The Coming Recession has Very Little to do with Brexit
Don’t believe the lies and fearmongering of Remain (again)
The U.K. parliament heads to a crucial vote on the 11th December to decide on Theresa may’s latest Brexit deal and the bank of England governor Mark Carney, alongside the U.K.’s treasury have helped her cause with another fear-mongering hit-piece on the effects to the U.K. economy.
Forget that these same people said a mere Yes vote in the referendum would lead to a financial crisis and were wrong; the BBC stated that, “This Bank’s scenario is not what it expects to happen, but represents a worst-case scenario.” So we’ve been treated to the “worst-case” but haven’t seen their “best-case” but none of that matters as the pro-Remain media now have all the ammunition to sway politicians and public opinion in the days leaading up to the vote.
The rushed deal by Mrs May and these forecasts highlight the panic, not only in the U.K. establishment, but also in the EU ahead of the March 2019 leave date. So, why are they panicking? They are panicking because the world is about to tip into another recession or financial crisis and rushing through a deal will allow them to blame the whole mess on Brexit.
I’ll start by explaining how Carney and his predecessors have created the coming recession: By bailing out the financial system with hundreds of billions of pounds, the U.K. debt rose sharply. The hopes were that a strong recovery would fill the treasury’s coffers and allow them to pay down the debt and still run public services, however it has only led to mediocre growth and harsh austerity.
The crisis is not just a British problem, it is a world problem. Global Central Banks were all part of this phoney recovery and have bought over $10 trillion in assets since the crisis to alleviate strains on the banking system- another secret bailout. In the media they talk about the end of Q.E. and a “normalization” or rates but they know they have lost control. Q.E. will stutter on and rates will likely normalize at a pace that will leave central bankers and the global economy tumbling into a harsh recession.
The problems in emerging markets are signalling the first cracks in the hull.
The Q.E. era undoubtedly boosted economic growth and led to a recovery in Europe recently but that recovery is coming to an end as Europe, and especially Germany, see a slowdown in growth, with the German economy shrinking for the first time since 2015. Today we hear the Swiss economy has contracted, Sweden has contracted and France’s growth has been revised lower.
Now guess which economy outperformed Europe in Q3?
Yes, that’s right. Amidst all the scare stories, the U.K. economy has been growing this year and saw 0.6% growth in Q3 as Germany contracted by -0.2%. This is a real crisis for Europe as Germany has been the EU powerhouse and Angela Merkel is already under pressure to step down after the recent elections, so a recession would likely spell the end of her reign, ahead of her previous announcement that she would step down in 2021.
That now bring us to the problem with Italy. Italy now has a huge debt problem, alongside a slowing economy. Italy’s debt now sits at 178% of GDP, which is double that of the U.K. To make matters worse, the Italian economy is in freefall over the last 15 months with a halving of it’s annual GDP growth rate.
A slowing economy was the reason for the Italians submitting a budget that breached the EU’s enforced austerity rules and now the commission are about to punish the Italians for stepping out of line in typical Brussels style.
There’s a huge problem with that approach. If the EU hits Italy with sanctions as they are now expected, a fine could run into the billions. How will that go down with the Mediterranean country’s feisty leadership, who have already called Juncker an enemy of the people?
If Italy were to react badly to the sanctions and maybe hint at a referendum or a bid to re-introduce the Lira, the bond markets will drive the Italian bond yield higher. That would raise borrowing costs for a nation that already has the largest borrowing costs in Europe. The real problem for Europe however, is that the bond market in Italy is dead and the ECB have been the only buyer since 2015 with 350 billion euro. Alongside financial institutions, they collectively own 1.4 trillion euro of Italys 2.1 trillion euro debt.
So, there are the facts and figures. Not only is the European economy stumbling towards a deep recession, they have a serious debt problem in the form of Italy, which threatens another European debt contagion like we saw in 2010. If that happens again, they can turn the lights off in Brussels.
The U.K. economy would be insulated from the financial mess because of its independent currency and the potential for money to use the U.K. as a safe haven from a European fallout. Brexit is good for Britain. Sadly most of our politicians don’t work for the people and prefer rhetoric, fear-mongering and cross-party blame to the real facts and figures.
The only hope for the British people is for parliament to reject Theresa May’s deal, extend the leave date to the end of 2019 and go back to the drawing board. Doing so will allow time for Europe to stumble further, the Italian crisis to expand, and for Europeans to have their say in the European elections in mid-2019. The British public deserve better than the debacle that has been conducted by Theresa May. They at least deserve to see a “best-case” scenario and be made aware of the risks building in the key European economies. From there the people are intelligent enough to make their own decisions on whether to stay or go.