- Wikimedia Commons
Albert Edwards is bullish on Brexit.
While Edwards did not take an official position on the outcome of the vote by UK citizens on whether to remain or leave the European Union, he said he believed that the devaluation of the British pound following a vote to leave the EU would be beneficial.
“Yes, of course a fall in sterling increases import prices and squeezes household real incomes, but the booming profits companies enjoy from a weaker sterling should generate a virtuous wage price spiral and take us away from the deflationary abyss that awaits all developed economies in the next recession,” Edwards wrote in a note to clients Wednesday.
Edwards is of the opinion that all major economies are headed for a deflationary period of low growth, similar to what Japan has experienced over the last few decades. He calls this his “Ice Age” thesis. Thus, the devaluation of the currency would induce inflation that can combat, for a time, this deflationary phenomenon and help keep the UK economy from the foul fate of the rest of developed world.
Edwards agreed with hedge-fund giant George Soros‘ opinion that the possible ramifications are similar to that of the “Black Wednesday” devaluation of the pound in 1992 after the UK government pulled the pound from the European Rate Mechanism, a proto-euro of sorts.
While Soros used the comparison as a warning, Edwards saw it as a positive opportunity for the UK to rebalance its economy – as he said: “It was not a disaster.” Here’s Edwards (emphasis added):
“After this much-feared event, the UK economy actually recovered strongly and unemployment fell sharply. In a current environment where central banks and governments have failed to generate a strong enough economic recovery to normalize interest rates amid persistent deflationary pressures, one would have thought a substantial decline in ones currency would be welcomed, for that is one way to inject a modicum of inflation back into the economic system. But even in the event of a Remain vote, sterling is in trouble.”
- Societe Generale
Edwards is also skeptical of the “conspiracy of gloom” surrounding a possible Brexit, casting doubt on the forecasts – from the International Monetary Fund, the Organization for Economic Cooperation and Development, the Bank of England, and the UK Treasury – of a recession following a Leave vote.
“That is indeed possible, but it must be said that all of these institutions have been extremely poor at forecasting even one year ahead, let alone forecasting recessions or a crisis,” he wrote. “If they are right, and they might well be, it would be a first.”
It’s not all peaches and cream from Edwards, however – he thinks that the UK’s economy is still in trouble regardless of the Brexit outcome. In his opinion, the British economy, which he calls “a ticking time bomb,” has too much public-sector debt, which will eventually come back to haunt the country.
Regardless, Edwards seems to favor the short-term economic effect of a Brexit.
“I would be much more positive about the immediate post-Brexit economic outlook than Mr. Soros,” he wrote.
More information on the Brexit referendum is below:
- Business Insider