For England, now the bad news

For England, now the bad news.

 

I have a lot of respect for what the British just did. They voted for MEGA, make England great again.

 

The reason I say “England” is because this election was an England only election. They lost seats in Scotland and Northern Ireland is on pins and needles.

 

In my opinion, England has three challenges that they must overcome.

 

1) Appease Scotland and Northern Ireland.

2) Repair damage with the EU.

3) Repair damage with the USA.

 

1) Appease Scotland and Northern Ireland.

 

If this election had a message from Scotland, it was “we don’t want you,” to Boris Johnson. The Scots do not want to be out of the EU and it’s not just trade. Free access to the EU labor markets is a HUGE draw for unemployed Scotlanders.

 

More so though, Scotland is England’s only organic petroleum source. Most of the natural gas that will travel from Russia to the EU will go to Germany.

 

But for Northern Ireland, the situation is far worse, and Mr. Johnson knows that. His victory is not a UK victory it’s an English victory.  All the promises in the world won’t help Northern Ireland, whose biggest trading partner, Ireland, will now have, at the very least, a soft wall.

 

Per capita GDP in Ireland is twice as high as the north. The majority of Northern Ireland’s growth is from the south. Even the weakest of walls hurts them. Their biggest issue will be visa restrictions, which we’ll touch on in item #2.

 

Britain seems to think that Ireland is going to “unify” with Northern Ireland like Germany did with the East. This is fantasy. There’s no way Ireland is going to unify with a dirt poor, heavily indebted province.

 

2) Repair damage with the EU.

 

To their credit, the Brit’s eliminated the blowhard Nigel Farage from public office. His Brexit party got zero votes. Once people realized what Farage was, a self-absorbed, narcissistic, chain smoking megaphone of hate, he was gone.

 

But they also elected him to represent their country in the EU for 18 years.

 

Farage has launched insulting tirade after vitriolic assault on the EU for years. He has no concept of civility, somehow assuming the people who were the recipients of his rants were nobodies. Hate is a two-way street. Just ask Hillary Clinton.

 

Did the British think this through?

 

In order to close their borders, they must create a new EU visa protocol. To do that, the EU is going to need a visa protocol as well. If Romanians can’t work in England, then Brits can’t work in the EU. The EU is a customs union. How could they allow Brits access to their labor markets and shut off their own members from the UK’s?

 

Farage’s tirades about criminal Romanians ruining their society may be correct, but when you build a wall, that wall works in two directions.

 

In order to make this wall work, they’ll have to put visa restrictions on travel, as in vacations. I know a half dozen or so Greeks and Romanians that have vacationed to London in the last year. If you give them automatic tourist visas, then what has Brexit accomplished? People will simply get tourist visa’s and stay.

 

Think about it this way. I can spend 6 months per year in Germany. I can’t work there or buy a home without a special visa. I’m American! My country defends Germany! I can join the army and die defending the EU, but I can’t live there?

 

Germany is in a customs union with 27 other countries. That means the visa restrictions I have apply to Austria, France, Italy, Latvia, Romania and all EU countries equally!  This is what Brexit means!

 

As much as Farage has bloviated about Romanians and Greeks, I have met several in Germany. All have been hard working and honest. If you go into any German grocery store, you’ll see hardworking people. Some are German, but most are Turks, Greeks and people from the former Soviet Union. They work because if you don’t work in Germany, you get fired.

 

In England, being lazy is not just a norm, it’s a badge of honor.

 

As to trade relations, it’s here that I think they’re double screwed.

 

England’s biggest export is financial services. Their imports are food and manufactured items. The UK only grows 1/5th of the food it needs.

 

The next recession (or depression as many people believe) will GUT financial services. The sole reason we had a financial services boom is the massive river of fiat currency that’s been printed worldwide.

 

Most people believe that the EU is going to fail, and the British are better off outside it. This is a fantasy.

 

Although German banks may very well fail, Germany and the east block nations have lower debt to GDP ratio’s than any other western nations. They also have fiercely disciplined and efficient populations.

 

Most of this is glossed over by western economists and op-ed writers who seem to believe that GDP is the only measure of a country’s strength. But, as Sylvester Stallone says, it doesn’t matter if you get hit, it matters if you can take a hit and get up.

 

The UK’s debt to GDP ratio is double that of Germany and the USA. Their individual debt to GDP is 86% versus 52% in Germany. Since 1980, as German personal debt has stayed roughly the same, the UK’s has gone up 400%.

 

In fact, personal debt as a percentage of GDP is 34% in the Republic of Ireland and 34% in the Czech Republic, two countries with eye popping GDP growth.

The UK isn’t even in the ballpark with these countries.

 

Were that not enough, the UK has the lowest personal savings rate of any modern country. The only countries as bad are dirt poor nations like Latvia, Greece, Portugal and Italy. The highest are Germany, Ireland, Switzerland, Israel and the Nordic countries. Germans save 12X more money per capita than the British.

 

What this means is…

 

If a countries currency fails, it has to create a new one. It’s easy to do if you have low debt to GDP ratios because banking is dependent on EQUITY. Mortgage debt is safe when 1) The debtor can pay, and 2) the mortgage can be profitably foreclosed on.

 

When a country is up to its ass in debt, foreclosure cascades it’s financial system into a collapse. There’s no bottom because there’s no net equity. In other words, if you have a $200,000 house with a $200,000 mortgage, you have zero.

 

If you can’t pay your bills in an expanding economy, how do you pay them in a recession?

 

How does breaking away from the EU fix any of these problems?

 

In fact, it exasperates them. Like the US, the UK is a bubble economy, both built on absurdly expanding debt levels and trade deficits.

 

Although the US trade deficit is huge, the UK’s is almost twice as high. Were that not enough, much of what the UK calls exports are flow throughs, like gold and processed petroleum products. They import and export cars and machinery. In other words, their trade is due to their relationship with the EU and not any particular organic British reason.

 

3) They must repair their relations with the US.

 

Contrary to what the media may say, relations between the US and England have never been worse.

 

Contrary to what people may think, the election of Trump and Johnson were different events.

 

Only 21% of Brits approve of Donald Trump. This wouldn’t be a problem if they weren’t so vocal about it.

 

Without the USA, the UK is nothing. Their military is useless without the US. Without a USA bailin, the UK would have los the Falklands war. Mrs. Thatcher’s speeches notwithstanding. And as obnoxious as Trump may be, his approval rating among people who join the US military is in the stratosphere.

 

This is why the Queen invited him to Buckingham Palace. She may not like him, but she certainly understands what side of the bread butter goes on.

 

This helped cover up the now public bribing of a US television network to cover up the Jeffrey Epstein child trafficking case.

 

In this, it was TRUMP who diffused the situation. After his VERY PUBLIC snub in the 21-million-pound welfare wedding of Harry and Megan, a real right-wing zealot would have told the UK to fuck off. I guarantee you, the next one will!

 

The US is hyper-sensitive to foreign criticism. During the Iranian revolution, the Iranians, including Ahmadinejad, used the exact same anti-war tactics the US left used in Vietnam. They failed miserably. The same people who protested US involvement in Vietnam wanted to carpet bomb Iran.

 

Trump has continually promised Boris Johnson a free trade deal and in return Johnson has very publicly shunned him. In the waning days of the election, he continued to distance himself.

 

If Trump wins reelection, the Downton Abbey vote will disappear. The next time the UK gets in trouble, Trump supporters will be posting pictures of floats in UK parades with Trump texting from a toilet.

 

In the coming years, the US is going to have to choose between a poor, overly indebted, America hating UK or a conservative, behemoth manufacturing led German dominated EU. They’ll have to choose between countries that will buy US weapons and a country that doesn’t need them.

 

It’s hard to see how the UK wins this battle.

 

I’ve posted on this several times. As much as the USA will go into a recession that could be a depression, they won’t go alone, and they won’t be the worse off.

 

It’s hard to imagine that the UK, France and Spain can survive the next economic downturn. Any collapse of the EU will simply lead to it becoming two tiers; the rich Nordic and the poor Mediterranean.

 

In this, England may be a floating rock in the middle of nowhere.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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