Cautionary Tales from Brexit, Grexit and U.S Budget Battles(wsj.com)
wsj.com
Cautionary Tales from Brexit, Grexit and U.S Budget Battles
http://www.wsj.com/articles/forecasts-of-brexit-gloom-may-be-overdone-1472406752?=e2fb&mod=e2fb
14 comments
More than that - the FTSE 100 and FTSE 250 are both being pumped up with QE. The cost to the UK in borrowing costs is already far more than the total historical contribution made to the EU.
And so on. There's more, but the picture is clear enough.
This article is either shockingly and unprofessionally misinformed, or deliberately misleading.
And so on. There's more, but the picture is clear enough.
This article is either shockingly and unprofessionally misinformed, or deliberately misleading.
The Greece bit of this article is strange:
Warnings abounded in 2015 that if Greece rejected an international bailout, it could spark a sovereign default or a banking crisis or Greece being cast off the euro. Greece’s economy is far from a success story, but it hasn’t gone bankrupt. Its banking system has been battered and drained of deposits, but hasn’t collapsed. It remains in the euro.
But Greece didn't reject the international bailout; it accepted it (despite a referendum voting "no", Tsipras signed it anyway). So this article is arguing: Experts predicted ~A -> B, but since in reality both A and ~B came to pass, experts are wrong. That's... not valid reasoning. Presumably the experts would argue that to the extent Greece isn't (quite) bankrupt, it's precisely because it heeded their dire warnings, and got cold feet about rejecting the bailout package.
Warnings abounded in 2015 that if Greece rejected an international bailout, it could spark a sovereign default or a banking crisis or Greece being cast off the euro. Greece’s economy is far from a success story, but it hasn’t gone bankrupt. Its banking system has been battered and drained of deposits, but hasn’t collapsed. It remains in the euro.
But Greece didn't reject the international bailout; it accepted it (despite a referendum voting "no", Tsipras signed it anyway). So this article is arguing: Experts predicted ~A -> B, but since in reality both A and ~B came to pass, experts are wrong. That's... not valid reasoning. Presumably the experts would argue that to the extent Greece isn't (quite) bankrupt, it's precisely because it heeded their dire warnings, and got cold feet about rejecting the bailout package.
A quote I read once: "History works slowly at first, and then all at once."
I still think it's too early to tell what the impact of events like Brexit and Euro crisis will be. As humans, we're wired for immediate feedback loops, but that's not usually how the world works. We (and particularly the media) tend to look for immediate impact, but it's way too early to say that there will be no consequences from all the things that have been happening in 2016.
I still think it's too early to tell what the impact of events like Brexit and Euro crisis will be. As humans, we're wired for immediate feedback loops, but that's not usually how the world works. We (and particularly the media) tend to look for immediate impact, but it's way too early to say that there will be no consequences from all the things that have been happening in 2016.
It's true that the real ramifications of Brexit remain to be seen. But it's interesting to see how many people want Brexit to fail. What if we don't need a fledgling world government in the form of the EU? What if its okay for different groups of people to retain their autonomy and their sovereignty--something people have fought and died for throughout history? Would that be such a disaster?
The whole reason the EU even exists is because Europeans kept fighting and dying to retain autonomy and sovereignty, and they finally got tired of it. People are afraid that without supernational institutions tying it all together, Europe will return to its old patterns. That would be a disaster almost beyond imagining if so. Modern weapons will make the Second World War look like a fun romp in the park by comparison.
Of course, maybe it won't happen that way. But pointing out that people have gone to war over this stuff throughout history is not really helping.
Of course, maybe it won't happen that way. But pointing out that people have gone to war over this stuff throughout history is not really helping.
The question is: is the EU the symptom or the cause of peace in Europe? According to the Nobel price committee, the EU is the cause. But I have some doubts... a badly governed EU could even spark nationalist resentments instead of containing it.
Certainly, it's a big question that nobody can answer for sure. My point is mainly that saying people have fought and died for this stuff throughout history isn't really an argument against disaster after the fall of the EU.
The American/Allied victory in World War II is the responsible for most of the relatively peaceful world situation. A cooperating West Europe resulted from this.
And a cooperating West Europe existed for years before the EU. Ascribing the peace to the EU seems somewhat revisionist.
The various precursor institutions to the EU go back to 1952.
Sure, but nobody's crediting the six-member European Coal and Steel Community with being the source of European peace.
Look at what's happened to Greece under ECB control. Do you really think a monetary union like the EU will prevent war? If anything it encourages it; imagine having your country's economy ravaged by policy set by unelected officials a thousand miles away.
Personally, I believe that the Erasmus programme (the EU+ student exchange programme), which is, admittedly, a part of EU, has done much more for preserving future peace in Europe than all the rest of EU institutions combined.
> What if its okay for different groups of people to retain their autonomy and their sovereignty--something people have fought and died for throughout history?
Depends. I much prefer personal autonomy over national sovereignty. While I understand that many people feel strong national identification, I lost this long time ago, maybe because I felt Czecho-Slovak but my country split, maybe because I see the pain of my grand-father due to his Palestinian origin.
Fortunately, currently for me the soverenity of states usually result mostly in bureocratic annoyances, such as when a colleague of mine couldn't join me on a face-to-face meeting, because he is from Ukraine and would first need to obtain visa for Ireland.
Depends. I much prefer personal autonomy over national sovereignty. While I understand that many people feel strong national identification, I lost this long time ago, maybe because I felt Czecho-Slovak but my country split, maybe because I see the pain of my grand-father due to his Palestinian origin.
Fortunately, currently for me the soverenity of states usually result mostly in bureocratic annoyances, such as when a colleague of mine couldn't join me on a face-to-face meeting, because he is from Ukraine and would first need to obtain visa for Ireland.
I'm sorry but that is astonishingly ignorant. The EU isn't an affront to the people who have fought and died, it is a project to bring European countries together after a thousand years of warfare and tens of millions of killed in the 20th century alone.
I would prefer if any group of of people could exit from a parent government, without any preexisting precedent of autonomy.
Maybe the right level of governance is the one people choose from themselves instead of the one into which they were born.
Maybe the right level of governance is the one people choose from themselves instead of the one into which they were born.
> Maybe the right level of governance is the one people choose from themselves instead of the one into which they were born.
I may be being overly facile, but "I consent to the government that I choose" sounds almost exactly like "I do not consent to being governed" to me. (Perhaps you mean that one gets to make such a choice once, rather than at will and repeatedly; but then when should such a choice be made?)
I may be being overly facile, but "I consent to the government that I choose" sounds almost exactly like "I do not consent to being governed" to me. (Perhaps you mean that one gets to make such a choice once, rather than at will and repeatedly; but then when should such a choice be made?)
Nationalism is exactly what lead to centuries of bloodshed in Europe. Nationalism is the evil: this conceit that people from different nations with different rulers are sufficiently different from one another that it's worth going to war with them.
The EU has its flaws too, of course. Because of its necessarily top-down nature, it tends towards grand aspirational things which it can't quite achieve very well because national governments retain too much power, so it interferes in things where national governments care a little less, not always wisely. It should have more regionalism and subsidiarity.
The EU has its flaws too, of course. Because of its necessarily top-down nature, it tends towards grand aspirational things which it can't quite achieve very well because national governments retain too much power, so it interferes in things where national governments care a little less, not always wisely. It should have more regionalism and subsidiarity.
Democracy necessarily means giving up your individual autonomy and permitting others to make the laws that govern you. It is not pernicious nationalism to repel at the idea that a polity of 700+ million people with diverse cultures and values should get to bind you through the democratic process.
It's a proxy for the UK's equivalent of the culture wars... that's the long and the short of it. Nobody really gives two craps about the EU one way or the other ;)
[deleted]
What ifs are tricky. What if the fifty states of US of A have decided to go their own way?
Then Maryland could have pot and socialized healthcare.
A lot of people who currently work for or aspire to work for the government would be mortally offended.
And then?
And then?
Quite literally nothing has happened with Brexit yet -- other than the vote itself. "Doomsayers Stumble[d]" is a far conclusion to draw from the aftermath of an event that hasn't yet come to pass.
Yes, this is really important. The markets have responded to the potential of leaving (because the referendum isn't a guarantee, although it would make any party that contradicted it extremely unpopular), but nothing else has happened.
EU trade deals are still intact, free movement is still in place. How can the economists' post-Brexit predictions fall foul when we are still pre-Brexit?
EU trade deals are still intact, free movement is still in place. How can the economists' post-Brexit predictions fall foul when we are still pre-Brexit?
The FTSE graph before and after Brexit is incredibly misleading. The reason equities rose is because the Pound depreciated to a historical low. The value of that stock in FTSE in other currencies of course declined.
The point isn't Brexit, it's that economists have a hard time predicting fallout from political events, and therefore people have a hard time believing economic experts. It notes at least two other recent instances where the doomsayers were wrong. I can think of many other cases where economists predicted loudly that the sky was falling and were wrong in recent decades. I can also think of some big cases where they failed to predict big busts.
I believe the FTSE is normalised to another basket of equities (also in £) to account for that.
http://www.ftse.com/products/downloads/FTSE_UK_Index_Series_...
http://www.ftse.com/products/downloads/FTSE_UK_Index_Series_...
Where do you find this in the linked document? I could not find any such statement and it would be news to me, but maybe I am mistaken?
Just to add a bit of detail on the OP's note on the FTSE 100 and the pound depreciation: The point is that the FTSE 100 is composed of the largest UK companies, most of which are global corporations with most of their earnings and also a large part of their ownership coming from outside of the UK. So their intrinsic value is not expected to be affected all that much by Brexit. However, the FTSE 100 measures their value in GBP, which has lost about 10% in value after Brexit. So you would expect the FTSE 100 to increase (if nothing else changes, of course).
Just to add a bit of detail on the OP's note on the FTSE 100 and the pound depreciation: The point is that the FTSE 100 is composed of the largest UK companies, most of which are global corporations with most of their earnings and also a large part of their ownership coming from outside of the UK. So their intrinsic value is not expected to be affected all that much by Brexit. However, the FTSE 100 measures their value in GBP, which has lost about 10% in value after Brexit. So you would expect the FTSE 100 to increase (if nothing else changes, of course).
I read it that they divide by an 'index divisor' which appears to be denominated in £, leading to the FTSE being a unitless figure.
My point is that if I am right, then the devaluation is taken into account in the numerator and the denominator so cancelled and the FTSE isn't correlated with the £.
My point is that if I am right, then the devaluation is taken into account in the numerator and the denominator so cancelled and the FTSE isn't correlated with the £.
Yes, the FTSE is a unitless figure. It is divided by a divisor which is denominated in GBP, which cancels the GBP in the numerator. However, the divisor was set at the beginning of the index (t = 0, with updates being made when there are splits or other corporate actions) in GBP at that point in time and is not adjusted for GBP currency fluctuations.
Nor should it be: The problem with the FTSE 100 and Brexit is not an arithmetic currency conversion topic (which would not be relevant as FTSE is unitless). The "problem" with the FTSE 100 is that it is mainly composed of global corporations for which the British market (and hence the British pound) is of little importance to their daily business but whose shares happen to be traded in GBP.
Take BP as an example - their main product is oil, which is usually traded in USD, they source their oil from around the globe and their assets (infrastructure plus proven resources, which are really future oil revenues and thus USD assets) are also not UK-specific. Thus, it would really make more sense to have the value of BP be expressed in USD. So, let's say BP is worth 100 billion USD (it isn't). Prior to Brexit, that amounted to about 68 billion GBP. After Brexit, BP is still worth the same as before as it is not really affected by any UK-specific economic shock, so 100 billion USD. But now, this translates to 76.1 billion GBP (as the GBP has lost value).
So you end up with an about 12% increase in the value of BP as expressed in GBP. And this is what is relevant for the FTSE 100, so if this happens to all the stocks in the FTSE 100, it will rise by 12% even though nothing changed for the companies in it. Yes, the FTSE 100 is calculated by diving by the index divisor in GBP, but this divisor was set as the market cap of all firms in GBP (at that time) at t = 0 and will not be re-computed based on currency fluctuations.
This isn't "wrong". It's just that it doesn't make sense to point to this specific rise of the FTSE 100 as a sign that the U.K. economy is doing great. The problem is also quite specific to the FTSE 100 - for companies that sell most of their products and services in GBP and that incur most of their costs in GBP, being valued in GBP is the "correct" measure (meaning that their market value in GBP should remain unchanged when the value of the pound fluctuates given that there are no other effects on their business).
Nor should it be: The problem with the FTSE 100 and Brexit is not an arithmetic currency conversion topic (which would not be relevant as FTSE is unitless). The "problem" with the FTSE 100 is that it is mainly composed of global corporations for which the British market (and hence the British pound) is of little importance to their daily business but whose shares happen to be traded in GBP.
Take BP as an example - their main product is oil, which is usually traded in USD, they source their oil from around the globe and their assets (infrastructure plus proven resources, which are really future oil revenues and thus USD assets) are also not UK-specific. Thus, it would really make more sense to have the value of BP be expressed in USD. So, let's say BP is worth 100 billion USD (it isn't). Prior to Brexit, that amounted to about 68 billion GBP. After Brexit, BP is still worth the same as before as it is not really affected by any UK-specific economic shock, so 100 billion USD. But now, this translates to 76.1 billion GBP (as the GBP has lost value).
So you end up with an about 12% increase in the value of BP as expressed in GBP. And this is what is relevant for the FTSE 100, so if this happens to all the stocks in the FTSE 100, it will rise by 12% even though nothing changed for the companies in it. Yes, the FTSE 100 is calculated by diving by the index divisor in GBP, but this divisor was set as the market cap of all firms in GBP (at that time) at t = 0 and will not be re-computed based on currency fluctuations.
This isn't "wrong". It's just that it doesn't make sense to point to this specific rise of the FTSE 100 as a sign that the U.K. economy is doing great. The problem is also quite specific to the FTSE 100 - for companies that sell most of their products and services in GBP and that incur most of their costs in GBP, being valued in GBP is the "correct" measure (meaning that their market value in GBP should remain unchanged when the value of the pound fluctuates given that there are no other effects on their business).
News just in: huge, economy level change that hasn't begun to unfold, yet, appears to have not impacted the market...again, yet. You can just stop reading after "It’s early".
So far there haven't been any kind of a Brexit. It is even completely unknown how a Brexit might look like. And if there ever will be a Brexit at all.
There has been a bit of a dip in rents, possibly due to Europeans wary of immigrating.
Also because the housing market is over-inflated and a steep recession seems likely; people are worried because the last recession caused housing prices to drop severely. Also the pound has crashed against the Euro, food prices are already starting to climb, so housing costs are simply not as affordable as they were a few months ago.
You can have an accident if you drive while being drunk. The fact that most of the time there is no accident doesn't mean that it's not dangerous. Sometimes it looks like we take economic and political decisions similarly.
Agreed, though in this case it's more like smoking, or exposing yourself to a large dose of radiation, because there's a latency in between the event (Brexit vote) and the ultimate outcome.
Just because you don't develop cancer the very next day doesn't mean you won't suffer long-term health consequences[0]. Likewise, just because the outlook two months later doesn't look dire, that doesn't mean the UK won't suffer long-term economic consequences from the vote.
(The disease analogy breaks down when you also factor in the uncertainty around whether Article 50 would even be invoked after the vote, or the uncertainty around what the ultimate outcome of the exit negotiations will be.)
[0] Likewise, just because you develop cancer, that doesn't exactly mean that you got it because of that exposure either.
Just because you don't develop cancer the very next day doesn't mean you won't suffer long-term health consequences[0]. Likewise, just because the outlook two months later doesn't look dire, that doesn't mean the UK won't suffer long-term economic consequences from the vote.
(The disease analogy breaks down when you also factor in the uncertainty around whether Article 50 would even be invoked after the vote, or the uncertainty around what the ultimate outcome of the exit negotiations will be.)
[0] Likewise, just because you develop cancer, that doesn't exactly mean that you got it because of that exposure either.
> Likewise, just because the outlook two months later doesn't look dire, that doesn't mean the UK won't suffer long-term economic consequences from the vote.
Also, maybe if the economic consequences had been really bad after 2 months, people would be trying to avoid Brexit in the first place.
The Brexit is something that will be judged in a generation.
Also, maybe if the economic consequences had been really bad after 2 months, people would be trying to avoid Brexit in the first place.
The Brexit is something that will be judged in a generation.
You can be punished by the gods for cursing. The fact that most of the time they don't punish you doesn't mean it's not dangerous.
I think that the point is that the lack of consequences of an action taken only once does not prove the lack of harmfulness of that action, rather than that Brexit (or any other action) definitely, absolutely is harmful (which I don't think anyone is yet in a position to say for sure).
I understand. But the idea that Brexit was going to destroy the UK economy, particularly before Article 50 was even invoked, was never more than scare mongering.
The priests said the gods would be angry. When the punishment didn't happen, should we assume we dodged a bullet and the gods decided to be merciful, or should we assume the priests don't really speak for the gods?
The priests said the gods would be angry. When the punishment didn't happen, should we assume we dodged a bullet and the gods decided to be merciful, or should we assume the priests don't really speak for the gods?
Fundamentals are hard to argue against, but predictions of timing are hard to get right. The fundamentals may indicate one thing, and predictions based on them are reasonable, until the fundamentals change. Timing of predictions is a very different thing because despite the fundamentals there are external factors you simply cannot predict.
Predicing there would be a housing bubble in 2001 was merely a case of seeing the changes in the law under Clinton, the change in financial settings at the federal reserve under Bush due to the dotcom crash and 9/11, and looking at the way the incentives were set up with Fannie Mae and Freddie Mac. Many people said you can't predict such a thing and in 2006 it was common to see on TV the claim that there was no housing bubble, and that the economy was fundamentally sound and I heard this a great deal from people in day to day life who were buying houses and thought I was insane to think houses were overpriced. I'm not a genius, I just read the right article in 2001 from a "economic doomsayer" and between 2001 and 2008 as far as everyone was concerned, I was crazy, and then after 2008 instantaneously "it was obvious" there was a housing bubble and thus my insight was pointless.
The lesson here is to look at the fundamentals, but don't bet on the timing. I invested against the housing market in 2002-2007. I wish I had known about the existence of CDOs. I got out in 2007. I was a year early. You can't predict the timing.
But you can take fundamentals to the bank.
Predicing there would be a housing bubble in 2001 was merely a case of seeing the changes in the law under Clinton, the change in financial settings at the federal reserve under Bush due to the dotcom crash and 9/11, and looking at the way the incentives were set up with Fannie Mae and Freddie Mac. Many people said you can't predict such a thing and in 2006 it was common to see on TV the claim that there was no housing bubble, and that the economy was fundamentally sound and I heard this a great deal from people in day to day life who were buying houses and thought I was insane to think houses were overpriced. I'm not a genius, I just read the right article in 2001 from a "economic doomsayer" and between 2001 and 2008 as far as everyone was concerned, I was crazy, and then after 2008 instantaneously "it was obvious" there was a housing bubble and thus my insight was pointless.
The lesson here is to look at the fundamentals, but don't bet on the timing. I invested against the housing market in 2002-2007. I wish I had known about the existence of CDOs. I got out in 2007. I was a year early. You can't predict the timing.
But you can take fundamentals to the bank.
Thing is, this is media phenomena, a journalists decides which quotes to use. There are of course a lot of people who could be called 'expert' and one of them will have a very quotable opinion.
[deleted]
Globalists and economists are burning through what little remains of their credibility with each failed prognostication.
David Cameron suggested a Brexit might spark WW3. Economists claimed it would decimate the British economy in short order. These same naysayers are still prophesying, this time saying that the collapse is gradual but imminent.
Your average "Main Street" person is tired of being talked down to by ivory tower economists and globalists, and they're responding with support for populist movements.
I predict this will reach a boiling point in the US when Fed monetary policy results in the opposite intended reaction.
David Cameron suggested a Brexit might spark WW3. Economists claimed it would decimate the British economy in short order. These same naysayers are still prophesying, this time saying that the collapse is gradual but imminent.
Your average "Main Street" person is tired of being talked down to by ivory tower economists and globalists, and they're responding with support for populist movements.
I predict this will reach a boiling point in the US when Fed monetary policy results in the opposite intended reaction.
Since Brexit hasn't actually occurred, its a little early to call any of the prognostications as to what it might produce "failed".
Markets are made up of people who can read future events into current prices. The idea that the negative impact of Brexit won't take effect until the final papers are signed doesn't hold water with me
Its not a matter of "the final papers" being signed. The process by which negotiations to produce "the final papers" would begin hasn't been started, and there is only loose speculation as to when it would start.
The idea that the negative impact of Brexit would be fully realized while people are still actively discussing why despite the public, but not legally binding, commitments it still might never happen at all, is, well, ludicrous in the extreme.
The idea that the negative impact of Brexit would be fully realized while people are still actively discussing why despite the public, but not legally binding, commitments it still might never happen at all, is, well, ludicrous in the extreme.
The great thing about being a doomsayer is that you only have to be right once.
Is this dismissive of the anti-Brexit claim? (I can't really tell.) It seems to me that it doesn't really demonstrate anything; I could equally well say "the great thing about predicting Utopia is that you only have to be right once." All predictions, of good or of ill effects, will, or at least can, be (by the predictor) loudly trumpeted if right and ignored if wrong.
For example, the FTSE 100 rose largely because of the fall of the pound (which has remained low): most of the FTSE 100 companies have income largely denominated in non-pound currencies but are themselves valued in pounds in the FTSE. So a fall of the pound immediately makes them more valuable, measured in pounds.
Other effects were ignored, for example last I checked commercial real estate was hit hard, and all of the commercial real estate funds closed down post brexit. The London private property market was also hit, with the market nearly stalled despite a retreat on prices.
And that's all before Brexist has actually happened, when most people didn't actually expect it to happen and therefore contingencies are only slowly coming online (and many won't until we know that the trigger will actually be pulled and what the consequences are).
Then there is the classic use of a non-zero y axis.
Or the use of Grexit, which didn't happen. So maybe the dire consequences that were predicted didn't happen because the event that was thought to precipitate those consequences was averted??
Geez.