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When George Soros Broke the British Pound (2014) (priceonomics.com)
325 points by JackFr 12 days ago | hide | past | web | favorite | 258 comments





This incident was the main reason the UK didn't enter the Euro.

This wonderful BBC documentary explains everything on detail.

https://youtu.be/K_oET45GzMI


Sometimes I wonder if this incident didn't happen, would the UK had entered the Euro and Brexit wouldn't be on the horizon today.

The Eurozone is fatally flawed because they share a currency but have no transfer payments between rich and poor members. So you have countries like Germany that are effectively subsidized by poorer countries.

It's been a great setup for 20 years if you've been in the German capital class, not so great for anyone else.


> “The Eurozone is fatally flawed because they share a currency but have no transfer payments between rich and poor members.”

This is incorrect. The EU has substantial transfer payments. Wealthier EU countries (like Germany) subsidise poorer ones (like Poland) on the order of tens of billions of Euros annually.

Regional development (subsidies for poorer areas) is the second largest EU budget line item after agriculture.

https://www.bbc.co.uk/news/uk-politics-48256318


At the same time the euro gives Germany a benefit much greater than inter-EU German transfer payments. By greatly weakening the euro, the zone's fiscally-challenged countries pull open the gates for German exports which roar out of the Europe with significantly lowered sticker prices in other currencies. It appears to be a massive benefit since one can easily imagine a uniquely German currency being 30% higher. Now that's a bargain.

What's more, Germany may even have a built-in advantage datinng back to the inception of the euro, when the Deutsche Mark was brought into the union at what many believe was about a 6% undervalued rate. "Updated IMF data suggests that by 2017 the German pricing edge built into the euro had about doubled to over 12%."[1]

https://www.forbes.com/sites/miltonezrati/2018/01/23/the-ger...


Germany paid net €12bn. California has net federal tax receipts of $450bn. Not identical types of figures, but comparing the tiny transfer payments in the EU to the gigantic ones in real financial unions is where the difference lies.

> "Germany paid net €12bn. California has net federal tax receipts of $450bn"

It is meaningless to compare a net transfer to gross tax receipts. California's large, wealthy population generates high federal tax receipts, but it's net contribution is actually negative because the federal government currently spends more in California than it receives in taxes.

Source: https://www.governing.com/week-in-finance/gov-taxpayers-10-s...


It's pretty unlikely that this is still the case. The article you link to appears to be citing a 2017 report which itself uses data from FY2015[1]. This means that it doesn't take into account the 2017 federal tax overhaul which, among other things, capped deductions for state and local taxes paid. This means high tax high income states will almost certainly be paying more in federal taxes. Unfortunately, I don't think the data is available to confirm or refute this yet.

[1]: https://rockinst.org/wp-content/uploads/2018/02/2017-09-28_B...


Pretty sure that billions in Europe have three extra zeros.

Not when it comes to finance.

Everyone appears to use the short billion these days, and it caused me significant cognitive dissonance!


I think everybody here is talking about US-size billions, not European-size billions.

How much each member contributes to the EU budget is a drop in the bucket compared to the transfer payments I'm talking about (healthcare, social security, defense).

The Eurozone should either go all the way like the US, or they should scrap the currency union. This halfway step only serves the wealthy.


Not true at all. I am from Czech republic and we benefited massively from these contributions. If I compare for example general state of infrastructure it is much better than in UK where I currently reside. All the train stations were rebuilt using EU funds. Also not sure what you are talking about "This halfway step only serves the wealthy.", not not really. Look at quality of life and GDP rise in post soviet EU countries.

The Czech Republic isn't in the Eurozone and doesn't face the structural disadvantages that Greece or Portugal do.

The Czech Republic definitely shows one way to approach the EU: get the transfer payments from a political union and partial economic union (in trade policy, etc.), as well as remittances from emigrants employed elsewhere in the free-movement zone, but retain an independent floating currency and avoid monetary union. Greece would've been in a considerably different position if they had taken the Czech route and stayed out of the Euro. Arguably a better position, though that's not something all economists agree on. Certainly a different one, at any rate.

See https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-... for the importance of a floating currency. (Or rather, the importance of not joining nor pegging to the Euro. Other currencies might not be as toxic?)

So the transfer payment are not part of the Eurozone, but part of the EU. That makes Eurozone membership a problem for weaker economies like Greece.

On the other hand, Slowakia and Ireland are part of the Eurozone and are doing very well despite starting out poor. (Maybe Ireland doesn't fit here, because they've been doing very well since long before the Euro.)


Well you are talking about EU budget. If you look at https://en.wikipedia.org/wiki/Budget_of_the_European_Union#E... its clear that both Greece and Portugal receive higher contributions then Czech republic. Also I am not sure what structural disadvantages you are looking at. Look at Slovakia that is in Eurozone and benefited massively.

At the introduction of the Euro, many were quite concerned about Greece joining.

The EU consists of independent, co-operating countries. This is quite different from the US. There is very little the EU can do without votes from the individual countries.

So the assumption is that a country that joins the Euro has carefully evaluated the pros and cons. At the same time, the amount of subsidies a country receives is not dependant on that country being part of the Euro-zone or not.

If you look at the Euro at the time of introduction, then there was every intent to make Euro as strong and stable as the Deutche Mark. Very much so against the wishes of France, who wanted a currency that was way more subject to political control.

Of course, one incentive for countries to adopt the Euro was exactly was the article is about: a small currency stands no chance against investors speculating against it. Better hide in a big currency.


Slovakia was in similar position to Czechia, but joined Eurozone in 2009. From that time, it has similar or better GDP growth than Czechia.

> halfway step only serves the wealthy

How?


(Warning: Armchair economist!)

Poorer countries in general have lower productivity (possible causes can be lacking infrastructure (roads, electricity, telecom, but also regulations etc.), lacking capital, lacking foresight/lacking capital to invest in future tech by the governement (e.g. broadband internet)).

This results - despite lower wages! - in higher unit labor costs.

If you form a monetary union with poorer and richer countries (like the EU), you have problem. The richer countries, despite higher absolute wages, will have lower unit labor costs. The richer countries can therefore expand exports at the cost of domestic production in the poorer countries (e.g. Germany vs. rest of EU).

If the poorer country wouldn't be part of the union, it could (among other things) lower the value of its own currency (or the forex markets would do that). Lower-valued domestic currency assists exports, which levels competition with the richer countries a bit.

This doesn't mean that there are no alternatives inside the current EU! They just haven't been implemented yet. Options would be

* way higher minimum wages in the rich countries (Germany was one of the last countries in Europe to implement them)

* implementing less union-hostile laws in the richer countries (resulting again in higher wages, but also for higher income groups not affected by minimum wage)

* More infrastructure investments in the poorer countries (there already are significant transfers, but more would help)

* A unified fiscal strategy. After implementation of the Euro zone, there were massive capital inflows into the poorer countries, resulting in overvaluation of the local economy. This was a big reason for the local problems of the last decade [1]

[1] https://streetlightblog.blogspot.com/2011/09/what-really-cau...


Higher minimum wages to solve imbalances in the Euro-zone would probably result in a disaster.

In areas where countries like Germany directly compete with poorer countries, they do so by having more and better automation. Productivity is not that people work harder, is it that there are more machines to do the work.

The net effect of raising wages is that there will be more automation, largely negating the increase in wages. By it self this is not a problem.

Where is goes wrong is that within a country, there are many jobs that cannot be automated easily. In particular, with an aging population, you need lots of nurses and other care takers.

Increasing minimum wages with sole goal of reducing export imbalance can make those cost go through the roof, and generally lower the standard of living for a large part of the population.

Reducing the cost of 'care' and other jobs that dependent on personal service, is already very important to improve the standard of living.


Not disagreeing that poorer economies need more automation.

But when looking at countries it is very important to not only look at wages as cost. Especially in Germany the low wages result in low domestic demand, which results in the country being a net exporter again and again.

Rising wages, especially minimum wages, are mostly spent domestically on services (think going to the hairdresser instead of cutting your own hair, or finally using healthcare as needed).

Germany was a wonderful field experiment for exactly this in the last years, as it was one of the two countries out of 27 European countries not having minimum wage laws. After implementing minimum wage (starting at 7€ something, now at 9.20€/h) pretty much zero job loss could be observed, depending on market segment quite the opposite. Because wages are not only costs, but also create demand.

In Germany, the lower 60%(!) of the population only hold 3% of the wealth. In other words: Almost every € earned gets spent on consumption. If those people earn more money, they spend more money, thus creating demand.

Automation is a real thing, but then again what gets automated aren't those low wage jobs in the service economy - it's mostly work in higher income brackets. And the automation can result in severe disruption in local market segments, but overall it doesn't result in less employment - see yearly productivity growth and employment rates of most industrialized economies. Just look at the United States, which currently has nearly full employment despite currently being the world center of (software) automation.


> one of the two countries out of 27 European countries not having minimum wage laws [...] zero job loss could be observed

Even before minimum wages, Germany has very high sector-level minimum wage due to union tarrifs that are binding for non-union employees. Job losses were negligible because the number of people that have been affected by the minimum wage was rather small.

> the lower 60% of the population only hold 3% of the wealth.

Germany has state pensions that you can live on comfortably, and renter-friendly housing laws. So people don't need to own a house as a retirement plan (unlike much of the rest of the world).


> Even before minimum wages, Germany has very high sector-level minimum wage due to union tarrifs that are binding for non-union employees.

True! Those were for the "high-paying" low wage jobs, though - mostly in construction. Gastronomy, hotel industry, haircutters etc. didn't have those. Wage laws in construction mosty were already at more than 9€/h before country-wide minimum wages were implemented.

I can't really agree on that being the reason for no observed loss of jobs though - there are too many other examples of successful minimum wage laws in other regions where the feared job losses failed to materialize, too [1].

>> the lower 60% of the population only hold 3% of the wealth.

> Germany has state pensions that you can live on comfortably, and renter-friendly housing laws. So people don't need to own a house as a retirement plan (unlike much of the rest of the world).

Yes, my angle was a bit different, though: As middle class and upper class earn more, they can afford to save more. Saving, though, does mean that the money saved doesn't take part in the economy anymore (or at least to a lesser degree).

If a low-wage person gets lets say 100€ more per month, that money will get spent almost completely at places like groceries, haircutters etc. - places that also have relatively low wages, which means those people will also spend the money completely and so on. A rise in minimum wages gets you the most bang for the buck, if your goal is stimulation of domestic demand.

[1] As one example New Jersey in the US: https://www.nytimes.com/2015/07/17/opinion/paul-krugman-libe...


> This is incorrect. The EU has substantial transfer payments.

Size of EU budget is about 1 % of EU GDP, so these transfer payments are likely inconsequential as a fiscal mechanism.


>So you have countries like Germany that are effectively subsidized by poorer countries.

Could you explain this comment further, or have links to stories that go in depth on how that works? Not saying you are wrong, but I don't understand how germany, which is an economic powerhouse and exports a lot of goods, are being subsidized by poorer countries.


The gist of it is that if Germany were still on the Mark, then the Mark would be significantly stronger than the Euro is today. Having weaker economies on the same currency causes Germany's currency to be artificially weak, which makes its exports artificially cheap on the world market. In contrast, the poorer Eurozone countries have an artificially strong currency, which makes their exports more expensive than they would be if they had their own free floating currency.

There are some transfer mechanisms from rich to poor Eurozone countries, but they're nothing anywhere close to the scale of e.g. the US federal government.


Even though it's the same currency, wouldn't the buying power and cost of living be higher and lower respectively in the poorer countries and somewhat balance it out? Separate currencies are just an abstraction - what really matters in the local economy would be things like the cost of wages or the cost of living expenses.

Edit: _delerium answered my question pretty well in a reply to another commenter.


how is having an artificially weak currency a subsidy to Germany? isn't that like underpricing their goods? and wouldn't that imply that countries who import German goods are being subsidized, because they are able to get German goods at artificially low prices?

also can you suggest a place where I could read more about this? its awfully confusing, and somewhat counter-intuitive and it would be helpful to read where someone has presented this idea in a paper or article or something.


I don't like how you're being downvoted for asking a legitimate question in apparent good-faith. This idea can be genuinely counterintuitive the first time you encounter it.

The issue is that, normally when a country with its own currency is economically uncompetitive, its currency weakens, which helps give a boost to domestic industry by making their exports cheaper than those of richer nations. So there's a natural corrective function to economic fragility that helps these countries get back on their feet. The Eurozone breaks that corrective mechanism: without the Euro, right now e.g. Greece would have a weak currency and Germany a much stronger one, which would help Greek industry because their products would be cheaper than Germany's. But since they're all using the Euro, Greece can't get any kind of comparative economic advantage.


To add to this, one of the parts that's counterintuitive is that in principle currencies are just accounting mechanisms, so you can achieve the same effects in a currency union. The problem is that it requires a lot more coordination. When you devalue a currency, a bunch of things in the country move together: wages go down in external terms (e.g. $ or € denominated terms), but housing costs, domestic service prices, etc., all move together, because they're denominated in the same local currency. So the currency has become worth fewer dollars or euros, but the ratio between wages and rents in local currency is unchanged, so people can still in the immediate future pay their rent out of their wages, the same as before.

To accomplish the same without an independent currency requires managing this movement in nominal terms. If the problem is that the country is basically broke or uncompetitive, and needs to solve this by "getting cheaper" compared to other countries, everything in the country has to get cheaper simultaneously. Wages have to go down in €, housing has to go down in €, etc., and this all has to happen in a coordinated way so everyone can still pay their now-lower rent with their now-lower wages, and so on. Economists call this "internal devaluation", i.e. achieving the same effects as a currency devaluation while not having a separate currency, by just lowering actual prices for everything.

The consensus seems to be that it's difficult to pull this off successfully, and really good positive examples are rare. It's complicated by just the general difficulty of coordination, as well as longer-term contracts (e.g. most people's rent and wages don't get renegotiated monthly). Greece has been sort of doing this through consistent single-digit deflation, but it draws it out over a long period. Many (though not all) economists think the result is worse than an all-at-once currency devaluation would've been.


This is the clearest explanation of this topic I've ever seen -- my sticking point has always been exactly what you just explained. Is there a good place to get more macroeconomic explanations like this?

Not only that but when when a country issues their own currency and controls their own finances they control the level of debt they want to take on in a crisis, and aren't bound by the Eurozone.

I read this long essay, "Germany Must Lead or Leave", by Soros himself, seven years ago when it first came out:

https://www.spiegel.de/international/europe/george-soros-on-...

My memory of such isn't perfect, and I won't reread all dozen-ish pages for the sake of an HN comment, but I remember it covering some of the issues of Eurozone integration, and seems very topical given this thread is about Soros.


> "wouldn't that imply that countries who import German goods are being subsidized, because they are able to get German goods at artificially low prices?"

Yes, and that makes German products more attractive, boosting German exports. Germany gets a boost to their export, at the cost of importing at higher prices. Because Greece's currency is artificially boosted, they can import relatively cheaply, but they have trouble exporting because their exports are too expensive, so money is leaving the country.


https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-al...

>If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation.


For the average German it is plain and simple not an advantage. Maybe if the export bonuses keep the company you are working for alive, but that is a unrealistic edge case.

That's false. I'll give you a very easy example of how it's benefited me (and many, many Germans):

I sell SaaS software on a subscription basis to customers all over the world. They pay for our service in USD, which is then converted to EUR when I get paid from the company.

If the Euro was stronger, which it would be if it were only the currency for Germany, I'd get less Euro when that conversion happened, and I'd have less local currency for things like rent, groceries, etc. The Euro being artificially depressed against USD absolutely benefits anyone who either personally or via their company exports products, including stuff like SaaS. Since exports are the backbone of the German economy, it has a very concrete benefit to most Germans. Greece's economic problems literally mean I get more cash.


> If the Euro was stronger, which it would be if it were only the currency for Germany, I'd get less Euro when that conversion happened, and I'd have less local currency for things like rent, groceries, etc.

But wouldn't you be able to still buy exactly the same stuff with less (but stronger) Euros?


No. My rent won't go down in Euro just because the Euro is strong. The strength or weakness of a currency mostly dictates how it interacts with goods and services from outside of its currency zone. So I might be able to buy more consumer electronics (which mostly aren't produced in Germany) with a strong Euro, but rent, milk, bread, which are internal to Germany, will stay approximately the same in their Euro denomination.

This is true in most places without particularly volatile currencies, though in countries that do have very volatile currencies, things like rent have historically been specified in stable currencies like US Dollars, Deutsche Mark or Euro.


The point is that these extra Euros, if they were any significant amount, in the local market would drive the demand for goods up, along with their prices. And then we'd be buying the same amount of stuff, just more expensive.

Surely things like rent take longer to reflect an increased demand but they do eventually catch up.


That is by far not the average situation. That would also mean that wages would increase when the Euro was introduced.

Is this also true within a country? Does Wales (for example) pull down GBP for the benefit of the rest of the UK?

Usually not if you have a central/federal taxing and spending Government. That generally balances things out.

That's why this isn't as much a problem for the US as the EU.


I don't necessarily agree with the grandparent comment, but I think the mechanism at work is exchange rates. Because of the strong German economy (for example), if Germany still had a separate currency, that currency would be much more expensive than the Euro currently is thus making German exports more expensive. Conversely, the Italian Lira would be much cheaper making their exports relatively cheap. An argument can be made that the Euro therefore benefits the richer countries at the expense of the poorer ones.

There are other factors at play, of course, and I think that a complete analysis would defy any simplistic explanation. Compare to the US dollar: does New York benefit from a common currency at the expense of Louisiana?


Not entirely, as federal dollars pay for army bases, manufacturing projects, etc. across the country, resulting in significant redistribution of wealth.

The EU has far, far less tax income, and for the last 10 years been spending all that money on the new entrants instead of Greece, Spain or Italy as it did pre-EU27. (And I would argue of course they should spend the money there for the greatest good).

So there's no redistribution through tax, and Germany benefits from a much weaker currency, while struggling countries can't use currency controls to kick start their trade.


Very simple, open markets means that products from Germany can flood other markets. This kills any national business and creating a dependency to Germany. Money flows in one direction.

I agree that the Euro is flawed, but I don't think your reasons are right.

Other commenters point out that there's some transfer payments in the EU, a superset of the Euro zone.

Also around the world you have other currency unions that don't involve transfers and that are doing just fine. Eg Hong Kong effectively uses the USD. See https://en.wikipedia.org/wiki/Currency_substitution for some more background.

And, of course, Scotland, Canada and Australia were doing just fine on the gold standard in the 18th and 19th centuries; without any fiscal transfers between countries in the gold block. (I explicitly mention those countries, and not eg the US or England for specific reasons. I also explicitly not mention the interwar gold standard.)

See https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-... for an empiric demonstration of the Euro's flaws. And https://marketmonetarist.com/2015/07/19/the-euro-a-fiscal-st... for a follow up.


The currency union in this case is paired with lack of tariffs and free movement of capital and goods, which is not the case for Hong Kong and the US, nor was the case in the 19th century Australia and Canada.

Good points. Though to be honest, the EU has plenty of de-facto restrictions on free trade in services.

(Unilateral) free trade was a pretty popular policy back then.

In practice, the decrease in transportation costs we have today dwarfs the difference in tariffs.


The majority of EU budget consists of programs such as the common agricultural policy, ERDF and other infrastructure funding which are de facto transfer payments to improve and sustain poorer areas.

Until German taxpayers are financing universal healthcare and pensions for Greeks and Italians, those things are marginal at best.

Correct me if I’m wrong but isn’t majority of agricultural funding going to France, Germany etc, the wealthy members?

Well, they're both the largest recipients and the largest contributors because they're the largest and most populous countries.

However, France and Germany contribute significantly more than they receive, and poorer regions receive significantly more than they contribute, so that's effectively a transfer mechanism.


There is no fiscal union, but there certainly are transfer payments done on a regional (not national) level; i.e. a region of a country (or the whole country, if it is particularly poor) can access EU funds for infrastructure and the like.

https://en.m.wikipedia.org/wiki/European_Regional_Developmen...


>but have no transfer payments between rich and poor members

You do if you count open free trade, least that is the ideology. Though the reality is very disproportional and for countries able and in a position to leverage that, did very well.

So you get some countries doing better than others, how do you balance that out. Well, with a membership fee based upon how well the individual member is doing in relation to other members and using most of that fee to invest in those countries doing less well.

Which seems a simple and fair way. At least on paper when they signed it all off it did.

I will say though, I've always worried about the aggressive QE usage by the ECB. Whilst great for exports, it has equally impacted imports. This with most consumer tech being imported, then it would be more advantages to companies that export outside the EU to have QE keeping the Euro from racing ahead than for importers.

Hence countries with a dominant export outside the EU, have done rather well out of QE and those importing, equally less so.

But then, how QE is not counted as currency manipulation is beyond me.


What? There are billions in direct transfers to poorer EU countries.

It has been great for millions of non-Western EU citizens.


They fellout of the EMS because their economy wasn not as tightly coupled to the rest of what became the Eurozone (whether that level of coupling is good or bad is a matter of disagreement). So if this incident hadn't happened it's likely they would have had a touch time under the Euro.

For a weak economy IMHO the Euro is worth the disadvantages (and I happen not to consider the inability to do competitive devaluations a disadvantage). These can be small (GR) or large (IT) economies. For a pretty solid (sometimes strong, sometimes less strong, but never "weak") economy (DE, NL, FR, etc) it's definitely good; the small amount you lose in freedom of action is far overshadowed by the benefits (who did better from the greek financial crisis: Greece or Germany?). But for a middling economy which I consider the UK to be, despite its large size, being coupled to the eurozone would give them the worst of both worlds.

BTW I don't think this is an argument for the UK getting out of the EU; I think they should fix their shit (which goes back decades) instead.


There is not an economist I know of, left or right wing, who believes that joining the EUR was beneficial for weak economies. Especially for Italy, proved to be catastrophic. Greece was always a basket case but Italy was doing pretty well before joining.

Joining the EUR means literally giving up sovereignty. The Iron Lady explained that very concisely in her last speech as a PM in the House of Commons: “He who controls the interest rates in Europe, controls Europe”. Couldn’t be more “spot-on”.

Regarding the topic. The UK never considered itself part of “Europe”. There historical and cultural facts and the events of the 20th century that IMO played a major role in keeping their own currency.


Italy's problem was never the Euro.

Italy is the largest political mess of Europe, and the amount of structural problems is staggering.

Its industries kept it running, and China's growth as a manufacturing centre, together with the accession of countries with less structural problems have taken a toll on the Italian industry.

If there was no Euro, Italy would still be ruined anyway.


It's a two way street, the sovereignty argument. A bigger entity has different sovereignty to multiple smaller entities. The British pound is worth about half what it was when I first moved to the UK - that's not the kind of sovereignty that's kind to my pocket. A bigger currency is a more stable store of value for citizens. That's not worthless, independent of the lack of friction in international transactions - not a major friction online, but really nifty when you cross a land border every day.

And yet, the argument here is that a weak currency is advantageous for an economy. Advanteageous relative to countries also having the Euro burden perhaps. But even just from a marcoeconomic perspective there seem to be distinct contradictions everywhere.

> weak currency is advantageous for an economy

Some nuance please... Your fallacious point of view is pushed by certain lobbying groups because a weak currency is

- horribly harmful to inhabitants' living standards (how many days of disposable income does it take a developer to buy an iPhone in the UK vs in the US? About three times as many.)

- very helpful to the shareholders of exporting companies (cheap labor and high profit margins)


How much does it cost cancer treatment in the US vs the UK?

well yeah, but the sovereignty argument was always part of the deal. it's not like it was sprung upon member nations that they suddenly had to accept a common currency out of nowhere. FWIW US states are prevented from having parallel currencies as well; that's also loss of autonomy. it's not necessarily horrible, just a different set of rules.

you are correct in that it makes monetary policy impossible to control from the "outside". obviously that's not a great outcome for various economies in the EU, including the ones you have listed.


We should leave the EU because it was voted for by the majority

And now for years the UK can't figure out how it wants to leave, which people had no vote on.

- Do you want to have a border in Ireland?

- Do you want a border between Ireland and the rest of the UK?

- Do you want to lose money for the NHS even though we had a bus saying the opposite?

- Are you just going to say "no" to everything, but not have an idea what to do instead?

Then maybe, just maybe it would a good idea to ask voters to choose again between leave this way, that way, another way or "who knew this could be so complicated, let's not do that".


Well given we have a deal with the EU that has addressed the first two points, I think we do know how we want to leave.

Having another vote just because politicians didn't like the way the first one went is not democratic. We can have another vote, but lets leave first.


For some definition of "have".

> Having another vote just because politicians didn't like the way the first one went is not democratic.

Sure, which is why nobody is proposing that.


> For some definition of "have

The regular definition of two parties that have agreed something

> Sure, which is why nobody is proposing that.

Apart from the Labour party and the so called Peoples Vote campaign. But apart from them nobody is I suppose


> https://en.wikipedia.org/wiki/Brexit

Parliament passed the second reading of the new agreement allowing it to move to the committee stage for further scrutiny, but they rejected plans to pass it into law before the 31 October deadline, and forced the government (through the 'Benn Act') to ask for a third Brexit delay. This was followed, on the last day of October, by an act providing for an early general election on 12 December.

"Have", kinda but not quite.

They are also not proposing that. If you have to misrepresent other groups instead of arguing against what they are actually saying then you are not discussing but just talking to yourself.


No, we should do a second vote, maybe even a third vote in case the second vote result is wrong again as the first one.

Sometimes democracy doesn't work you know, so we have to try harder.


A majority of people voted to leave the EU. They didn't (at the ballot box) express any opinion on how to leave the EU – deal or no-deal, hard Brexit or soft Brexit, etc. If having an initial referendum on whether to leave was the right thing to do, why would not a further referendum to decide how to leave be equally right? It could take the form of an up-down vote on Johnson's deal; or, it could take the form of preferential (1, 2, 3, etc – as in instant run-off) voting on options – e.g. leave with May's original deal, leave with Johnson's new deal, leave with no deal, withdraw article 50, ask for another extension to negotiate further.

Some will argue that the coming general election is an up-down vote on Johnson's deal. However, it isn't in that it is a first-past-the-post contest between different parties in each constituency – a majority of the vote might be received by parties opposed to Johnson's deal, yet the Tory candidate might still be returned due to the majority against them being split. A referendum on the deal itself wouldn't be faced with that issue.


Yes the whole aspect that a democratic result done upon proportional representation could be overturned by split votes and more so a voting system that is regional. Does make you wonder.

Since the referendum we have had a GE a EuroMP election and now...another GE. With only the referendum and the EuroMP being done on the proportional representation system.

Sad thing is, had David Cameron got the EU to agree to reform, things would of been much different. Which is ironic as Mr Macron is keen to see reform, with even Donald Tusk not long after the referendum saying that the EU needed reform. Ironic as that reform is on hold, until the UK leaves. That's sad as in all this time, the EU could of outlined some reforms and the whole reason to have a revote upon the leave/stay would of been more palatable as things had/was changing. Bit like saying your going to quit a game due to some imbalance that has gone on for ages that you don't like, and before you quit, they say they are going to address the issue. So you may well change your mind.

However you look at it though - a lot of people got way more politically educated over the past two years. Be interesting how that pans out over time.


Even other countries had a lot of votes against further integrating the Union. Since the last 30 years of policy were in the exact opposite direction with limited success, I think it would indeed be time to at least explore other options.

And a third and a fourth because it’s only right when the rich people say so

...consisting of ~1/4 of the population. Parliament represents the interests of all 65 million of us.

I understand its unpopular, but throwing out democracy because your side chose not to vote is asinine.

..consisting of the majority (over 72%) of eligible voters. That's a high turnout.

(FWIW I don't think a referendum should have been held in the first place, and an un-referended decision either way would have been better.)


The UK does not have compulsory voting, maybe it should.

A decade ago the EU promised more grassroots democracy. That was a time when people were convinced of it. Currently the EU is just a complete embarrasment. And that is also due positions like this. Not the Russian is the problem, you are with your position. Why would anybody want to form a union with you?

Other way around. The Guardian speculated in 2013 http://www.theguardian.com/business/economics-blog/2013/jun/... that if Britain had joined the Euro:

* The mid-2000s British housing bubble, and its collapse in 2007, would have been even bigger.

* Britain would have had to ask the IMF, ECB, and EU for loans.

* The Tories would in 2010 have promised a referendum to leave the Euro and won a majority. Labour would have won fewer than 100 seats, and UKIP would have "made spectacular gains".

* The anti-Euro side would have won the referendum, and the currency would have collapsed.

* "after a deep and painful recession economic recovery began".

* "Britain would have destroyed the euro on departure, and would now be on the point of leaving the EU altogether. The idea that Farage might be the next prime minister would be quite credible."


That would be pretty ironic: https://www.politico.eu/article/second-brexit-referendum-geo... - he backs Best for Britain who have been campaigning for a second referendum.

What I would like to see is what led to the pound being so badly mispriced in the first place. Did they just price it at whatever was the prevailing price? And was that why the Bank of England ended up with such small reserves?

Presumably they could have priced it lower and bought up Deutschmarks to bring down the price of pounds and build up reserves to start with when they decided to fix it.

There is also the question of how much Germany was contributing to the problem by keeping its currency overly strong, making it harder for other countries to stay in sync. Presumably if the Germans had raised interest rates somewhat and / or bought more reserves from other countries they could have helped relieve the pressure.


Market prices for currencies reflect what you can buy with them. If a country's economy is strong, they're exporting a lot of things that the world wants to buy from them, and the world wants to invest in a bunch in a number of securities denominated in their currency, the currency will be strong. If the country's economy weakens (relative to other countries in the global economy), the currency will weaken. There could be a lot of potential causes for that. A generation of lazy people who don't work hard. Poor corporate leadership that has people building products that nobody wants to buy. Corruption and misincentives that encourage people to shift value around rather than producing value. The rest of the world suddenly building out their technology and capital stock and catching up to your economy.

Britain was the pre-eminent world power up through WW2, so there was a lot of historical inertia propping up the value of the pound. They recovered slowly from WW2, though, lost their position as world leader to America, and had a very rough 70s and 80s. The historical strength of the pound actually hurts in that regard: it makes their exports less competitive, which leads to industry moving away from Britain and a generation that has difficulty finding work. Through their 80s they still had much of their reputation as a world power (the Falklands war was fought over it); by the 90s it was becoming apparent that reality did not match reputation.


>misincentives that encourage people to shift value around rather than producing value

Isn't that just capitalism? Useless financial operations (shifting value around) are richly rewarded, as opposed to "producing value", which gets scraps as low as the market will bear. You can work your ass off making furniture for 4 decades, you will earn as much as an "investor" does in one week.


By and large the investor earns rewards because that capital is doing useful work funding productive businesses. Maybe allowing the software business next to your furniture shop to expand, selling services abroad bringing money into the country, or creating a web site you can sell your furniture on.

The sorts of financial engineering you're talking about is of course a real thing, but can also add real value by making other useful transactions cheaper. So for example high frequency trading is used heavily by market makers, that provide a useful service creating liquidity in markets. That makes it easier and cheaper to buy and sell equities and such.


> "A generation of lazy people who don't work hard"

I am sorry for derailing, but how does that happen, did they come out like a faulty batch from a factory?

The mantra of "It's important to work hard" needs to die. Today we have fewer friends than ever, population is unhealthy and the biggest killer of young men is suicide.

Please don't perpetuate this nonsense. It should be: "Work smart, and look after yourself/ your family"


It's one of many mutually reinforcing factors. I'm not trying to assign blame here (of which there is plenty to go around), but observing a dynamic.

That dynamic is essentially that success begets success. If you have a population that has the experience, from an early of age, of teams where everybody works hard at an uncertain goal and accomplishes their objective, it builds more than just the objective. It also builds trust among the team and the population in general; it builds a number of ancillary skills that were necessary to accomplish the objective; and it builds courage, and the belief that even if obstacles look hard, they can be surmounted. If you set out to build & market a computer game by yourself and fail, you've accomplished a lot more than failure. You've also taught yourself to program; taught yourself game design; taught yourself graphic design; taught yourself marketing and differentiation; taught yourself how to listen to early users and make decisions; and taught yourself perseverance.

And conversely, if you have a society where corporate leaders habitually throw young employees into the meat grinder, burn them out on busywork, and pay them little, there will be very little incentive for these employees to do anything other than put in the bare minimum amount of work and spend the remainder of their workday on Facebook or HN. They build no ancillary skills; they learn distrust rather than trust; they learn that perseverance is a waste of time; and they learn nothing about how to break down big goals and make them achievable.

Say that a nation full of the former has to compete (either economically or militarily) with a nation full of the latter. Who do you think is going to win?

There's nothing wrong with "Work smart, and look after yourself & your family" from the perspective of an individual. There is something gravely wrong with it from the perspective of a nation, which has effectively disintegrated at that point. We're talking about national currencies, which are an abstraction of the national economy as a whole. If there is no national economy, but a bunch of independent producers who search for whatever personal advantages they can get for themselves, that national currency is not going to be worth much.


> "If there is no national economy, but a bunch of independent producers who search for whatever personal advantages they can get for themselves"

I am surprised to see you argue against it, as its the first tenet of capitalism.

I am not clear what you mean. How is the person that "works hard" in your understanding contributing to national economy above an beyond working at a place where he creates the most value, and gets the highest pay?

I allege those precious hours are better spent helping the community / the homeless / whatever. It would probably benefit the national economy more and teach you valuable skills.

A friend of mine has a pretty successful career in London city, he works at a charity that monitors marine animals in his spare time. It probably leaves him happier as a result.


"A nation is born stoic and dies epicurean" – Will Durant, http://bit.do/stoicepicurean

A more popular corollary is

"Hard times create strong men. Strong men create good times. Good times create weak men. Weak men create hard times."


I feel most of these social theories have no basis is reality. Similar logic is used to argue that videogames cause violence, or (in Russia) that men become gay because it's cool.

They just 'make sence' to the people perpetuating them.


> Similar logic is used to argue that videogames cause violence, or (in Russia) that men become gay because it's cool.

What exactly is the similar logic here?

> I feel most of these social theories have no basis is reality.

I always think back to a passage from Georges Canguilhem's "The Normal and the Pathological", which is a bit hard to read but hit the nails on the head (and I'll be the first to admit not to be a philosopher or any sort of expert on the topic):

In anthropological experience a norm cannot be original. Rule begins to be rule only in making rules and this function of correc­tion arises from infraction itself. A golden age, a paradise, are the mythical representations of an existence which initially meets its demands, of a mode of life whose regularity owes nothing to the establishment of rules, of a state of guiltlessness in the absence of the interdict that ignorance of the law is no excuse. These two myths proceed from an illusion of retroactivity according to which original good is later evil kept in control. The absence of rules goes hand in hand with the absence of technical skills. Golden age man, and paradisiacal man, spontaneously enjoy the fruits of a nature which is uncultivated, unprompted, unforced, unreclaimed. Nei­ther work nor culture, such is the desire of complete regression. This formulation in negative terms of an experience consonant with the norm without the norm having had to show itself in and by its function, this really naive dream of regularity in the absence of rule, signifies essentially that the concept of normal is itself normative, it serves as a norm even for the universe of mythical discourse which tells the story of its absence. This explains why, in many mythologies, the advent of the golden age marks the end of a chaos. As Gaston Bachelard said: "Multiplicity is agitation. In literature there is not one immobile chaos" Lop. cit., p. 59]. In Ovid's Metamorphoses the earth of chaos does not bear fruit, the sea of chaos is not navigable, forms do not remain identical to themselves. The initial indetermination is later denied determination. The in­stability of things has as its correlative the impotence of man. The image of chaos is that of a denied regularity, as that of the golden age is that of wild [sauvage] regularity. Chaos and golden age are the mythical terms of the fundamental normative relation, terms so related that neither of the two can keep from turning into the other. The role of chaos is to summon up, to provoke its inter­ruption and to become an order. Inversely, the order of the golden age cannot last because wild regularity is mediocrity; the,satisfac­tions there are modest aurea mediocritas – because they are not a victory gained over the obstacle of measure. Where a rule is obeyed without awareness of a possible transcendence, all enjoy­ment is simple. But can one simply enjoy the value of rule itself? In order to truly enjoy' the value of the rule, the value of regula­tion, the value of valorization, the rule must be subjected to the test of dispute. It is not just the exception which proves the rule as rule, it is the infraction which provides it with the occasion to be rule by making rules. In this sense the infraction is not the ori­gin of the rule but the origin of regulation. It is in the nature of the normative that its beginning lies in its infraction. To use a Kantian expression, we would propose that the condition of the possibility of rules is but one with the condition of the possibil­ity of the experience of rules. In a situation of irregularity, the experience of rules puts the regulatory function of rules to the test.


>> "A generation of lazy people who don't work hard"

>I am sorry for derailing, but how does that happen, did they come out like a faulty batch from a factory?

One generation is unlikely to be much lazier than the last. But the economic policy of post-war Britain was dominated by nationalised industries and, rules made by and for the unions etc. Workers toiling hard in make-work industries or workers refusing work that breaks strict demarcation rules are as unproductive as lazy workers.

This sort of thing the generally poor economy of the UK, and why the UK did not produce stuff people wanted to buy. That it translated into a series financial crises depended on other factors.


Also you can add the unions propping up outdated industries like coal mining

That phrase alone gave me a poor feeling about the whole comment. It was unnecessary and glib.

It was chosen deliberately. HN has a wide audience. Of the 4 causes I explicitly listed, most people will shake their heads yes to two of them, feel indifferent to one, and feel insulted by one. This applies regardless of which group you belong to. I have friends that would think "Yes, yes, it's the lazy youth today" and be gravely insulted by the implication that corporate leadership is incompetent; I also have friends (in government) who would agree with both the observations on the lazy youth of today and the corrupt corporate leadership but be gravely insulted by the idea that incentives within our society might not result in the best behavior.

The meta-point I'm making is that every group believes our current problems are somebody else's fault, but what we're really facing is a systemic breakdown of the attributes that make for a functioning society. The other comment on this article, "Every empire has created the conditions of its collapse" has it right. When you're inside of the collapse, the idea that the collapse might be an inevitable result of the empire seems inconceivable, because the empire is all you've ever known. So a lot of people go around looking for a human adversary to blame, usually someone who was your countryman until recently, when really the system that created the country makes its demise inevitable.


People perpetuating it would have us believe the human race has been degrading for a few thousand years:

The children now love luxury; they have bad manners, contempt for authority; they show disrespect for elders and love chatter in place of exercise. Children are now tyrants, not the servants of their households. They no longer rise when elders enter the room. They contradict their parents, chatter before company, gobble up dainties at the table, cross their legs, and tyrannize their teachers.

Socrates


We must not forget that this poison has been published by current government front benchers.

Worst idlers in the world.


> I am sorry for derailing, but how does that happen, did they come out like a faulty batch from a factory?

They grew up lazy in soft times. It's a never-ending cycle, parents work hard to make kids lives easier than theirs, kids don't get challenged as parents did, grow up soft and lazy and blame the world. They fail, raise kids poor, who get challenged again and grow up hard and make something of themselves, and then raise lazy kids trying to improve their kids life, repeat ad infinitum.


It was a political choice. The idea was to avoid inflation and keep prices low for consumers. Of course the same action strangled exporters but they don't vote much...

Indeed, and that's also why the trade was so good. The pound couldn't possibly get much higher, but it could break and go far far lower. That's why Soros bet 200% of his fund on this position, huge upside with very small, tolerable downside.

Also it meant that the owners of UK assets had the best possible valuation of those assets. Those asset owners were significant in the calculations of the tory party, for some reason.

It was priced based on the prevailing price, whereas the actual value fluctuated depending on the economic state and interest rates in the various countries. The UK wasn't the only country which had this problem; the allowed margin of variation had to be massively expanded shortly afterwards to keep a bunch of other European states in the ERM.

Also, the fact that the ERM was structured in a way that effectively benefited Germany over the other members was probably a major contributing factor. Remember, this was right after the fall of the Berlin Wall and German reunification which had huge economic consequences - East German industry was basicsllly wiped out and a huge amount of money was spent on rebuilding its infrastructure to West German standards. Germany got to set its interest rates in a way that minimised the impacts to them, and everyone else was dragged along.


I think there was a danger that France would've had to leave due to similar pressures the UK faced, Germany bent for France in a way they wouldn't for the UK.

I am thankful though, the UK leaving the ERM meant the euro was dead in the UK.


The UK entered at what was the floating exchange rate at the time, although it had unofficially shadowed the DM for several years during the 80s.

Ultimately the problem was that the correct price for the GBP/DM rate in 1989 wasn't the same as the correct price in 1992 - the divergence was largely because rates of inflation differed markedly between the UK and Germany and didn't converge.

Also on your point re what the Germans could have done - they would have needed to cut rates to alleviate pressure. Instead they raised rates to head off inflation in Germany (this was in the context of German reunification which had led to a dramatic increase in government spending in Germany which has inflationary effects).


It was probably based on the price at the time the UK joined the Exchange Rate Mechanism.

Ah those poor boomers! Paying 15% interest on their £40,000 mortgage. These millennials don't know how easy they have it, paying 3% on their £200,000 mortgage.

At 15% the boomer could fully pay and own the property within 5-10 years. Then save or go on to buy a new one.

At 3% the millennial will still not be owning their property after 30 years.


Typical mortgage duration was and is ~25 years. The scenario in the 80s that gave homeowners relief was that the costs got inflated away (and MIRAS allowed the interest on a mortgage to be deducted from taxation)

Typical mortgage duration was and is ~25 years.

The number of 35 year mortgages has risen from 2.7% in 2006 to 15.75% now - https://www.theguardian.com/money/2017/jul/29/goodbye-25-yea... - and 40 year mortgages are becoming more common.


I don't have this information for the UK, but for France parent is right. Mortgage duration for a typical income and a typical house in the 70s was 10 years, compared to 25 years today.

Yes, that is the joke.

In 1923, avg wage was £260, avg house was £350, a whopping 1.3 times avg wage. Only idiots would breed to support the establishment and continue to vote for their puppets.

The UK is also on a different economic cycle to Eu, noted by the EU recession that unfolded after the Euro went live. People in Northen Ireland went south to take advantage of recession prices and vice versa. IMO the real reason for Brexit is the Good Friday agreement has failed, the gloss of Buy To Let has tarnished so some of the IRA are looking to get back to their old ways. Making Northern Ireland a gateway into Europe is similar to what the British did with Hong Kong being a gateway into communist China when it cut itself off to the world. Northern Ireland has if the current agreed Brexit deal goes through, so make NI a new Hong Kong which will force all parties to keep voting for it every 4years and keeps them all around the table something the GFA has failed at considering theres been no assembly at Stormount for a few years now. Thing is the political class don't want to give away the above info because then everyone will pile into NI property and make a packet, forcing out the ruling class who benefit from this insider knowledge.

So do you vote for Brexit knowing what you know now or not?


Rates going from 10% to 15% means an average monthly payment on a repayment mortgage with 15 years left to run would have increased by nearly 30% overnight (assuming mortgages at 2% above base rate). This was announced in the jaws of the early 90s recession.

To put that in context - today the GBP bank rate is 0.75% and the average mortgage rate is probably c.1% above that. The base rate would have to rise to more than 5% to get the same size effect on the monthly cost of a repayment mortgage with c.15 years left to run.


And the wage inflation eroded the debt in a very short time. Far better than paying 50% of your wages now and for decades.

the boomer can always refinance to the 3% - not sure what you are getting at here.

The OP is being sarcastic.

Yes I am parodying the old avocado toast argument.

Problem was it divided people into the ones who could afford the hike in interest and the ones who couldn’t. Either you could keep up and were rewarded by a house going up in value massively, or you went bankrupt.

They didn’t have fixed rate debt?

In the UK typically people only fix for a short period, say 2 years, if at all. The premium for fixing for 25 years is quite high.

My takeaway from this is that austerity is not a government level solution. That works for smaller players (even corporations) within a larger system, but at the level of system where a whole economy's possible size of pie is defined by laws and regulations cutting back only wastes the potential of the resources within.

I speculate that a better measure is to direct efforts towards wise expenditures. Seek to focus the economy on things that will be of benefit when done, with a focus on long term positive value to the economy and the quality of life for all.

"John Major had made entering the ERM the centerpiece of his monetary policy and his plan to bring austerity to England. The events destroyed his credibility."

...

"If you’re looking for a take away from this story, that’s one of them."


It also happened to the Italian lira at the same time. Up to the point (or perhaps, the consequence) that the government at the time forcibly withdrew money (not large amounts, mind you, but if you do some sums...) from all bank accounts throughout the country overnight.

A bit off topic - does anyone know other blogs like priceonomics? I'm a big fan - I think the first article I read there was the "Diamonds are bullshit" one. Must be fun having access to all kinds of interesting data and poring over them.

Check out Matt Stoller on Substack.

The original diamond piece is from the Atlantic in the eighties. Still a great read.

Liked the "Diamonds are bullshit"

Anything similar on watches/suits. THese are mine flaws




It makes me wonder if he would have been successful if he wasn't able to short 10 billion. As the article said, Norman Lamont was planning to defend the sterling with 15 billion.

It wasn't just him though. By the sounds of things lots of players smelled blood in the water. Saros has 10bn, but other players probably had a lot more between them...

They may have only done so because they saw Soros betting so much on it.

Yes, and they were able to borrow more eventually. But when you see that kind of movement there’s gonna be momentum.

It's interesting to read this with an eye on current global macroeconomic conditions.

The dollar is significantly overvalued today, a result of its status as the global reserve currency. And the consequences of that are all the same ones mentioned for the pound in the article. The U.S. has been running a large current account deficit since 1980: we import more than we export. Our jobs are moving overseas, because it doesn't make sense to employ Americans at the wages they demand, because the wages they demand are artificially inflated by the overvalued dollar they're paid in. We need to keep interest rates high relative to peer countries to maintain the dollar's reserve status. We insist - through foreign diplomacy if possible and military intervention if not - that oil-producing companies price their oil in dollars, creating demand for dollars that would otherwise flow through other currencies. And all of this has been widely reported for the last couple decades.

The U.S. has stated that they're committed to defending the dollar as the world's reserve currency. What happens when they can't, and the collective weight of the market is more than a national government can prop up?


Every empire has created the conditions of its collapse.

U.S. dollar share of global currency reserves at lowest since 2013

> of the market is more than a national government can prop up?

The US is not propping up the USD like UK did.


"we import more than we export. " Doubt that. Before you answer with a statistic, Google "dark matter in accounting" regarding the deficit.

If apple sells an iPhone to Germany. In what export balance does it appear? What company makes the profits?


Without putting much analysis into it, IMHO whenever Apple would sell an iPhone in Germany the effects are as follows:

Goods export worth the "wholesale price" from China to EU;

An EU company (Apple entity in Ireland or Netherlands? the 'double Irish sandwitch' arrangement which IIRC is still used is a bit tricky, but one of these) earning almost all of the profits of that deal;

The shares of publicly traded USA company 'Apple' appreciating in value because the value of the EU company that they fully own increased because they gained profit and cash (but which won't be repatriated to USA due to tax reasons).

IMHO that sale wouldn't have any direct effect on USA trade balance and on USD supply/demand.

Does this make sense? Am I getting something substantially wrong?


It does not matter if you use Germany or the USA.

iPhones or whatever gets produced in China, likely by Foxconn. Profit margins are small.

I iphones get sold to Apple HK, apple HK sells them to Apple US or Apple Germany for a huge mark up. iphones are sold in the US or Germany for a small mark up.

I don't know if this is apples setup but profits would be accrued in HK tax free. In the end it does not matter since.

On the balance sheet China or HK is exporting goods to the US or Germany but all the profits land at a US company - apple.

Amazon, Google, eba, Microsoft is big in Europe. Where do you see their products in the trade balance sheets? YOU DON'T. Microsoft is not shipping Windows CDs from the US to the UK or France or Germany.

The bottom line: While the huge trade deficit of the US is not healthy, it is highly distorted and probably much lower than you think.

"IMHO that sale wouldn't have any direct effect on USA trade balance and on USD supply/demand."

People buy stocks in the US. They buy them with US dollars. Why are they buying US stocks? Because these companies are highly competitive. Why are they highly competitive? Most pay hardly any taxes and their products don't appear in any trade balance sheet.


Double Irish Dutch sandwich. Apple would have entity in both Netherlands and Ireland for sales in EU. Money is transferred to Netherlands and then to Irish subsidiary and then further to other countries.

The second Irish company is for sales from US.


Magic, the profits are transmuted into a sandwich?

There are upsides and downsides to being a reserve currency though that other nations might not want to take on, a non nation state currency that wants/needs to inflate might be a better bet.

The US built up on the good side of being a reserve currency.

> The advantages of reserve currency status for the dollar are well known. The world’s willingness to accumulate dollar reserves in the post World War II period first removed and later reduced the requirement of maintaining balance of payments equilibrium, or, more specifically, current account balance. By removing or weakening this restraint, U.S. policymakers had more freedom than policymakers in other countries to pursue strictly domestic objectives. We ran current account deficits year after year, balanced, or paid for, by capital inflows from our trading partners. The good side of that was that we could import real goods and services for domestic consumption or absorption and pay for them with paper, or the electronic equivalent. In other words, our contemporary standard of living was enhanced by others’ willingness to hold our currency without “cashing it in” for goods and services, or, before 1971, gold. [1]

The US is in the bad side of this process now and losing because of the reserve currency status.

> The bad side of our reserve currency status, although seldom recognized, was that the very leeway that enhanced our current standard of living built up debt (and/or reduced foreign assets) to dangerous levels. I remember well when, in 1985, the United States ceased being a net creditor nation to the rest of the world and, instead, became a net debtor nation. Our net indebtedness has only grown over the years, and hangs over us like the legendary sword of Damocles. [1]

Every nation knows that being the reserve currency comes at great risk and harms middle class and internal markets eventually. It might even be a fatal flaw. What other country wants to take that on other than one with decades and decades of growth ahead of them and an already robust middle class they can devolve.

Being a reserve currency helps build up the middle class and then when you switch to debt, which is natural as a reserve currency, it slowly widdles it away. US is scraping the barrel and the middle class is all but tapped, stagnation and lower purchasing power since the 70s in lower/middle class is evident. Worker share of GDP being on a long dwindle down [2] and velocity of money is off a cliff [3].

[1] https://www.forbes.com/sites/bobmcteer/2013/09/05/reserve-cu...

[2] https://fred.stlouisfed.org/series/W270RE1A156NBEA

[3] https://fred.stlouisfed.org/series/M2V


What specifically does dollar velocity indicate with respect to consumers? Is it more or less a measure of purchasing power?

Velocity is the exchange of dollars domestically between people and companies.

From FRED:

> The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.

Less interaction and transactions are happening between individuals because it is mostly debt to large/global corporations or GDP gains and productivity gains going to the top wealth class.

Essentially low share of GDP productivity and gains are going to labor, consumers have less money to spend due to wage stagnation due to less share, consumers then exchange less money with one another. By itself it could be explained as many things, but coupled with the debt economy and low wages and low worker share of GDP it impacts it.

Real wages and purchasing power have barely budged in 40 years for lower/middle class. [1]

[1] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...


What does velocity of money indicate?

> The U.S. has stated that they're committed to defending the dollar as the world's reserve currency. What happens when they can't...

What happens if they already ain't? The narrative of the us$ being the reserve currency is old, but today it is even less convincing...


This strange conspiratorial angle you have going on is ridiculous, there is no narrative and no convincing needed. Look at the facts and educate yourself.

Forgetting the politics of George Soros (which isn't suitable for HN anyway), I don't believe he is to blame for the UK government's questionable choices.

To put the estimated £3.3 billion loss into perspective:

* The failed NHS software update/upgrade project cost >£12 billion [0].

* The UK spends ~£9 billion a year (after calculating rebates) to be a minority voting block in the EU [1]. It's currently costing ~£0.75 billion a month to stay in the EU [2].

* The "divorce" settlement to the EU is currently set between £30 billion and £40 billion [2]. To put that itself into perspective, that is each person (including people on death's door and babies) in the UK (~70M) paying the best part of £600 out of their own pocket to the EU - something they never voted to be a part of anyway.

I could go on all day about the UK government's awful handling of money.

[0] https://en.wikipedia.org/wiki/List_of_failed_and_overbudget_...

[1] https://fullfact.org/europe/our-eu-membership-fee-55-million...

[2] https://www.bbc.com/news/uk-politics-49563957


The politics of Brexit are also not very suitable for a HN on shorting the pound. By mentioning only the costs of remaining in the EU, not the ongoing benefits, you're being pretty disingenuous

> The politics of Brexit are also not very suitable for a HN

> on shorting the pound.

As I stated, £3.3 billion is very small compared to its other ongoing expenses. Factually pointing out the cost of membership is neither an argument for leave or remain.

> By mentioning only the costs of remaining in the EU, not

> the ongoing benefits, you're being pretty disingenuous

Please read the Full Fact reference [1]. From the £17.4 billion membership fee I negated the rebate amounts. The only major thing not taken into consideration is the financial sector investments and the philanthropic nature of the EU.

[1] https://fullfact.org/europe/our-eu-membership-fee-55-million...


You cannot compare a loss to a transaction. The £3.3Bn is a loss, the £17.4Bn is a payment that provides regulatory bodies, courts, CAP payments, infrastructure projects. If black wednesday didn't happen you would just have an extra £3.3Bn. If we weren't members of the EU we would have £17.4Bn more, and our farmers would have lost their subsidies, rural development projects would be cancelled, we'd have no body to regulate all sorts of industries etc. etc. etc.

As well as this your other EU example is spurious too - since the 'divorce settlement' isn't a loss either. It's the agreed remaining financial obligations that the UK had previously committed to. In fact It's things like MEPs pensions which was agreed long before the UK decided to leave the union. So the divorce bill is essentially net 0 - the UK is paying nothing to the EU beyond the money that the UK and EU had already agreed to spend.

It's like saying losing a £50 note should be put in perspective by comparing it to my salary. My salary is much larger than £50, but that's not relevant, because for me to get £50 of disposable income I need to exclude all my living costs. It may be that my salary in fact perfectly matches my living costs - in which case whilst £50 might be tiny in that perspective, it's huge because it could be literally all of my disposable income.


> The £3.3Bn is a loss, the £17.4Bn is a payment that

> provides regulatory bodies, courts, CAP payments,

> infrastructure projects.

Not £17.4 billion's worth of transactions.

> As well as this your other EU example is spurious too -

> since the 'divorce settlement' isn't a loss either. It's

> the agreed remaining financial obligations [..]

A divorce settlement could also be called "fulfilling agreed financial obligations", but it certainly doesn't make it any easier to swallow. I also somehow don't believe it's £30+ billion in pensions. I believe it'll mostly be investment into projects we'll never see the fruits of, I hardly believe they'll say "well, seeming as you invested into this, it's only fair you eat from the tree".


You've given three examples, two of which are specifically chosen to highlight EU-related expenses and have qualified them with comments intended to provoke a reaction ("to be a minority voting block", "paying the best part of £600 out of their own pocket to the EU - something they never voted to be a part of anyway").

You can deny it if you want, but you clearly wanted to get into it with someone here on Brexit :-)


> You can deny it if you want, but you clearly wanted to get

> into it with someone here on Brexit :-)

The original intent was just to show that £3.3 billion is really nothing compared to our other expenses, but clearly I kicked the hornets nest.


Wow, such a propaganda tone that I am not used to seeing in HN.

"9 billion a year for a voting right" is like saying that the average software developer in London pays 20K a year to the government for voting rights every 5 years. You obviously don't pay taxes for voting rights, you pay taxes to sustain or improve the environment you operate in and the voting is about choosing the people and the path to that.

The "divorce bill" makes it sound like it some kind of a fine or something but it's actually about the obligation that the UK committed through the years. A good analogy would be the UK participating in a birthday dinner party, promising to chip in for the present, ordering the food and the desert but leaving before the desert arrives so people expect the UK to pay for its desert as it was already cooked and pay its part for the present they bought. This is not going away no matter if the Brexit would be hard, soft, mellow or squishy. If the UK does not honour its obligations, it would be incorporated in the future trade agreements.

Please don't use propaganda catchwords and talking points here, the topic itself is divisive but this is beyond that. It is a dishonest portrayal of reality.


> Wow, such a propaganda tone that I am not used to seeing in

> HN.

I think we have a very different definition of propaganda.

I suggest getting into the comments early when a keyword is used in the title.

> "9 billion a year for a voting right" is like saying that

> the average software developer in London pays 20K a year

> to the government for voting rights every 5 years.

It's clearly a tongue in cheek exaggeration.

> The "divorce bill" makes it sound like it some kind of a

> fine or something but it's actually about the obligation

> that the UK committed through the years.

I used "divorce settlement" - and it is very much like a divorce settlement. Both parties are expected to settle remaining costs and you end up losing the kids.

> A good analogy would be the UK participating in a birthday

> dinner party, promising to chip in for the present,

> ordering the food and the desert but leaving before the

> desert arrives so people expect the UK to pay for its

> desert as it was already cooked and pay its part for the

> present they bought.

Maybe, but then you would expect to be able to chose what to do with the desert if you've paid for it?

> If the UK does not honour its obligations, it would be

> incorporated in the future trade agreements.

Unfortunately, yes.

> Please don't use propaganda catchwords and talking points

> here, the topic itself is divisive but this is beyond

> that. It is a dishonest portrayal of reality.

I purposely put the word "divorce" in speech marks as it's what it is commonly referred to, rightly or wrongly. I wasn't aiming to paint a picture perfect version of reality, I would need several books to describe Brexit accurately (and no doubt somebody will write them). The purpose is simply to show that £3.3 billion is really not that much compared to our ongoing projects. Hell, another one to look at is the Trident project.


Sure, UK will have it's desert that paid for and can decide what to do with it. These things are settled in the withdrawal agreement. After all, it's not a fine.

If a net recipient country were to leave the EU would the EU continue paying them after they had left?

Paying what exactly? These are not really money transfers, it's not like UK sending 100 bucks and the EU giving 80 of it to Bulgaria and sending 20 back to the UK. It doesn't work like that.

The money is used for infrastructure and other stuff, maybe Bulgaria gets 80 bucks for road building but the UK benefits from it by getting the engineering contract and after the project is completed they use these roads to make moving nuts from Turkey cheaper and faster so making their chocolate industry more competitive. Maybe it was UK's proposal to build that road and France supported the idea because they also want to make the rose petals imports from Bulgaria and electric hardware exports to Turkey cheaper?

It's not a charity. So yes, if a net recipient country leaves the EU chances are that they will continue receiving EU funds just like the other countries that receive EU funds despite never being the EU in the first place.


As a matter of fact, the EU is committed to continue to fund projects in the UK that had already budgeted.

From the Institute for government.

>If there is a withdrawal agreement, UK recipients will receive EU funding for projects agreed in the current funding cycle from the EU Budget.

So yes, the already committed projects would continue and so the net recipient would continue to be a net recipient until the currently committed projects were completed. That is exactly why there is a divorce bill - because the UK is paying for the obligations its already committed to, and in return the EU is going to provide the services and funding that it has committed to. There is reason to think any other country would be treated differently.


UK should be now getting 350 million GBP per week for NHS.

> UK should be now getting 350 million GBP per week for NHS.

It hasn't left yet and the reality is that it'll take years to leave (if it does).

You could maybe justify £350 million a week over the course of a year based on a hard Brexit, where the UK doesn't pay the £30-£40 billion divorce settlement.

It's unclear how much will be spent in replacing EU infrastructure, but it should be overall beneficial to the UK once trade agreements are in place after a number of years.


> it should be overall beneficial to the UK once trade agreements are in place after a number of years

It probably won't. I don't know why leavers think the UK will be able to negotiate better trade deals than a bloc of 27 countries.


This is going largely off topic, but I'll indulge.

> I don't know why leavers think the UK will be able to

> negotiate better trade deals than a bloc of 27 countries.

Other than shear volume, what does the EU offer that the UK is not capable of? And is what the EU offers worth ~£9 billion a year?

The UK doesn't have to make better trade deals, they can even afford to be slightly worse and still be of a net benefit. The trade deals would have to be ~£9 billion worse in order for them not to be beneficial.

Playing 4D chess: I highly suspect that the UK will receive very good trade deals in a medium/long-term gamble by other super powers to destabilize the EU.


> Other than shear volume, what does the EU offer that the UK is not capable of?

Shear volume is a big part of why Communist China has better trade deals with the US than Communist Cuba, I wouldn't discount the importance of volume in trade negotiations.

> I highly suspect that the UK will receive very good trade deals in a medium/long-term gamble by other super powers to destabilize the EU.

Very few of the UK’s potential trade partners are superpowers where the actors necessary to negotiate and ratify a trade deal have consensus around destabilizing the EU as a goal. With a generous definition of “superpower”, you have China and Russia and that's it.


> Shear volume is a big part of why Communist China has

> better trade deals with the US than Communist Cuba, I

> wouldn't discount the importance of volume in trade

> negotiations.

That's not entirely true, it also has somewhat to do with their relaxed policy on human rights and their status in the WTO. Now that the US is looking to balance the books, China's economy has taken quite a serious hit.

That said, the UK is also part of a much older and relatively large trading group - the Commonwealth.

> Very few of the UK’s potential trade partners are

> superpowers where the actors necessary to negotiate and

> ratify a trade deal have consensus around destabilizing

> the EU as a goal.

What you hear publicly and what goes on behind closed doors, are too very different things. I highly suspect that the US also has a vested interest in breaking up the EU, after all, it's the EU which is putting pressure on its booming tech industry for example.

I also suspect that there are multiple other powers poised to take advantage of destabilization of the EU. I also further suspect the EU has realized this threat, which is why the UK must help safeguard the EU-based banks for a Brexit deal.

> With a generous definition of “superpower”, you have China

> and Russia and that's it.

The term "superpower" is not easily defined at the best of times, granted.


I'm no expert, but perhaps not having to comprise with 27 other nations will allow the UK to negotiate the trade deals that benefit them the most, rather than deals that are agreed upon by a majority of countries in the EU.


I don’t understand why it is that the hike in interest rates had to fail. Had the speculators bought tied up so much liquidity that nobody had pounds to sell to the UK’s central bank?

Hiking up the rates from 10% to 15% gets you an additional 5% in returns over the course of the next year. Whereas if the English government decides to stop propping up the currency, you're going to see a significant loss, within the next few days or weeks.

Which is exactly what happened in this case. Anyone who bought pounds in order to lend it at 15%, would have taken an immediate 15% loss over the next week instead.

Unless you want to speculate, you're better off waiting for the market to settle instead of diving in during turbulent times.


I think you've got it backwards. If no one is buying and everyone is selling, the value drops. The central bank couldn't sell back the pounds it had bought, and couldn't feasibly keep buying more forever.

And, well, no one else would buy pounds in the fixed range:

* The currency spent the morning dropping in value. * This despite the government buying up pounds. * There had been news stories about possible devaluation of currencies in the ERM, and suggestions it will be the pound * The country was in recession - the government has limited flexibility with interest rates.

Against this backdrop, who would buy pounds?

Essentially, as the article notes, it was already a matter of when the pound would drop, not if. Soros' Quantum Fund and other funds might have made it happen a bit sooner, but it was pretty clear that the pound was overvalued.


I think that’s begging the question, though. They could have fought it out, like the Volcker shock in the US from just a few years earlier. Maybe everybody assumed they wouldn’t do anything as dumb as that.

This move often fails because you can never hike the rate enough, since you don't want to hurt borrowers. In other words, you have competing motives that don't reconcile.

It's also often seen as a desperate tactic, the kind of thing that is done right before capitulation. Which of course makes it even less likely to work.


This would be hiking interest rates while the UK was in a recession. That would be devastating to employment in the UK, and was therefore politically not possible.

[Edit: Per the article, they did try raising the interest rates, but by then everyone knew that the outcome would be devaluing the pound, so it didn't work.]


Wynne Godley's Maastricht and All That[1] is a great explanation of why the Euro was, and in fact is, doomed to failure and the UK was correct to stay out. This essay was written less than a month after Black Wednesday, so I assume it was probably influenced by the event. Sadly the lesson was evidently not learned, as the word "fiscal" doesn't appear a single time in the article.

The key lesson here for states is only ever acquire financial obligations in your own sovereign currency. This is why the Swiss were able to put a ceiling on the value of the CHF during the European Debt Crisis. Their ability to spend CHF is unlimited, so they could just keep expanding their balance sheet indefinitely buying Euros, which devalued the CHF. A sovereign can always devalue, but not necessarily do the opposite.

[1] https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-al...


>Wynne Godley's Maastricht and All That[1] is a great explanation of why the Euro was, and in fact is, doomed to failure and the UK was correct to stay out.

The Guardian speculated in 2013 http://www.theguardian.com/business/economics-blog/2013/jun/... that if Britain had joined the Euro:

* The mid-2000s British housing bubble, and its collapse in 2007, would have been even bigger.

* Britain would have had to ask the IMF, ECB, and EU for loans.

* The Tories would in 2010 have promised a referendum to leave the Euro and won a majority. Labour would have won fewer than 100 seats, and UKIP would have "made spectacular gains".

* The anti-Euro side would have won the referendum, and the currency would have collapsed.

* "after a deep and painful recession economic recovery began".

* "Britain would have destroyed the euro on departure, and would now be on the point of leaving the EU altogether. The idea that Farage might be the next prime minister would be quite credible."


> The hope was that tighter relations would prevent catastrophic wars from breaking out every few decades

This is a crucial fact that has not been mentioned by anyone in public discourse about Brexit


David Cameron warned that Brexit could trigger World War Three during the referendum campaign https://www.mirror.co.uk/news/uk-news/brexit-could-trigger-w...

> ... Countries weren’t ready to give up their national currencies, but they agreed to fix their exchange rates with each other instead of “floating” their currency and letting capital markets set the rates. Since Germany had the strongest economy in Europe, each country set their currency’s value in Deutschmarks. They agreed to maintain the exchange rate between their currency and the Deutschmark within an acceptable band of plus or minus 6% of the agreed upon rate.

Germany's economic policies in particular have had a big effect on the course of the last 100 years of European history. The hyperinflation following Versailles and ensuing economic dislocation led in no small part to the rise of the Nazi party.

The commitment of Germany in particular among European countries to strict budget controls to avoid another hyperinflation laid the groundwork for Soros' attack on the Pound.

Continued fiscal discipline has helped make Germany a dominant economic force in the EU. It set the stage for the Greek debt crisis, and several others in the works. These all resemble the Pound crisis in that the unusually strong vigilance against excessive debt in Germany is/was a driving factor.


> The hyperinflation following Versailles and ensuing economic dislocation led in no small part to the rise of the Nazi party.

Nonsense - it was deflation caused by austerity policies following the 1929 crash that helped the NSDAP come to power.

https://www.anderson.ucla.edu/Documents/areas/fac/gem/nazi_a...


Every one of these trades should be taxed with an equivalent of VAT to make this sort of ruinous speculation nearly impossible.

Why would you want to make it harder to buy currency?

[flagged]


I think his character and intentions have become such a trope that it has made it near impossible to gauge the good or bad faith of the person who starts discussing them. In a sense his name has now transcended rational discussion and become a symbol. Probably there needs to be an internet "law" for this, like Poe's Law or Godwin's law...You just cannot know if the person who names him wants a sane discussion or to just to bang that massive drum one more time.

I absolutely disagree. Taken categorically, your point here would effectively silence any critique or analysis of Soros' intentions, character and actions. You're right that he is a contentious character subject to many conspiratorial accusations. The low quality of some of the more outrageous accusations however should not be a reason to spare him any further criticism. I'd also question the notion of 'bad faith' in this discussion that you raised. If someone brings up valid points regarding Soros' character, I don't think their political beliefs should be relevant if they're not part of the discussion. For what it's worth I don't like Soros or his actions, however I think the reality is much more nuanced than the more conspiratorial accounts suggest.

We might call it Soros’ Law, but that could be inflammatory. Which may be perfect.

Why is betting against the pound causing a massive financial disturbance in the economy? One could equally argue that the overvaluation of pound caused a massive disturbance in the economy.

The article explains that the UK government caused the massive disturbance. Soros made his money betting that it was happen.

Exactly. Yes, there were many members of the UK that became effectively less wealthy when the pound was devalued, but there were many members of other European nations that effectively became more wealthy. Why are we valuing one over the other.

some win, some lose. it's life

Occasionally, everyone wins.

how wealthy did you become when hyperinflation hit zimbabwe and venezuela? not very.

that's about how much a falling pound would create wealth in other countries.

it would make UK goods cheaper, so if you're a major trading partner then your purchasing power increases, but it doesn't create wealth.


Because it's been done to death. It adds nothing new, and has nothing to do with this specific conversation.

There is a time and a place for everything. This is not the place in my and many other's opinion.


> demonstrated [...] intent to cause massive financial disturbance in the global economy

it's not clear to me that this was his intent. the intent seems to be making a lot of money.


Surely reckless indifference as to the outcome of his actions must at some level attribute him some moral culpability for what he did. Thieves might say that their intent wasn't to deprive others, simply to enrich themselves. Soros may well have just wanted to make a lot of money, but the manner in which he did it has consequences.

There seems to be an abundance of posts about Soros himself getting flagged killed

There isn't. There are 5 flagged comments, all of which are short, low-grade and hardly about 'Soros himself'. There is nothing interesting said in them about his character or political ambitions. All of them look sensibly flagged. If someone commented 'Fire bad' in a thread about wildfires in California, that would be flagged too.


I have show-dead on, and when I wrote this reply there are only(?) three dead root level comments. One is "Who is this guy" (which is unsubstitutive and seems like a Google search away), another is "Good example of why anyone should be skeptical of Soros. He is a profiteer with little regard for the damage he causes." (which I guess a case can be made for, but seems just a political/personal attack rather than particularly interesting).

The third tells people to read an outrageously anti-semtic, pseudo intellectual set of books. As one review of these books says: "the book is controversial, not only because of its theoretical approach, but also, and perhaps primarily, because of sloppy scholarship". It also recommends an author who "argues that mass killings of Jews throughout history have been understandable reactions to Jewish beliefs and behavior. He goes so far as to justify Eastern European pogroms and even the Nazi Holocaust on these grounds. As he wrote in a 2003 Culture Wars article, “[T]he Nazi attempt to exterminate the Jews was a reaction to Jewish Messianism (in the form of Bolshevism) every bit as much as the Chmielnicki pogroms flowed from the excesses of the Jewish tax farmers in the Ukraine.”" This comment finishes with the statement "To grasp the truth and the bigger picture, you cant get it on controlled sites such as this, where truth is suppressed."

Needless to say, claiming "truth is suppressed" is a great way to appeal for upvotes..


[flagged]


What do you mean?

You mentioned how many people are getting flagged, and I gave an example of one of the posts getting flagged?


Because criticizing him is anti-semitism or something.

It is very often associated or motivated by that. He has become a boogeyman for many people with terrible motives.

But he does legitimately do some sketchy things. You cant just handwave it away because some idiot bigots have it on repeat.

I disagree he does sketchy things. I think he's one of the most benevolent mega-philanthropists out there who has dedicated his life to expanding democratic ideals and liberal values throughout the globe.

[flagged]


We've banned this account. As you know, HN is no place for this. Would you please stop posting it here?

https://news.ycombinator.com/newsguidelines.html


The "Soros broke the bank" framing I tend to see in discussions of this is really quite odd, as if it were some sort of illegal Oceans 11 style heist.

He didn't break the bank. The bank broke itself.

> What kept the pound from plummeting in value was the British government’s guarantee that it would keep the value propped up, and the market believed that it would. As long as everyone believed that England would stay indefinitely committed to buying pounds for around 2.95 Deutschemarks, the status quo was maintained.

If you build a house on rotten stilts, and some neighborhood kid comes and kicks one of them, it's not the kid's fault when the house collapses.


> If you build a house on rotten stilts, and some neighborhood kid comes and kicks one of them, it's not the kid's fault when the house collapses.

It's at least partially the kid's fault. Don't go kicking stilts under houses.


If someone will pay you billions to go kicking stilts there would be few who could resist. Betting against a nation state is usually a losing proposition, Soros happened to have large enough boots to do the kicking.

Noting the boots are not his and he risked nothing personally in the process. hedge fund = betting other people money.

I don't think they were complaining. Now they have boots too!

Fault and responsibility are two entirely different concepts. The kids doing the kicking might be at fault for bringing the house down, but the kids are not responsible for the house being in such a sorry state that kids kicking it's stilts can lead it to collapse.

If the kids knew that kicking may bringing the house down then the kids are at least partially responsible for it.

In a realistic situation, the homeowner or designer could end up in jail for endangering the kid.

Stilts would be expected to resists minor impacts from accidents and general course of life without bring the house down on your head and killing you in the process.


Breaking the bank is a gambling term where you make and win a bet the house can't cover.

It's very apt.


> If you build a house on rotten stilts, and some neighborhood kid comes and kicks one of them, it's not the kid's fault when the house collapses.

Don't like this metaphor. Maybe the the homeowner can't afford to fix their house. Now they're homeless. Hurting others for enjoyment is the basis of evil. Leave the world better at the end of the day, not worse.


If you own a house/land, you must maintain it in a safe condition and can be liable for injuries to third parties that result from poor maintenance.

Simplest example: a roof tile fall off your roof and kills a passerby.


Those sorts of maybes don't really matter. "Please don't be a dick" doesn't even work at the neighborhood kids level. It certainly doesn't work at the international finance level.

The Bank of England propped up the currency in a non-sustainable fashion, and spent billions trying to avoid having to admit that was a bad call. Someone was always going to come along and smash it, especially with billions of dollars of upside available.


I can see both sides of this. You can describe Soros' as an inexorable result of natural law, but he still gets to be the dick who kicked it and to profit grotesquely from it.

If I build a house on stilts strong enough to withstand kicks but somebody comes along with a giant sledgehammer to break the stilts, they will be at least somewhat to blame.

The house is the economy of UK in your metaphor. The house dropped into solid ground and was in better condition overall (especially exports). The Guy who build the house on stilts was proven wrong. Artificial stilts are stupid thing. Houses should be build on solid ground.

No one is running around and destroying healthy financial entities. Rotting posts will break eventually, a little effort can just change the timing.

Why no one ? You don't believe, out of all human in the world, that there is someone that gain satisfaction out of destroying healthy financial entities ?

If one person could destroy it, it wouldn't be healthy would it?

Healthy doesn't mean could not be destroyed.

In this context that's exactly what it means. I have no idea what you are talking about, but this article is about the pound not being backed and the peg being forced to break. That doesn't happen unless there is some sort of dishonesty or insolvency going on.

In your context, even if the pound are being backed, doesn't mean it can't be destroyed.

That's exactly what it means.

If there is enough to exchange for the price that is claimed, then a billionaire can't break the peg by exchanging out pounds and forcing their hand.

The gold standard collapse in the US happened when France thought they didn't really have enough gold to back their currency. They started exchanging dollars for gold and the US was forced to break the amount of gold they claimed dollars were worth.

What do you think is meant by destroyed here? How is a financial entity destroyed if they aren't insolvent?


>If there is enough to exchange for the price that is claimed, then a billionaire can't break the peg by exchanging out pounds and forcing their hand.

Sure, doesn't mean that there is no other way to break it.


What do you mean by 'break' and how would it happen?

If the currency is priced at fair value but the country is small and thus has proportionate reserves, a multi-billionaire could simply pump all his money into pushing the currency out of its declared price range, causing a loss of trust in the currency, resulting in a further slide of the currency.

That isn't what happened here of course, but it could happen to a smaller country trying to maintain a pegged currency.


It isn't what happened here because that doesn't happen anywhere.

Putting more money into a currency makes it worth more. If a currency is backed by something else, you buy more of it as your currency is bought. That's how pegs work, the currency is an IOU for something else.

Insolvency happens when a financial institution says they have more than they do and someone withdrawals enough to call their bluff. You don't 'break' a currency or financial institution by pumping money into it.


You don't pump money into purchasing the currency. You pump money into shorting the currency, as Soros did here.

A short is just a method of selling first and buying later. This doesn't destroy a currency that is properly backed or a financial entity that is solvent. It only forces an organization that doesn't have what they say they have to eventually admit it.

The person replying to me was saying that it didn't matter if an organization was healthy or not - a billionaire could still 'destroy' or 'break' it, but they weren't able to give an example of how that would happen despite repeating the same claim multiple times.


This is correct and accepted view today. Floating currencies are a good thing because they adjust the economy automatically. Central banks should only "lean" against radical sudden movements but allow gradual straightening or weakening.

Trying to keep currency artificially strong with weak economy is insanity.

The economy of UK did better after Soros broke the Bank of England.


> If you build a house on rotten stilts, and some neighborhood kid comes and kicks one of them, it's not the kid's fault when the house collapses.

If you build a house that isn't fire proofed properly and a pyromaniac sets fire to it then you won't blame the contractor, even if the house wasn't properly built. Sure, there might be fines involved for breaking rules etc. but the blame for the fire is still attributed to the person who lit it.

Soros and his associates did this to a number of countries, includingMalaysia, South Korea, Sweden, Thailand and others; this is not about a single incident where someone used a small loop hole to make some profit -- it's about the financial sector deliberately playing nation states for massive profits, affecting the lives of hundreds of millions of people in those countries.

Should the banks have been better prepared? Yes, definitely. Does that in anyway shift the blame for playing with the livelihood of millions in order to turn a profit? Not a chance.


Soros didn't kick the stilts; he bet that the house would collapse.

Ah yes. When it's Wall Street doing it it's "greedy evil bankers" but when it's Soros, a vocal advocate of liberalism, suddenly it's just business as usual.

A central bank whose monetary policy relies on their not being greedy evil bankers is going to fail at implementing that policy.

I think it's kinda funny, 2019 Soros desperately wants Britain to remain in the EU (and funds various groups accordingly)

whereas 1990s Soros did his best to force Britain out of the ERM

if Britain stayed in the ERM until the point it became the Euro: there's no way brexit would have been even remotely possible


Is that all that strange?

Things change over 20 to 30 years?


Depends on what his motivations are, is it to make money? In out is only relevant to what your betting on.

I'm honestly aghast at the attitude of some of the posters in this thread, with their "The Bank of England had it coming" and "It's fair game." posts.

[flagged]


"If you build a house in a brush canyon and then someone lights the brush on fire, it's YOUR fault for building house there."

Don't we hear this exact same argument repeated in every thread about California wildfires?


Look at the economy of UK at the time. What damage Soros did to it? Soros extracted few billion as a fee from teaching a lesson but properly priced Sterlign was a good thing overall. The UK economy started to recover from recession immediately.

If you intentionally pile up dead brush around your house into a nice big bonfire waiting for a spark, yes, you've got some culpability.

[flagged]


Except that Soros did not hurt UK economy. Just bruised some egos at the Bank of England by showing their stupid mistakes.

"Soros did not hurt UK economy. Just bruised some egos at the Bank of England by showing their stupid mistakes."

From the article:

"At 11AM, the British government announced they would increase interest rates 200 basis points, from 10% to 12%. ... [later that day] an interest rate increase of another 300 basis points, from 12% to 15%."

That means millions of ordinary people suddenly, not even overnight but on the same day, found themselves paying 5% more on large loans such as mortgages. To make completely clear, that had a very significant negative impact on a very large number of ordinary people.

Also from the article:

"The cost to British taxpayers was estimated at roughly £3.3 billion."

That's an average of over £128 per tax payer (3,300,000,000 / 25,700,000 tax payers in 1991-92 according to [0]). Again, to clarify, tax payers are not some "egos at the Bank of England", but ordinary people like me and you.

Or to summarise in simpler terms, a small number of the very rich got significantly richer by making a large number of ordinary people significantly poorer.

EDIT: Corrected figures. Thanks @philipkglass for spotting.

[0] https://assets.publishing.service.gov.uk/government/uploads/...


"The cost to British taxpayers was estimated at roughly £3.3 billion."

That's an average of over £100,000 per tax payer. Again, to clarify, tax payers are not some "egos at the Bank of England", but ordinary people like me and you.

There were only 33,000 tax payers in the UK in 1992?

I don't know how many tax payers there were, but dividing by the population at the time comes out to £58 per person.


Good spot. I must have been either using the British definition of billion (million million) rather than the US definition (thousand million), or failed to spot that the 25,700 taxpayers in the referenced document actually represented 25,700,000. Anyway figure corrected. Thanks.

Billion has meant 10^9 in both the US and the UK in most common usage since the 1970s. https://en.wikipedia.org/wiki/Long_and_short_scales#cite_not...

There is no modern British definition that is different from the US definition.


One consequence of the historic distinction I quite like is that traders in the UK (and possibly elsewhere, I don't know) still call 10^9 a "yard" (short for "milliards").

You speak only of mortgages, but very many British subjects would have had deposits as well and would have gained through the interest rate hike.

> over £128 per tax payer

> making a large number of ordinary people significantly poorer.

You contradict yourself a lot


The only reason he could put on the trade in the size that he did was because the BoE took the other side (they sold $27bn worth of £ and Soros had a $10bn position) and believed they were omnipotent (even amongst British civil servants, the BoE was unusually stacked with "god complex" types...and still is to a certain extent).

Documentary on this - https://www.youtube.com/watch?v=K_oET45GzMI


Huh? He gained billions of dollars (pounds, Deutschmarks, whatever), the UK government lost billions. That clearly hurt their economy.

Letting the currency float was better in the long term, and his actions made that happen, but I'd like to think there were other ways. And I doubt helping the UK was his goal; I can think of billions of other more likely reasons. Many people would say he stole this money from the government. It was legal, clever, and successful. He did some good things with some of the money afterward. Still, I'm not going to like him for it. (That sums up my feelings on much of the finance industry, in fact.)


The point is that the money lost by UK government was lost because they stupidly gambled away that money by betting against reality - they asserted that the rate of pound "should" be at an unrealistic, unsustainable position, and they bet a lot of money on that. It turned out that they were wrong - making these large bets did prolong that fiction for a while longer, but it was unsustainable.

Thus everyone in the market who was right about the "proper" position of GBP (Soros was just one of them, the largest but not the majority) won a bunch of money, and everyone who was wrong but still chose to bet more and more billions instead of accepting the reality - namely, UK government - lost billions. They could have chosen not to attempt to artificially prop up the exchange rate with these major transactions, and float the currency earlier, when it had to be floated. Heck, floating the currency a single day earlier wouldn't have any meaningful drawbacks but would have avoided much of the losses.

It's not that the money was taken from the government, but rather the government wasted a huge amount of taxpayer's money betting on the false assumption (wishful thinking for domestic political reasons) that the pound doesn't have to be floated. Such bluffs are punished by the market, with the people calling the bluff getting the money (and people falsely calling a bluff losing their money if they turn out to be wrong).


Nothing you said is wrong, per se, but...

> Such bluffs are punished by the market, with the people calling the bluff getting the money (and people falsely calling a bluff losing their money if they turn out to be wrong).

I think this kind of wording (the market does this, not the individual actors) can be misleading. Look at this quote from the article:

> "Our total position by Black Wednesday had to be worth almost $10 billion. We planned to sell more than that. In fact, when Norman Lamont [the British finance minister] said just before the devaluation that he would borrow nearly $15 billion to defend sterling, we were amused because that was about how much we wanted to sell."

They weren't just placing bets on events outside their control. They deliberately created the situation where the UK couldn't borrow sufficient money to maintain the rate. The fall was arguably inevitable, but they caused it to happen at a time of their choosing, in a way that enriched themselves at the UK's enormous expense. Sure, the BoE folks should have yielded sooner, but they didn't, and the people paid for it while Soros profited. This isn't something I would be proud of.


The UK government did not by inventing a phony exchange rate.



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