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An evening with Gordon Brown

October 9, 2011

Had the chance to meet with Gordon Brown this evening. He is a very intelligent man, and in my mind, a top notch politician. He can answer any question, even my attempted grilling about Britain and France’s converging militaries, with aplomb. The main topic of discussion this evening was the future of the Eurozone and what can rescue the greater global economy from increasing risk of “Japan Syndrome.”

Mr. Brown’s point was essentially this: the US and European financial meltdowns have reversed globalization and nations are now regressing into more protectionist policies. We can see this in Switzerland’s decision to put in a floor against the euro, and to a lesser extent similar currency policies in Japan. Protectionist policies like this are only the beginning and will lead to stagnation and potentially even war in the future.

Avoiding a regression back to the era of isolationism hinges on China. If China will allow the yuan to increase in value and begin importing more from US, Europe, and other emerging markets, this will lubricate the global economy. Sounds like a tall order to me. What incentive does China have to do this? An IOU note from Europe? Mr. Brown also suggested the IMF use its $250 billion of “yet-to-be allocated funds” combined with the $500 billion or so of rainy day funds held by the ECB to soften the Greek-initiated fall of the Eurozone. This, in his estimation, will give Europe another year for politicians to get their acts together. I personally doubt European politicians will ever get it together with the Euro, as sovereign governments with independent fiscal policies are not compatible with a common currency. We have been seeing this for the last two years and now the river is finally running dry.

The larger macro play here is get short or sell the Euro. More bailouts = more money printed. Greece exiting the Euro and going to Drachmas or whatever = market inundated with Greece’s old Euros (to be laundered).

Love this picture

Gods and politicians

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