If there's a financial crisis, it's size that matters
There’s something eerie in the woodshed – and it’s not the resurrection of Sarah Palin flogging her book on Oprah’s show. “Running for the White House in 2012 is not on my radar.” Phew!
No, forget Ms Palin, and we can probably afford to for now. Let’s concentrate instead on the strengthening pound – last night up against the dollar, up against the euro. This has on a little to do with the UK’s improving prospects and much more to do with the current tussle between America and her largest investor, China.
As the dollar dives, the Chinese currency stays low – too low. The stock markets continue their insupportable surge across the world, some of the banks grow stronger, the hedge funds put on weight. The second limb of the “W” is climbing.
How rare to see an American president in China for whom castigating the Chinese leadership for their appalling record on human rights is proving far safer territory than any wholesale discussion of the value of China’s currency.
The Yuan is being sustained at artificially low levels. The effect is to give Chinese exporters a crazy advantage, swelling China’s trade surplus whilst America’s trade deficit also surges.
The Chinese manage to keep the Yuan down by buying unprecedented quantities of cheap dollars. The cheap dollar sucks in ever greater amounts of product (much from China itself), fuelling ever more dangerous levels of US unemployment. I commend Nobel Prize-winning economist Paul Klugman’s column in yesterday’s New York Times.
Nothing has changed. And that’s not the first time I have said it. I have offered the view here in Snowblog for months. The ingredients are gradually falling into place to bring about another global financial crisis – a crisis that will put unbearable pressures upon Britain’s tender currency.
Yet whilst the world economy crackles in the heat, British politicians argue about the distance the country needs to keep from the safer haven of the eurozone. Size matters in a global crisis, as Ireland and Iceland showed in their different ways the last time round.
Whilst the UK is more robust than either, this is not a moment to begin believing that UK plc can be anywhere other than in what the former Prime Minister John Major once called “the heart of Europe”.