Advertise On EU-Digest

Anual Advertising Rates

7/4/16

Britain: Brexit: The Day Britain Entered the Maelstrom - by Thomas I. Palley,

In years to come, the Brexit referendum may come to be seen as the day we entered the maelstrom that now promises enormous destruction.

The immediate consequence looks to be a possible financial crisis, but even if that is avoided the other costs of Brexit will not pass us by.

The European economy was already on the outer circle of the maelstrom. Brexit has swept it into the center. This accelerates the process whereby social alienation and bad economic outcomes produce bad political outcomes.

In turn, bad political outcomes produce worsened economic outcomes and further social alienation.

The leading edge of events will be financial markets. Even if an immediate financial bloodbath is contained, the reasonable expectation is for significant downside turbulence over the coming months that will ripple into the real economy.

Moreover, a bloodbath now would not be a panic. Instead, it can be rationally justified by the economic and political outlook and the fact that asset markets were already richly valued.

British financial markets and the British economy will be the epicenter. The shock to London’s stock market will hit wealth and household confidence, negatively impacting consumer spending and the UK real economy.

Britain’s real estate market (especially London) was already highly priced. It is now very vulnerable to reduced local and foreign buying.

British banks are financed in sterling. A lower sterling exchange rate has unpredictable negative implications for them and their counter-parties.

Business will cut back further on investment in the UK because business dislikes uncertainty. Big ticket investments will be placed on hold until the status of the UK’s access to European markets is clarified.

All these impacts will radiate outward, hitting other economies, including the U.S. economy.
Read more: Brexit: The Day We Entered the Maelstrom - The Globalist

No comments: