Finally Carney stops talking fear

[Suff]

and starts talking sense. Telling both the UK AND the EU, that the UK is, effectively, the Investment Banker for the whole EU. Take that away with a disorderly (and petulant on the EU side), exit and businesses throughout the EU are going to suffer. Implied in that is also that the UK is growing and the vast majority of the EU is either not growing or actively in recession, only propped up by those few countries which are growing faster than expected.
Of course the currency markets, primed to drop the value of the £, every time something other than positive news turns up, carved €0.1 from the value of the £. But that will probably recover when the inflation data comes out tomorrow and Friday.

It’s nice to see Carney focusing on the things the BOE need to focus on. Namely stopping outside interference from impacting the British economy and banking systems. Rather than blathering on about the “risks” of the people of the UK making a decision. Of which the biggest “risk” is that the BOE would actually have to do some work to help us over the hump of the change.

I do like the statement. It’s more like a financial equivalent of MAD. Perhaps we can call it MAP. Mutually Assured Pain!

It is no mistake that the UK is the investment banker for the UK. The laws and regulations which extend to the banking environments in the rest of the EU are draconian to say the least. Could you imagine being told that you can only withdraw £300 per WEEK, in cash, when on holiday outside the UK, from your _DEBIT_ card? This is standard practise in many French banks. As are monthly fees to hold a bank account and sundry other costs which we don’t have in the UK.

Restrictions on the banks and what they can invest in create costs, to businesses, which we do not find in the UK. For instance a subsidiary in the UK can, essentially, gamble on the currency and stock markets in a way that the parent in its home country cannot. In Germany the banks that went under did so because they bought US banks which gambled on Sub Prime loans and then funnelled their profits into those banks to gamble it. German law allowed them to transfer funds to subsidiaries but not to gamble directly from Germany.

This is quite visible with an example. ABN Amro bank, when I worked there in 2000, before RBS bought them, made 60% of their disposable profit in Treasury and Capital Markets through their wholly owned subsidiary in London. What is TCM? It is currency trading. Or in other words. Gambling on the currency markets.

I was involved in the size of one of these because we failed to send a confirmation mail within 24 hours (mail routing to the internet issue) and a trade was cancelled. The trader was furious because the trade was for $1.1 Billion. Due to the volatility of the exchange rates, he lost $11m of potential profit on that one trade, because it failed to go through. Imagine if it had gone the other way.

ABN, at the time and, as far as I know, to this date, makes a loss on ALL consumer banking and most of its business banking.

And this is the environment in which they believe they will lure all our investment and transaction banking?? They are determined too. Because if they strip the UK of our passporting rights, they can then impose the Transaction Tax, that Cameron vetoed and apply it to all the trades they “stole” from the UK.

Expect that little political hot potato to drive the negotiations for Brexit. In some ways UKIP is right. Leave, NOW, immediately, no A50, just out and make them face the chaos, starting on Monday. If we do that they will have no option but to give the UK devolved passporting rights. Well either that or their economies will descend into chaos.

Anything else and the EU will attempt to weasel their way out of any obligations and will try to bind the UK into totally unreasonable conditions of exit. Short term pain for long term gain. We won’t do it, but it would show the reality of the situation. It would probably hurt me a lot but I’d put up with the pain in order to make the gain for the UK.

[Workingman]

The economy is growing? It all depends on how you measure "growth". If it is GDP, well yes, but is GDP the best measure?

What about the balance of trade? It has been in the red for the past 20 years, averaging out at about -£3bn per year. Last quarter it 'grew' to £-5.2bn.

Then we have the National Debt. It has been growing steadily. This year it had 'grown' to £-1.6tn and also to 84% of GDP. The two go hand in hand.

The infatuation some economists have with the God that is GDP is misplaced, especially when there are many negatives to take into consideration.

Had the trade deficit been positive and the National Debt reduced I would be celebrating, but I am not. A growing GDP based on debt is nothing to crow about.

Now Carney has given a warning about household debt, especially unsecured debt - credit cards and overdrafts. Debt to income averages 133%. He is also warning about housing and mortgages where the average mortgage is 4.5 times the annual income of the borrower. He said the outlook for the housing market was "highly uncertain". He has also said that financial stability after the Brexit vote "remains challenging". The greatest risks for financial stability are slowing growth in China and the Eurozone with, UK banks being particularly exposed to events in Europe.

It all sounds pretty fearsome to me.

[Suff]

Where to start. GDP is, essentially, the only direct mechanism we have for measuring the health of the economy. Yes budget deficit and total debt are in there too. But, just like a household budget, it needs to be put in perspective of the income coming in.

Before we talk about total debt, it’s always useful to remember that, even today, the UK runs a fiscal deficit of 60bn per year and that is likely to rise slightly next year. That means the £1.6tn goes up by .06 each year we continue to run this level of deficit. Everyone and his dog wants to avoid the cuts but everyone and his dog wants to crucify the government for not reducing the deficit. They can’t have both.

There are two ways out of this. One we can continue to tighten our belt until we are spending less than we earn. The other way is to grow the economy until we are earning that £60bn in extra taxes without increasing the expenditure. This, in short, is part of the reductions Osborne achieved. The economy has continued to grow and, as a result, tax revenues have risen and the government has needed to borrow less money.

Given that our economic recovery is being driven, partially, by exports and given that our exports continue to increase with the rest of the world and decline with the EU, leaving the EU is likely to be much better for national debt than staying. The EU does not encourage economic growth in the UK, in fact it discourages it. Germany and France, essentially, run the EU. Germany and France want the UK third and, inside the EU, keep trying to make it so. It is ONLY the UK exports outside the EU which are driving our #2 position. The EU cannot stop us trading with the rest of the world or merging our companies in the rest of the world, so long as they have no footprint elsewhere in the EU.

The EU is one of the most expensive places in the world to buy goods from. Yet the EU tariffs make it prohibitive to import cheaper goods en-masse. The EU is NOT a free trade regime, it is a restrictive trade regime which tries to block free trade to keep prices artificially high inside the EU. For the UK to break out of this, we would be able to reduce the price of incoming goods and services with the rest of the world, which would significantly help the balance of trade. Remembering that we already do 58% of our trade outside the EU. (check the bit about trade extra EU which is first transported to Holland to be shipped). Up from 48% before the financial crisis.

That is a significant trend which is only continuing. Now, with our Brexit vote, that is only going to increase. It is highly unlikely that companies who export will be putting more effort into exporting to the EU, than the rest of the world, when we will exit the EU in the next 28 months.

I would expect that the only export trade left with the EU, after Brexit, will be trade the EU cannot do without.

As for Carney warning about private unsecured debt? That is an interesting message. What it means is he’s going to increase interest rates, sooner rather than later and he’s going to keep on increasing those rates until the inflation level reaches a point he is comfortable with. People who are overextended will be the first casualties.

It is a message that usually presages a sharp increase in the value of your currency and it is a message that Carney Must give if he is to be considered as a credible central banker. The words come first. The actions come later. I note the short traders have been overwhelmed by people who realise what Carney is saying. The £ is back up and has more room to grow. €1.2 to the £ by Christmas anyone?? €1.3 by March??

Carney is in the process of changing the markets perception of the view the BOE is taking of the current situation the UK is in. He is using conflicting messages to keep people on the hop but one trend is clear. He’s preparing the markets for the undoing of the knee jerk reaction back in August. It’s about time.

As I said back in September. The UK economy is in a good state, our trade is not so EU dependent and investment is going to continue no matter what. When the BOE identify that and make policy around that the £ is going to bounce. Hard. it is already floating higher based on the "hints". When the action happens, the short traders are going to lose their shirts....

[Suff]

Honest, I didn't read this before posting..

[Workingman]

GDP is not the only method, GNP does something similar, and even then they both only measure what is happening within the bubble. It is like measuring one bubble against another, but where what is measured within each is different. GDP can grow without a country or its citizens getting 'richer' or 'wealthier'. They might be spending and borrowing more just to stay afloat. And when this growth is based on debt, as the UK's is, then it is worse than useless.

The UK imports more than it exports and that deficit can only be bridged by borrowing. It matters not what the imports or exports are, nor who they got to or come from, the deficit is there and has to be paid off somehow. So we borrow more.

If we borrow more our total debt increases, and as it increases it becomes bigger in % of our national debt.

It matters not one jot whether we are in the EU or not. A country, any country, continually trading with a trade deficit and growing national debt will eventually fail no matter what its GDP shows. GDP does not, in any way, show the 'health' of an economy, but it can give the impression that a country is doing well when the reverse is true.

[Suff]

No imports and exports are not a definition of the wealth of a country.

A country can build wealth by mining it's own resources, building things of value and selling them internally. The country, as a whole, then has a "value" which can be sold on the open market. Whether or not we do sell it does not change the inherent "value" of the country.

When we build property with materials sources inside the UK and with UK only labour, that property has value. When we sell that property to someone from outside the UK, it is deemed internal UK economy. Neither import not export. It does not mean we have not generated wealth or GDP.

So judging the UK by imports and exports and balance of trade only does not fit and it does not, also, mean we need to borrow money to fund it.