Valley of the Trolley Dollies

A friend in the Euro zone writes:
it is unbelievable how the GBP is loosing value. are prices going up in the uk? do you feel anything? how much is petrol?

I reply:
If anything, prices are falling.
Every store in the country has a 20% - 75% off sale.

That’s the whole problem: We’ve spent so long on a huge bubble of credit with, frankly, rather decent inflation figures (never too high, but growing enough to convince that there was still growth - in demand if in nothing else), and the whole thing’s been financed with credit at middling rates.

Now, to stave off a recession caused by panic, the govt has slashed the rates, which makes the currency less attractive to investors, who are bailing out and getting into Euro (hence the FX situation). However, the credit providers are not passing those cuts on to the consumers, and, even if they are, the general air of pessimism is pushing people to hold back, hence a self-fulfilling recession prophecy, which makes more companies go bust, which makes the lenders more wary of lending, or of giving credit cheaply, which makes it harder for people to borrow and more likely that they’ll not want to spend unnecessarily, and the vicious circle kicks in.

The timing couldn’t be worse: many of the stores had already ordered stock back in the summer, when this was all just ‘Rumours from abroad,’ like the rumbling of some distant overseas war. Now, with shelves full and little or no cashflow coming through the door, they’re in a very difficult position.

I guess this is what Japan felt like in the 90’s. It’s scary, but it’s sort of needed; nothing lasts forever. I just hope that it’s a painful adjustment that myself and the people I love can get through with as little pain as possible.