Brexit: less about the BOE, more about the EBI

As far as the economic consequences of the Brexit vote are concerned, the Bank of England has seen enough. Having held fire at its meeting in July in the immediate aftermath of the EU referendum, the Bank’s Monetary Policy Committee voted unanimously on 3 August to fire a three-barrelled stimulus bazooka.

I was not in the City that day but in the Lakes, holidaying with a brilliant scientist friend who is a director of the European Bioinformatics Institute (EBI) in Cambridge­shire – one of the world’s leading centres for genomics research. I came away convinced that the true economic impact of Brexit has less to do with the short-term gyrations of interest rates and the financial markets and more to do with our long-term ability to maintain our position at the technological frontier. When it comes to Brexit, we should be worrying less about institutions such as the Bank and more about institutions such as the EBI.

In my latest Real Money column for the New Statesman, I discuss why the UK’s long term economic future depends not on the monetary tonics of the BOE but on maintaining our justified reputation as a tolerant society that is open to foreign trade, foreign capital, foreign ideas and the foreign people who come up with them.  You can read it here.

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What is sovereign wealth?

In early 2016, Oxford University’s Department of Politics and International Relations, in co-operation with the New Economics Foundation and Positive Money, organised a series of seminars to discuss the need for innovation in the management of sovereign wealth, entitled Rethinking Public Assets.

I was a participant in the first of these seminars, which also featured presentations from Stefan Fölster, Director of the Stockholm Reform Institute and author of The Public Wealth of Nations, and Angela Cummine of New College, Oxford, whose marvellous book Citizens’ Wealth:  Why (and How) Sovereign Funds Should be Managed by the People, for the People was published in August, 2016.

I discussed what really constitutes sovereign wealth in the modern age, and whether the UK government should revisit the idea of a National Investment Bank as a means of capitalising on its assets, drawing heavily on the ideas of John Maynard Keynes on both counts.

You can listen to a podcast of the seminar here (my own contribution starts at 47:00).


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No economy is an island

If you believe Mark Rutte, the prime minister of the Netherlands, the Brexit vote has plunged Britain into chaos. The UK, he concluded a few days after the referendum, “has collapsed politically, ­monetarily, constitutionally and economically”.

I can’t speak to politics or the constitution; but monetarily and economically, this view is wrong (or at least incomplete) in one crucial respect. It fails to see that no country’s economic fate is determined unilaterally. What happens next elsewhere – and in the eurozone especially – will be just as important as what happens in the UK.

In my latest Real Money column for the New Statesman, I discuss why.  You can read it here.

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Sovereign bonds: life in the old dog yet

Next year will see the 850th anniversary of one of the most important financial innovations ever conceived: the invention of the government bond.

It was in 1167 that the Republic of Venice became the first modern state to borrow from its citizens in a formal manner, taking a loan from ninety of its leading families.  Within a few years, the terms of such loans had begun to be standardised; and within a century, a lively trade in discrete tranches of the consolidated national debt was being carried on at the foot of the Rialto bridge.  The global government bond markets had been born.

Over time, such sovereign borrowing became a hallmark of the most economically advanced nations, and the most important means of affording individual citizens a share in their general prosperity.  By the end of the twentieth century, a vast financial infrastructure had been constructed furnishing pensions to the deserving retired, insurance to the daring entrepreneur, and income to the thrifty saver and the idle rentier.  It was all built on the foundations of government bonds: the risk-free asset, whose returns rely not on the shifting fortunes of any individual company, but on the health of the economy as a whole and the quality of the sovereign’s policies.

Since 2008, however, the feet of this mighty Colossus have turned to clay.  In the G10, the average yield on the benchmark 10-year bond has shrivelled from 4.3% in mid-2007 to 0.5% today.  Developed economy government bond markets are in a coma: nearly $12 trillion-worth of government bonds now trade at a negative yield.

Yet all is not lost for sovereign bonds.  Quite the opposite, in fact.

I explain how and why government bonds should remain central to the plans of income-oriented investors in an op-ed in The Financial Times published on July 12, 2016.

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Brexit: What Next?

England has just been ejected from Euro 2016 by Iceland.

Is this an early example of the hapless future that lies ahead for Britain now that we have opted for self-imposed exile from the richest economic zone on earth?  Or is it a demonstration of the mighty feats that even the tiniest of nations can achieve once freed from the EU yoke?

The debate on the economic implications of Brexit prior to last week’s vote was fuelled by fantastic claims of epochal economic disaster and transformative economic opportunity made by both sides.  What does a more sober assessment of our prospects look like on the morning after?

In my latest Real Money column for the New Statesman, I discuss the economic and political consequences of the UK’s vote to leave the EU.  You can read it here.

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William N. Goetzmann’s Money Changes Everything

“The very rich are different from you and me,” Ernest Hemingway has F. Scott Fitzgerald write in the original version of “The Snows of Kilimanjaro.” “Yes,” comes the response, “they have more money.”

This famous (and wholly fictional) exchange is memorable because it captures so succinctly one of the great fascinations of finance, how it is at one and the same time something so completely mysterious and so utterly banal. It also poses an important question: Does having more money than someone constitute a difference only in quantity, or in quality? Does the increase of financial wealth just make for more of the same — or does it change people in a more essential way?

Hemingway was exploring these questions on the level of the individual. William N. Goetzmann, the Edwin J. Beinecke professor of finance and management at Yale, is shooting for bigger game in his new book, “Money Changes Everything: How Finance Made Civilization Possible.” His goal is to explore the consequences of the invention and growth of finance for whole societies. As his title suggests, his conclusion is that they are firmly positive. Financially advanced societies, he argues, are very different from financially primitive ones — and not just in that they have more money.

I reviewed Goetzmann’s fascinating book for The New York Times in its June 26, 2016 issue.  You can read my review here.

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Revolution at the IMF?

What has come over the International Monetary Fund?

Not content with playing the good cop to Europe’s bad in the ongoing Greek crisis – in which it has been arguing for more debt relief and less austerity – the Fund has just published an article in its in-house magazine by three of its leading researchers entitled “Neoliberalism: Oversold?”.

Their answer is “Yes”.

In my latest article in the New Statesman, I explore why – and whether the IMF’s mea culpa will finally win over its critics in the emerging markets or not.

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