Wednesday, 01 December 2010 09:07

The UK Chancellor Osborne Demonstrates That He's An Expert In Revisionist History

From CNBC: UK 'Vindicated' for Refusing Euro: Chancellor Osborne

Britain's decision of not joining the euro was vindicated by the crisis in the euro zone, as the countries in the single monetary union have lost control of their monetary policy, UK Chancellor of the Exchequer George Osborne told CNBC.

The UK did not join the euro because that would have meant giving up decision over interest rates and removing exchange rate flexibility, Osborne said in an interview late Tuesday.

"And, you know, I feel that our view has been vindicated by recent events, and I'm very pleased the UK's not part of the euro," he said.

Whaaaattt????!!!! That's not the way I remembered it. As I recall, a man with a proprietary investment style very similar to my own (see "The Great Global Macro Experiment, Revisited") George Soros warned the UK officials not to join the Euro and they ignored his advice.

[caption id="" align="alignnone" width="680" caption="From a Global Macro perspective, it is actually quite profitable taking the opposing side of Central Bank trades. They are inevitably always wrong! If one were to look at the track record of my public calls via BoomBustBlog over the last 4 years, this assertion is proven true without a shadow of a doubt."][/caption]

He then levered up against the pound as the UK tried to manipulate its currency to fit within the EMU's mandated band. The man reportedly made $1 billion off of that trade (which was a lot of money for a trade back in the '90s) and was labeled a villain. Methinks they should erect a shrine in homage of Soros in Trafalgar Square instead. It appears quite obvious that Soros was right and the UK government was wrong. Here's how Wikipedia puts it:

On September 16, 1992, Black Wednesday, Soros's fund sold short more than US$10 billion worth of pounds,[24] profiting from the Bank of England's reluctance to either raise its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries or to float its currency.

Finally, the Bank withdrew the currency from the European Exchange Rate Mechanism, devaluing the pound sterling, earning Soros an estimated US$1.1 billion. He was dubbed "the man who broke the Bank of England."[26] In 1997, the UK Treasury estimated the cost of Black Wednesday at £3.4 billion.

On Monday, October 26, 1992, The Times quoted Soros as saying: "Our total position by Black Wednesday had to be worth almost $10 billion. We planned to sell more than that. In fact, when Norman Lamont said just before the devaluation that he would borrow nearly $15 billion to defend sterling, we were amused because that was about how much we wanted to sell."

Stanley Druckenmiller, who traded under Soros, originally saw the weakness in the pound. "Soros' contribution was pushing him to take a gigantic position."[27][28]

CNBC goes on to report:

In 1997, the UK government notified the European Union that it was not intending to adopt the euro on its launch on January 1, 1999. The country can change its mind at any time and introduce the single currency if it meets the economic criteria on issues such as inflation, interest rates and budget deficit.

This decision came from the lesson that Soros taught them, no?

Euro zone countries are setting out "convincing plans" to deal with the debt crisis, Osborne said, showing that the Irish took "very difficult" decisions such as cutting wages to become competitive again.

The plans are not convincing at all, at least not to anyone who bothered to read them. Reference:

  1. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

  2. Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest?

  3. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

As for the UK, we have looked into them and they have their own issues forthcoming. Subscribers, reference File Icon UK Public Finances March 2010. Those who do not subscribe can glimpse this two page preview (click here to subscribe) which gets the message across:

Next up, fancy Spanish haircuts, Portuguese hairstyles to avoid, and a longer term view of the currency malaise such as the one mentioned above. After that we will get back to the US banks and the monoline thing and then look at the tech companies that I have an interest in.

Last modified on Wednesday, 01 December 2010 09:07


  • Comment Link MP Thursday, 02 December 2010 17:00 posted by MP

    You have a lot of faith in the ability of the central bankers and general planners to keep this going far off into the distance. The reality of Ireland is they are one populist election away from telling the IMF to take their debt package to Spain. If the contagion requires Spain to receive aid, the game will be long over for the rest of the periphery and even some core nations. Greek funding costs are worse than they were in May and growth is negligible. If this holds, there is no incentive to take these "aid" packages, and hopefully other nations will see that.

  • Comment Link Reggie Middleton Wednesday, 01 December 2010 13:29 posted by Reggie Middleton


  • Comment Link map3 Wednesday, 01 December 2010 12:52 posted by map3

    You have this idea that policymakers and packages can stop the inevitable. Whenever things like this happen, the market always bites back harder and faster once all these plans fail. There will be global restructuring, maybe not today or tomorrow, but the IMF, ECB, US, EU cannot stop what will happen to Europe in both the periphery and the core.

  • Comment Link John Ryskamp Wednesday, 01 December 2010 12:43 posted by John Ryskamp

    From Reuters: "US official says US would be ready to back larger European financial stability fund via increased IMF commitments." In other words, America, and its oh so rich middle class, is about to bail out Europe again. EURUSD surges on the news, as does ES. Elsewhere, Ireland's new dictator, Olli Rehn, adds that he is "attracted' by Eurobond ideas; sees no initiative soon. Which means about a week.

    See what I told you? $70 trillion. Reggie, don't let your ideology (which is rather adolescent anyway) get in the way of understanding reality.

    Just remember: 4.7% BLS baby, 4.7%.

  • Comment Link map3 Wednesday, 01 December 2010 11:24 posted by map3

    As long as there are policymakers, there will be incredible global macro trades on the table to profit off political blunders. The UK should build a statue of Soros for preventing them from joining the EMU, but it really won't make a difference after domestic banks eat it for their business activities with Ireland.

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