[Swiftwater Gazette] David Stockman on the Brexit
kroposki at att.net
Fri Jul 1 08:46:33 EDT 2016
RevengeOf The Rubes——Why The Days Of The Financial Elite’s Rule AreNumberedbyDavid Stockman • June 29, 2016 http://davidstockmanscontracorner.com/revenge-of-the-rubes-why-they-days-of-the-financial-elites-rule-are-numbered/
Talkabout not waiting for the body to get cold. The establishment oraclesare out in force today proclaiming that Brexit has already beencancelled. Apparently, like in the case of the first negative vote onTARP, two days of currency and stock market turmoil have taught therubes who voted for it the errors of their ways.
Theargument is that the unwashed masses outside of Greater London haveshot themselves in the foot economically based on some atavisticfears of immigrants and cultural globalization. Racism even.
Butthose are just momentary emotional outbursts. Right soon they willget back to where their bread is buttered, and demand a secondreferendum in order to re-board the EU’s purported economic gravytrain.
Thus,Gideon Rachman, one of the Financial Times’ numerous globalistscolds, professed that his depression about the Brexit vote hasalready given way to a worldly vision of relief:
Butthen, belatedly, I realised that I have seen this film before. I knowhow it ends. And it does not end with the UK leaving Europe.
Anylong-term observer of the EU should be familiar with the shockreferendum result. In 1992 the Danes voted to reject the Maastrichttreaty. The Irish voted to reject both the Nice treaty in 2001 andthe Lisbon treaty in 2008.
Andwhat happened in each case? The EU rolled ever onwards. The Danes andthe Irish were granted some concessions by their EU partners. Theystaged a second referendum. And the second time around they voted toaccept the treaty. So why, knowing this history, should anyonebelieve that Britain’s referendum decision is definitive?
Butof course Rachman’s dismissive meme is exactly why Brexit happened.The international financial apparatchiks, who have been controllingthe levers of power at the central banks, finance ministries andsupra-national official institutions for several decades now, havebecome so accustomed to not taking no for an answer that they can’tsee the handwriting on the wall.
Towit, the rubes are feed up and are not going to take it anymore. Invoting to flee the domineering EU superstate domiciled in Brussels,they saw right through and properly dismissed the establishment’sscary bedtime stories about the economic costs.
Afterall, the UK is a net payer of $10 billion per year in taxes into theEU budget and gets an economically wasteful dose of continental styleregulatory dirigisme in return. And that is to say nothing of theloss of control at its borders and the de facto devolution of itslaw-making powers and judicial functions to unelected EUbureaucracies.
Atthe same time, increased trade is generally a benefit, but it is notone that requires putting up with the statist tyranny of the EU.That’s because the EU-27, and especially Germany, need the UKmarket for their exports far more than the other way around.
Soafter Brexit is triggered, the EU will come to the table for a newtrade arrangement with the UK because these faltering socialisteconomies desperately need the exports. At the same time, the Britishnegotiators will be free for the first time to seek more advantageoustrade arrangements with the US, Canada, Australia and others.
Itdoesn’t take too much investigation to see that the UK has come outon the short end of the trade stick. And contrary to globalistapologists——-persistent and deepening trade deficits are a bigproblem. If coupled with a weakening savings rate, they mean that acountry is getting ever deeper into international debt.
TheUK economy exhibits that dual disability to a fare-the-well. Itscurrent account has been plunging further into the red for 20 years.At 5% of GDP its current account deficit—-which includes thefavorable benefits of service exports from the City of London andearnings on foreign investments—-is among the highest in the DMworld.
Toput it bluntly, the UK is slowly goingbankrupt.
UnitedKingdom Current Account to GDP
Moreover,the source of the abysmal overall current account trend shown aboveis absolutely attributable to its one-sided trade imbalance with theEU-27. As shown in the graph below, its EU deficit has been wideningever since 2000, while its trade surplus with the rest of the worldhas actually been steadily growing.
Thispoint is not about mercantilism. The bilateral balance with anyparticular country or trading bloc does not ultimately matter if theoverall current account trend is healthy.
Instead,the point is that the EU-27 needs British markets to the tune of anet $65 billion surplus annually. And more than half of that surplusis attributable to Germany, which earns upwards of 40% of its tradesurplus with the rest of the EU from the UK.
Continuationof an open trade arrangement,therefore, does not require the sacrifice ofBritish democracy and home rule to the statist overlords of Brussels;it only requires a trade deal that provides mutual economic benefitsand no entangling engagements with the socialist infrastructure ofthe continent.
Thesenegative trade trends are not ameliorated by a domestic savingsfrenzy that could finance the outflow in a healthy manner. To thecontrary, the British household savings rate has been headingdangerously south for the last quarter-century.
Domesticsavers are not financing the UK’s current account; foreign lendersand central banks are.
UnitedKingdom Household Saving Ratio
Thesame is true of the public sector. The UK has run chronic, deepbudget deficits since the early 1990s. Since then, its public debt toGDP ratio has soared from 35% to nearly 85%.
UnitedKingdom Government Debt to GDP
Thesedata make crystal clear, of course, that the UK has a giant problemof living far beyond its means, and that all of the leftist kvetchingabout the conservative government’s so-called “austerity”policies is a lot of political balderdash.
Infact, the Cameron government has buried British taxpayers in debt,even as it proclaimed its adherence to fiscal rectitude. As isevident from the chart, the only reduction in the spending share ofGDP on its watch is due to the end of the global recession. At nearly44%, state outlays still take a larger share of the economicproduction than they did under the Labour governments which preceded.
UnitedKingdom Government Spending to GDP
Here’sthe point. Staying in the EU can not help ameliorate the UK’s realeconomic and fiscal problems in the slightest. What it needs is lowertaxes, less welfare, and a dramatic reduction of governmentregulatory intervention. These are not policy directions that stirthe juices in Brussels.
Sotoday’s noisy meme that the Brexit voters have done themselvesirreparable economic harm is patent nonsense. By contrast, whetherthey fully understood it or not, they have liberated the UK from whatwill be the economic disaster of “more Europe”.
Indeed,if there ever was a phrase that encapsulated the idea of anincendiary contradiction, “more Europe”is surely it. What it meansto the French and Mediterranean Left is debt mutualization and acommon treasury from which to expropriate German prosperity.
Bycontrast, to the Germans it means the imposition of ever more onerousEU fiscal controls so that it can continue to kick the can of itsgiant liabilities for the EU bailouts and the ECB’s “Target2”balances down the road.
TheseGerman exposures are enormous——with upwards of $75 billionalready drawn on the ESM and EFSF bailout funds and Target2 balancesof $700 billion at the present time.
Indeed,the latter is a ticking financial bomb and the real reason thatGermany’s historic monetary orthodoxy has given way to Draghi’smoney printing madness. To wit, Germany cannot afford to permit theeuro and ECB’s central banking system to blow-up.
Asa consequence, Germany has acquiesced in an insane fiscal transfersystem conducted by the ECB in the guise of monetary policy.
ButDraghi’s $90 billion per month rate of QE purchases is really notabout “low-flation”, private sector credit stimulation, jobgrowth or any of the other macroeconomic variables, anyway. To thecontrary, its not so hidden purpose is to flat-out monetize the debtof Italy, Spain, Greece, Portugal, France and the rest of thebankrupts at negligible interest rates, thereby gifting them withdeeply subsidized cost of carry on their massive public debts.
Needlessto say, these Draghi confected bond rates could never be remotelyattained in an honest bond market. Yet they are absolutely necessaryto maintain the charade of fiscal solvency in these woebegonepractitioners of welfare state socialism.
Sothe doomsday machine rolls on. Currently Greece’s Target2 balanceis negative $100 billion, while Spain’s is negative $325 billionand Italy’s is negative $300 billion. In short, the rest of theEU-18 owes Germany so much that permitting any country to leave isunthinkable in Berlin.
Thecall for “more Europe”, therefore, does not arise fromcosmopolitan enlightenment, as the mainstream media avers; it is adesperate gambit to keep alive an utterly flawed andcontradiction-ridden monetary, fiscal and political union that nevershould have been concocted in the first place, and that is nowseveral decades past its “sell by” date.
Bythe same token, the forces of Brexit andtheir populist counterparts throughout the continent are not simplyan instance of the rubes venting nationalistic, xenophobic, racistand other dark impulses. To the contrary, the rubes simply want theirgovernments back, and in that impulse they are on the right side ofhistory.
Thetruth is, it is the “European Project” which represents thedarker impulses. The Brussels/Frankfurt rule of the financial elitehas little to do with free trade or the maintenance of peacefulrelationships among the states of Europe, and nothing at all to dowith furthering capitalist prosperity.
Instead,it is a tyranny based on a muddled brew of globalism, statism,financialization and the cult of central banking. It’s days arenumbered because even the rubes can see that it doesn’t work, andthat its massive internal contradictions are heading for aspectacular implosion.
TheBritish voters have decided to get out of harms’ way.Hopefully, there will soon be many other cases of the rubes inrevolt.
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