GBP vs Govt. Debt

prometeo1984

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Hello everyone!

I have some very basic knowledge of macro economics, so really hope you could help me out on understanding the relationship between a weak pound and the national debt.

If I am not wrong the national debt is approximately 50% of the GDP, so government has to work to cut government budget and try to restore the debt.

Now, how does a weak pound come into play? Given that the nature of the British economy is not manufacturing nor export driven, in which way can a weak pound recover the economy/restore the debt?

Does is have to do with the currencty of the debt? With the currency of the reserves?

Thanks for the help!
 
Hello everyone!

I have some very basic knowledge of macro economics, so really hope you could help me out on understanding the relationship between a weak pound and the national debt.

If I am not wrong the national debt is approximately 50% of the GDP, so government has to work to cut government budget and try to restore the debt.

Now, how does a weak pound come into play? Given that the nature of the British economy is not manufacturing nor export driven, in which way can a weak pound recover the economy/restore the debt?

Does is have to do with the currencty of the debt? With the currency of the reserves?

Thanks for the help!


Think of it as Injection and Leakage into the economy... In a nut shell.


INJECTION - LEAKAGE - Determining factor!
Tax Revenue - Gov Expenditure - Tax rate

Investment - Savings - Interest Rates

Exports - Imports - Exchange rates



Low rates stimulate expenditure and business -> Stimulate investment over savings -> Low rates keep pound low stimulating exports over imports.

You will have to discuss the for and against arguements. Follow the money trail... (y)
 
Hello everyone!

I have some very basic knowledge of macro economics, so really hope you could help me out on understanding the relationship between a weak pound and the national debt.

If I am not wrong the national debt is approximately 50% of the GDP, so government has to work to cut government budget and try to restore the debt.

Now, how does a weak pound come into play? Given that the nature of the British economy is not manufacturing nor export driven, in which way can a weak pound recover the economy/restore the debt?

Does is have to do with the currencty of the debt? With the currency of the reserves?

Thanks for the help!

its more like 100%
 
Think of it as Injection and Leakage into the economy... In a nut shell.


INJECTION - LEAKAGE - Determining factor!
Tax Revenue - Gov Expenditure - Tax rate

Investment - Savings - Interest Rates

Exports - Imports - Exchange rates



Low rates stimulate expenditure and business -> Stimulate investment over savings -> Low rates keep pound low stimulating exports over imports.

You will have to discuss the for and against arguements. Follow the money trail... (y)


Problem you will encounter is conflict in government objectives. Currently government has Budget and Balance of Payments defecit. To finance debt it will have to sell Government bonds to raise finance. However, to raise finance to meet debt it will have to raise interest rates otherwise no one will buy say government 10 year bonds at 0.5% - especially when inflationary expectations are factored in.

If Government raises rates then this directly impacts Investment & Savings, and will raise the pound.

This is why BoE always trying to talk down the pound to stimulate exports over imports. However most recent BoP defecit was a shock to the system.

The issue is will pound drop or interest rates rise? We already have negative interest rates with inflation running over 3%...

You get the picture...
 
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