How we are jeopardizing the entire financial system with populism?
As a macro trader and observer, I look back for signs and signals for specific periods in our lifetime. With these data, events, and signals I can tell what is likely to occur in our lifetime.
More importantly, I can take advantage of these observations to maximize returns for my investors.
We are experiencing a unique time, and most governments are heavily influenced by populism. Politicians are afraid of losing elections; therefore they will satisfy the people with more aggressive economic policies. Instead of questioning the details of what the government will do, voters care more about choosing sides and causes, not the system itself.
Like what Ray Dalio has said in one interview.
We have populism which is you have to get on one side or the other so when the causes that people are behind are more important to them than the system. The SYSTEM IS IN JEOPARDY.
He is right about our current situation.
BREXIT is the perfect case telling how populism will impact our system.
BREXIT was raised because of the desire of the British people to regain control of immigration policy and reclaim sovereignty from international institutions. In reality, Britain heavily benefits from trading with the EU system.
Apart from what the Brexit believers would like to tell them how EU system will end up costing fortune of British tax payers. Instead of focusing how to properly boost the efficiency and profitability of UK economy, politicians chose an opposite path, and this policy is clearly driven by the raise of populism.
The simple logic behind the BREXIT problem:
You won’t be rich by saving up money, you will be rich by being resourceful, productive and competitive.
Try cutting off budgets from staying in EU and invest further in NHS does not make Britain a stronger economy system, it will only creates more fragility and will clearly create more burden for British economy system.
Here are some of the key benefits for UK to remain in EU.
- Lower cost and higher efficiency in manufacturing business.
Many entrepreneurs will agree that EU system provides lower price of energy and raw materials since there is no tax involved. Especially for the car industry, the majority of local parts supply are tied with EU import.
2. EU provides a significantly larger market and demand.
British product can be sold to different members of EU, this provides a larger demand other than just selling products to domestic market. UK has very weak market when it chose not to open up market for Europe in 1960s.
3. EU system lowers the labour costs and create competitiveness.
Open free trade with EU is forcing inefficient companies and business to leave and better companies to stay. By allowing free trades and liberalism in the market it boosts the EU economy system as whole.
Unfortunately, the populism and trending biases of having a fantasy of an independent and strong UK empire has doomed the entire foundation of UK economy system.
The status quo:
- UK sterling is going to trade much volatile and weaker.
- UK economy is suffering the same level of hyperinflation as EU.
- International investors will gradually lose confidence of UK bonds and governments.
- The expensive NHS system will be difficult to afford and could creates a significant deficit problem.
- Higher energy/labour/transport/material costs and potentially higher tax to compensate government deficits.
- Weaker financial system since the current UK policy remain weak and uncertain and this will create potential capital outflow of UK.
- A weaker trade system without EU support.
The bottom line:
UK government is facing one of the largest challenge in this century.
They have many problems to take care of: weaker economy growth, larger amount of debts, higher deficits and increasing burden of social health care system.
The government should either find solutions to trade with EU members or UK is going to have a shrinking market share and much lower GDP growth in the near future.
