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Is the UK Going Where Japan didn't Dare?

Marc To Market's picture




 

Threats by Japan's Prime Minster Abe to changed the BOJ's charter faced broad criticism for threatening the independence of the central bank. Some officials reacted more strongly to this than to the bilateral exchange rate targets some officials were suggesting.

Abe has since backed away from changing the BOJ's mandate, as his candidate to head up the BOJ has promised to deliver the goods--aggressive expansion of the asset purchase scheme and possibly before the April 3-4 regularly scheduled meeting. The willingness of Iwata, a nominee for one of the deputy slots at the BOJ, to accept a change in the BOJ's mandate, is being seized upon by the opposition DPJ to oppose the appointment.

The UK appears to be adopting similar tactics. The BOE has embraced a depreciation of sterling, though stopping shy of providing bilateral targets, either against the dollar or the euro. Cameron and Osborne have agreed to replace the BOE Governor, whose term is expiring, with the head of the Bank of Canada who has promised a more activist monetary policy to offset the austerity upon which the government has staked its future.

Changing personnel may not be sufficient for Cameron and Osborne. There are moves afoot to change the BOE's charter. Recall that although the BOE is the second oldest central bank in the world after Sweden's Riksbank, it was not granted independence until Labour did so in 1998. Reports have circulated that the direction of the changes being contemplated is to give the BOE greater scope to tolerate higher inflation for longer.

In testimony last month in the UK, the next BOE Governor (July 1) Carney advocated a more flexible inflation target. In the past he has been sympathetic to targeting nominal GDP, though he has not introduced that in Canada (where Carney has led the central bank since 2008). Carney has also been sympathetic to the dual mandate of the Federal Reserve (which is really three-fold, i.e., price stability, full employment and financial stability).

The reports indicate that Carney is being consulted by the UK government on potential changes in the BOE's remit. Yet, it is not clear that the current mandate is insufficient. Currently, it is instructed to maintain price stability and support the government's policies, including its broad economic objectives in terms of growth and employment. It is a question of emphasis and interpretation.

Nevertheless, Carney, as much as Cameron and Osborne, want to be part of the "re-founding" of the BOE. Osborne was coy at the end of last year, saying he welcomed the debate on the BOE remit but had no plans to change the framework. Yet the press reports continue to suggest behind the scenes discussions are proceeding. Separately, several MPC members, including Deputy Governor Bean and Tucker and McCafferty seem to agree with our assessment that the current framework is sufficiently flexible.

Sterling has been giving the yen a run for its money this year for the weakest of the major currencies. The yen has pulled back into the lead with its recent losses which put it down 9.5% here in 2013, compared with the 8.5% decline for sterling. On the BOE's broad trade-weighted index, sterling is off about 6.8% this year. It is too early to show up in UK trade figures, and for various reasons, UK exports do not seem particularly sensitive to sterling's exchange rate. On the other hand, the depreciation of sterling appears to be one factors boosting inflation expectations.

 

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Tue, 03/12/2013 - 14:12 | 3323135 besnook
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i wish i understood the british situation a little better than i do. it seems like such a fine fuck up. one thing i know for sure is that staying out of the euro is the only thing that has saved them.

i bet there are still a bunch of brits who still sing that old rule brittania ditty without a few pints under their belts.

Wed, 03/13/2013 - 07:15 | 3325279 Ghordius
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I find your opinion quite strange. How do you reach the conclusion of "one thing i know for sure is that staying out of the euro is the only thing that has saved them" ? Because it allowed the BoE to devalue strongly the GBP?

Wed, 03/13/2013 - 16:06 | 3327310 besnook
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yes, the brits control their own economy with their own currency. if they were a euro country they would be no better off than the piigs, arguably in much worse shape, awaiting judgement from germany.  britain may still go down but they won't have anyone to blame but themselves if they do.

Tue, 03/12/2013 - 14:07 | 3323113 Lord Peter Pipsqueak
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Ghordius wrote:

"continued mass immigration" my hat - are you talking about the blonde, English speaking Poles that are revitalizing the UK economy? or about the Pakistani and other Commonwealthers that have nothing to do with the EU and are on the island since a while before the EU was born?

I wondered how long it would take for a foreigner who knows nothing more about the colonisation of British cities by foreigners than he reads in the UK press,or an apologist for the traitor politicians who are aiding the destruction of thier own country and the elimination of their own people to appear,so which one are you Ghordius?

Wed, 03/13/2013 - 07:16 | 3325209 Ghordius
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my dear Lord Peter Pipsqueak, why don't you explain then more about the colonisation of Britain by foreigners?

I thought my point was clear: the Asians and Africans aren't in the UK because of the EU. And their "invasion" is old

The Poles and other europeans are. And their "invasion" is younger

If you read the comments I made in a year you'll see that I'm no friend of the UK press, btw

note also that the UK will only allow immigration from Romania and Bulgaria in 2014

Tue, 03/12/2013 - 13:58 | 3323080 Sandmann
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it was not granted independence until Labour did so in 1998.

 

It was not nationalised until Labour did so in 1945. It was nationalised to get rid of Montagu Norman Governor 1920 -1944 and his maverick approach to central banking, one that seems now to have returned with Bernanke whereby the Central Bank overrides democratic accountability.

Tue, 03/12/2013 - 14:17 | 3323148 Orly
Orly's picture

Ruht-roh.  Walking on eggshells here...

Tue, 03/12/2013 - 13:10 | 3322893 d_taco
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UK is in a much worse position than Japan.

Uk runs a

* Trade deficit
* Budget deficit
* One of worlds highest external debt
* High private and high public debt

It needs a surplus on its capital account, as the US it needs foreign investers to pay for its consumption.

Camerons budget plan include a robust growth of GDP that did not materialised.

Gilt investers saw 10% of their investment wiped out within 6 monts and get in return a 2% coupon intrest.

UK has two possibilities.
1. Increase intrest rates but that will trow the economy under the bus.
2. Monetize the debt for 100%

Lets see and wait for Nigel Farell, maybe he want to solve the problem by paying the bankers an extra premium and blaming it all on the Euro

 

 

 

 

 

Tue, 03/12/2013 - 19:29 | 3324257 AttilaTheHun
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The UK has an economy based on gambling whereas Japan has an economy based on world class manufacturing.

Tue, 03/12/2013 - 13:58 | 3323084 Sandmann
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You forgot that the Savings Ratio is low and has been destroyed by QE

Tue, 03/12/2013 - 13:58 | 3323083 Marc To Market
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Just for the record d_taco and I know better from letting the facts get in the way of a good rant, but Japan has a trade deficit, and a current account deficit and budget deficit and a largest stock of government debt than the UK.   I think you two choices are false and will be proven so insofar as the BOE is not about to hike rates.  Nor will 100% of the debt be monetized.  I think a reasonable review of the news finds that the UK government is coming down harder on banks and bonuses than many other countries, incuding the US and Japan for that matter.  I don't know how to quantify whether the UK is worse than Japan.  The rating agencies don't think so and I note that in the credit-default market its costs about a third more to insure Japan than UK exposure for the next five years. 

Tue, 03/12/2013 - 14:00 | 3323092 Sandmann
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that the UK government is coming down harder on banks and bonuses than many other countries

Yes they have allowed their 82% Shareholding in RBS to reward a £5 billion LOSS with £600 million in Bonuses and Zilch for Shareholders.  Meanwhile Banks are Short of CAPITAL

Tue, 03/12/2013 - 14:12 | 3323131 Marc To Market
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Sandman, I did not say it was hard on banks, I sayit was harder than many other countries.  Surely, we'd agree that such an evaluation requires more than one case and more than simply looking at the compensation pool for one year. 

Tue, 03/12/2013 - 13:26 | 3322964 Ghordius
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Nigel Farage, not Farell. Fellow got granted the Liberty of the City of London corporation, and rumour has it that his German 2nd wife is giving him hell since a while for some comments he made on the EUR where she calls bullshit

Tue, 03/12/2013 - 13:58 | 3323082 d_taco
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Stupid slip of the pen , thanks for yor comment.

Tue, 03/12/2013 - 12:48 | 3322824 Lord Peter Pipsqueak
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Carney's appointment is the final piece of the puzzle whereby the UK economy is destroyed,sterling is destroyed and devalued by 50% or more requiring an IMF bailout, the preconditions of which, require the UK govt to ditch sterling and adopt the Euro,thereby removing any last chance there was of a UK withdrawal from the the EU.

The continued mass uncontrolled immigration just as in every other country in the EU will ensure by the immigrants higher birthrates a guaranteed replacement of the indiginous population by foreigners who will not consider themselves British,German,Swedish etc, hence the loss of national identity.Simple ethnic cleansing by another name.

And the people of Europe have,and continue to vote for their own elimination,not only that,they are having to pay for their extinction via taxes,they are that stupid,they cannot see that they are actively destroying themselves.

Tue, 03/12/2013 - 13:03 | 3322862 Ghordius
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who do you think wants the UK in the EU? this is typical revisionism of history. the UK squeezed it's unwanted entry in the common market

and btw the UK, it's Bank of England and it's Sterling do not even qualify for eurozone entry

some subjects of the Queen regularly mistake diplomatic niceties and and sense of european brotherhood with a heaven sent duty to lead europe, thanks to a national solipsism that is quite spectacular

"continued mass immigration" my hat - are you talking about the blonde, English speaking Poles that are revitalizing the UK economy? or about the Pakistani and other Commonwealthers that have nothing to do with the EU and are on the island since a while before the EU was born?

Tue, 03/12/2013 - 14:02 | 3323098 Sandmann
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blonde, English speaking Poles.............they are not all female, unfortunately, nor are they all blonde. But most Immigration is from AFRICA and the INDIAN SUBCONTINENT

Wed, 03/13/2013 - 04:19 | 3325204 Ghordius
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and this is... the EU's fault? particularly since the UK is not even in the Shenghen area?

Tue, 03/12/2013 - 14:14 | 3323143 Orly
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And the most popular boy's name is Mohammad.

:?

Tue, 03/12/2013 - 12:15 | 3322700 Hedgetard55
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Carney is no doubt well positioned in his personal finances for the destruction of the pound.

 

Is there a short sterling investment available for the average shmo?

Tue, 03/12/2013 - 12:39 | 3322795 magpie
magpie's picture

As a good market participant you are supposed to buy the FTSE for that. There are one or two short Gilts ETFs out there, but i have my doubts that they will work as intended, e.g. Super-QE and some faux risk off event etc

Tue, 03/12/2013 - 11:40 | 3322546 Orly
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I would think that the BoE "remit," as envisioned in the possibility of a Fed-like dual mandate would be much more difficult for Carney to use effectively than the more simple inflation-targeted job they have now.

Unemployment in Britain is very bad but keeping the populace off the nanny-state dole is even worse.  With all the moving parts of an high immigrant population, the welfare state and a stagnant economy, they may be opening themselves to a situation that is impossible to control without severe welfare and other reform laws in the UK.

It seems that they should fix those problems first before asking "Superman" Carney to come in and inflate his way out of this mess.

:D

Tue, 03/12/2013 - 11:33 | 3322509 Lordflin
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And they're off...!

Tue, 03/12/2013 - 11:10 | 3322415 Racer
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It's alright for the rich F*!%& banksters to tolerate higher inflation cos of their fat salaries but not the rest of us

Tue, 03/12/2013 - 11:08 | 3322402 bank guy in Brussels
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Carney the Canuck to Catapult the Casino

UK to become the new Switzerland, a much bigger Cayman Islands

The Brits are preparing for something big and radical, and I think this is the background of the serious talk of Britain leaving the EU ... No sense in hanging around for Brussels rules and governance of their financial gambling den

The Brits know the USA is in a state of fascist depravity, to be uniquely exacerbated by the fall of the dollar as reserve currency ... Brits need to angle for when the dollar dies

But they need to act to prevent a huge loss of banking activity and influence to Hong Kong, Singapore and points East

Switzerland itself has been cornered and trapped by its dependence on the EU, it is not the haven it was

Whereas the Brits remain an island, with trade to their old Commonwealth poised to stay higher than that with the EU, and they can detach from the EU easily

With shite for an economy outside of financial services, the UK really has one clear choice for the future ... try to become the big Western financial haven, picking up the pieces after the dollar goes bust

Tue, 03/12/2013 - 13:48 | 3323041 Ion the Ion
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with trade to their old Commonwealth poised to stay higher than that with the EU

what are you talking about ?!? around 3/4 of britain's trade is with europe

Tue, 03/12/2013 - 12:53 | 3322828 Ghordius
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our dear cousins The Brits put a lot of faith in their banking system and their old Commonwealth, yes, but reality looks quite differently

the Cameron government is busy syndicating a new Transatlantic Trade deal, with an angle of leaving the EU after "having breached it's walls" for the GMO-peddling US agro-megacorporates and other giants like Google et al who want to kill the european privacy laws that bother them so much, etc. etc.

London wants to have a whole lot of cakes and eat them too, and a Great Transatlantic Trade Zone out of NAFTA, EU and a "BriXit" UK is exactly their idea of heaven - "let them eat GMO cake and get spied as proper peons should"

meanwhile the loss absorption capacity of the Bank of England is very, very limited, it's the only national bank in europe that does not regularly retain a share of the profits in the past. The Eurosystem (i.e. the 17 national banks + ECB) currently disclosed capital and provisions of EUR 493bn (17% of their aggregated balance sheet), the Swiss National bank CHF 62bn (12%)

And the BoE? Nothing, nada, zip, as the Bank of Japan (that at least has some equity) and the FED. they are accellerating and "winning" this race, but they have no brakes - particularly if you look at the size and composition of their FX reserves

meanwhile London is a tax haven - the Greek 0.1% lives there since a generation, for example, thanks to the "Non-Dom" status. and they are not the only group of super-rich that have mansions there

Tue, 03/12/2013 - 14:03 | 3323102 Sandmann
Sandmann's picture

Bit of a mish-mash there - very hard to discern a logic flow

Tue, 03/12/2013 - 12:59 | 3322853 falak pema
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Isn't Merkel very positive about this great US-EU trade bonanza which is very US corpo oriented?

Google now completes old Echelon.

Tue, 03/12/2013 - 13:21 | 3322935 Ghordius
Ghordius's picture

yes, parts of her party is very happy because they expect a very good deal on the automotive business side, particularly with an eye of not having to make different car models for the US market

thankfully while the US side led by Senator Bacus would like to close the deal yesterday, the EU side will only start talks in June, and expect 2 years of talks

Barroso is hopeful - the utter idiot - that this would mean that the UK's government is playing fair and sees, the old Anglo-phile, for a renewal of British commitment in the EU. He has not understood that the Brit Conservatives want both sides of the deal in their favour - a "NATO trading zone" and an exit from the EU - and they expect to take this out of the hat as soon as the deal is nearly done, thanks to their "special relation" to everybody

-------------

the funny thing is that EU laws are quite good in those parts where citizen safety and privacy is involved - wikipedia even gushes "the strongest in the world blablabla"

not enough for Poland, for example, that has banned completely GMO, even the 50 that are allowed in the EU. european commissars are just shrugged away, a good case of a sovereign behaving as it should, not being bothered by the ushers of the city club that he patronizes

so Merkel might be hopeful, but Germany ain't the only country with a vote on this

I hope for loooooooooooong and inconclusive talks, and some serious discussion on it in the media

------

here some press about it in the US

 

Public Citizen’s Global Trade Watch Director, Lori Wallach (http://citizen.typepad.com/eyesontrade/2013/02/sotu-tpp-tafta-wtf.html) cautioned how U.S.-EU talks, “are aimed at eliminating a list of what multinational corporations call ‘trade irritants’ but the rest of us know as strong food safety, environmental and health safeguards.” She went on to say, “European firms are targeting aspects of the U.S. financial reregulation regime, our stronger drug and medical device safety and testing standards and more.” Wallach further added, “U.S. firms want Europe to gut their superior chemical regulation regime, their tougher food safety rules and labeling of genetically modified foods.” In a press release (http://earthopensource.org/index.php/news/140-eu-us-free-trade-deal-will...) , Earth Open Source warned that, “An EU-U.S. free trade deal would obliterate EU safeguards for health and the environment with regard to genetically modified (GM) crops and foods.” Research Director Claire Robinson pointed out, “If the new trade agreement goes through, it will be illegal under World Trade Organisation rules for the EU to have a stronger regulatory system for GMOs than the U.S. system.” This is disturbing considering that in many cases, GM foods in the U.S. do not require any special regulatory oversight or safety tests.

 

Tue, 03/12/2013 - 14:21 | 3323161 NotApplicable
NotApplicable's picture

Wow, you've really bought into these statist scams, huh?

Take your views written here, replace references to any state entity with "mafia," and see just how incoherent they instantly become.

Wed, 03/13/2013 - 03:30 | 3323684 Ghordius
Ghordius's picture

 

take my views written here, replace any references to any state entity with public facilities I as taxpayer pay for and as citizen own being corrupted by legions of lobbyists swarming for the short-sighted "lurching from one quarter to the next" megacorporations that have no ethics at all except for making sure that in the best case their shareholders and in the worst case their entrenched top-employees mafias profit

those megacorporations have their natural habitat in the Great Plains of the Great Opportunities Land, where they are becoming more and more efficient in feeding, nursing, incarcerating and loading with debt the people that roam the land, and they are trying to storm the gates and walls of our lands, too - albeit aided by their smaller, scarcer brethens here

Tue, 03/12/2013 - 11:18 | 3322446 falak pema
falak pema's picture

when thieves fall out, its like "Mississippi burning"....very good film! 

Mississippi Burning - film 1988 - AlloCiné

Tue, 03/12/2013 - 11:17 | 3322442 old naughty
old naughty's picture

The Return of Soros ...in the making.

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