A new target

Now that the FT feels sufficiently reassured that it has ensured a win for its favourite candidate in the US Presidential elections, it has chosen its next target: Theresa May.

In two forex related stories, FT journalists have decided that the crash of the pound sterling is a warning to Theresa May and that she would back down. Sample these:

The rand and sterling. One is a beaten-up, illiquid currency, bumped around daily by chaotic politics but with the potential to force national leaders to rethink tough stances. The other is the national currency of South Africa.

Sterling has fallen by about 24 per cent against the rand so far this year, despite South African debt teetering close to junk status with the key rating agencies. [Link]
Then, John Authers speculates that the UK government would back down:
The sharp sell-off in sterling in many ways represents a challenge by the forex markets to the UK government; it is possible that the government will back down.[Link]
Because the pound sterling appears to be falling into a bottomless pit, it has become the most important market judgement for FT. The stock market in the UK has been making new highs, until very recently. Even after Theresa May’s speech. It was unfazed by Brexit.
It is too early to say if Britain or EU will have the last laugh or none will. We know that markets have gotten and do get a lot of things spectacularly wrong. Many bubbles are still floating even now.

Why,the same ‘market’ until a day or two ago, pushed up UK stocks to record highs! Suddenly, the stock market is less important than the currency market! I suppose it does not fit a preconceived narrative that the newspaper wants to put out.

Politicians may and do get it wrong but markets get it wrong more often and cause more damage. Indeed, whatever is happening now is, due in large measure, to what the market did and market participants did before and after 2008.

So, to elevate the market judgement to that of a wise oracle and hoist the British government on a petard is both laughable and vacuous.
Elites and their cheerleaders are consistently failing to do the one thing that would give them the moral right to call out politicians and their populist solutions. That is to issue a mea culpa and back it up with actions that address inequality – voluntary surrender of tax and other privileges that they have coaxed out of willing politicians over the last quarter century – and other real grievances. Until that happens, neutral observers like Yours truly would be tempted to and would side with the popular and political backlash.
That may not set matters right but that would be in the fairness of things.
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2 thoughts on “A new target

  1. Markets are maybe just adjusting to reality and giving up the benefit of doubt (colonial seniorage) to British pound. UK has worse financial dynamics (twin deficits) than South Africa. If the name of country is obliterated, one could be pardoned if they mistook UK financial health metrics to be that of Greece.

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