Nick Hubble – Capital and Conflict (United Kingdom) –
Yesterday we looked into the political crisis in the US. Not the one you’ll read about in the news. The one featuring Hillary Clinton and Barack Obama.
Today we look at the drama unfolding in Davos. The World Economic Forum is churning out plenty of surprises. And they’re the opposite of what I expected.
But first, an update on the #ReleaseTheMemo drama covered yesterday. A further whistleblower has added credibility to the existence of a “secret society” inside the Department of Justice and FBI, trying to undermine Donald Trump. The informant told Republican lawmakers about secret meetings held off-site between the Trump saboteurs.
If all this is news to you, I’m not surprised. Check out yesterday’s Capital & Conflict here to discover what the media won’t tell you.
And now, on to Davos’ revelations.
First up is David Cameron. Do you remember when he told you how terrible your life would be if you voted for Brexit? The BBC does, quoting his speeches:
“Let’s just remember what a shock really means. It means pressure on the pound sterling. It means jobs being lost. It means mortgage rates might rise. It means businesses closing. It means hardworking people losing their livelihoods.”
He stepped up his warnings as the referendum date approached, warning on 6 June that Brexit would be like putting a “bomb” under the UK economy and telling MPs a week later that “no wants to have an emergency Budget, no wants to have cuts in public services, no wants to have tax increases”, but the economic “crisis” that would follow a vote to leave could not be ignored.
“We can avoid all of this by voting Remain next week,” he added.
He described a vote to leave the EU as a “self-destruct option” for the UK, after a Treasury analysis warned it would tip the UK into a year-long recession, with up to 820,000 jobs lost within two years.
Since then, the opposite has happened. The Telegraph reported on the latest unexpectedly good job numbers:
The number of people employed in the UK has hit a fresh high as wages remain under pressure despite rising at the highest rate in almost a year, official data showed on Wednesday.
The Office for National Statistics said that between September and November there were 32.21 million people in work, an increase of 102,000 from the previous quarter. Overall, the employment rate was 75.3pc, a joint high since records began in 1971.
Unemployment fell to a four-decade low of 4.3pc in the three month period, to 1.44 million.
The pound surged to a post-Brexit high of $1.41 after the data was released.
As to the lack of wage growth, check out this hilarious sentence from The Telegraph: “But with the number of jobs vacancies also hitting a record high of 810,000, workers are unlikely to be able to negotiate pay increases.” Huh? If there are job vacancies, workers are more likely to have bargaining power, not less.
Anyway, the evidence in favour of Brexit is growing so strong that even Cameron can’t ignore it. Yesterday he told a steel tycoon in Davos about his new views.
Lakshmi Mittal, whose surname means “metal” in German, owns a huge stake in the world’s largest steel-making company and is based in Britain. Cameron privately told him that Brexit has “turned out less badly than we first thought.” But his comments were overheard, recorded, and promptly went viral.
Nigel Farage described Cameron as “busted”. Everyone else joined in, such as Theresa Villiers in the Daily Mail:
Last night former Northern Ireland secretary Theresa Villiers said: ‘It is good to hear that David Cameron accepts that the predictions of disaster made by Project Fear are not happening.
‘Unemployment is at a 40-year low, manufacturing is booming, and foreign direct investment is at a record high. Not bad, considering that by now we were supposed to be crawling around in the scorched-earth remains of the Brexit apocalypse!’
Cameron isn’t the only one with a change of heart at Davos. President Trump’s decision to approve tariffs for washing machines and solar panels got some surprising support. While the rest of the world’s leaders lambasted his protectionism and warned of trade wars, none other than Al Gore defended him for it!
It’s easy to see why. Trump’s move isn’t exactly provocative or new. Bloomberg explains:
In 2012 and 2014, the U.S. government under President Barack Obama hit the Chinese solar industry with tariffs even higher than the one just announced by Trump. The European Union recently followed suit.
So the idea of protecting the solar industry from overseas rivals with unfair advantages isn’t new. The only difference is that while Obama’s tariffs were focused on China specifically, Trump’s apply to all foreign producers.
Ironically, people accuse Trump of targeting China. At least Trump is being fair by treating all foreign solar panels equally. Not only that, but his measures target foreign subsidies. His tariffs are retaliation, not a declaration of a trade war.
Gore is not the only place Trump is getting unexpected praise from. Goldman Sachs CEO Lloyd Blankfein got stuck in a terribly awkward interview in Davos. He eventually had to admit Trump’s economic plans are working.
Blankfein is a long-time supporter of the Clintons. He pushed his company into supporting her bids by banning donations to Trump while favouring Clinton financially. Politico has the figures: “$169,850 to Clinton’s presidential campaign and super PAC, according to CRP’s analysis. The bank doled out $675,000 in speaking fees to Clinton after she left office.” The firm also opposed Trump during the Republican primaries.
The investment bank even earned the nickname Government Sachs for its influence in politics. But in a CNBC interview in Davos, the reporters pinned down Blankfein. They asked him about his views on Trump: “You’ve trolled him occasionally a little bit on Twitter, but we also have this tax reform…” the reporter asked.
“Look, there’s a lot of stuff that I like. And, probably if I just added [it up], and looked at it, I’d like a lot more stuff than I don’t like. And some of the stuff I don’t like, I really don’t like. Ironically, the stuff I tend not to like is not as substantive. […] I’ve really liked what he’s done for the economy. And I think he’s gone out of his way to be supportive of the system…”
This from a man who spent hundreds of thousands on opposing Trump, and then spends his time criticising Trump on Twitter.
The reporters got tougher on Blankfein: “Are you now happy about the outcome of the election, or do you still wish the other candidate [Clinton] had won?”
Blankfein didn’t say he was disappointed Clinton had lost – a remarkable admission by omission. Instead, he tried to fudge his way out of the question.
But the reporter pushed more: “Tax reform would not have happened, would it?” And here Blankfein gave in and admitted Trump’s policies have been great: “True, I think the market would be lower, I’d be dealing with more regulation, compounding too much regulation in some respects.”
It’s hard to argue otherwise
Company after company is announcing bonuses for its employees due to the tax reform. Starbucks and Disney are the latest, with Disney promising 125,000 employees a $1,000 bonus and Starbucks promising a bundle of benefits for 150,000 workers, including a $120 million pay increase.
With even Blankfein onside, how long before British workers pine for Trump’s tax reform? Not to mention those in the EU?
Speaking of the EU, the Italian prime minister joined in the chorus of surprise Davos claims with a real shocker. He told Bloomberg in Davos that the Brexit deal must include financial services:
Italian leader Paolo Gentiloni said that any accord reached between the U.K. and the European Union must include financial services.
Gentiloni, in an interview at the World Economic Forum in Davos Wednesday, said that among the remaining EU states there was a “strongly prevailing position supporting the necessity of having a good deal with the U.K.”
Financial services “will be part of the agreement,” since excluding them “is totally unrealistic,” he said. That position jars with the EU’s chief Brexit negotiator, Michel Barnier, who has said that a Brexit deal similar to the free-trade pact struck with Canada is the most likely scenario for Britain once it leaves. That deal opens up services such as banking to a limited extent.
That’s far from what Barnier said
The actual wording is rather stricter: “There is no place [for financial services]. There is not a single trade agreement that is open to financial services. It doesn’t exist.” Clearly some didn’t get the memo…
It’s no surprise that the Italian PM is the first one to break ranks. Italy’s fiscal position is terrible. A small increase in interest rates, by historical norms, would cause a serious budget crisis. Factor in the political turmoil and the government’s economists must be terrified.
Italy needs smoothly functioning financial markets to remain afloat. Which means it needs London. Even the governor of the Central Bank of Ireland, who is also on the European Central Bank’s governing council, admitted Europe’s reliance on London: “The City of London is the wholesale quarters of the EU […] If there is a genuine shock and we have a Brexit without a transition period, then that is a financial stability risk.”
So many changes of heart. So many surprise comments. So many policy about-faces. It seems an icy Davos is turning into a Freudian Slip Festival.
Surprises from outside Davos
There are bizarre changes afoot outside Davos too.
A long-term leader of the Alternative for Germany party (AfD) in Germany has quit for “personal reasons” according to the party spokesman. If you can guess what those personal reasons are, you’ll win a free subion to Capital & Conflict for life!
After the party campaigned against the Islamisation of Germany, regional party leader Arthur Wagner resigned to become a Muslim…
Meanwhile, his former colleague was appointed to chair the German national budget committee. Not of the AfD party, of the national government!
The new budget committee chair decries fiat money not backed by precious metals, says Germany should leave the “illegal euro transfer union” and believes bailout policies for southern Europe are illegal under EU law. His committee organises the government budget of the biggest economy in Europe.
Yikes. We’ll be hearing plenty from this Peter Boehringer in coming years. Especially given his growing number of allies.
Finland’s Europe minister told The Telegraph his country would resist any attempt to pay more money to the EU to finance the black hole Britain will be leaving. “When the EU becomes smaller the budget should become smaller. That’s all there is to it. That’s the logic we abide by.” But it’s not the logic of EU leaders. Nor of the southern states. Italian and Greek leaders are calling for more financial aid to Africa!
Consensus turmoil exposed
With the previously steady consensus view of the world weakened by Brexit, Trump and other events, it seems the rest of the world is catching on to the changes.
The fear of the most controversial decisions and movements in recent years is dying. Brexit is a success. Trump’s “substantive” changes are working. The AfD in Germany and its many similar movements around Europe are not just a bunch of loonies. The economy is doing well in the face of setbacks for globalism.
Project Fear in Britain, the US and Europe has failed. A new political norm is emerging where previously outrageous ideas and beliefs are now credible.
It’s an enormous shift in what’s politically correct. The question is, where does it lead us?
Where does Trump go from here? Where does the EU take its bound members – to federalism or a smaller EU? How does China react to the new nationalism in its trading partners?
And how will the new order react to any financial instability?
Until next time,
Capital & Conflict