One thing I find hard to reconcile, though, is the point about UK being able to borrow more cheaply because it has a path to recovery through devaluation. Should that not lead to higher interest rates because the loans are likely to be paid back with a devalued currency?
Should that not lead to higher interest rates because the loans are likely to be paid back with a devalued currency?
Not necessarily. A 95 % chance of being repaid in a currency that has devalued by 15 % still commands a lower risk premium than a 75 % chance of being repaid in a currency that maintains its value.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
And it also assumes that the international financial markets don't behave like bipolar crack monkeys. An assumption that appears equally unfounded.
I know that, but the interest rate for the UK is not just lower than Greece's, it's simply not particularly high. Too low to be explained by the fact that it is more likely to recover thanks to devaluation.
And if it's something else (like the BoE buying), the lowish interest rates cannot be used as a proof that the possibility of devaluation saves the day. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
