Steen Jakobsen Exposes The Policymakers’ "Comical Ali" Strategy
By Tyler Durden
Submitted by Steen Jakobsen, CIO & Chief Economist Saxo Bank, via TradingFloor.com,
- Brexit could accelerate process of much-needed reform
- Macro policymakers including central banks will try to maintain status quo
- Policymakers have become equivalent of Iraqi minister comical Ali
- The reluctance to accept what is happening will be there undoing
What's that coming over the hill, is it a new world? Is it a new world?
I am writing this chronicle from South Africa which is almost as far away from Europe and the constant and never ending Brexit talk as you can come. It's hard even here to avoid the turbulence and never ending 'need' for investors and media to understand what comes next.
The best analogy I can use is one from my extensive travels: When you arrive at an airport to check in, you have to pass security control when two options are at hand: The fast track or the slow version (economy class). Using the fast track gets you quicker to the gate and allows you pre-boarding, but what really should matter is that the actual flight time and route is the same for everyone in business and in economy. We arrive at EXACTLY the same time.
The point? What is now transpiring in an economic sense is that we have entered the fast track courtesy of Brexit, the selloff in GBP, the lowering of growth projections and in some places talk about reform and change which would have happened with or without the Leave vote.
The UK's problem remains their double deficit. The chronic budget and the current account deficits. The last time the UK ran a surplus on the current account was the year Italy won the World Cup in Spain and the top scorer was Paolo Rossi. you guessed it — 1982.
The UK also has the lowest productivity of the G7 countries together with Japan. Yes, the UK needs a lower GBP and desperately so and if the ERM crisis of 1992 is any guideline, what comes next for UK is more employment and stronger GDP as seen in this chart from the excellent research done by Societe General.
It would be naive to anticipate only positive changes from the increased political uncertainty but do realise that the slowdown in the UK but also Europe was happening before the surprise 'Leave' result.
The much needed change that the voters indicated was required will come, but the macro policymakers, the politicians and central bankers, will have one more attempt at selling us an economic model of more intervention and less rigid compliance with both the EU treaty and the economic laws:
For those of you who have forgotten your economics, one-on-one here is what five years in University should teach you:
The real drivers of growth are productivity, demographics, basic research and education and as little as possible red tape and intervention (no macro please).
This should be supported by a market model where capital is allocated …read more
Source: Steen Jakobsen Exposes The Policymakers’ "Comical Ali" Strategy
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