Must-Read: Teebs: Brexit: "If Boris Johnson looked downbeat yesterday, that is because he realises that he has lost... [feedly]

Interesting take on Cameron's tactics

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Must-Read: Teebs: Brexit: "If Boris Johnson looked downbeat yesterday, that is because he realises that he has lost...
// Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong

Must-Read: Teebs: Brexit: "If Boris Johnson looked downbeat yesterday, that is because he realises that he has lost...

...Perhaps many Brexiters do not realise it yet, but they have actually lost, and it is all down to one man: David Cameron. With one fell swoop yesterday at 9:15 am, Cameron effectively annulled the referendum result, and simultaneously destroyed the political careers of Boris Johnson, Michael Gove and leading Brexiters who cost him so much anguish, not to mention his premiership.

How?

Throughout the campaign, Cameron had repeatedly said that a vote for leave would lead to triggering Article 50 straight away. Whether implicitly or explicitly, the image was clear: he would be giving that notice under Article 50 the morning after a vote to leave. Whether that was scaremongering or not is a bit moot now but, in the midst of the sentimental nautical references of his speech yesterday, he quietly abandoned that position and handed the responsibility over to his successor. And as the day wore on, the enormity of that step started to sink in: the markets, Sterling, Scotland, the Irish border, the Gibraltar border, the frontier at Calais, the need to continue compliance with all EU regulations for a free market, re-issuing passports, Brits abroad, EU citizens in Britain, the mountain of legislation to be torn up and rewritten... the list grew and grew. The referendum result is not binding. It is advisory. Parliament is not bound to commit itself in that same direction.

The Conservative party election that Cameron triggered will now have one question looming over it: will you, if elected as party leader, trigger the notice under Article 50?

Who will want to have the responsibility of all those ramifications and consequences on his/her head and shoulders?

Boris Johnson knew this yesterday, when he emerged subdued from his home and was even more subdued at the press conference. He has been out-maneouvered and check-mated.

If he runs for leadership of the party, and then fails to follow through on triggering Article 50, then he is finished. If he does not run and effectively abandons the field, then he is finished. If he runs, wins and pulls the UK out of the EU, then it will all be over--Scotland will break away, there will be upheaval in Ireland, a recession... broken trade agreements. Then he is also finished. Boris Johnson knows all of this. When he acts like the dumb blond it is just that: an act.

The Brexit leaders now have a result that they cannot use. For them, leadership of the Tory party has become a poison chalice.

When Boris Johnson said there was no need to trigger Article 50 straight away, what he really meant to say was 'never'. When Michael Gove went on and on about 'informal negotiations'... why? why not the formal ones straight away?... he also meant not triggering the formal departure. They both know what a formal demarche would mean: an irreversible step that neither of them is prepared to take.

All that remains is for someone to have the guts to stand up and say that Brexit is unachievable in reality without an enormous amount of pain and destruction, that cannot be borne. And David Cameron has put the onus of making that statement on the heads of the people who led the Brexit campaign.

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The Institutional Design of the Eurozone [feedly]

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Brad DeLong opposing the "establishment" view of Eurozone reforms...

The Institutional Design of the Eurozone
// Economist's View

Brad Delong (The VoxEU column is in the post below this one):

In Which I Call for Academic Scribblers and Funct Economists to Enter into Utopian Frenzy with Respect to the Institutional Design of the Eurozone: From my perspective, this piece at Vox.eu makes many too many bows to conventional-wisdom idols with not just feet but bodies and heads of clay. Thus I cannot sign on to it.

Eleven observations:

The situation is dire. The Eurozone as currently constituted has been a macroeconomic disaster.

The forecast that the authors make is that on the current policy path "economic health will eventually be restored, unemployment will decrease, and the periphery countries will regain competitiveness" is not a real forecast. I think that this is not a real forecast: if it were a real forecast, it would have a date attached, no?

Thus the framing of needed policy changes as things needed to improve "resiliency" just in case things do not "go as forecast" substantially underplays the seriousness of the problem. Fewer readers will pick up on the "things rarely go as forecast" to understand that the forecast is not a forecast.

The first and most obvious feature of the Eurozone is that its interest rates are at the zero lower bound and its economy lacks aggregate demand. A depressed economy at the zero lower bound needs fiscal expansion. If for some reason normal fiscal expansion is feared to be unwise by some holding veto points, the economy needs helicopter drops--backed up by strong commitments by central banks to raise reserve requirements to curb the velocity of outside money should it suddenly become higher rather than lower than desirable.

The bank regulatory system needs responsibility for banks' rescue to be transferred from national governments to the ESM now. Without that transfer, nation-level governments will continue to make the political calculation that letting supervisory and regulatory standards slide is the more attractive course. It may be true "this is the kind of political step that seems unlikely to be feasible in the near term". But that does not keep it from being needed now. The purpose of a document like this is to set out what is needed--not to reassure people by claiming that whatever is not politically possible now is not needed now.

Public debt is too high if and only if market interest rates now and forecast for the foreseeable future are about to undergo a rapid and massive jump upward. Right now g > r--which means that public debt is not too high but too low.

How governments should hedge against interest rate increases in a world where g > r is an interesting research question. The obvious route is simply to sell consols. Then, when the real consol rate is higher than the societal return on additional government expenditures, we can talk about what the target debt-to-GDP ratio should be and how to get there. But those who are unwilling to advocate the sale of consols as the obvious way to manage public debt risk have, as long as g > r, no standing to complain that public debts are too high--let alone to set out the proposition that public debt is too high as a self-evident truth.

A massively-underfunded ESM is not "the right institution to deal with [government debt] default". It is the wrong institution. It is worse than no institution at all, because it allows people to claim that there is a backstop when there is, in fact, no backstop.

The "structural reform" agenda is more-or-less orthogonal to the macroeconomic institution redesign agenda. To even hint that energy that would otherwise be devoted to macroeconomic institution design should be diverted to lobby for structural reform is in its essence a call to do less on macroeconomic institution redesign. And that strikes me as unhealthy.

Now I think that I do understand why the economists below--who are, by and large, among the best economists in the world in their wisdom and in their understanding of the European situation--have made the rhetorical choices that they have. They want to appeal to practical men, who believe they are exempt from any trace of utopian frenzy.

But if the Eurozone is to be a good thing for Europe rather than a millstone around the neck of the continent, I think that utopian frenzy is needed.

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Making the Eurozone More Resilient: What is Needed Now and What Can Wait? [feedly]

There are some heavy hitters in the intl financial and central bank intelligentsia below. These proposals are probably the ones now on the EU table for consideration....

Making the Eurozone More Resilient: What is Needed Now and What Can Wait?

http://economistsview.typepad.com/economistsview/2016/06/making-the-eurozone-more-resilient-what-is-needed-now-and-what-can-wait.html

Authors: Richard Baldwin, Charlie Bean, Thorsten Beck, Agnès Bénassy-Quéré, Olivier Blanchard, Peter Bofinger, Paul De Grauwe, Wouter den Haan, Barry Eichengreen, Lars Feld, Marcel Fratzscher, Francesco Giavazzi, Pierre-Olivier Gourinchas, Daniel Gros, Patrick Honohan, Sebnem Kalemli-Ozcan, Tommaso Monacelli, Elias Papaioannou, Paolo Pesenti, Christopher Pissarides, Guido Tabellini, Beatrice Weder di Mauro, Guntram Wolf, and Charles Wyplosz.

Making the Eurozone more resilient: What is needed now and what can wait?, VoxEU: The UK's choice to leave the EU was, we believe, a historic mistake. But the choice was made; we must now turn to damage control – especially when it comes to the euro.

The Eurozone is growing, albeit slowly. If all goes as forecast, economic health will eventually be restored, unemployment will decrease, and the periphery countries will regain competitiveness.

But things rarely go as forecast – as we were so forcefully reminded last week. Brexit was the latest – but certainly not the last – shock that will challenge the monetary union.

The question is: Is the Eurozone resilient enough to withstand the bad shocks that it is likely to face in the months and years to come?

For many observers, the answer is "no". To survive the next bad shock, they argue, Europe's monetary union needs major reform and deeper political integration. As such deeper integration is extremely difficult in today's political climate, pessimism is the order of the day.

We do not share this pessimism. The Eurozone's construction has surely followed a convoluted process, but the fundamental architecture is now in place. Yes, some measures are needed to strengthen this architecture. And yes, more ambitious steps would improve resilience further, but these will have to wait for a political breakthrough.

The purpose of this essay is to identify what needs to be done soon, and what would be good to do but can probably wait. To avoid the mind-numbing details that often cloud discussions of Eurozone reform, we paint our arguments with a broad brush. (We will follow up with further documents with much greater detail on specific reform proposals.)

On banks and the financial system

Think of a good financial architecture for the Eurozone as achieving two main objectives in coping with another bad shock: 1) reducing the risk of bank defaults; and 2) containing the broader economic effects when defaults do occur.

This architecture is largely built. Both supervision and regulation are now largely centralised. Supervision is improving and stress tests are becoming more credible with each iteration. The Single Resolution Mechanism is in place and private-sector bail-in rules have been defined. The Single Resolution Fund can provide some recapitalisation funds if and when needed. If they turn out not to be enough, the European Stability Mechanism (ESM) can, within the context of a macroeconomic adjustment programme, add more. In the longer term, a euro-wide deposit insurance scheme could improve resiliency, but this will take time.

So what more needs to be done soon? Mostly to make sure that the rules in place can be enforced. Italy provides two cases in point. First, non-performing loans have steadily increased and are carried on the books at prices substantially above market prices. Second, the Italian government has proven very reluctant to apply the bail-in rules. The credibility of the rules is at stake. Either they have to be applied, or credibly modified.

What are the measures that would be good to take, but can probably wait?

Diversifying the portfolios of banks so that there are more resilient to domestic shocks would clearly be desirable. The focus has been on decreasing the proportion of domestic sovereign bonds in banks' portfolios. This would be good, but domestic sovereign bonds represent a relatively small proportion of banks' portfolios. Decreasing banks' overexposure to domestic loans would also be an important step towards boosting resiliency. A different approach would be to transfer the responsibility for banks' rescue from national governments to the ESM. But this is the kind of political step that seems unlikely to be feasible in the near term.

On public finances

Public debt is high, even if, for the time being, low interest rates imply a manageable debt service. Just as for the financial system, a resilient public finance architecture needs to:  1) reduce the risk of default; and 2) contain the adverse effects of default, if it were to occur nevertheless.

On both counts, much remains to be done.

Reducing the risk of default is best achieved through a combination of good rules and market discipline. Neither is really in place. The accumulation of rules has made them unwieldy, unenforceable, and open to too many exceptions. They can and should be simplified. In most countries, the level of expenditure – rather than the deficit – is the main problem. High expenditure makes it difficult to raise taxes and balance the budget, leading to dangerous debt dynamics. Thus, a focus on expenditure rules, linking expenditure reduction to debt levels, appears to be one of the most promising routes. Market discipline, on the other hand, will not work if the holders of the debt do not know what will happen if and when default takes place. This takes us to the second objective.

The Eurozone has put in place the right institution to deal with default, namely the ESM. Like the IMF, the ESM can, under a programme, help a country adjust. In its current form however, the ESM falls short of what is needed. First, the ESM's 'firepower' is too small compared to the sort of shock-absorbing operations it may be called on to undertake in the case of a large Eurozone nation getting into debt trouble. Second, given its current decision-making procedures, markets cannot be sure that action will be taken promptly. Higher funding or higher leverage, and changes in governance such as replacing the requirement of unanimity by a more flexible one, are needed to make the ESM able to respond quickly and fully to a country in trouble. Third, the current structure is silent on who should negotiate a public debt restructuring in the extreme case where one was needed. Putting an explicit process in place should be a priority; the ESM is the natural place for it.

What other measures which would be good to have, but can probably wait? 

Initiatives to address the legacy of high public debt would bolster Eurozone resiliency and thus would be very useful. However, as low interest rates are likely for some time to come, debt service is manageable, and debt forecasts show that debt-to-GDP ratios will slowly decline (absent a bad shock). Since proposals for dealing with legacy national debts would require the sort of political willpower that seems in short supply for now, such plans cannot be realistically put on the 'do now' menu, even if they are may be necessary in the future.

Another set of measures would implement stronger risk sharing, and transfer schemes to further reduce the impact of domestic shocks on their own economy. Proposals run from euro bonds to fiscal transfer schemes for countries subject to bad shocks. These measures would make the Eurozone more resilient and thus may be desirable. But, equally clearly, they would require more fiscal and political integration than is realistic to assume at this point. We believe that the Eurozone can probably function without tighter fiscal integration at least for some time.

We end with two sets of remarks.

Solvency and liquidity

Whether it is with respect to banks or states, the two issues facing policymakers are how to deal with solvency and liquidity problems. We have argued that, when solvency is an issue, the ESM is the right structure to address it (assuming a public debt restructuring procedure is in place). With respect to liquidity, we believe that, in addition to the liquidity facilities of the ECB, which can address sudden stops on banks, the Outright Monetary Transactions (OMT) is the right structure to address sudden stops facing states. One step that could be taken soon is a clearer articulation of how to combine the two. This would clarify the role of the ECB, and eliminate a source of criticism about the allocation of roles between the ECB and other Eurozone structures such as the ESM. The resulting clarity would make it easier for markets and investors to be assured that Europe's monetary union could deal effectively with any future shocks.

Structural reforms

In any country, at any point, some pro-growth structural and institutional reforms are desirable. Is there a particularly strong argument for them in the case of the Eurozone? To some extent, yes. The institutional problems of the euro are made worse by low growth, and demographic change. If the structural and institutional reforms delivered higher growth, this would be good by itself – ignoring distribution effects – and it would allow for faster improvement in bank and state balance sheets.

Those specific structural reforms which allow for faster adjustment of competitiveness, be it through faster cost adjustment or faster reallocation, would also improve the functioning of the monetary union. Implementing such reform is a slow and difficult process, but necessary nonetheless. The Eurozone will never be a well-functioning monetary union until it is much more of an economic union as well.

We have stressed that actions need to be taken soon, while others are more long term, but the long-term questions do need to be discussed without delay.

Do you support this view?

Starting next week, we will open this column to endorsement by economists. Details to be posted on Monday.

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Dreaming of Brexit.

Globalization of capitalism and markets is an objective force that has no respect for nations, or any other barrier to commerce. The League of Nations, the United Nations, the bilateral and multilateral governmental and corporate infrastructures established by arms and diplomatic treaties and trade agreements since the second world war -- all trace the history of the world's efforts to peacefully resolve the spiraling contradictions of the past century; and prevent the alternatives: wars economic, commercial, martial, revolutionary, and terroristic.

I love Karl Marx's classic not-out-of-date-yet description of this process.

The bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form, was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.

By "objective" that I mean, for example, that nearly every life decision you make is shaped by a good or service or property you want to buy or want the money (universal commodity) to buy. The hammer shapes the hand. The opportunities that determine life for the majority of the worlds peoples, are necessarily shaped by opportunities arising or declining in GLOBAL markets.

It is not possible -- socially -- to refuse to participate in globalization without paying an ever increasing tariff, with interest! Over the years the expansion of trade in goods, capital, labor and services has generated tremendous wealth. But the gains from that trade, with few exceptions, have not been shared with working families. For giant multinational corporations, the "global" world is a world with few cops and lots of hiding places for ill-gotten treasure. If current trends continue, they will succeed eventually in reducing corporate taxes to zero all over the world by leveraging their control of investment dollars to nations with favorable (meaning always lower) tax rates.

In the US we see this in the sustained rape and violence by the Reagan-led ruling corporate factions on the New Deal and Great Society social contracts -- contracts which strove towards equity, if not equality. The result is a growing paralysis in politics of the center, the steady declines in labor's share of wealth relative to capital, the rise of both fascist and socialist movements, and sharply heightened tensions at many of the class, race, gender, nationality, religion crossroads of the emerging GLOBAL society.

Brexit is the stupid way of adapting, of rejecting the rip-offs MOST workers end up getting from globalization. I will lead to further poverty and unemployment. But maybe not so stupid, if there really is no other way to loudly say NO -- people will join the available shout. The wolf that bites off its own paw to escape a trap: If he had had fingers he might have found a way to release the trap -- but only teeth were available! Still, we end up with a weakened and crippled wolf.

Here is a political thought experiment. Imagine you are in a conversation, back in 2001, with Don Rumsfeld (secretary of Defense under Bush II and one of the architects of the Iraq war -- now termed the worst mistake in modern post WWII history).

"Don," you say: "Tell me why we're going to war in Iraq again."

"John, we can't fix the Middle East unless we seize some real estate and wield a much bigger stick in the whole area.It's a great adventure!"

"What would you say, Don, if I predicted the European Union being swallowed whole by the refugee migration and chaos from your "adventure"?

"Baloney", says Don

Problem is: Rumsfeld is not the ONLY one who would have said "baloney" to THAT prediction.

Capital has moved all over the world. Wherever it goes, labor follows. All nations will become multinational. Every global crisis can and will become a national crisis. Brexit was in critical ways a result of the tidal migration from the catastrophe of the Middle East, which has now, indeed, very likely swallowed the EU whole, as has Donald Trump swallowed the Republican party whole.

The current wave of global resistance to this legacy of globalization will continue until an international adjustment, or adjustments, capable of managing the currently unregulated globalization imbalances can emerge. Austerity is the doomed policy response of the retro-corporations and billionaires to this crisis. And as institutions, and associated economies, fail, armies formal and informal will come to the fore. More socialism and more equality and more internationalism is the enlightened policy response. This is a response that is a call, primarily, for a change in direction on inequality and austerity.

But, in the end, globalization (hopefully in overall more equitable forms) will, I wager, be stronger, and nations will be weaker, as the wisdom which generations only seem to gain from loss of blood, once again accrues to the victors.

While this piece focuses on the objective factors, its worth mentioning a near and dear subjective one. I count three GREAT campaigns, and leaders, of the Left in the United States in the post-WWII era: Martin Luther King, Jr, Jesse Jackson, and Bernie Sanders. I count the GREAT because they a) put millions of folks in the street; or b) got millions of votes -- on the elementary programs of higher incomes, greater equality and peace. All these campaigns were and are fully consistent with a socialist direction, but also entirely free of sectarian dogma. Had the same been possible to say for organized Left formations in the US, a more favorable ground of struggle might have been achieved before this looming collision of global forces, combined with destructive environmental "externalities", crashes up on us. Dr King proved poor people can be mobilized in a powerful, disciplined formations for equality. Jesse Jackson proved it was possible for peace, jobs and equality positions to have wide electoral appeal. Bernie Sanders proved it was possible to govern in this society along consistent democratic socialist principles in the 1980s in Vermont -- and took 12 million votes 35 years later explaining it to the nation.

Globalization is unstoppable. Even war will only cause a pause. But its shape and boundaries and direction are all subject to initiative. internationalism, jobs, equality , peace -- it works every where. Dump the dogma. Keep it simple. Keep it scientific. Focus on the money on the table. Do a Bernie. Say what you mean. Mean what you say. Solidarity.

John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, WSHC-Listen Live, Shepherd University

Sign UP HERE to get the Weekly Program Notes.

What We’re Writing, What We’re Reading [feedly]

What We're Writing, What We're Reading
http://triplecrisis.com/what-were-writing-what-were-reading-26/

What We're Writing

Bofeng Cai, Xin Bo, Lixiao Zhang, James K. Boyce, Yanshen Zhang, Yu Leif, Gearing carbon trading towards environmental co-benefits in China

Martin Khor, A toast to the right to development

Sunita Narain, Redefining gender issues and conservation

Matias Vernengo, On the Recent Productivity Slowdown (at the Rick Smith Show) (audio)

Tim Wise, Rules, Rights, and Resistance: The Battle Over TPP and TTIP – Session 3: Health and Food (video)

What We're Reading

Stop Austeridad, Ending austerity policies to open a new time in Europe

Prabhat Patnaik, The Phenomenon of Negative Interest Rates

Robert Pollin, The Green Growth Plan to Climate Stabilization

Triple Crisis welcomes your comments. Please share your thoughts below.

Triple Crisis is published by

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Brexit Meltdown (now with charts!) [feedly]

Brexit Meltdown (now with charts!)
http://ritholtz.com/2016/06/brexit-meltdown/

We haven't seen numbers like this since the financial crisis — although to be fair, these numbers bring us in the USA back to where we were on Monday, prior to the rally this past week; Europe seems to be getting punished to a much greater degree.

A few interesting charts worth sharing:

 

British Vote: London & Scotland "Stay," Most of England "Leave"

Source: Bloomberg

 

What Issues Mattered Most to Voters

Source:YouGov

 

Or the votes presented as a table:

Source: Fusion

 

Markets Around the World Fall between 4-15%

Click for up dated futures

Europe

 

US Futures Indicate 3-4% Lower Opening

Source: Bloomberg

 

Global Markets in Table format

Source: Bloomberg

 

Despite the Selloff, Brexit' Is No Lehman

Source: WSJ

 

But Currency Markets Have a 10-Sigma Movements

Source: Bloomberg

 

Polls forecast close race, but got it wrong

Source: Bloomberg

 

Safe Havens Attracting Risk Off Trade

Source: Bloomberg

 

British Pound back to levels not seen since 1985

Source: Washington Post

 

The "Leave" Camp Trusts No One

Source: Bloomberg

 

UK has benefited from the EU Membership

Source: FT

 

Younger Generation feels Old Folks Stuck it to them

Source: Fastcompany

 

Its not just the Brits: Most of Europe does not like the EU

Source: Slate

 

Brexit's First 100 Days: Chaos vs Damage Limitation

Source: Bloomberg

 

Foreign Ownership of UK government bonds = 26%; Germany and France > 50%

Source: Deutsche Bank

 

Does Scotland now try to leave the UK and rejoin the EU?

.
Source: BBC via Liz Ann Sonders

 

How Bad is this for Business in UK?

Source: FT

 

Although there are still many ties between UK and EU

Source: NYT

 

But the Slump in Pound = possible growth of tourist spending in Britain

Source: Gadfly

 

 

 

Some other links:

• A Bloomberg News primer on how Brexit's first 100 days promise chaos, fear and damage limitation.
• The Guardian outlines the aftermath of Brexit and considers theimplications for everyday life in the U.K.
• Articles on the implications of Brexit for the Europe Union by theTelegraph and theEconomist.
• London School of Economics papers estimate the economic consequences of Brexit and consider British options outside the EU.
• The U.K. Treasury considers the economic impact of Brexit.
• The Open Europe think tank offers recommendations for the U.K. post-Brexit.
• The Guardian: Is the Referendum Legally Binding?
• Brexit indicators and poll tracking from Bloomberg, plus a story truth-squadding the arguments.

The post Brexit Meltdown (now with charts!) appeared first on The Big Picture.

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Simon Wren-Lewis: Just how bad will Brexit be, and can it be undone? [feedly]

Just how bad will Brexit be, and can it be undone?
http://mainlymacro.blogspot.com/2016/06/just-how-bad-will-brexit-be-and-can-it.html

Mediamacro love their focus on 'the markets', and this leads to talk that makes Brexit sound like a major financial crisis. It almost certainly is not that.

Impact on the UK economy

At the heart of Brexit is an act of self-harm to the UK's trading industry (including, and perhaps especially, trade in services). But this is something that will evolve over the medium term as we gradually lose the benefits of the single market. It essentially means it will become more difficult for UK firms to sell stuff to the EU, which will only be partly compensated for by any additional difficulty for the EU to sell stuff in the UK. Calculating the size of this effect is an exercise in trade economics not macroeconomics (see herefor example). So it is not 'intellectual arrogance' to do this kind of analysis even if youthinkmacro models have been a failure over the last 40 years.

This decline in trade leads to a loss in productivity which makes UK citizens poorer over the medium term. It also means that the real value of sterling has to fall to make up for the fall in netexports. Other things being equal, this fall in sterling will happen immediately, as indeed it already has. This will make people poorer immediately, because imported goods cost more. But here the macroeconomics gets complicated. The hit to trade from leaving the single market will evolve gradually, but the fall in sterling is immediate. (The reason is something economists call UIP.) That means that trading firms might get a short term competitiveness boost, even though this will evaporate in the medium term. This may or may not be enough to compensate for the short term impact of rising prices on consumption spending.

Unfortunately that is not all that happens in the short term. Uncertainty about future arrangements will hold back investment, and it may also add to the depreciation in sterling. For this and other reasons the short term impact on aggregate demand is likely to be negative, although measuring its size is difficult. We then need to think about whether the MPC will raise or cut interest rates. The National Institute's analysisis very readable on all this.

Mediamacro will focus on the short term. But the short term involves complex macroeconomics, so the size of the hit from Brexit is as uncertain as macro always is. I have always thought the medium term hit to UK incomes was both more serious and less uncertain. 

Impact on the global economy

I was surprised at the extent of the negative global response to Brexit. After all, the direct impact of the UK's misfortune on the world economy will be pretty small. I think it reflects something I wroteyesterday: Brexit is perhaps the first major casualty of the political populism that has followed the financial crisis and austerity. The worry is that it may not be the last.

Political impact on UK

That a country can shoot its own economic foot is surprising but, as I explained above, not catastrophic. What worries me far more is the politics of it all. 75% of 18-24 year old voters wanted to remain in the EU. They are justifiably angry that the opportunities that the EU offered them have been taken away by the same generation that has increased their tuition fees and made house ownership an impossible dream. They, like many others, see their identity as being at the centre of Europe, not part of its political periphery. Scotland will not want to be ruled by an even more right wing government and be outside the EU. On the other side a large section of those who voted Leave did so on the basis of simple lies, and promises on which the campaign's leaders cannot deliver, like much reduced immigration and more money for the NHS. This group are going to get more angry when this becomes apparent, and UKIP will only get stronger as a result.

Can it be undone?

Although Boris Johnson might have initially wished that this referendum would secure him the Conservative Party leadership and negotiations leading to a second referendum, I cannot see the rest of the EU playing ball. It is also very difficult to see how the Conservative party and its MPs would allow him to do this without mass defections to UKIP.

But a second referendum would not be necessary if, as a result of Cameron's resignation, the UK fought a general election where the winning side explicitly campaigned not to invoke Article 50. This general election would become the second referendum.

For this to happen three rather difficult but not impossible things have to happen. The first is that the Labour leadership need to stop talking about 'respecting the will of the people' and focus on how the Leave side are already owning up to their lies and false promises. The second, and perhaps most difficult, is that Labour need to form a united front on the basis of a Remain ticket, involving the LibDems, Greens and SNP. This is the only way the Conservatives and most of the tabloid press will be defeated. Third, the new Conservative leader has to be forced to hold a general election before Article 50 is invoked.

Difficult, but not impossible. What is impossible is to try and remove Corbyn on the basis that he helped lose the referendum, for reasons I have explained before. In terms of those who should be blamed for the referendum result (Cameron, Osborne, Johnson, the tabloids, the BBC ….), Corbyn's role is marginal at best.

Could you persuade Corbyn, Farron and Sturgeon to form an anti-Tory, pro-Remain alliance? Right now, as the horror of the Leave vote and a Johnson led Tory government become apparent, I think many party members could be convinced to do so, and that might put enough pressure on their leaders. It is, as far as I can see at the moment, the only way that Brexit, a right wing government led by our own versionof Donald Trump, and perhaps the break up of the UK can be avoided.   

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