Into the Brexit Labyrinth

Oct 12, 2018 Jacek Rostowski, Project Syndicate

Jacek Rostowski was Poland’s Minister of Finance and Deputy Prime Minister from 2007 to 2013.

After a year and a half of negotiations with the European Union, the British government is no closer to a divorce agreement than it was when it invoked Article 50 of the Lisbon Treaty in March 2017. Sooner or later, Britons will have to choose between self-destruction and no Brexit at all.

LONDON – Anyone familiar with M.C. Escher’s famous illustrations knows what it is like to lose oneself in the haunting infinitude of an eternally recurring maze. The British people are now enduring something similar, only without any of the Escherian precision or wonder.

Call it the Brexit Impossibility Maze. Prime Minister Theresa May marched boldly through the main entrance on March 29, 2017, when she triggered Article 50 of the Treaty of Lisbon. She has been wandering through a political and logistical labyrinth ever since.

Seeking a Direction

When one first steps into the darkness of the Brexit Impossibility Maze, one must walk forward until encountering a sturdy cross-hedge. At that point, one has a choice: take a sharp turn to the left, or follow a gentle curve branching off to the right. The first path leads toward the “framework for the final relationship” section of the maze; the second toward an “exit treaty” – which deals solely with the conditions of the UK’s divorce from the EU.

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Can Eurozone Reform Help Contain Trump?

Oct 12, 2018 Jochen Andritzky, Project Syndicate

Jochen Andritzky, a former Secretary-General of the German Council of Economic Experts, is a visiting fellow at Bruegel, a Brussels-based think tank.

The Trump administration knows that a key source of US economic leverage is the dollar’s role as the world’s dominant reserve currency. Countering America’s disproportionate power to destabilize the global economy thus requires reducing the share of international trade conducted in dollars.

BRUSSELS – US President Donald Trump is using economic warfare to pursue his foreign-policy objectives. In August, his administration announced that it would double tariffs on steel and aluminum imports from Turkey, in order to pressure the Turkish authorities to release an American pastor detained for two years on espionage charges. At the beginning of next month, the United States will also ratchet up unilateral sanctions against Iran.

The Trump administration knows that a key source of US economic leverage is the dollar’s role as the world’s dominant reserve currency. Countering America’s disproportionate power to destabilize the global economy thus requires reducing the share of international trade conducted in dollars. Can the euro serve as a credible alternative?

Red Hot China Mailbag

By John Mauldin

October 12, 2018

Predatory Practices
War Talk
Quality Control
Manifest Destiny

An odd aspect of being a writer is you never know in advance what will excite readers. I’ve written letters I thought very provocative only to draw mostly yawns.

Last week’s trade deficit letter lit some fireworks. The response was immediate and, in many cases, quite passionate in both directions. I got emails from old friends and longtime readers saying it was my best letter in years. Others said I had lost my marbles or gone over to the dark side. In fact, my whole China series has generated a lot of response. Evidently, I kicked the anthill.

I always appreciate feedback, even when it’s negative. Our staff collects feedback from social media, the comment threads on our website, email, and probably other ways unknown to me. They dutifully assemble it into one document and distribute it to the team. When that email hits my inbox, it gets top priority and I read them all. I always learn a great deal. An amazing number of intelligent, articulate people read these letters. So today, I’ll feature some reader comments from recent weeks and explain further where my point perhaps wasn’t clear.

Another economic downturn is just a matter of time

Date: 13-10-2018
Source: The Economist

It will be harder to fight than the last one, says Ryan Avent

JUST SOUTH of Indiana’s border with Michigan lies the city of Elkhart, with a population of just over 50,000. Apart from a small, shop-lined high street near where one river, the Elkhart, flows into another, the St Joseph, the city is mostly shapeless, tree-lined and suburban. Scattered around the outskirts are the factories of several of America’s largest producers of recreational vehicles (RVs). Rows of the finished products rest outside the giant sheds in which they are made.

Modern RVs are impressive, leather-upholstered land yachts fitted with flat-screen televisions and gas fireplaces, the perfect vessels in which to navigate the American continent. The RV business is one of the economy’s most strongly cyclical. Sales of big-ticket items like homes and cars inevitably rise and fall with the business cycle, but RVs are especially susceptible to such swings. It is only once cars and homes have been upgraded that consumers consider splashing out on rolling living quarters. And when financial fear stalks the land, RV-makers have a particularly hard time.

In Elkhart, more than a quarter of people in employment work on RVs. When the global financial crisis in 2007-08 plunged the world economy into its worst downturn since the 1930s, employment in the city’s factories fell by nearly half. The unemployment rate almost quintupled, to 20%. Incomes and population dropped. Elkhart was among the first places President Barack Obama visited after his inauguration in 2009: it exemplified the extraordinary economic challenge facing his administration.

Next time will be different: In fighting the next recession, politics will be crucial

Date: 13-10-2018
Source: The Economist

But are political leaders able and willing to co-operate?

IN THE DARK days of the Great Depression, the balance of economic terror was measured out in movements of gold from one country to another. Physically, though, the gold more or less stayed put. Most central banks kept their gold in the vaults of the Bank of England. Flows were accomplished by placing gold bars on a trolley and wheeling them from one pile to another a few feet away. Told that the economic cataclysm was the product of too much gold on one side of the vault rather than another, Britain’s ambassador to Germany sighed: “This depression is the stupidest and most gratuitous in history.”

Once again, the world is at risk of bumbling into an unnecessarily painful economic mess. If the next global slump takes a turn towards the catastrophic, it will not be because of a dearth of ideas for how to pry an economy out of a rut. Rather it will be because politicians given a long list of ways to pump money into an economy badly in need of it proved unwilling or unable to choose any. Sadly, such an outcome is all too real a possibility.