Is Soros Wrong?
By Tyler Durden
Two days ago, none other than the man who “broke the Bank of England” in 1992 when the UK was forced out of the ERM, handing Soros a $1.5 billion payday, penned an Op-Ed titled “The Brexit crash will make all of you poorer – be warned” in which he laid out the “facts” saying that “sterling is almost certain to fall steeply and quickly if there is a vote to leave– even more so after yesterday’s rebound as markets reacted to the shift in opinion polls towards remain. I would expect this devaluation to be bigger and more disruptive than the 15% devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors, at the expense of the Bank of England and the British government.”
Of course, what Soros meant is that in his older and far wealthier years, when his net worth is a function of perpetuating the status quo, he would be “fortunate enough” for nothing to change, for the UK to remain part of the EU, and for the current bout of volatility to pass.
But is he right?
That is the question that Albert Edwards tries to answer today in a note that takes a step back from the scaremongering campaign, and compares the outcome of tomorrow’s events with what happened in September 1992.
First, here is his “big picture” view, showing what happened to UK unemployment in 1992 shortly after “Black Wednesday” – it tumbled alongside the pound.
There is an argument that a Brexit might look similar to the aftermath of sterling?s ignominious exit from the ERM on ?Black Wednesday? 16 September 1992. After this much-feared event, the UK economy actually recovered strongly and unemployment fell sharply (see chart below). In a current environment where central banks and governments have failed to generate a strong enough economic recovery to normalise interest rates amid persistent deflationary pressures, one would have thought a substantial decline in one?s currency would be welcomed ?- for that is one way to inject a modicum of inflation back into the economic system. But even in the event of a Remain vote, sterling is in trouble.
What follows is Edwards’ critique of Soros. This is what he said.
I was reading George Soros? interesting oped in the UK?s pro-Remain Guardian newspaper, under the banner title “The Brexit crash will make all of you poorer – be warned” with the subtitle “My 60 years of experience tells me the pound will plummet, along with your living standards. The only winners will be speculators”. He believes that sterling will decline some 20% from current levels in the event of a Brexit vote, but that comparisons with sterling?s ejection from the ERM in September 1992, when the economy benefited greatly and ?Black Wednesday? was renamed ?Happy Wednesday?, are wrong. People might forget that back in 1992 we were told by the then Government of the day that leaving the ERM would be disaster as …read more
Source: Is Soros Wrong?
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