George Soros’s name is already forever intertwined with the pound sterling. But the great hedge fund manager who forced the pound out of the European exchange rate mechanism in 1992 has also provided the concepts necessary to explain the awkward dance between the markets and politics, as the British political establishment contemplates whether there is a way to step back from exiting the EU.
Back in 2008, on the eve of the financial crisis, Soros published a theory of markets that owed more to philosophy than to economics or finance. His central idea was “reflexivity” — the ability of markets to alter and create their own reality. For example, fear that rates will fall leads to lower bond yields, and fulfils the markets’ own prophecy, with real effects on the economy.
The last week was dominated by reflexivity, and the chances are that the next chapter of the drama will be as well.