The Brexit vote is this Thursday, so nothing else matters until then. And
polls, just to make it even more stressful, have it neck and neck. See Brexit
poll tracker back to even at 44-44.
While we're waiting, let's consider some related questions:
Would leaving the EU be good or bad for Britain in the short run? A
lot of definite-sounding opinion is being tossed around on this count -- see 'Negative
and substantial' impact on UK if it leaves EU: IMF -- but it's important
to take such things with a grain of salt. No one has the slightest idea how
such a divorce would go and if its immediate impact would be positive or negative.
Government agencies in particular view official statements as a tool for herding
the masses in the proper direction. But they demonstrably suck at actual prediction.
Go back through the history of Fed or IMF or ECB or Congressional Budget Office
reports -- here's classic Bernanke
on the previous decade's housing bubble -- and you'll see that their predictions
aren't even random: Because their purpose is to shape public opinion rather
than express truth, they're right even less than half the time. So question
number one can only be answered with a shrug and a "who knows?"
Would Brexit be a big deal in the long run? Here it's easier to speculate,
because market forces come into play. If one country leaves the EU then several
more might do so in short order, and that might unravel the whole organization.
This would produce ongoing chaos as each new election risks installing an anti-EU
government and the Brexit drama is repeated continuously -- though with new
names like Frexit and Sprexit. The resulting uncertainty would be bad for the
value of financial assets that depend on faith in governments and central banks.
All those negative interest rate bonds would behave like junk, dropping to
70 cents on the dollar as buyers demand some return to go with their risk.
Equities, which trade in part with reference to bond yields, would probably
also behave like junk, falling in response to uncertainty instead of rising
on the expectation of central bank salvation. So bad in the long run for the
current irredeemably corrupt financial system -- which is to say probably good
for most regular people.
Will the Brexit vote count be fair? Almost certainly not. This is not
a gratuitous jab the honesty of today's officials but a recognition of historical
fact. When elections are tight, they tend to be stolen by the side with the
most efficiently-corrupt machine. JFK's win over Nixon in 1960 thanks to suspiciously
favorable results from Mayor Daley's Chicago is still hotly debated. In Robert
Caro's biography
of LBJ the author asserts (with copious attribution) that Johnson stole
literally all his elections prior to the presidency (in his only losing run
his opponent simply stole more votes). The recent
Austrian election in which a barely-acceptable-to-the-establishment Green
beat a totally-unacceptable nationalist is currently in court over allegations
of fraud.
With the advent of electronic voting machines that -- get this -- leave no
paper trail and so can't be verified, it's possible that there will never again
be a completely fair election. And with Brexit, which European elites really,
really don't want to see happen, it would be a shock if they go down without
a very dirty fight.
Will Bexit matter to the euro? However the UK vote goes, the genii
is out of the bottle. Other nationalist parties are gaining strength on the
continent and will demand exit votes of their own. Especially in countries
having trouble living with a relatively strong euro, this is a given in the
next few years. How will the EU head this off? Only one way: devalue the euro
aggressively to make life easier for Italy, Portugal, Spain, Greece, et al.
But how, when most EU interest rates are near or below zero and governments
have already accumulated record amounts of debt (and when populations are aging
out of the workforce and immigrants cause more problems than they solve) does
the ECB devalue the euro? Now we've arrived at the heart of the matter, which
is the shape of the next stage of experimental monetary policy. Something amazing
this way comes.
Would a plunging euro equal a soaring dollar? Maybe. Since in a fiat
currency world national currencies are valued against each other, when one
plunges others by definition go up. This might cause US stocks, bonds, and
real estate to rise for a while, but at a huge cost. The too-strong dollar
has already pushed domestic corporations into an earnings recession. An even
stronger dollar would crush corporate profitability, and there's no historical
instance of a healthy economy in which the private sector is making less money
each year.
So Bexit and its aftermath are just symptoms of a deeper problem. To paraphrase
an old saying about inflation, today's political turmoil is always and everywhere
a monetary phenomenon. We've borrowed too much money and now nothing works
any more. Electoral turmoil is simply what you get at the tail end of an epic
debt binge. In that sense it doesn't matter (within reason) who ends up being
prime minister, president, or premier unless they figure out a solution for
their balance sheets. And that -- assuming it's even possible -- won't be quick
or easy.
