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posted on 09 July 2015

Epoch of Belief, Epoch of Incredulity (25): 1215 and All That

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Coming out of G-7, David Cameron hinted - [i] that an Anglo Saxon agenda, under the banner of political and corporate best practice, will soon become a Crusade. Thus it was that he then travelled to Runnymede for inspiration and the moral justification to go forth into the world and deliver. The Magna Carta stands in stark contrast to the undemocratic EU Constitution that enshrines unelected despotism; and it was the PM's intention to use this sharp contrast to good effect.

The Prime Minister then continued to opine how Magna Carta had changed the world for the better; thereby hinting at the new global agenda. In relation to this global agenda it was telling that Attorney General Loretta Lynch, the American lady who has just collared Sepp Blatter, also eulogised at the gathering. Cameron then used the event to suggest replacing the UK Human Rights Act with the Tories new Bill of Rights - [ii]; thus framing the Tories Bill as something more in line with the original Magna Carta precedent.

His mendacity then continued, when he tried to push through the EU Referendum on the same day in May 2016 when local government elections are to be held. The logic behind the mendacity is that there are likely to be more EU Yes voters out on the same day as the local elections. The Tory Barons however put pay to this mendacious plan, thus giving Cameron his second European defeat in as many weeks - [iii].

Cameron may however have just peeled the biggest banana skin of his political career on which to slip when true Englishmen demand a referendum on EU membership and then vote No following the eight hundred year old tradition of Magna Carta. Said true Englishmen will no doubt have also celebrated the bicentenary of Waterloo in the same week as the Magna Carta junket - failing to notice that Waterloo was actually a triumph of European cooperation over despotism. Euroskeptics have never had any problems with their mixed metaphors after all.

The Bank of England's MPC minutes - [iv] gave holders of Sterling something to celebrate when it signalled that the deflationary trends have reversed. Employment and wage data also showed reasons to be positive on the Pound and the expectations for higher interest rates.

Angela Merkel peeled another slippery banana skin, for Cameron to step on, when she opined that she is in favour of a "serious and conscientious" debate about his demands for a European overhaul - [v]. Cameron's hopes for some kind of reform can therefore be sustained; even though there is no firm basis to do anything other than to talk about what he proposes.

Drilling down through the UK employment data, one finds the seeds of Euroskepticism have been liberally sprinkled since this century began; with evidence that 75% of all UK jobs created since 2000 have gone to non-Britons. This cause of Euroskepticism is also keeping a lid on wages and hence interest rates. The inference therefore is that the Bank of England would have to seriously raise interest rates if the Brexit occurred; first to support Sterling and second to suppress higher inflation.

This Euroskeptic banana skin is however insignificant in comparison to the much larger one involving the political executive, which has replaced the hereditary despotic monarchs, systematically abusing children and the underprivileged in the Big Society. Perhaps a new Magna Carta should be codified to define the behaviour of politicians; although this is no doubt viewed as heresy verging on treason by those in Westminster.

A press witch-hunt and a few showcase celebrity trials of some other "Useful Idiots" should suffice.

On the eve of Bilderberg 2015, the IMF and hence the Anglo Saxon delegation walked away from the negotiating table with Greece - [vi]. Jeroen Dijsselbloem opined that no deal is possible without the IMF - [vii]. It is unclear if the IMF's move was intended to accelerate the Grexit, however Jean-Claude Juncker has always hinted at some sinister Anglo Saxon plot to destroy the European Project - [viii]; so the jury must remain out on this one.

Just to add some context, the Frakfurter Allgemeine Zeitung suggested that sources close to the negotiations had suggested that the IMF had deliberately scuppered a deal that Juncker had crafted - [ix]. Over the weekend, at the beginning of last week, the EU's own attempts to create a compromise failed - [x]. Greece was therefore left staring the Grexit in the face.

Deputy German Finance Minister Sigmar Gabriel, signalled that the Grexit was now the consensus view from Germany - [xi]. Sentiment in Greece however still wishes to keep the Euro, even if it still does not want to pay its creditors - [xii]. Tsipras then reciprocated, with great alacrity, when he said that he would take full responsibility for the Grexit outcome - [xiii]. Having demonstrated his anti-austerity patriotic bona fides, Tsipras therefore has room to take on board the majority opinion that is still in favour of Euro retention.

The door is therefore open to a compromise, which preserves the Euro's sanctity for both Greeks and the Eurozone in general. Just to remind all of what was at stake, Mario Draghi urged all sides back to the negotiating table; with the caveat that the ball was in Greece's court - [xiv]. Alexis Tsipras however showed no inclination to return to the table and offered no new proposals - [xv].

He does however have a strong personal incentive to return to the table, based on his wife's ultimatum - [xvi] to divorce him if he makes a bad deal. Going into the weekend the finger pointing started again, with Varoufakis openly accusing the Greek central bank of colluding with the Troika to accelerate capital flight in order to force the country to concede - [xvii]. Despite all the Sturm und Drang, Tsipras continued to opine that a deal remains within reach by Monday.

When the European Union Court of Justice opined that Draghi's Open Market Transactions (OMT) of 2012 did not break the edict on deficit monetization - [xviii], the traditional solution of throwing more money at the unfolding crisis conveniently came into view. Having been vindicated by the lawmakers, the ECB was therefore able to mobilise its emergency funding resources in order to give credit lifelines to Greek banks which were facing runs on their deposit bases - [xix]. Whilst Draghi's bazooka was front-loaded in anticipation of further contagion, Merkel continued to hold out hopes for a final compromise deal.

But even her stance has made a quantum shift, towards the Grexit, following the opinion polls in Germany. Merkel is now having a Ledru-Rollin moment, in which she is the leader of the people and must therefore follow them in order to be re-elected in 2017. Whilst holding out hope for a deal, she made it clear that it will be conditional upon the good behaviour of Tsipras - [xx]. There will therefore be no political deal at any economic cost. Merkel is converging on Schaeuble's economic point of no return.

Rumour has it that Bilderberg 2015 at Interalpen discussed the issue of capital controls and the banning of all cash transactions. This is interesting, because capital controls were also being lined up for Greece simultaneously - [xxi]. Since nothing is written at Bilderberg, one can only understand what was said by the reactions of the attendees and their intended victims. Clearly President Putin was such an intended victim, because he has swiftly responded to provocatively placed NATO ordnance on his border by committing to build forty more nuclear weapons - [xxii]. He then followed up with a well-timed left hook, as the Greek debt situation unravelled, by inking a new gas pipeline deal between the two nations - [xxiii].

Governor Kuroda brought some brief respite to the slide in the Yen last week, when he and his go-to guys to place leaks started verbally intervening to support the Yen. These efforts seem to have angered Prime Minister Abe, to such an extent that Kuroda actually rescinded his comments - [xxiv]. Kuroda is tenacious and nobody's fool however. Whilst conceding to Abe, he also prepared himself for the circumspection of the latest FOMC announcement in respect to the timing of interest rate increases. Given the precarious backdrop of the Grexit and Christine Lagarde's demands, that the Fed wait until 2016 to increase interest rates, Kuroda played the shortened odds; that the Fed's FOMC interest rate signal would not boost the US Dollar further. Given the situation in Greece, risk aversion could even see the Yen boosted.

Kuroda as always plays a mean hand. His new strategy is to sound equivocal on the level of the Yen, without openly contradicting the Abe government by saying that it is overvalued. Thus it was last week that he opined that he does not know what the correct level for the Yen should be, nor if a stronger or weaker Yen is good for the economy - [xxv]. The level of over-confidence bias in the minds of the Yen bears is now being put to the test. Just to make things even more painful for the Yen bears, Kuroda is moving the BOJ into becoming more transparent - [xxvi], by adopting the communication rubric of the Fed. This will allow his equivocation on the level of the Yen to become an issue of greater focus for the capital markets.

Janet Yellen dutifully obliged Kuroda, with the kind of data dependent circumspection in the FOMC announcement that Kuroda had anticipated, causing speculators to revisit and rethink the timing and trajectory of interest rate increases - [xxvii].

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