Brexit; an opportunity for Britain!
If they have the confidence and courage.
Written by Ron Manners
As an Australian I could be excused for thinking of Brexit (a withdrawal of the U.K. from the EU) as being of little interest to Australia.
However, after recently spending three weeks in Europe, I hastily conclude that it presents the U.K. with a once in a lifetime opportunity to again assume an important international leadership role.
The U.K. has many things going for it, as they fortunately did not go ‘all the way’ with adopting the Euro currency — now ‘damaged’ , as is the U.S. dollar, by desperate and irresponsible ‘stimulus actions’ by respective (but perhaps not always respectable) governments.
The U.S. has managed this due to the ‘reserve currency’ status of the U.S. dollar, a luxury not available to the Euro or even the Chinese Yuan.
With international confidence declining in Wall Street and the Federal Reserve because of perceived collusion between these parties, the reputational image of London appears far higher. The U.K., if they position themselves correctly, could capture a larger share of international business, particularly on the back of mounting European resentment at the United States’ ‘bully boy’ imposition of their FATCA (Foreign Account Tax Compliance Act) bureaucratic paperwork and their insistence on access to European client banking records.
The U.S., having damaged its own economy through decades of reckless easy money, is exploiting extraterritorial bureaucracy as a means of attracting the world’s ‘portable money’ to the U.S., driven no doubt by their persistent deficits and need for perpetual external funding. Peter Cotorceanu of Anaford, a Zurich law firm, predicts that hundreds of billions of dollars will move to the U.S. with most of the money moving this year. He notes that individuals in Switzerland, Hong Kong and Singapore have until the end of the year to pull their money out. (Page 5; Financial Times; May 19, 2016).
There are some sheltered-workshop industries in the U.K. who will be alarmed at the thought of a strengthening Pound Sterling but the rest of the world could welcome a ‘sound currency’ in which they can have confidence as a ‘store of value’ which, after all, is one of the original reasons for the creation of ‘money’.
So the outcome of the ‘Brexit vote’ could indicate to what degree the U.K. has self-confidence to regain its sovereignty it has lost to Brussels over recent years.
Does it again desire to have control over immigration?
Has it confidence in its own ability to perform in a competitive world, without the ‘security blanket’ of the E.U.?
So, “Come on U.K., let’s put the Great in front of Britain again.”
Note 1: View Brexit movie – here
Note 2: View How the EU destroys industries – here
Note 3: I’m guilty of confusing Britain with U.K. which is clarified below.
Britain refers to England, Wales and Scotland only, whereas the UK includes Northern Ireland, and strictly speaking it is the UK that is party to the EU treaties.
“The United Kingdom is a country that includes England, Scotland, Wales, and Northern Ireland. Its official name is “United Kingdom of Great Britain and Northern Ireland.” England, Wales, Scotland, and Northern Ireland are often mistaken as names of countries, but they are only a part of the United Kingdom.”
Note 4: My criticism of QE may be unfair and I include this footnote from a friend whose opinion I respect:-
“In several major economies QE has been used to stimulate economic recovery. However, the crucial issue of the transmission mechanism of monetary policy has not received enough attention either from academics or from policy practitioners. In particular, the puzzle is why, the words of Charles Goodhart, ‘in view of the massive expansion of central bank liabilities, there has been no equivalent increase in the broader money stock, and bank lending continues to stagnate’.
The answer lies, in my view, in the way in which the US Fed and the Bank of England, on the one hand, and the Bank of Japan and the ECB, on the other, have conducted very different styles of Quantitative Easing (QE) policies.
The QE operations conducted by the Fed and the Bank of England have largely been successful because they were targeted at the purchase of securities from non-banks; they therefore increased the stock of money or purchasing power held by firms and households directly; and were consistent with a reduction in private sector leverage. US broad money (M2) and bank lending are now growing at 7% and 8% year-on-year, respectively. The UK lags the US to some extent (in part because UK regulators have compelled UK banks to reduce leverage by much more than US banks have been required to do) but UK broad money growth (M4x) is 4.5% year-on-year and lending growth has recently turned positive.
By contrast, the QE operations conducted by the Bank of Japan and the ECB have had much less success because they were targeted largely at the purchase of securities from banks, and as a result, they did not increase the stock of money or purchasing power held by firms and households, and were not consistent with any reduction in private sector leverage. Both these areas are still struggling with sub-par growth and deflation.
During a period of balance sheet repair the way in which QE is executed and the interaction with private sector deleveraging are the key issues determining the link between central banks’ actions and broad money growth and bank lending, not the level of interest rates, or the size of the monetary base. “ ….. John Greenwood