Brexit Meltdown at the Bank of England

But it’s supposed to be “independent” from national politics.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

Project Fear — the massive PR campaign aimed at sowing and watering the seeds of dread about the potential consequences of a YES vote in the upcoming referendum on a British exit from the EU — is in full bloom. In the event of a wrong answer, all manner of biblical disasters can be expected to befall the nation, the British public is constantly being warned.

The country’s national income will shrink, hundreds of thousands if not millions of jobs will vanish, the City of London’s core industry — financial engineering — will migrate across the channel, the currency will collapse, house prices will plummet, European firms will stop selling products to Brits, the U.S. government will impose massive tariffs on British imports, and even Britain’s already dismal climate will get worse.

Project Fear’s shrillest shills include the British government and institutions of State, the UK’s most powerful business lobby group The Confederation of British Industry, the City of London Corporation (and all the too-big-to-fail financial institutions whose interests it faithfully serves), the European Union, the International Monetary Fund, and the world’s biggest fund manager BlackRock.

Another prominent prophet of Brexit doom and gloom is the Bank of England, an institution that, according to its charter at least, is supposed to be “independent” from national politics, but which has done nothing but feed the fear. In testimony to the UK government’s Treasury Select Committee earlier this month, the central bank’s Canadian and former Goldmanite Chairman Mark Carney warned that Brexit is the “biggest domestic risk to financial stability,” with potentially dire consequences for Britain’s balance of payments, its housing market, foreign investment, and its banks.

It’s a shame no one bothered to ask Carney to identify the biggest non-domestic threat to Britain financial stability — he might have admitted that it was the euro, as his predecessor as Bank of England governor, Mervyn King, recently acknowledged.

“Put bluntly, monetary union has created a conflict between a centralized elite on the one hand, and the forces of democracy at the national level on the other,” King writes in his new book, The End of Alchemy. “This is extraordinarily dangerous.”

While King hasn’t explicitly come out in favor of Brexit, he hasn’t ruled it out either, and it doesn’t take much reading between the lines of his new book to divine more or less where he stands — i.e., as far away as possible from Carney.

This glaring difference of opinion between Britain’s former and current central bank governors leaves wavering British voters with a dilemma. Should they believe the words of a former central banker who’s desperately plugging his memoirs, or those of a current central banker who before dedicating his energies to central banking — first in Canada and now in the UK — spent 13 years with Goldman Sachs, which arguably holds more sway over Europe’s financial markets than any other systemically important global financial institution?

While the British public weighs up the potential benefits and drawbacks of life outside the EU, Bank of England officials are “agonizing,” as Bloomberg put it, over “the dangers” from the vote to leave. The central bank is already drawing up contingency plans for a British exit from the EU and will offer extra liquidity to the financial system around the referendum.

British banks are about to be offered billions of pounds of extra cash, just in case the markets seize up. Here’s more from The Daily Telegraph:

The process sees banks offer the Bank of England assets such as mortgage loans, in exchange for cash. The Bank of England offers this facility to banks once per month, but will give banks four chances to take extra cash in June.
Banks can use the scheme if the market for their own assets is very illiquid, giving banks more liquidity and so enabling them to carry on lending even when markets are stressed.

Similar action was allegedly considered during the Scottish referendum, but since the scheme was never required, it was not made public until after the event. This time, officials are “offering the scheme in advance,” presumably because: a) the Bank of England actually wants the people of Britain to think that they are preparing for an “extreme crisis”; and/or b) the banks could probably do with a little extra dose of liquidity anyway.

As the banks prepare for yet another free-money picnic, the Bank of England continues to jack up the fear factor.

In a speech to the OMFIF finance industry group in London, BoE Policy Maker Kristin Forbes said that Britain’s cross-border investments should offer some respite against a jump in uncertainty, but the relief would only be partial and would be “unlikely to fully counteract the many negative effects from increased uncertainty on the broader UK economy.”

For the moment the most visible negative economic consequence of Brexit uncertainty is the acute volatility in the UK currency. As the FT reported, the implied volatility on a three-month timeline — a measure of traders’ and investors’ perceived likelihood of big shakes in the currency over the next three months — is now higher than at any other time over the last six years, suggesting that the market sees bigger risks for Sterling now than it did over the 2014 Scottish referendum, and indeed bigger risks than at any time since the darkest days of the 2008 financial crisis.

With Project Fear now in full swing, that volatility is almost certainly here to stay, at least until the referendum. What happens after that depends on the outcome of the vote, and that will ultimately depend on the ability of the British and European establishment to convince voters that the preservation of the status quo is far more preferable than the risk of the unknown — at least for the establishment!

For now just about the only thing we can be sure of is that the banks on both sides of the English Channel will continue to wet their beaks in the fountain of unlimited, virtually free money. By Don Quijones, Raging Bull-Shit.

Then there’s the dreaded Contagion Effect. Read…  Brexit Panic Sets In

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  22 comments for “Brexit Meltdown at the Bank of England

  1. Timothy Julian says:

    Come on Wolf, the biggest threat to the UK is it´s huge current account deficit which is on par with emerging markets. The UK is living off of other countries generosity, Amazingly scary stuff. Do you think the UK government would give the right to voters for something so important if the outcome really mattered?

    When the housing bubble pops, UK banks/consumer balance sheets will be decimated.

  2. Debravity says:

    Keep it comin’ Don. We arrive there to live in one day. Watching question time for the PM was interesting. It all looks so staged. The brexit barely rated a mention, although the idea of it was casually dismissed by Cameron when. It was brought up.

  3. TheDona says:

    Hate to get political but there will probably be some kind of ISIS crisis in London to take Brexit off the plate for now. Brussels is know as the EU banking capital, Paris- France banking capital, New York-US Banking capital. Coincidence?

    Recently there has been a backlash in England about continuing to do business with the barbaric Saudis.

    Nothing like a World War to stimulate the economies, loot and plunder resources, and re-arrange the map a bit.

    We have a whole generation of gamers who can man those Drones 24/7.

    • Petunia says:

      A fellow cynic. Have you noticed nobody running is mentioning the national debt, I have. I expect they are looking for the big reset excuse.

    • Toddy says:

      One of the candidates running is probably capable of instigating a major war effort.

      I’m worried.

  4. Michael Gorback says:

    British government and institutions of State
    The Confederation of British Industry
    City of London Corporation
    European Union
    International Monetary Fund

    If that many rich and bureaucratic types oppose Brexit it must be good.

    • TheDona says:

      BlackRock…UG! The economic Henchman of the elites. You do know a Rothschild sit on their Board. Wish they would all go crawl back under a black rock.

  5. walter map says:

    “If that many rich and bureaucratic types oppose Brexit it must be good.”

    Exactly so. If Goldman Squid likes it then it must be evil.

    Notice that the arguments against Brexit involve threats against the general public, and no mention at all is made of the potential loss of rentier profits, when in fact that can be the only real issue of interest to the financial predators.

    The actual risk to the general population is likely to be small, and if it passes one could expect some slight reduction in financial pillage at most. A Brexit would enable the U.K. to pursue a more independent fiscal policy, something the bankster cartel would certainly oppose and would find ways to otherwise prevent in any case. Even if the rentier class loses this one they still have many ways to win, even if those may be somewhat less convenient.

  6. John Doyle says:

    What sort of “National Debt” is everyone going on about?
    It cannot be Government debt. That “debt” is a savings account set up by central banks so that investors can park spare money there where its safety is government guaranteed and it earns interest paid twice a year.
    The CB’s do not spend any of this money as they have no need of it.

    If you are talking about private debt, then YES we do have a big problem.

  7. nick kelly says:

    I love Don’s stuff but to say Brexit is political therefore the BOE shouldn’t have an opinion is stretching.
    This is all about economics- not laws about social policy or foreign affairs or defense. The Bank of England is largely responsible for the UK’s economy. Does Brexit pose a question about that economy?
    Maybe a thought here is- better the devil you know…

    Of course there can be intelligent argument made for Brexit- but the core opponents have always been against the EU- they are the yobos who went mental when the EU said you can’t put break crumbs in sausage. -BRUSSELS BANS BRITISH BANGERS!!
    They are socially inbred.

    Britain ( I am a dual Canadian-UK citizen) is by a HUGE degree the smallest SDR currency. It’s actually a bit of a mystery that it still is-after having run to the IMF for an emergency loan in the mid 70’s. (After trying to hit up West Germany for a loan!)
    This is not an outfit that wants to rock the boat.
    I don’t know the detail of the EU treaty but of course there is provision for exit.
    So in poker terms- don’t bet or raise- check, and see what happens.

    • ML says:

      I agree. BoE is perfectly entitled to publicly address the question of Brexit. We voters, I am one, need to know what plans and arrangements are in place should the economy be plunged into turmoil if the vote is to leave.

      Unlike USA which doesn’t seem to be able to make up its mind, the UK has had 0.5% base interest rate continuously since March 2009. Unlike USA whose stock market share prices are sky high floating on hot air, the UK stock market is more circumspect.

      As for not knowing which way to vote, I reckon most voters have decided already. In the run up, the arguments for and against and public spats are seen as a form of entertainment.

      • d says:

        Cameron has ensured they never have to join the Euro.

        The Majority of British, welsh, scots, and Americans, are like financial markets.

        They hate uncertainty.

        They will vote for the devil they know.

        As to SDR. Should, heaven forbid the $ US, be undermined by china to the extent that is currecny was threatened ( Something china and russia are still trying to arrange.)

        GBP, EUR, JPY would be all that was left in the SDR. even if CNY was added,

        One would be stuck with JPY and GBP whilst trying to get CHF as EUR and CNY (If it Enters) should not be in SDR anyway.

        The city of London is still, and will be for a long time, a major financial center.

        No matter how much Paris tries to undermine it, as it is outside mainland Europe, and not in EUR. Hence GBP stays in the SDR.

        GBP may not be as strong as it was, however everybody knows where they stand with it. It has good transparency.

        Threadneedle street stands up to governments. The Governor has the protection of the lords and the Crown itself, should he be in the wright, and in conflict with the Ministers of the Lower house. .

        • nick kelly says:

          I may be technically wrong but I believe the Lords like our Canadian Senate is purely advisory.
          As for the Crown it is certainly not going to be involved.

          Speaking of Upper and Lower Houses- I wonder how many Americans realize that the only reason they have a Senate is because Britain had a functioning Lords at the time of the US revolution- the US Founding Fathers weren’t starting with a blank sheet of paper- they were modifying the system they knew.
          Similarly the executive branch of the US is one person- the President’s Cabinet officers are his employees. The Presidency is an updated British monarchy, (updated circa 1790) supposedly confined, checked and balanced etc. but still one person.
          Since the US revolution, in Britain and the Commonwealth, the power of both monarch and Lords ( or whatever a country calls its upper house) has withered away, while the Commons has evolved to fill their roles. In these countries there is no distinction between the executive and legislative branches-(you can read this in the Encyclopedia Americana) and for most people in them it is an elusive, puzzling concept.

          The Prime Minister is ‘first among equals’ and can (and has) been replaced by his party (or her party as with Thatcher)
          Which system is better is debatable- but I lean towards the evolved version. To British ears, it sounds odd when a newly appointed US cabinet officer says; “my job is to carry out the wishes of the President”
          Given that an officer is supposed to resign if he can’t agree with the President- it is odd that so few do.
          In both Australia and Britain, cabinet members resigned over the invasion of Iraq, but no US members did.

        • Michael Gorback says:

          I don’t know if your analogy stretches as far as you have pulled it, but I will say that I love British politics, especially when everyone is yelling at each other in Parliament. It’s almost a contact sport.

      • Buxom says:

        “perfectly entitled to”? It’s obliged to. That’s what it’s there for!

  8. d'Cynic says:

    Maybe the UK does not need to leave the EU just wait a little longer. The EU is slowly disintegrating under the apt leadership of Juncker-Merkel team. The UK already has many opt-outs and probably gets whatever else it wants just to keep it in. Then other countries might also like this a la carte membership.
    Then there is the Shengen treaty from which UK has also opted out. The lady has masterfully made sure the EU citizens raise their head from whatever else they were doing by encouraging unlimited influx of migrants and then forcing quotas on unsuspecting member countries. If there was ever a political blunder then this was it. Maybe it was that thingy comparing her so much with Bismarck.

    • Michael Gorback says:

      Why would anyone yield their sovereign right to import whatever shape fruits and vegetables they want to a bunch of dicks in Brussels that they didnt even elect?

      Yes, they did remove many size/shape/color regs (you can buy straight bananas and curved cucumbers now) but they still have rules for apples, lettuce, peaches, nectarines, pears, strawberries and tomatoes, among others.

      • d'Cynic says:

        Bananas and cucumbers probably got the message: straighten out or be thrown into the garbage, or end up on a shelf in a third world hellhole. Apples and peaches still need some reeducation.
        It sounds comic, buy it isn’t: I bet most people in the EU think this thing is as result of the German penchant for order, and regulation.

  9. Buxom says:

    Yeah. The Bank of England should sit around doing nothing and eating cake and dancing and singing all day long, not doing its job of considering all the things that might happen and what to do about it.

  10. Peter Forsyth says:

    Comments on Brexit are no longer allowed by the public in the Telegraph newspaper.

  11. Peter Forsyth says:

    British government is nothing more than a charade being full of people elected not to serve the people but the bankers and Brussels (and Berlin). Prime Minister’s question time is a Muppet show to fool most of the watchers which is what it is designed to do.

Comments are closed.