Roubini is predicting a British pound collapse caused by rampant U.K. inflation, and inflation is soaring right now.
It’s all a head-fake, if Adam Posen of the U.K.’s Bank’s Monetary Policy Committee is right.
He’s broadly bearish sort of like Roubini, but he actually expects the U.K. to fall into a deflationary trap similar to what befell Japan.
Yet this ‘remake’ will be worse since the U.K. lacks many of Japan’s previous advantages.
“The UK worryingly combines a couple of financial parallels to Japan with far less room for fiscal action to compensate for them than Japan had.”
Britain faces an uncomfortable trio of obstacles, none of which faced Japan in the 1980s or 1990s. Unlike Japan, Britain has to sell a large proportion of its debt to overseas investors, who are more likely to exit the market if they become scared of Britain’s fiscal prospects. The UK also faces the challenge of having to boost a troubled manufacturing sector if it is to recover sufficiently. Unlike Japan, it does not have the luxury of having a worldwide market with a large and growing appetite for exports.
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