Fed, ECB take positions to face the next global financial crisis; the Brits uncovered

Last Thursday 2 October 2017, the US President Donald Trump announced the nomination of Jerome Powell (on the left) to be chairman of the Federal Reserve System. Despite the usual Trump verbalism, the truth is that his choice was more or less forced. (Official White House photo, with the relevant Trump statement on it).

The appointment of Jerome Powell as the next head of the US central bank, the famous Fed, is a reassurance to the financial world that the giant lenders will continue being favored by ample and very cheap money. Last Thursday, Donald Trump, the American President didn’t dare to change the cautious approach to monetary policy. He chose the only candidate who guaranteed a thorough continuation of the measures applied by Janet Yellen, the Fed boss for the last four years. Powell has worked closely and backed Yellen’s prudent choices. She is openly preparing for the next financial crisis.

Also, last week the Bank of England made sure the UK financial leviathans won’t be deprived of the almost free cash it has offered them. Last Friday Mark Carney, the Canadian Governor of the BoE just restored the central bank’s main interest rate to 0.5%, as it was before being cut down to 0.25% in August 2016 , some weeks after the Brexit vote of June 2016. Carney has one more reason than the Fed or the European Central Bank to raise interest rates. Inflation in the British economy moves faster than 2% a year, faster than the standard target level. That’s why he clearly said Britain should be expecting two more interest rates increases during the next two years.

Lagging Brits

However, if he was really anxious to bring inflation down to the appropriate level of below but close to 2%, he should have been much more hawkish with interest rates. The UK has inflationary problems, unlike the US and the Eurozone. On top of that, the dragging on and on uncertainty about the kind of Brexit the country is to finally decide, has left the London City’s banking giants bewildered. Under the circumstances, the last thing those money sharks could tolerate was a severe anti-inflation policy stance with a hawkish interest rate policy. At the end of the day, the announced BoE policy choices sent the foreign value of the pound sterling to its lowest level for the last six months. This is a proof the money markets considered the pronounced interest rates policy as inadequate to curtail rising consumer prices.

The kind of bank-loving Carneys, though, don’t care about inflation, at a time when the mega-lenders are having other pressing problems in London. The UK Brexiteer government doesn’t care at all if the City’s financial hub is having difficulties with the uncertainties around Brexit. More than half of the governing Conservative party PMs seem unimpressed by the City’s cries for a smooth and EU friendly exit. The City banking leviathans badly want to continue doing business all over Europe from their London hub. A disorderly Brexit will ruin this possibility.

City uncovered

The threats to transfer their activities from London to Frankfurt don’t terrorize anybody else but themselves, cost-wise, regulation-wise and tradition-wise. There is no better money washing machine in the world, than London. The opportunities the city offers to moneyed people are immense. It’s not the same in mainland Europe. In such an environment the Bank of England is doing its best to ‘comfort’ the London banking ‘community’. Who cares, if these extra dovish BoE interest rates policy may drive up the cost of living for the hard working Brits? The fall of the pound will certainly hike the prices of imported foodstuffs. This is true in relation to both dollar and euro priced goods.

Returning to Washington, where the Fed is based, the appointment of Powell is a kind of guarantee the euro/dollar parity will not drastically oscillate from its current levels, due to monetary policy reasons. This is so, because ECB’s main monetary policy instruments, being described in detail at the end of October – on the occasion of the relevant Mario Draghi Press Conference of the 26th of the month – will not change in the long run.

Stabilizing euro/dollar rate

So, the prospect for an unaffected from monetary reasons euro/dollar parity, must have being approved by Trump. Presumably the American President must have being briefed in detail about that, before deciding to choose Powell to continue Yellen’s choices.

In short, upholding the exchange rate between the two global moneys at its present levels must have been a possibly unspoken compromise, between the two sides of the Atlantic Ocean. Of course, this understanding is restricted to the effects stemming from monetary policy which the two sides have under their direct control. The rest cannot be controlled. However, in the middle of the Ocean, Britain and her pound sterling will continue on a difficult path, possibly downhill. The parities of the UK pound with the dollar and the euro will greatly vary according to the prospects of a soft or hard Brexit.

Brexit chaos

In this respect, the achievement of an agreement between EU and UK, about the two years interim period after March 2019 is of paramount importance. It will have a stabilization effect on the British currency. To be noted, during the interim period, practically nothing will change as far as the economic, trade and financial relations between mainland Europe and Britain are concerned. It will be exactly the same as today.

Two more years will also allow 10 Downing Street to negotiate the best possible future free trade agreement with the European Commission, somehow letting off the steam from the pressures of the hard-line Brexiteers. Under this light, it is not easy to predict the long term relation of the British pound with the euro and the dollar.

Preparing for the crisis

In any case, the basics for the future Atlantic economic and financial relations are practically there, and their prospects are only perplexed by the Brexit uncertainties. The ball is clearly in London’s court. The Brits must urgently solidify their position, because everybody else is preparing for the next global financial crisis. Whoever is got unprepared will pay the highest price.

 

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

No barriers to free flow of non-personal data in the EU

Gender parity has a huge role to play in the fight to save our oceans

UN investigates systematic sexual violence across South Sudan

‘End the ongoing atrocities’ against people with albinism in Malawi, say UN rights experts

This entrepreneur is helping farmers get food to consumers during lockdown

Get out, stay out: how financial resilience helps end poverty

New UN poverty report reveals ‘vast inequalities’ between countries

Czech PM should resolve his conflict of interest as a matter of urgency say MEPs

Global hunger is on the rise. These simple steps could help eradicate it

The EU checks the multinationals for tax fraud but Britain may sail out of the EU via Panama

New UN Global Climate report ‘another strong wake-up call’ over global warming: Guterres

EU tells Britain stay in as long as you wish

These chefs are fighting hunger and poverty with gastronomy

‘Ticking bomb’ health warning over deteriorating conditions facing Cyclone Idai victims

Yes, together we can make a change! YO!Fest and EYE 2016

Can the EU afford to block China’s business openings to Europe by denying her the ‘market economy status’?

It takes far too long for a rare disease to be diagnosed. Here’s how that can change

How Jack Ma sees a thriving future of entrepreneurship in Africa

How to create a world where healthcare is a right, not a luxury

Food safety: more transparency, better risk prevention

Why the West supports the yen’s devaluation and Japanese over-indebtedness

World in grip of ‘high impact weather’ as US freezes, Australia sizzles, parts of South America deluged

Women in video games: ‘Accept it, or don’t buy the game’

Human Rights Council election: 5 things you need to know about it

Peru should help more young vulnerable people into work

COVID-19: Both WHO and Europe must learn from the current pandemic, say MEPs

Better air pollution data is helping us all breathe easier. Here’s how

Does the “climate change” require ombudsman services for environment?

Digital technology helped create the skills gap. Here’s how it can help close it

Did young people just kill television?

Restoring prospect of peace in Middle East is ‘our shared responsibility’ UN envoy tells Security Council

‘We will not give up on looking for peace for South Sudan’: UN deputy chief

EU-Turkey relations: Erdogan plays the refugee card while beefing up gas operations in the Eastern Mediterranean sea

Is Haiti better prepared for disasters, nine years on from the 2010 earthquake?

Timor-Leste Foreign Minister highlights value of UN in resolving conflicts

This new way of understanding disease is changing medicine

Asia-Pacific showing ‘decisive leadership’ on road to 2030 Sustainable Development Goals, deputy UN chief tells key forum

UN honours peacekeepers who ‘paid the ultimate price’, for the sake of others

FROM THE FIELD: Keeping Morocco’s indigenous culture and conservation in balance

THE COMMITTEES: ‘All roads lead to the Fifth’

‘Building back better’ – here’s how we can navigate the risks we face after COVID-19

Canada leading the way on women’s inclusion and empowerment, says OECD

Facebook: MEPs demand a full audit by EU bodies to assess data protection

Cultural Intelligence: the importance of changing perspectives

Central banking in times of complexity

Here’s how sustainable aviation fuel can take off in Europe

The European Council takes more measures to stem illegal migration

Legendary Harlem Globetrotters slam-dunk at the UN, with message that brings families, nations together

Eastern Partnership: Commission proposes new policy objectives for beyond 2020

ILO and EIB join forces for more and better quality employment

5 things you need to know about water

France-Germany: Divided in Europe, USA united in…Iran

‘Don’t forget Madagascar’s children’, UN appeals for long-term help as emergency worsens

EU Budget 2019: focus on the young, on migration and innovation

Scotland and First Minister Salmond enter the most challenging battlefield for independence: Europe

Take action on air pollution to save lives, and the planet, urges UN chief

‘Pioneering’ former Chilean President Michelle Bachelet officially appointed new UN human rights chief

Parliament ready to fight for a different EU budget

Tuesday’s Daily Brief: prizewinning journalists freed in Myanmar, new tracking tool for suspected terrorists, and a global bid to stop snakebite deaths

UN rights chief slams ‘unconscionable’ US border policy of separating migrant children from parents

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s