David Fuller and Eoin Treacy's Comment of the Day
Category - General

    A New Age Beckons for the Special Relationship

    In January 2009, Barack Obama began his presidency by removing a bust of Winston Churchill from the Oval Office. Eight years later, President-elect Trump will likely bring it back, in a symbolic gesture that will speak volumes. America’s hard-fought presidential election will have far-reaching consequences for the  Special Relationship, the most important bilateral partnership in the world. For the first time in a quarter century, conservatives are in charge on both sides of the Atlantic, offering a historic opportunity to re-energize the alliance. 

    Under Barack Obama the relationship was critically weakened. The White House showed little enthusiasm for it, preferring instead to cultivate ties with Angela Merkel’s Germany, François Hollande’s France, and a decaying European Union. His first Secretary of State, Hillary Clinton, was happy to knife Britain in the back, standing shoulder to shoulder in 2010 with Cristina Kirchner in Buenos Aires, when the Argentine President called for UN-brokered negotiations over the sovereignty of the Falkland Islands, a British Overseas Territory whose 3,000 inhabitants overwhelmingly voted to remain British in a subsequent referendum. And President Obama himself eagerly proclaimed that America has no “stronger ally” than France when then President Nicolas Sarkozy came to call in 2011, at a time when British troops were fighting and dying in large numbers alongside their American allies in Afghanistan. 

    A deep-seated Eurofederalist mindset was pervasive throughout the Obama years, with Vice President Joe Biden even proclaiming that Brussels had a legitimate claim to be the “capital of the free world” in a speech before the European Parliament. It culminated in President Obama’s decision not only staunchly to oppose Britain’s exit from the EU, but also directly to intervene in the domestic debate. Just weeks before the EU referendum he warned the British people, in front of Downing Street, that they would be at the “back of the queue” for a free trade deal with the United States if they dared vote to leave it. 

    Similarly, Hillary Clinton spoke out against Brexit during the presidential campaign, believing it to be a dangerous development for Europe. Her opponent had no such qualms  declaring on British soil the day after the referendum that Britons “basically they took back their country.” Trump saw the vote as a momentous victory for sovereignty in the face of supranationalism. Unlike his Democrat rival, he prefers the idea of working with nation states over negotiations with multilateral organisations.

    The Brexit vote was a shot across the bow of not only the EU elites but also the Obama presidency. For the next US administration, Brexit is not a threat but an opportunity for the United States, a country with a huge economic stake in the UK. As the Congressional Research Service notes, there are $5 trillion of US corporate assets in the UK, representing 22 per cent of total US corporate overseas assets. Britain is America’s largest foreign direct investor, and roughly a million US jobs depend on British companies based in America. 

    A Trump administration should make a US-UK free trade deal a foreign policy priority, riding a wave of momentum on Capitol Hill. There are already no less than five pieces of Congressional legislation calling for an Anglo-American free trade deal, the most prominent being the United Kingdom Trade Continuity Act, introduced in the Senate by Mike Lee of Utah and Tom Cotton of Arkansas, both rising stars in the Republican Party. It is also the view of Paul Ryan, the pro-British Speaker of the House of Representatives and a long-standing admirer of Churchill, that America must pursue a trade agreement with the UK. As he puts it, “we need to emphasise that they are our indispensable ally.”

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    Leave Voter Patience is Starting to Wear Thin as They Fear Betrayal

    Just get on with it! That is the consistent message from Leave voters up and down the country. For such people, it’s simple: “There was a vote, the Leave side won and now the UK has to leave the EU. No ifs or buts”. It’s an instruction that our MPs would do well to heed, and one that permeates all of the findings from a fascinating series of focus groups that I have been shown. 

    Change Britain, a new Eurosceptic campaign, has been speaking to voters in Yorkshire, in the Midlands, in the North East and North West. One of the most striking findings is the complete absence of any buyers’ remorse. Those who voted to quit the EU are happy; their frustration stems purely from the stalling of the Brexit process, and the return of finger-wagging, preachy Remainers telling them that it can’t be done.

    Many have been supportive of Theresa May, who is saying many of the right things, but patience is wearing thin. As one Leaver put it last week: “Now I want to see something. You have said it, now do it. They seem to get there and it fizzles out like a Roman candle.” Many are demanding “a plan” and some “action”. Plenty are upset at the lack of communication, smelling a rat. “They asked us to make a decision. We’ve done what we were asked to do. They should let us know what’s happening.” There is a widespread suspicion that a deeply untrustworthy establishment is preparing to sell them out, that “there’s obviously some wheeling and dealing going on”.

    The tragic, explosive reality is that “ordinary Leave voters”, as they are often called by London-based commentators, are right: the Brexit process is on the verge of going badly wrong, even though the economy has been astonishingly resilient since the vote.

    The Remainers are on the march, with Tony Blair and his vast financial and human resources returning to the fray; the legal complications relating to Article 50 are becoming ridiculously onerous; and foreign leaders are making the most of our divided, unsettled establishment to humiliate Britain as often as possible. 

    Barack Obama’s infamous intervention ahead of the referendum backfired; it is a fair bet that reading about the Maltese prime minister who wants the UK to “be worse off” or the Polish foreign minister who said that we may never leave the EU will have driven many into an even greater rage.

    Angela Merkel’s decision to block any fast-track deal over European expats was a seminal moment this week, as was the news that some lawyers believe that the Supreme Court could yet allow Scotland or even the European Court of Justice to have the final say over Article 50. 

    The reason why so many Remainers now feel able so openly to undermine Brexit is because the government has allowed itself to portray Britain as a supplicant, a divided, rudderless country. To European diplomats, it looks as if our government’s heart is not really in this, and that our strategy is purely defensive, a bid to retain as close links to the EU as possible

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    Trump Turns to Schwarzman, Dimon for White House Jobs Panel

    Here is the opening of this interesting article from Bloomberg:

    President-elect Donald Trump turned to some of Wall Street’s biggest names to create a panel of business leaders that will give him strategic advice on the economy after he takes office, including two financiers with deep Democratic roots.

    Blackstone Group LP Chief Executive Officer Steve Schwarzman will chair the President’s Strategic and Policy Forum, which will begin meeting with Trump in February, according to a statement Friday from his private equity firm. JPMorgan Chase & Co. CEO Jamie Dimon and BlackRock Inc. CEO Laurence Fink, major donors to Democratic politicians, will also sit on the panel.

    “This forum brings together CEOs and business leaders who know what it takes to create jobs and drive economic growth,” Trump said in a statement issued by Blackstone. “My administration is committed to drawing on private sector expertise and cutting the government red tape that is holding back our businesses from hiring, innovating, and expanding right here in America.”

    Presidents traditionally turn to business leaders for advice on the economy. President Barack Obama named CEOs from companies including Xerox Corp. and Dow Chemical Co. to an advisory committee on international trade, while Schwarzman has partnered with the current administration on efforts to hire veterans.

    Trump asked him to pick the group’s members, Schwarzman said Friday in a Bloomberg Television interview, recounting his discussions with the president-elect and adding that the executives are hopeful their advice will benefit the country.

    “He said, ‘It’s really for me to learn what people have to say in an unconstrained way: they don’t report to me, they’re independent, and I want to know what they know,’” said Schwarzman, 69, a billionaire who has historically backed the Republican Party’s presidential nominee but didn’t publicly voice support for Trump during the campaign. “It was nice to see people put aside narrow interests.”

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    China's Central Bank Is Facing a Major New Headache

    This article from Bloomberg News may be of interest to subscribers. Here is a section:

    People’s Bank of China Governor Zhou Xiaochuan already has one policy headache with the currency falling to near an eight-year low. He could have an even bigger one next month.

    That’s when a $50,000 cap on how much foreign currency individuals are allowed to convert each year resets, potentially aggravating capital outflow pressures that are already on the rise. If just 1 percent of China’s almost 1.4 billion people max out those limits, that’s an outflow of about $700 billion -- more than the estimated $620 billion that Bloomberg Intelligence estimates indicate has already flowed out in the first 10 months of this year.

    Middle class and wealthy Chinese have been converting money into other currencies to protect themselves from devaluation, exacerbating downward pressure on the yuan. Outflows could intensify if Federal Reserve interest-rate hikes fuel further dollar appreciation.

    That leaves Zhou in a bind identified by Nobel-prize winning economist Robert Mundell as the “impossible trinity” -- a principle that dictates nations can’t sustain a fixed exchange rate, independent monetary policy, and open capital borders all at the same time.

    "At a moment like this, you have to compare two evils and pick the less-worse one," said George Wu, who worked as a PBOC monetary policy official for 12 years. "Capital free flow may have to be abandoned in order to maintain a relatively stable currency rate."


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    Food bars for astronauts' most important meal of the day

    Thanks to Mrs. Treacy for this article by David Szondy for Gizmag. Here is a section:

    The cramped crew capsule hasn't nearly as much room as the ISS, and because it's designed to operate in deep space, its payload weights are much tighter. Still, it needs to carry enough food for the crew as they spend weeks or even months in long-range missions but cannot be resupplied from Earth, nor can it dump its rubbish until it returns home.

    To cut down on space and weight, NASA wants astronauts to substitute breakfast for food bars. The bar has to provide enough calories as well as a carefully balanced diet, need no special storage or cooking facilities, and leave no waste beyond its minimal packaging. In addition, it needs to lightweight and have a shelf life of several years.

    Commercial breakfast bars are designed for relatively sedate people who have easy access to other foods. There aren't any food bars that meet NASA's requirements and no one wants to use lifeboat rations, so NASA had to take on the task of designing it in house.

    What it is working on is a breakfast bar that provides 700 to 900 calories and balanced nutrients to act as a meal substitute. The goal is to provide flavors like orange cranberry or barbecue nut to have enough taste and variety to keep morale high and the astronauts wanting to eat them even after weeks in space – though what the final bars will ultimately look and taste like has yet to be decided.


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    As Schultz Steps Down, Next Starbucks CEO Brings Tech Savvy

    This article by Leslie Patton for Bloomberg may be of interest to subscribers. Here is a section: 

    Starbucks’ digital and technology prowess has put it ahead of its peers, allowing it to serve more customers faster. Same- store sales rose 5 percent in the Americas region in the most recent quarter. Mobile payments accounted for about 25 percent of U.S. transactions in that period.
    Starbucks built on its tech leadership with an order-ahead feature, which lets customers select and pay for drinks in advance. They then can pick up the beverages at a shop without waiting in line.

    Since Johnson became operating chief, Starbucks has rolled out mobile ordering across the U.S. and even tested delivery.

    The Seattle-based company also is boosting spending on digital ventures, including taking its app and rewards platform to countries such as China.

    Though shares of Starbucks tumbled immediately after the announcement, they recovered some of that ground during extended trading. As of 9:53 a.m. in New York on Friday, the stock was down 2.4 percent to $57.11

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    People Power Fails to Stem Lira Rout As Erdogan Calls Turks to Action

    This article by Isobel Finkel for Bloomberg may be of interest to subscribers. Here is a section:

    The lira has weakened faster than that of any fellow emerging market's this year except Argentina, as a failed coup — and the crackdown that's followed — spooked foreign investors, exacerbating the effects of the stronger dollar that's greeted the election of Donald Trump. 

    After a 25 basis point rate hike to the central bank's overnight lending rate last month failed to prevent the rout, clamors for householders to risk their savings have grown. The odds are stacked against them. Turkish central bank data show that banks worldwide trade $17 billion liras every day; a volume which every adult in Turkey would have to change more than a daily $300 dollars to overpower.

    Still, the efforts of those fighting the fallout have taken varied forms. While some businesses are rewarding those dumping dollars, farmers in the central Anatolian province of Aksaray staged a symbolic protest at one of the country's largest livestock markets on Wednesday, burning bills "in retaliation at the U.S. and Europe," according to Ihlas news agency. 

    “Europe and America now want to realize economically the coup that they failed to carry out with tanks, rifles and F-16s on July 15,” Ihlas cited Hamit Ozkok, chairman of Aksaray Commerce Exchange, as saying. He was referring to the date of the failed putsch earlier this summer, in which hundreds lost their lives. While Erdogan blames a former political ally, Fethullah Gulen, for instigating the coup, the cleric resides in Pennsylvania, and Turkey has sparred with the U.S. about his extradition. Gulen has denied the allegations.

    "I think there's a failure to appreciate that some of the rhetoric smacks of desperation," said Paul McNamara, a fund manager at GAM Ltd in London who oversees around $5 billion in assets. He said only a strong increase to central bank borrowing costs can halt the currency's declines.


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    The Greatest Danger for Italy is the Looming Loss of the ECB Shield

    The painful saga of Italy is by now well-known. The country is stuck in a depressionary debt trap. Trend growth is below zero. GDP is still 9pc below its pre-Lehman peak. Industrial output is back to levels reached thirty-five years ago.

    The contours are worse than the 1930s. It is a lost decade turning into a second lost decade. No large developed country in modern times has ever suffered such a fate.

    Italy is the victim of a vicious cycle of labour hysteresis as economic stagnation and weak productivity reinforce each other. Its exchange rate is overvalued by 20-30pc against Germany.

    How easily we forget that Italy used to run a big trade surplus with Germany in the old days of the lira, and its real growth rate tracked German growth almost exactly with the help of devaluations. Each country was true to its political anthropology.

    Italy cannot now deflate its way back to viability since this shrinks the underlying base of nominal GDP and automatically steepens the debt trajectory. It is impossible task for a country with a public debt ratio of 133pc of GDP, and is self-defeating in mechanical terms.

    Reform is a beautiful word, but is almost meaningless at this juncture. There is no plausible way out for Italy within the current contractionary structure of monetary union. Only ECB bond purchases forever can keep the lid on this pressure cooker.

    Yet it is patently obvious that QE is nearing political, legal, and technical limits. The ECB already faces a lapidary attack by Otmar Issing, its founding chief economist and a figure of towering authority in Germany.

    He accused the bank of sliding down a "slippery slope", straying from genuine monetary policy and instead rescuing bankrupt states in violation of the treaties. "The no bailout clause is violated every day," he said.

    The ECB has so far bought €1.4 trillion of bonds. Its balance sheet will reach 35pc of eurozone GDP by the end of the year at the current torrid pace, much higher than it ever reached in the US. Mr Issing said QE is nearing the point where the ECB may not be able to extricate itself without disastrous losses.

    The inevitable taper battle is now raging within the ECB's governing council, with the two German members leading a swelling mutiny before the next meeting on December 8. Any suggestion that the programme will not be rolled over in full when it expires in March risks a financial storm. Italy will be the epicentre.

    The context is fundamentally more dangerous than the events leading up  to the US taper tantrum in May 2013, when the Federal Reserve first began to talk tough.

    It invites the perennial question whether Italy, Portugal, and perhaps others, can fund themselves at all in the capital markets, given that the eurozone has done almost nothing since the debt crisis of 2011-2012 to put monetary union on workable foundations.

    There is still no fiscal union, no shared debt issuance, no banking union worth the name, and no expansionary New Deal to lift the economy off the reefs once and for all.  All it has done is to tighten surveillance, hoping somehow that it can muddle through by riding on world demand.

    So Europe's taper tantrum - when it comes - ineluctably turns into a fresh stress test of monetary union itself. "The feeling once again is that the eurozone is not entirely safe," said David Owen from Jefferies.

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    Will the French Left Gift Le Pen the Presidency?

    So there you have it. Next year’s French presidential election will be contested between the hard Right and the far Right; between the no holds barred free-marketeer Francois Fillon, who has just won the republican nomination, and the Neo-Fascist Marine Le Pen. It is a catastrophe of democracy, an argument for the withdrawal of the franchise from the plebs, who have proved themselves utterly unworthy of the vote, stupid racists that they are.

    That is the narrative that is now being spun in some quarters in France, where a demoralised Socialist party – its leader ridiculed, its support in tatters – is looking for answers to its great collapse. But the story they are telling themselves could not be more wrong.

    For a start, it features traditional characters cast in a traditional plot – where politicians of Left to Right slug it out against each other until their champions from the centre ground vie for victory. Not this time.

    This time the fringes are flourishing. Jean-Luc Mélenchon, who has just been endorsed by the Communist Party, is predicted handsomely to beat François Hollande, France’s centre-Left president, in the first round of next year’s presidential polls – if Hollande even stands. Fillon himself will get less support than Le Pen before the two of them go head-to-head in the second, decisive round of voting.

    Mélenchon is often described as Marine Le Pen’s “rival”, as though the pair were locked in some Newtonian experiment, in which any political action by the one leads to an equal and opposite reaction by the other. This may be comforting for those on the “progressive” Left, for whom Le Pen is the very devil. But it is not true. Mélenchon is fiercely anti-free market, cherishing the rights and welfare of those in what he calls his “workers movement”. Marine le Pen too is a heartfelt protectionist promising to defend workers benefits. Both loathe the EU.

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