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The Greatest Political Paradox of All Time

The Greatest Political Paradox of All Time

Brexit is back where it belongs: At the top of the global news cycle!

Creating headlines that have nothing to do with reality on the ground.

Generating fictional forecasts which need not reference reality.

The Bank of England and the UK Treasury both released their economic estimates for Brexit’s various deals and no deals this week.

From Australia to Germany, the media’s coverage was spectacular.

The forecast damage to the UK economy is shocking.

Even worse than the recession forecast to happen after the referendum in 2016 (which didn’t happen).

Undeterred by his failure to predict the lack of a recession last time, Bank of England Governor Mark Carney confidently predicted another one for 2019.

But he did change his tune slightly.

After the referendum in 2016, the Bank of England cut interest rates to fight off the recession that never came. And the rate cut was quickly reversed with only minor embarrassment.

This time, Carney says he’ll have to increase interest rates in the event of a disorderly Brexit.

He’s not just clueless about what’s going to happen.

He’s also clueless on what to do about it!

The media, though, is completely certain that the Bank of England knows exactly what’s going to happen.

No-Deal Brexit Could Wipe 10.7% Off U.K. Economy Over 15 Years’ writes Bloomberg.

Theresa May’s Brexit plan would result in 4% hit to GDP, says report,’ writes the Financial Times. Also over 15 years.

The Guardian was the funniest:

The deal negotiated by May will probably end up somewhere between the two Chequers-based scenarios outlined, meaning the UK would be between 0.6% and 2.1% worse off in nominal GDP terms in 2035-36 than if it remained in the EU.

Always keen to do a little better than the mainstream media, your editor has come up with this:

Brexit to wipe 99.332% off UK GDP over the
next 824 years and four months!

It sounds stupid and implausible.

But it’s not, at least not by the media’s mathematical standards.

The fraud is in the details.

It’s a favourite factoid technique of the journos and their accomplices, the economists.

By calculating how much lower GDP growth will be each year under Brexit the headline writers can write something that looks far more horrific than it really is.

A 10% reduction in GDP over 15 years is really just a tiny amount of lower economic growth each year.

It doesn’t even have to include a recession, necessarily.

Ironically, a recession or two is likely to happen during those 15 years anyway, no matter what.

But the economists don’t take that particular eventuality, or reality, into account in their models.

There are lots of straight lines in the GDP forecasts making the news today.

The point being, if you look far enough into the future, according to economists, Brexit would crush 99% of UK GDP.

You just need to add a few decimals to make the whole thing look credible.

That doesn’t mean the economy won’t exist, as the journalists would like you to believe after reading their headlines.

It means the British economy will be much, much smaller than it otherwise would have been.

It will grow less, not shrink.

The way the media communicates these figures allows for some wonderful PR management.

Economists only have to assume Brexit will be moderately bad and they still get impressive results — huge chunks of GDP gone missing over very long periods of time.

Meanwhile, back in reality

I’ve only just moved to London.

And I’d hoped to pick up a home on the cheap.

With the pound battered and house prices tumbling due to Brexit, it seemed like a great time to move.

Unfortunately, the global media’s narrative is completely wrong.

And God only knows what the economists are thinking.

Take property, for example.

European and foreign property investors are out in force in London.

At close to record levels, according to an analyst on Bloomberg TV on Thursday morning.

British house prices outside London are surging too.

Inside London, they’re holding steady, except at the very top end.

Meanwhile, in Australia, The Australian Financial Review
reported on a real housing bust

Source: Australian Financial Review

Yikes.

While Australians hear about the misery of the British under Brexit, the British worry about Australia’s subprime crisis.

The grass isn’t always greener if you work in the financial media.

What about the tumbling pound? Are British tourists impoverished and stuck holidaying in Devon?

Well, the pound-to-Aussie-dollar exchange rate isn’t exactly trending this year.

AUD/GBP

Source: Yahoo Finance

Over in Europe, citizens and their national newspapers are gloating about Britain’s impending Brexit doom.

Despite the fact that UK GDP growth was triple the eurozone’s last quarter. Unemployment is half.

Brexit’s real disaster is on immigration though, right?

With all those racists now openly marching in the streets, the Europeans don’t feel safe in the UK anymore.

The UK’s Telegraph newspaper says otherwise.

The number of people moving to the UK from outside the EU has reached its highest level for 14 years, according to official figures out today.

Some 248,000 more non-EU citizens arrived than left in the year ending in June, their highest net migration since 2004, according to the Office for National Statistics (ONS).

The number of EU migrants coming to Britain in the same period also increased, with a net total of 74,000, although this was the lowest level from the EU since 2012.

Yes, the Brexit nightmare continues, in the global media anyway.

Who makes Brexit so shocking?

If you take a closer look at the economic modelling used by the government, you begin to notice something.

The economic shocks of a no-deal Brexit are entirely down to government policy, not Brexit in and of itself.

The Financial Times explains.

The projected 3.9 per cent hit to the economy would be caused by trade barriers hitting goods and services, with a large component coming from the reduction in migration.’

In other words, if governments don’t implement trade barriers and decide on a sensible immigration policy, there won’t be lost growth.

They could even increase growth with good policy.

All the politicians have to do is govern the country and the EU properly.

A shocking idea, I know.

But this is the nature of the political game over Brexit.

It’s a disaster because the politicians need it to be a disaster.

They don’t want Brexit to be successful, so they won’t allow it to be.

So, what’s the takeaway?

Psst, listen in

Here’s an interesting paradox.

In fact, it’s probably the greatest paradox of all time.

When politicians and full-time money-fiddlers try to engineer anything, they usually fail.

In trying to prevent a bust, they usually make the stakes higher and the eventual collapse much bigger.

So, perhaps the same will be true when they try and ensure a ‘I told you so’ bust after Brexit?

Perhaps they’ll unwittingly trigger the greatest boom of all time!

Who knows?

That doesn’t necessarily help you with deciding what to do with your money.

But there is one thing I definitely recommend you do, while we watch all this play out.

It’s something that’s proven prudent in all of history.

For the last 3,000 years or more, in fact

Through the collapse of Greek democracy, the fall of Rome, the Ottoman Empire and every financial and political turning point in history.

Want to know the secret?

Okay, lean in — I’ll whisper it in your ear.

Buy gold.

Regards,

Nick Hubble Signature

Nick Hubble,
For The Daily Reckoning Australia