The Falling Pound

This blog has said many times that there can be no realistic attempt at a post Brexit recovery unless the pound is worth close to one dollar and marginally less than a Euro. I stand by that conclusion. But I also say that the current predictions of a rapid fall to dollar parity in the event of a Boris style crash Brexit, so beloved by him because we are British and big on optimism and don’t have to bother to go into details or finish sentences, would be a disaster. The reason both these irreconcilable statements are true is because the context of the second is different to the first. The Boris disorderly plunge brings business chaos, inflation, rises in living costs, loss of jobs, broken supply chains. Indeed everything that no sane person wants.

My case for dollar parity would be part of an organised programme of remodelling the economy, away from the asset inflation driver we have now, which makes the richer richer and the poor poorer, to one which favours new wealth creation and drives growth through earnings. The wealth  would build bottom up, which works in the long term, not top down, which does not.

If we are outside  the EU, any notion that the UK can prosper purely on services, importing up to 90% of all we consume, is just not going to happen. We will have to harvest or make an ever increasing volume of all we consume, importing only that which we cannot grow or cannot make. And we have to export the excess so that we become a country with a trading surplus.

To do that we have to create new money  in tranches to be pumped into the base of the economy by the government, to fire up massive industrial and infrastructure investment, including all the cutting edge technologies,  climate friendly energy generation, communication and land travel. We need 5G in every nook and cranny of our islands, the fastest and best rail network worldwide, and cheap energy at the touch of a button. We have to clean up the air and and restore proper funding of all public services at every level. Taxation reform is a must with a system which ignores the notion of profit and instead focuses on turnover or revenue generated in the UK, by corporations and business, regardless of the origin, ownership, or nationality of the owners or entities involved. Tax must be on the movement of money not the emergence of profit. And it must be unavoidable.

We all know what random printing of money can do if it is used to build palaces for the ruling elite. But we also know that it was Quantitative Easing which saved both the US and UK in the 2008 crash, plus the Euro when many predicted it would fail. This time it would have to be Dynamic Quantitative Easing, which is new money printed, not by the Bank of England, but by the Treasury, to fund the economic reconstruction programme.  To maintain  balance and discipline with this flow of new money into the base to create new wealth and become the natural driver of inflation, the initial tranche must be exactly matched to the £435 billion already put into the financial sector by the Bank of England.

The Bank would then begin a programme of selling back into the market its accumulated stock of government debt. This would bear down on assets, while the DQE would boost earnings. The smart investment  managers would move away from asset inflation and into wealth creation. Markets would become earnings driven and leverage averse. The days of arm chair millionaires and food banks would be over.

Up to 1x GDP of DQE might be needed (£2.2trillion) to fire the country up  so that most future investment is funded by earnings rather than borrowing. That is the only  secure legacy to leave future generations. It is the only means of legitimizing Brexit. The problem is that I am unaware of a single Brexiteer who would have the slightest idea what  this is about.

No, they dismiss it all. Their only cry is that on November Ist, Britain Will Be Free. Free of what? The thing this nation really needs and the current majority in the country really wants, is to be free of them and their crackpot notions which threaten jobs, services and living standards, the break-up of the United Kingdom driven by English nationalism and a world lamenting the fact that a once great  power could end up so really, really stupid.