Tag Archives: Brexit

EU Basics – Your Guide to the UK Referendum on EU Membership, by Richard A Werner

Posted on June 23, 2016 | Leave a comment

This may seem like it’s a little late, what with the British vote on the EU already underway. However, it does a nice job of skewering the EU, always a worthy endeavor, and gives a good history of the EU, from its roots as essentially an American project. From Richard A. Werner at professorwerner.wordpress.com:

The British people should be clear about just what they will be voting on at the EU referendum this Thursday. What does it actually mean to stay in the EU? What does it mean to exit?

Concerning the second question, the dominant issue in the debate has been the question whether there will be a significant negative economic impact on the UK from exiting the EU. Prime Minister David Cameron, together with the heads of the IMF, the OECD and various EU agencies have given dire warnings that economic growth will drop, the fiscal position will deteriorate, the currency will weaken and UK exports will decline precipitously. George Osborne, the chancellor of the exchequer has threatened to cut pensions if pensioners dare to vote for exit. But what are the facts?

I have been trained in international and monetary economics at the London School of Economics and have a doctorate from the University of Oxford in economics. I have studied such issues for several decades. I have also recently tested, using advanced quantitative techniques, the question of the size of impact on GDP from entry to or exit from the EU or the eurozone. The conclusion is that this makes no difference to economic growth, and everyone who claims the opposite is not guided by the facts. The reason is that economic growth and national income are almost entirely determined by a factor that is decided at home, namely the amount of bank credit created for productive purposes. This has sadly been very small in the UK in recent decades, thus much greater economic growth is possible as soon as steps are taken to boost bank credit for productive purposes – irrespective of whether the UK stays in the EU or not (although Brexit will make it much easier to take such policy steps). We should also remember that a much smaller economy like Norway – thought more dependent on international trade – fared extremely well after its people rejected EU membership in a referendum in 1995 (which happened against the dire warnings and threats from its cross-party elites, most of its media and the united chorus of the heads of international organisations). Besides, Japan, Korea, Taiwan and China never needed EU membership to move from developing economy status to top industrialised nations within about half a century. The argument of dire economic consequences of Brexit is bogus.

As for the first question, namely what it means to stay inside the EU, we should consult the EU itself. Happily, the EU released a major official report about its key policies and what it plans to achieve in the near future in October 2015. This report was issued in the names of the „Five Presidents“ of the EU. In case you had not been aware that there was even a single, let alone five presidents of the EU, these are: The unelected president of the European Central Bank, Goldman Sachs alumnus Mario Draghi, the unelected president of the European Commission, Jean-Claude Juncker, the unelected Brussels Commissar and „president of the Eurogroup“, Jeroen Dijsselbloem, the „president of the Euro Summit“, Donald Tusk, and the president of the European Parliament, Martin Schulz. What is the message of this not negligible number of EU presidents concerning the question of where the EU is going? The title of their joint report is a give-away: „The Five President’s (sic) Report: Completing Europe’s Economic and Monetary Union“. https://ec.europa.eu/priorities/publications/five-presidents-report-completing-europes-economic-and-monetary-union_en

To continue reading: EU Basics – Your Guide to the UK Referendum on EU Membership

 

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Britain Doesn’t Need the EU to Thrive, by Frank Hollenbeck

Posted on June 22, 2016 | Leave a comment

If Britain votes for Brexit, Britain will slide into the North Sea, a pandemic of some sort will plague the world, and the sun will go dark, extinguishing life on earth. Well, maybe not, but a variety of scary consequences have been predicted by the usual fear peddlers. From Frank Hollenbeck at mises.org:

The United Kingdom will on Thursday vote either to leave or remain in the European Union. This is the most important European event of this century since it will likely have important domino effects for the rest of Europe.

A recent poll showed that if the UK could keep free trade with EU nations, the British people would vote overwhelmingly to leave the EU. To drum up support for staying in the EU, the UK government and quasi-government agencies, like the IMF and OECD, have issued continuous warnings about the costs of such a divorce. The IMF recently reiterated its forecasts that Brexit would have a significant negative effect on the UK economy with a drop in GDP anywhere between 1% and 9% over the long term.

The reality is that Brexit would probably only have a minor initial impact on trade or GDP and, on the contrary, would open up vast possibilities for the UK to exploit trade relations with other faster growing regions of the world without having to reach complex trade agreements that satisfy the vested interests of the other 28 members of the EU.

The impact of Brexit on trade has been grossly exaggerated. In today’s world, a product has parts coming from all over the world. A BMW is only called German because of historical association. In reality, the steel in a BMW may come from Brazil or China, the upholstery from the UK, the engine from France, and the electronics from the USA. Labor costs are only 10% of a car and some may even be foreign labor. Also, profits are distributed to BMW shareholders and bondholders which are more likely to be sent to a hedge fund in Japan than to the mechanic in Dusseldorf. The world is massively economically integrated. Relatively free trade and free movement of capital is no longer an option for most countries, whether it is the UK or any of the other countries in the EU. That boat sailed years ago!

Trade restrictions and capital controls are no longer a countries’ choice: either you participate in the world economy or accept living standards equivalent to that of North Korea or Venezuela. So the issue is NOT whether the UK will continue to trade mostly freely with the EU: it will, because today there is no other choice: and the same is true for the other countries of the EU. Despite French threats of a bloody Brexit, Germany, which runs its second largest bilateral trade surplus with the UK, has little interest in starting a trade war, nor do most of the private interests in the rest of Europe.

If the UK government is really concerned about trade, it has the power to significantly increase both its exports and living standards. It only has to remove any impediments to imports. We must never forget that imports are intractably linked to exports. What is true of the individual is also true for a nation. The ability to buy (foreign purchase of UK exports) is linked to the ability to sell (UK purchases of imports).

To continue reading: Britain Doesn’t Need the EU to Thrive

 

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Why Brexit Is Better for Britain, by Thorsten Polleit

Posted on June 21, 2016 | Leave a comment

Contrary to fear mongering propaganda, Britain will undoubtedly be better off economically if it votes for Brexit, or, to put it another way, after it casts off the EU millstone. From Thorsten Polleit at mises.org:

On 23 June 2016, the people of Great Britain will vote whether to stay in the European Union (EU) or leave it.

The pro-EU camp argues that leaving the EU will cost Britain dearly in terms of economic prosperity, financial stability, and domestic security. In fact, people are being told that exiting the EU will bring dismal times to Britain.

The anti-EU camp argues that leaving the EU will be good, as it gives Britain freedom to determine its own fate: to decide about taxes, fishing, immigration, and other issues which are of the utmost importance for the economic and political well-being of the British people.

From insights into why an exit from the European Union will be good for Britain, we can consult the work Ludwig von Mises. Essentially, a Brexit will remove another layer of government intervention from the lives of Brits, and in his A Critique of Interventionism, originally published in 1929, Mises argues that whenever the state meddles with the free market, it reduces the standard of living that had prevailed prior to any state intervention (ceteris paribus).

The Evolution of the EU

The EU is a case par excellence illustrating the failure of interventionism. To be fair, in its early stages there was something like the European idea of creating a truly free trade area: a free cross border flow of goods, labor, and capital.

This was basically achieved in the early 1990s. It brought indeed positive effects for growth and employment in basically all European nation states. But the EU’s politics didn’t stop there. It wanted to become more powerful.

In all those years the EU has been working hard to end the system of European federalism in the sense of productively competing sovereign nation states, trying to replace it by a centralized political, economic, and financial superpower in Brussels.

However, the EU’s interventionist approach has brought about a rather dismal situation as far as economic and financial matters in many EU countries are concerned: mass unemployment, public finances in disarray, and miserable growth perspectives.

The height of the EU’s fateful megalomania was the introduction of the euro in 1999: the currencies of nation states entering the European Monetary Union were replaced by a single currency, the euro, issued by a single central bank, the European Central Bank (ECB).

Right from the start, the ECB let loose a colossal debt binge, which has left broken states, banks, and consumers. To cover up the mess, the ECB has lowered rates to below zero and keeps printing money — the only options left for preventing the euro from coming crashing down.

The ECB’s policy doesn’t do any good apart from covering up the problems for a while. The truth is that it causes a shortage of savings and investment, overconsumption and malinvestments on the grandest scale, thereby destroying the very pillars on which prosperity rests.

Despite the dysfunctionality of its centralization path, however, the EU is determined to pursue its current course even more radically: Its advocates a push for “Completing Europe’s Economic and Monetary Union,” basically through “closer coordination of economic policies.”

To continue reading: Why Brexit Is Better for Britain

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Gold and Brexit, by Jayant Bhandari

Posted on June 20, 2016 | 1 comment

Going Up for the Wrong Reason

Gold is soaring. It should—and a lot—but in my view not for the reason it is. Indeed gold is insurance for uncertain times, a time that Brexit seems to represent. But insurance is an administrative cost — one must minimize its use.

Moreover, insuring against Brexit might ironically be equivalent to insuring against a good event.

The market believes that Brexit will lead to wealth-destruction (based on its statist views, in which those running our institutions are omniscient, when they actually are quite naive, incompetent, and incapable of understanding the concept of complexity).

Austrian Economics knows (“knows” because Austrian Economics is the only real economics) that Brexit will actually aid wealth-creation, by reducing the impact of European bureaucracy on the UK.

Brexit will also enable more control over migration into the UK. While in an ideal world, I would want free movement of people, migration of people who refuse to assimilate will irrevocably harm Europe.

I recently spent a fair bit of time in Sweden, including visiting no-go areas of Malmö. Media headlines don’t bother me, and I don’t see migrants as security risks. My problem is that they import exactly the same social values and culture of irrationality that they left behind.

They end up voting in ways that replicate socialism and its associated tyranny on their adopted home. And a 15-minute talk with a guy on the street should tell you in clearly that “reason” is not an antidote to “irrationality.”

Decentralization vs. Democracy

Apart from possible short-term chaos, Brexit will be very good for the UK and the world economy.

Why do I think Brexit is good? Over the last 400 years, societies and economies around the world have become increasingly very complex. This has created huge pressure on the State to decentralize.

Quite to the contrary, driven by democracy, we have seen huge increase in centralization around the world, as has been the case with the EU. The State as it stands is completely unsustainable and I see pressures everywhere that will lead to big entities breaking into smaller ones.

Even more critical is the situation in what are called emerging markets, where almost nothing works and governments are merely bribe collection agencies.

There is one — and only one — thing that imparts value to gold in the long-term: when the economy becomes negative yielding. Naive governments around the world are repressing businesses. Democracy — the tyranny of the unqualified masses — means that people are voting for more of what created the problems in the first place.

This situation will not change until this totally anti-meritocratic system of running societies has come to an end. And as you know it is hard to imagine that democracy will come to an end any time soon.

Conclusion

The pain of negative yields and social chaos will be very long lasting and very good for gold. So, gold must go up, but Brexit is not one of the reasons why it should.

This tells me that in the short term there will likely be a correction in the gold price, creating an opportunity to trade. The market must take the price up for the right reasons, before one can be confident about the resilience of the advance.

http://www.acting-man.com/?p=45525

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It’s Not Just the UK – Widespread Support for EU Referendums Seen Across the Continent, by Michael Krieger

Posted on June 20, 2016 | Leave a comment

If, like SLL, you’re hoping for a Brexit, don’t get too crushed if it doesn’t happen. There will be more exit votes; the EU’s arrogance, bureaucracy, and ineptitude almost guarantee it. From Michael Krieger at libertyblitzkrieg.com:

Actions have consequences, and people can only be pushed so far before they snap. I believe the Paris terror attacks will be a major catalyst that will ultimately usher in nationalist type governments in many parts of Europe, culminating in an end of the EU as we know it and a return to true nation-states. Although I think a return to regional government and democracy is what Europeans need and deserve, the way in which it will come about, and the types of governments we could see emerge, are unlikely to be particularly enlightened or democratic after the dust has settled.

My thoughts and prayers go out to all the victims of these horrific events, but the Paris attacks didn’t happen in a vacuum. The people of Europe have already become increasingly resentful against the EU, something which is not debatable at this point. This accurate perception of an undemocratic, technocratic Brussels-led EU dictatorship was further solidified earlier this year after the Greek people went to the polls and voted for one thing, only to be instructed that their vote doesn’t actually matter.

– From last year’s post: A Message to Europe – Prepare for Nationalism

If you aren’t paying close attention to what’s happening in Europe, you may be surprised by the extent of “elite” panic at the notion that the British people could decide to leave the EU. Here’s just one example, from Donald Tusk, president of the European Council.

Why is it so dangerous? No one can foresee what the long-term consequences would be. As a historian, I fear that Brexit could be the beginning of the destruction of not only the E.U., but also of Western political civilization.

While there’s no doubt that a Brexit will result in major disruptions to the status quo system, isn’t that the point? Moreover, that’s some downright apocalyptic talk by Mr. Tusk. What’s driving it?

The truth is that most of these EU technocrats continue to dream about a closer EU, i.e., more centralization and less democracy for the people of Europe. In their minds, the idea that a major member of the EU could ever leave wasn’t even comprehensible. Their goal has been, and continues to be, a push toward a European superstate fantasy in which national sovereignty is completely subjugated to their incontrovertible undemocratic decrees. As such, they subconsciously recognize that even if Brexit is avoided, any effort to further consolidate power in Brussels will be extraordinarily difficult. This recognition is too devastating to come to terms with, so they will fight it.

This is also why they can’t see that the reason anti-EU sentiment is on the rise not just in Britain, but across the entire continent, is a direct response to their own actions. Specifically, how recent issues of enormous consequence, from the Greek “bailout(s)” to the refugee crisis, were dealt with.

To continue reading: It’s Not Just the UK – Widespread Support for EU Referendums Seen Across the Continent

 

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Murder, Lifeboats, an Iceberg and an Orchestra, by Raúl Ilargi Meijer

Posted on June 19, 2016 | Leave a comment

The vote on Brexit, as SLL has said, boils down to fleeing or staying on a sinking ship. From Raúl Ilargi Meijer at theautomaticearth.com:

The reason the Brexit debate has gotten so out of hand is nobody understands what it’s about.

The Brexit campaigns have started anew in the UK, and from what I’ve seen here from left field barely a thing has changed since the murder of MP Jo Cox. Neither side has any qualms about using her death to make their respective points. The main, and perhaps only real, point is that nobody understands what the vote is about. Jo Cox, bless her soul, didn’t either.

This lack of understanding is also, at the same time, the reason why the debate has gotten so out of hand. Nobody seems to understand it’s not about Cameron or Nigel Farage, or Michael Gove vs Boris Johnson, it’s about voting for or against the EU, for or against Juncker and Tusk and five other unelected presidents having a say in one’s life.

And that’s not all either. It’s about voting to leave, or remain in, a Union that is already dead and preserved only in a zombie state. Brexit is just one vote and many more will inevitably follow. Brexit is not the first, Grexit had that ‘honor’ last year. Later this month, elections in Italy and Spain have the potential to turn into preliminary Italix and Spexit votes. And then there will be more.

The reason why these things are taking place, and will be, going forward, is that the economies of all these countries are fast deteriorating. The sole reason why people have accepted the rule of Brussels coming from far away over their daily lives, is the promise that it would make those lives better and more comfortable.

That promise has been shattered. The EU has made things worse for most Europeans, not improved them. And when seen in that light, why should people agree to continue to be told what to do by those who’ve made them poorer? There’s no democratic model in which that remotely makes sense. There are only undemocratic models left.

Britain’s Brexit referendum has run head first into global developments, and there is no sign that any voice in the discussion recognizes this. They all think it’s about something else. And of course Cameron’s policies have devastated the country, and of course the even more right wing Leave campaigners would make that worse. But that’s not what this is about.

What Cameron missed when he called the referendum is not that some of his friends could turn on him and go Leave, what he missed is that so many Brits from both the left and the right would turn on him. He never expected that to happen. He always figured his manipulated rosy pink economic numbers would outweigh people’s actual daily lives.

This is a global phenomenon, it has little to do with Cameron himself, other than his neoliberal budget cuts are often even more extreme than those of many of his pan-European and indeed American and global peers. It has a lot more to do with the neoliberalism embedded in Brussels, which has installed technocratic governments in many countries, especially in southern Europe, all with disastrous consequences for the populations.

To continue reading: Murder, Lifeboats, an Iceberg and an Orchestra

 

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Why Brexit May Bring The Reality Shock The Market Needs, by Michael E. Lewitt

Posted on June 12, 2016 | Leave a comment

Brexit may kick equities and high yield bonds off their perch. From Michael E. Lewitt at Money Morning via davidstockmanscontracorner.com:

All eyes will be on the upcoming “Brexit” vote in the United Kingdom next week, now that polls are showing that the Brits are more likely than not to shock conventional wisdom and exit the European Union.

Wherever she is, Margaret Thatcher will be beaming at the wisdom of her former constituents seeing the wisdom of exiting the deeply flawed and ultimately unsustainable confederation of European countries.

Markets will no doubt react very badly if the vote tracks the current polls, but this type of short-term pain is child’s play compared to what has to happen to return the global economy to some semblance of sanity and growth in the years ahead.

Take the U.S. stock market, for instance…

Wanted: Strong Corrective Measures

Something radical is certainly required to snap investors out of the complacency.

While stocks sold off sharply on Friday, they were flat on the week with the Dow Jones Industrial Average rising 58 points or 0.3% to 17,865.34 and the S&P 500 losing 3 points or 0.15% to close at 2096.07.

The Nasdaq Composite Index fell 1% to 4894.55. The Dow danced above 18,000 a couple of times during the week, giving rise to the predictably idiotic CNBC news flashes despite the fact that this was not news (unless you believe that profound investor stupidity is news, but unfortunately it is all too predictable).

Junk bonds also kept rallying despite deteriorating credit quality with the average yield on the Barclays High Yield Index moving closer to 7%, which in case anybody asks you is an oxymoron since 7% is a low yield, not a high yield.

Investors have clearly checked their brains and good sense at the door; when they check out, they are going to leave a good deal poorer.

Here’s What’s Ailing High-Yield

Junk bond yields are being dragged down by high grade and sovereign yields. There are now more than $10 trillion of sovereign bonds trading at negative yields.

Last week, the European Central Bank began its latest assault on the lunatic asylum by buying high grade European corporate bonds, pushing the average yield on European investment grade debt below 1%.

This means, of course, that buying these bonds produces a negative inflation-adjusted yield, indicating that the era when bond investors were considered the “smart money” has conclusively passed.

Of course, investors no longer buy bonds for yield – there is none – but instead for capital gains when the next cock-eyed pessimist comes along to buy it at an even lower yield.

Now why would someone buy a bond that they have to pay for the dubious privilege of owning?

Sophisticates will tell you that these certificate of confiscation will generate profits if there is deflation.

But until the final hammer comes down and debt deflation erases the value of financial assets as it did in 2008, the only deflation in the world is in the size of central bankers’ cerebellums.

In the real world, the price of everything that matters (except commodities) is rising – goods and services, financial assets, etc. And even oil prices have doubled off their lows of earlier this year. The point is that buying any fixed income instrument in today’s world is like flushing money down the toilet – where it can sit comfortably beside consensus thinking on economics, markets and politics.

There’s plenty more circling the drain, too…

To continue reading: Why Brexit May Bring The Reality Shock The Market Needs

 

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