Must-Read: 10 Yr @ 1.46%::
10 year yield at 1.46%.
2% seems so quaint now. pic.twitter.com/Q4FixplNFm
— David Beckworth (@DavidBeckworth) June 27, 2016
Must-Read: Brexit: “If Boris Johnson looked downbeat yesterday, that is because he realises that he has lost…:
…Perhaps many Brexiters do not realise it yet, but they have actually lost, and it is all down to one man: David Cameron. With one fell swoop yesterday at 9:15 am, Cameron effectively annulled the referendum result, and simultaneously destroyed the political careers of Boris Johnson, Michael Gove and leading Brexiters who cost him so much anguish, not to mention his premiership.
Throughout the campaign, Cameron had repeatedly said that a vote for leave would lead to triggering Article 50 straight away. Whether implicitly or explicitly, the image was clear: he would be giving that notice under Article 50 the morning after a vote to leave. Whether that was scaremongering or not is a bit moot now but, in the midst of the sentimental nautical references of his speech yesterday, he quietly abandoned that position and handed the responsibility over to his successor. And as the day wore on, the enormity of that step started to sink in: the markets, Sterling, Scotland, the Irish border, the Gibraltar border, the frontier at Calais, the need to continue compliance with all EU regulations for a free market, re-issuing passports, Brits abroad, EU citizens in Britain, the mountain of legislation to be torn up and rewritten… the list grew and grew. The referendum result is not binding. It is advisory. Parliament is not bound to commit itself in that same direction.
The Conservative party election that Cameron triggered will now have one question looming over it: will you, if elected as party leader, trigger the notice under Article 50?
Who will want to have the responsibility of all those ramifications and consequences on his/her head and shoulders?
Boris Johnson knew this yesterday, when he emerged subdued from his home and was even more subdued at the press conference. He has been out-maneouvered and check-mated.
If he runs for leadership of the party, and then fails to follow through on triggering Article 50, then he is finished. If he does not run and effectively abandons the field, then he is finished. If he runs, wins and pulls the UK out of the EU, then it will all be over–Scotland will break away, there will be upheaval in Ireland, a recession… broken trade agreements. Then he is also finished. Boris Johnson knows all of this. When he acts like the dumb blond it is just that: an act.
The Brexit leaders now have a result that they cannot use. For them, leadership of the Tory party has become a poison chalice.
When Boris Johnson said there was no need to trigger Article 50 straight away, what he really meant to say was ‘never’. When Michael Gove went on and on about ‘informal negotiations’… why? why not the formal ones straight away?… he also meant not triggering the formal departure. They both know what a formal demarche would mean: an irreversible step that neither of them is prepared to take.
All that remains is for someone to have the guts to stand up and say that Brexit is unachievable in reality without an enormous amount of pain and destruction, that cannot be borne. And David Cameron has put the onus of making that statement on the heads of the people who led the Brexit campaign.
Must-Read: I disagree with Paul Krugman: not “Brexit just brings to a head an abscess that would have burst fairly soon in any case…” but rather: Brexit evolves antibiotic-resistant bacteria and brings to a head an abscess that would probably have drained itself gradually–and could still have been treated…
Brexit: The Morning After: “A number of people deserve vast condemnation here, from David Cameron…:
…who may go down in history as the man who risked wrecking Europe and his own nation for the sake of a momentary political advantage, to the seriously evil editors of Britain’s tabloids, who fed the public a steady diet of lies. That said, I’m finding myself less horrified by Brexit… than I myself expected. The economic consequences will be bad, but not, I’d argue, as bad as many are claiming…. Brexit will make Britain poorer. It’s hard to put a number on the trade effects of leaving the EU, but it will be substantial…. Assurance of market access has a big effect in encouraging long-term investments aimed at selling across borders; revoking that assurance will, over time, erode trade even if there isn’t any kind of trade war. And Britain will become less productive as a result.
But right now all the talk is about financial repercussions–plunging markets, recession in Britain and maybe around the world, and so on. I still don’t see it. It’s true that the pound has fallen by a lot compared with normal daily fluctuations. But for those of us who cut our teeth on emerging-market crises, the fall isn’t that big…. This is not a world-class shock. Furthermore, Britain is a nation that borrows in its own currency….
Now, it’s true that world stock markets are down; so are interest rates around the world, presumably reflecting fears of economic weakness that will force central banks to keep monetary policy very loose. Why these fears? One answer is that uncertainty might depress investment. We don’t know how the process of Brexit plays out, and I could see CEOs choosing to delay spending until matter clarify. A bigger issue might be fears of very bad political consequences, both in Europe and within the UK…. The European project… is in deep, deep trouble [with] Brexit… probably just the beginning…. Lots of people are now very pessimistic about Europe’s future, and I share their worries. But those worries wouldn’t have gone away even if Remain had won…. At the European level… I would argue that Brexit just brings to a head an abscess that would have burst fairly soon in any case. Where I think there has been real additional damage done, damage that wouldn’t have happened but for Cameron’s policy malfeasance, is within the UK itself…. So calm down about the short-run macroeconomics; grieve for Europe, but you should have been doing that already; worry about Britain.
Must-Read: Little England Just Screwed Us All: “The world’s bond markets (and, even more, its foreign-exchange markets) tell you everything you need to know…:
…Recession in the UK, quite possibly recession in Europe, and extremely nasty spillover effects in the rest of the world, including the U.S. The small-minded burghers of rural England have managed to destroy trillions of dollars of value globally, including to their own investments, pension plans, and housing values. And things will get worse before they get worse: it’s going to take a while for all the subsequent shoes to drop. Make no mistake, the forces set in motion by this vote will not end here. France and Spain will want their own referendums; so will Scotland. Northern Ireland… will request and probably receive a referendum on whether it should just rejoin the Republic of Ireland, and Europe. Britain has been in many ways the most unambiguous winner of the European project: it received all the advantages of free trade with an enormous economic bloc, while also having a floating currency instead of one which was pegged mercilessly to how things were going in Germany….
This vote is also the grimmest of reminders of the power still held by the older generation, not only in the UK but around the world. Young Britons—the multicultural generation which grew up in and of Europe, the people who have only ever known European passports—voted overwhelmingly to remain. They’re the generation that just lost its future. Meanwhile, Britons over the age of 65, fed a diet of lies by a sensationalist UK press, voted by a large margin to leave. Most of them did so out of a misplaced belief that doing so might reduce immigration, or make them better off, or save them from meddling bureaucrats. In a couple of decades, most of those voters will be dead. But the consequences of their actions will resonate far beyond the grave….
The forces of narrow-minded nationalism have tasted a major victory; they will want more, much more. The economic malaise that has beset all of Europe for the past decade will work in their favor, as will the growing inequality that can be seen in almost every country worldwide. International institutions like the European Union, born of an idealistic belief in peace and prosperity, have become avatars of unaccountable power, and are much loathed by the suffering European middle classes. The result is that we are now entering a world in retreat from progress, a world of atavistic nationalisms and mutual distrust, a world in which we demonize foreigners and prefer walls to bridges. In November, the U.S. will have its own plebiscite, and will likely vote along similar lines to Britain. The cities, and the young, will vote for progress, inclusion, and unity. Meanwhile, the white, rural areas and the old will vote for a sepia-tinged dream of a past in which equality was something only straight white men really qualified for. Before the Brexit vote, I didn’t believe it could happen here. But Britain is significantly more cosmopolitan than America, and we managed to shoot ourselves (and all of Europe) straight through the heart.
So, be afraid.
Must-Read: Brexit Edition. The very sharp Charlie Stross writes from Caledonia:
“Tomorrow Belongs to Me”: “Okay, so the idiots did it; they broke the UK…:
…The Brexit referendum was initially a red herring; a proxy struggle for control of the Conservative Party, with Boris Johnson suddenly turning his coat to march in front of the Leave campaign because it offered his best–arguably his only — chance of winkling David Cameron out of Downing Street before his scheduled retirement in 2020…. But in the process of squabbling over their own party the euroskeptic Conservatives opened the door to the goose-stepping hate-filled morons of the extreme right. The results include the first assassination of an MP–unconnected with the Irish independence struggle–in nearly two centuries, an upsurge in racist attacks on minorities and the disabled, and finally a demented protest vote by the elderly (voters under 25 broke 75% for remain; the over-60s voted over 66% for leave)….
Sterling has tanked to its lowest level in 31 years, the stock market has crashed by 10% already, and we’re likely to see international repercussions as all the sovereign wealth funds that had invested in the London property market see 30% wiped off their investments in a matter of days. Longer term, this may well be the beginning of the end for the UK as a nation. (Watch who’s standing on the sidelines praising the result: Donald Trump, Vladimir Zhirinovsky, Marine le Pen — a who’s who of international fascismus.)… Scotland voted by a 62%/38% margin to remain in the EU and is being dragged out against its will…. The enabling legislation for IndyRef 2 is apparently already being drafted in Holyrood…. It’s likely that in 2-5 years Scotland will have split from the UK and applied to re-admission to the EU. As for Northern Ireland there will be urgent negotiations for some sort of federal arrangement with the Republic that allows them to retain EU access (the Republic of Ireland being an EU member and Northern Ireland having voted to remain in the EU by a significant margin).
What happens to England and Wales now? Short version: economic turmoil caused by the uncertainty. An upswing in right-wing xenophobia as the utterly odious crypto-fascist Nigel Farage makes hay while the Sun shines on his project…. The Brexiters have been selling a lie: that they’d get a no-fault divorce and keep the house. Reality is somewhat less convenient…. We’re back in the Scottish Political Singularity, with a disturbing undercurrent of violent jingoistic xenophobia down south…
Must-Read: The very sharp Martin Wolf sees structural recession in Britain’s near future.
People minimizing risk are going to leave Britain. People who would otherwise locate in Britain and are risk-shy are going to pause and wait and see. The Bank of England needs to drop the value of the pound by enough to try to maintain full employment in Britain–but not by so much as to make investors feel that investments in Britain are unsafe and so lose the pound its exorbitant privilege.
As Keynes wrote at the beginning of his Tract on Monetary Reform back in 1923:
I dedicate this book, humbly and without permission, to the Governors and Court of the Bank of England, who now and for the future has a much more difficult and anxious task entrusted to them than in former days…
Brexit: David Cameron, the Ex-Prime Minister, Took a Huge Gamble and Lost: “The fearmongering of Boris Johnson, Michael Gove, Nigel Farage, The Sun and the Daily Mail has won…:
…The UK, Europe, the west and the world are, this morning, damaged. The UK is diminished and will, quite possibly, end up divided. Europe has lost its second-biggest and most outward-looking power. The hinge between the EU and the English-speaking powers has been snapped…. It is, above all, a victory of the disappointed and fearful…. The geography of the outcome reveals that this has also been a revolt of the provinces against a prosperous and globalised London. It is also a revolt against the establishment…. The UK might not be the last country to suffer such an earthquake….
The UK is now at the beginning of an extended period of uncertainty that, in overwhelming probability, foreshadows a diminished future. The Conservatives… will have to do what the Brexiters failed so egregiously to do during their mendacious campaign, namely, map out a strategy and tactics for unravelling the UK’s connections with the EU. This will probably consume the energies of that government and its successors over many years. It will also involve making some huge decisions… [abandon] membership of the single market. At best, the UK might participate in a free trade area in goods. Meanwhile, the rest of the EU, already burdened with so many difficulties, will have to work out its own negotiating positions. I expect them to be tough ones….
The UK economy is going to be reconfigured. Those businesses that have set up in the UK to serve the entire EU market from within must reconsider their position…. Manufacturers… will have to consider how to readjust…. Many will ultimately wish to relocate. Businesses who depend on their ability to employ European nationals must also reshape their operations…. In the short term, however, it will be difficult for businesses to make such decisions sensibly…. This uncertainty has always been the most obvious result of a vote to leave….
The UK’s decision to join the EU was taken for sound reasons. Its decision to leave was not. It is likely to be welcomed by Ms Le Pen, Mr Trump and Vladimir Putin. It is a decision by the UK to turn its back on the great European effort to heal its divisions. It is, for me, among the saddest of hours.
Must-Read: I confess that I haven’t been following Brexit, because it has seemed to me that–whatever you think of the European Union–Britain’s strategy is obvious. It is large enough and important enough either to get an explicit carve out from European Union institutions it does not like (i.e., the Euro) or, if necessary, to nullify them. As long as it is in, it has a powerful voice to shape what happens in Brussels. Thus the right strategy is: Use your voice to pressure Brussels in positive directions, nullify the application inside Britain of European Union policies that are intolerable, and let the “leave” decision by theirs–make them throw you out if they don’t like your attitude.
“Leave” has always seemed to me to be a destructive attempt to summon the demons of nationalism, and “leave”‘s advocates have seemed to me to have careerist rather than public-spirited motivations…
The absolute height of irresponsibility; pretending to vote in the referendum in your head https://t.co/VFTzN2HVjg
— Dan Davies (@dsquareddigest) June 19, 2016
Sunday Times comes out for a Leave vote https://t.co/Fsl0cKDNEp yet envisages maybe not leaving Eu afterwards, or maybe new deal/2nd vote
— Sunder Katwala (@sundersays) June 19, 2016
Must-Read: Some nice backup from the wise Simon Wren-Lewis. The frame of eurocrats vs. democrats is much, much, much too simple to be more than misleading. We want democracy where democracy belongs, with technocracy where it is needed–always acknowledging that circumstances alter cases, mechanism design is complex, and that democracy’s key benefits are as a legitimacy machine and an anti rent-seeking machine, not as a wise leader or wise policy selection machine:
Brexit and Democracy: “Germany… believed a union-wide demonstration of austerity was required…:
…I strongly disagree…have thought a lot about why it happened, but a lack of democracy is not high on my list of culprits…. Democracy was overridden in Greece so cruelly… not [as] the result of actions of unelected bureaucrats, but of elected finance ministers… because of pressure from their own electorates. This exercise in raw political power worked because the Greek people wanted to stay in the Euro. The ‘bad equilibrium’ Evans-Pritchard talks about happens in part because of democracy…. Union governments should not lend money directly to other union governments, precisely because governments are democratic and so find it hard to accept write-offs…