

Goods imports volumes rose by 4.6 percent after a 0.9 percent increase in the first quarter.

 

The stronger ONS data tally with a recent more upbeat message from some private-sector surveys. Factory export orders were above their long-run average in April and May, according to the Confederation of British Industry, and industrial output staged its biggest jump in nearly four years.

Sterling fell to its lowest since late 2013 on a trade-weighted basis =GBP in April, but falls in the cost of British exports are typically slow to trigger a boost in foreign demand.

(Reporting by David Milliken and William Schomberg)

 

http://uk.reuters.com/article/uk-britain-trade-idUKKCN0YV0RQ

 

Sunderland's fortunes took a turn for the better towards the end of the season too, and it was good news (for them).

They are still dire and still down near the bottom of the league.

 

Yes, the deficit 'narrowed' - so did Sunderlands gap to the top of the table. The fact remains, it's a large gap.

[FanchesterCity]

Because you're forgetting a lower pound means imports cost more and presuming imports stay at the same level.

 

That's not a given.

 

Yes I'm presuming imports stay at the same level (or roughly the same). I'm also assuming the earth stays roughly round and gravity still works.

If any of those change, I'll re-evaluate my position.

 

Given our nation is not rich in natural resources, it's very hard for us to make things without imported ingredients. We can sell services though, as they don't need raw materials. We can also sell specialist goods where the materials costs are low, but the skill / design is complex - like F1 parts and Aircraft parts - or pharmaceuticals. And that's precisely what we see today and precisely for those reasons.

 

What we can't easily do though it make high volume products with low complexity and low raw materials costs - because our workforce is too expensive (compared with a sweatshop in Asia).

 

And another thing, if you think an increase in raw materials costs doesn't have 'much effect' on the factory gate prices, you're off your head. It has a direct correlation. There are hardly any manufacturers willing to absorb the costs. They pass them onto the consumer.

 

The only business that can absorb the costs are the super high margin products like McDonalds milkshake etc and even then, eventually, they'll raise the price (but they'll absorb a transient, not a permanent rise).

[KMD7]

You lost. Get over it.

 

[jimmycase]

Juncker was elected by members of European Parliament with a majority 58% of the votes. I'm not sure where this "unelected Juncker" thing comes from. What am I missing here?

 

Yes, did you get a vote in juncker's election because I didnt.

[Dicko]

Yes, did you get a vote in juncker's election because I didnt.

 

Will you get a vote in Johnson's election?

[jimmycase]

Will you get a vote in Johnson's election?

 

Yeah, showing why you're called dicko yet again.

 

If you're a tory party member (Im not) and he's one of the last 2 candidates. Fuck me, even the tories have more democracy when it comes to voting for a leader.

[Dicko]

Yeah, showing why you're called dicko yet again.

 

If you're a tory party member (Im not) and he's one of the last 2 candidates. Fuck me, even the tories have more democracy when it comes to voting for a leader.

 

But you still won't get a vote in Johnson's election.

[kalasoma]

Yes, did you get a vote in juncker's election because I didnt.

 

I didn't get a vote no. So he was still elected, just not by you. 

[jimmycase]

But you still won't get a vote in Johnson's election.

 

Yes, you and I will. When he's leader of the tories in a General Election. If he ever becomes leader that is.

[jimmycase]

I didn't get a vote no. So he was still elected, just not by you. 

 

If you're happy with the election of your leaders being this way then, fair enough.

 

Me, I prefer at least a veil of democracy.

[kalasoma]

If you're happy with the election of your leaders being this way then, fair enough.

 

Me, I prefer at least a veil of democracy.

 

I just wanted to be clear on where the idea came from that Juncker was 'unelected'. I am now. 

[Dicko]

Yes, you and I will. When he's leader of the tories in a General Election. If he ever becomes leader that is.

 

And the people that voted in Juncker were voted in by MEP's.

MEP's voted in by the people.

[FanchesterCity]

Yeah, showing why you're called dicko yet again.

 

If you're a tory party member (Im not) and he's one of the last 2 candidates. Fuck me, even the tories have more democracy when it comes to voting for a leader.

 

It's precisely the same thing... just another rung up the hierarchy.

We have an elected representative (Cameron) in Europe for primary legislation.

For secondary legislation we have the European Parliament to finally approve (or not) secondary legislation, and they are elected members.

 

The common objection is to other bodies like the European Council which are NOT directly elected, but we have the same situation with committees and ministers here that aren't directly elected. We don't get to choose the cabinet. We trust Cameron to do that.

 

And don't get me started on the House of Lords - which initiates many laws as it sees fit.

[jimmycase]

But you still won't get a vote in Johnson's election.

 

You're making a great job of making yourself look a dicko. Again.

 

You get a vote on boris or any other tory being leader of the tory party by being a tory party member.

 

If you're not a tory party member, you'll get a chance to vote for boris or any other tory party leader in a general election.

[jimmycase]

And the people that voted in Juncker were voted in by MEP's.

MEP's voted in by the people.

 

And did your MEP consult you when they voted for juncker?

 

The election of juncker is more aligned to the former soviet bloc.

[FanchesterCity]

If you're happy with the election of your leaders being this way then, fair enough.

 

Me, I prefer at least a veil of democracy.

 

That's all it is - a veil. 

The House of Lords initiates a great many laws, and they are unelected. Personally I have no major problem with that, but to moan that the EU can operate in such a way is hypocritical. We can moan that we don't like them, or don't like their actions, but we can't moan that their 'system' is bad / corrupt without looking at our own system and laying the same accusations.

 

People have been buying peerages for decades from both parties. Scandalous, and we've done what? not a lot.

[jimmycase]

That's all it is - a veil. 

The House of Lords initiates a great many laws, and they are unelected. Personally I have no major problem with that, but to moan that the EU can operate in such a way is hypocritical. We can moan that we don't like them, or don't like their actions, but we can't moan that their 'system' is bad / corrupt without looking at our own system and laying the same accusations.

 

People have been buying peerages for decades from both parties. Scandalous, and we've done what? not a lot.

 

The HoL introduces minor legislation on behalf of the Government of the day because there isnt enough Parliamentary time for it to be presented in the Commons. At least try and learn about the constitution.

[Pidge]

The pound is trading roughly where it was in february.

 

 

Oh, you mean when we announced the date for the referendum. Fuck me, what a great point...

 

The pound is predicted to settle at around 1.3 - that's before we start tearing into our legislative landscape, start to negotiate new trade deals from a weaker position, before the leadership election and possible GE and before decisions are made on Scotland/NIR futures.

 

As for the FTSE, these are the biggest brands and companies we have - of course people bought into them after the prices bottomed out, that's easy money for the medium-high risk fund managers, they will also sell once they see a return - prolonging volatility.  The issue here is how many of these firms will get sick of the volatility and decide to list on a different exchange in the medium term.

 

You are right in that we don't know how bad things will get and the apolocalyptic views are not helpful, but this is not something to just dismiss.

[Dicko]

And did your MEP consult you when they voted for juncker?

 

The election of juncker is more aligned to the former soviet bloc.

 

The Labour MEP's voted against Juncker.

But there wasn't enough of them.

That's how an election works.

[Denny Crane]

Anyone get the feeling the leave camp sans farage are all shitting themselves, like they didn't expect to win?